[Senate Hearing 117-848]
[From the U.S. Government Publishing Office]
S. Hrg. 117-848
THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
OVERSIGHT ON THE MONETARY POLICY REPORT TO CONGRESS PURSU-
ANT TO THE FULL EMPLOYMENT AND BALANCED GROWTH ACT OF 1978
__________
JUNE 22, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https://www.govinfo.gov/
__________
U.S. GOVERNMENT PUBLISHING OFFICE
55-794 PDF WASHINGTON : 2024
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL G. WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
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WEDNESDAY, JUNE 22, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 47
Opening statements, comments, or prepared statements of:
Senator Tillis............................................... 4
WITNESS
Jerome H. Powell, Chairman, Board of Governors of the Federal
Reserve System................................................. 6
Prepared statement........................................... 48
Responses to written questions of:
Chairman Brown........................................... 50
Senator Toomey........................................... 53
Senator Warren........................................... 62
Senator Van Hollen....................................... 65
Senator Rounds........................................... 66
Senator Tillis........................................... 67
Senator Moran............................................ 69
Senator Daines........................................... 71
Additional Material Supplied for the Record
Monetary Policy Report to the Congress dated June 17, 2022....... 75
(iii)
THE SEMIANNUAL MONETARY POLICY REPORT TO CONGRESS
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WEDNESDAY, JUNE 22, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:30 a.m., via Webex and in room 216,
Hart Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Banking, Housing, and Urban
Affairs Committee will come to order.
Today's hearing is in hybrid format. Our witness, of
course, is in person, but Members have the option to appear
either way.
We welcome the Chair of the Federal Reserve. He has
recently been confirmed for a second term, and this is his
first hearing since then.
Today we have seen the fastest job growth in decades,
faster even than China's, and the lowest unemployment levels in
50 years. But when Americans see the price of gas and groceries
and rent going up, week after week, available jobs and long-
awaited wage gains do not mean as much and do not go as far.
American families have been through enough the past 2
years. But for most people, it is not just the past 2 years
that have been tough. Our economy has not worked for most
Americans for far too long.
Whether it is war or disease or financial crisis or,
sweeping over all of it, the march of globalization, workers
and their families always bear the biggest burden, whether it
is in the form of higher prices or lost jobs or low wages or
devastation to their community, or all of the above.
It is not inevitable. The economy is not physics. The ghost
of Adam Smith would not recognize America today. There is no
invisible hand of the market.
When prices go up, it is because someone made a choice to
raise them.
In corporate board rooms, when supply chains slow down or
input costs go up or resources become scarce, executives make
decisions: Do we cut back on bonuses? Do we rethink our stock
buyback plan? Do we forgo executive raises this year? Do we
post quarterly profits that are still higher than last year,
but maybe not quite as high as analysts thought they could be?
Or do we raise prices, and foist all the negative consequences
of world events onto the people who can least afford them?
We know what, in this country, most corporations do. They
make the same choice they have always made, no matter the
economic conditions of the moment. Most of these executives,
they are not bad people. They are just doing their jobs, they
tell us.
It is the Wall Street system. These executives have to post
profit increases for their shareholders, quarter after quarter
after quarter, the consequences for everything else be damned,
and everyone else be damned.
It is why, for decades, Wall Street has rewarded the
companies that squeeze their workers the hardest, companies
that cut wages and retirement benefits, and then cut corners on
worker safety and on consumer protection, just to make their
stock prices go up.
It is why too many companies failed to invest in their
workers or their products.
It is why companies moved manufacturing overseas, and then
neglected the supply chains that have been crippled during the
pandemic, contributing mightily to inflation.
It is why big corporations--Amazon and Starbucks--why they
bust unions.
It is why oil and gas companies would rather charge higher
prices than increase supply to meet demand.
We are not witnessing traditional inflation. We are
watching Russia and OPEC drive up prices and American energy
companies engage in war-time profiteering.
At the root of the higher prices and the empty shelves is
the same problem that has been shipping jobs overseas and
keeping wages low for decades, from Nevada to Massachusetts to
Ohio: corporate power and concentration reaching into every
industry and market, into every corner of the economy. Our
economy does not have to be a zero-sum game where Wall Street
wins and everyone else loses. We can create an economy that
reflects our values and works for everyone.
We passed the American Rescue Plan, including the Child Tax
Credit, the biggest tax cut for working families ever. And
despite what naysayers claim, of course it was not the cause of
inflation. For the American families that I talk to, it
empowered them to keep up with the cost of raising children.
We passed the bipartisan infrastructure bill, a long-term
invest in economic growth that creates more jobs, strengthens
our supply chains, and improves our bridges and roads and
public transit.
Last week, President Biden signed the bipartisan Ocean
Shipping Reform Act into law, bringing down ocean shipping
supply chain costs.
We need to build on these successes to build an economy
that rewards work, making things in America. We should pass our
Supply Chain Resiliency Act and begin to bring manufacturing
back to our country.
We should bring down the cost of prescription drugs and
housing and childcare and elder care and other costs that have
been rising for decades. We need to pass the Protecting the
Right to Organize Act, to empower workers in their workplace
and our economy so they actually get their fair share. And we
need to crack down on corporate concentration and
consolidation. Fair competition is good for workers, consumers,
and Main Street businesses, and it is a core American value.
That is how we bring costs down and ensure that workers do
not always pay the price for powerful people's bad decisions,
whether it is a dictator in Eastern Europe or a Wall Street
executive.
In a truly fair economy, people do not have to choose
between two bad options--low wages or high prices. No one likes
inflation, and people also want good jobs that pay a living
wage. Americans want to work, and they want to work with
dignity. That is central to the functioning of our economy, and
as Chair Powell knows, it is part of the Fed's mandate.
We must continue to empower workers and strengthen the
labor market. Wages are clearly not responsible for inflation
now.
We cannot forget that almost 6 million people are still
looking for work, actual workers behind the numbers whose
livelihoods are directly affected by the decisions the Fed
makes. And as interest rates rise and financial stability risks
increase, it is even more important to keep a close watch on
the biggest banks, so that excessive risk-taking does not
create even more problems.
Banks must have enough capital to withstand a crisis. They
must serve their communities, not just enrich themselves with
stock buybacks and exorbitant executive pay. And mergers must
benefit the local community, not just shareholders.
We have seen too much evidence of big Wall Street banks
behaving badly: shunning small businesses, still raking in
billions in overdraft fees, discriminating all too often
against Black and Brown borrowers.
Chair Powell, you must also ensure we have a strong payment
system that works for Main Street banks and consumers, so that
people do not feel like the only option is a risky and
unregulated alternative financial system, backed by nothing but
empty promises.
The thousands of proxy currencies, like stablecoins, and
other digital assets, that promise transparency and democracy
are missing one thing: they are not backed by the full faith
and credit of the United States of America.
The Federal Reserve, our Nation's central bank, must use
its authorities to protect consumers and the financial system
from these risks. And you, Mr. Chair, must ensure that the Fed
has the highest ethical standards. After former Fed officials
profited off of their positions in last year's stock trading
scandal, it is up to you to restore the American people's, and
us, to restore the American people's trust in this institution
that is critical for a healthy economy.
I was encouraged when you updated the Fed's policies, but
we need rules that have the force of law. That is why we need
to pass my Ban Conflicted Trading at the Fed Act.
As Chair of the Federal Reserve, you have an important role
to play to make sure our economy works for everyone, not just
those at the top. I urge you to remember the millions of
working Americans who are counting on you.
I will turn to today's Ranking Member, Mr. Tillis, from
North Carolina, and then Chair Powell. And the first questioner
will be Senator Warren, who has another engagement, plus it is
her birthday. So every time it is her birthday she gets to go
first if she asks. And I have to introduce a judicial candidate
in Judiciary so I may have to step out.
Senator Kennedy. It is my birthday, too.
Senator Warren. It is not.
Chairman Brown. Is it your 80th birthday today, Senator
Kennedy?
Senator Tillis.
OPENING STATEMENT OF SENATOR THOM TILLIS
Senator Tillis. Thank you, Mr. Chairman, and welcome
Chairman Powell. Congratulations on your confirmation. I was
proud to support it.
When you testified before this Committee in March,
inflation was at a 40-year high, and the Federal Reserve
regional banks were stonewalling reasonable requests for
information about their activities from Banking Republicans.
Unfortunately, neither situation has improved.
Let us begin with inflation. Inflation is even higher now
than when we saw you in March, with CPI up 8.6 percent per
year, a new 40-year high. Getting inflation under control is
critical because American families are being squeezed every day
by rising prices and mounting costs.
Also critical to any discussion we have on inflation is an
understanding of what served to turbo-charge it.
In March of 2021, the U.S. economy, as measured by a range
of economic factors, was well on its way to recovery.
Unemployment was at 6 percent, down from its pandemic worst of
nearly 15 percent, and continuing to make steady monthly
improvements toward a tighter labor market. In fact, 18 States
already had unemployment rates below 5 percent, the often-cited
threshold to identify a labor market that is almost at full
capacity.
Likewise, consumer spending had recovered, and it was
actually above prepandemic levels, at 4.5 percent. And the
personal savings rate had return by 80 percent to its
prepandemic state, indicating Americans were capable and
willing to spend. Considering these factors, and many others,
CBO projected the United States would return to pre-COVID
economic levels and GDP output by mid-2021, just a couple
months away.
At this same time, the Biden administration was aware of
one major area of concern, the disruption of supply chains. In
fact, President Biden issued a February 2021 Executive order to
review U.S. supply chains, in part acknowledging they were
already straining to meet rising consumer demand.
Yet despite these facts--a soon-to-be recovered economy,
strong consumer spending, and known limitations on the supply
side due to the documented supply chain issues--the Biden
administration and congressional Democrats still somehow
considered it responsible to ram through a partisan $1.9
trillion spending spree. It is little wonder how this catalyzed
the inflation we see today.
And do not just take my word for it. Just last week,
economists at Morgan Stanley blamed the 40-year high inflation
on--this is a quote from their report--``excess fiscal stimulus
. . . particularly the last $1.9 trillion package at the end of
March 2021,'' adding ``this is what turbocharged consumption
and drove inflation to 40-year highs.''
Considering this damning assessment of the last
reconciliation package, I can only add that any efforts to
revive Democrats' currently stalled tax and spending
legislation would no doubt worsen our economic condition.
Regarding the Fed specifically, though I am pleased you
have begun taking the drastic action necessary to right the
U.S. economy, these actions are long-overdue and monetary
policy remains too loose. CPI inflation now stands at 8.6
percent per year, a new 40-year high, but the Fed funds rate
sits at only 1.6 percent. According to the Fed's semiannual
report, the rate should be over 6 percent under the Taylor
rule.
This disparity indicates not only the lengths the Fed has
yet to go to normalize monetary policy, but also the fact that
the Fed has largely boxed itself into a menu of purely reactive
policy measures. Unless the Fed works quickly to move away from
their discretion-based monetary policy approach that has
remained consistently well behind the curve, I am concerned the
Fed will lose its credibility to effectively manage the
national economic situation.
Regarding congressional oversight of the Fed, I remain
concerned that the Fed and its regional banks continue a
pattern of stonewalling reasonable requests for information.
The latest example concerns the fairness, transparency, and
consistency of Fed decisions to granting highly valuable Fed
master accounts.
This is a significant public policy issue. Ranking Member
Toomey, myself, Senator Lummis, and others have repeatedly
requested information about this from the Fed and the Kansas
City Fed, yet we still have few, if any, answers. Just this
month, the Kansas City Fed refused to provide any information
about its recent decision to revoke the master account of
Reserve Trust, a nonbank fintech. This is significant given the
controversy that arose in former Governor Raskin's nomination
process when it was revealed that the Kansas City Fed reversed
its denial of Reserve Trust's application for a Fed master
account following a call from Ms. Raskin.
Now months after defending its decision to grant Reserve
Trust a master account, the Kansas City Fed abruptly revoked
the account without explanation. The Kansas City Fed will not
give Banking Republicans information or even a briefing about
this curious reversal.
And it is important to point out that Republicans are not
the only ones who have found it difficult to conduct Fed
oversight. Several of my Democratic colleagues, including
Senators Warren and Menendez, have been vocal when they also
found their oversight efforts met with resistance.
To address this unacceptable state of affairs, Congress
should increase transparency at the Fed. Two simple steps that
Republicans and Democrats can take together are subject
regional Fed banks to FOIA, which they currently are not, and
forbid the Fed from using FOIA exemptions to withhold info from
any Member of Congress, not just committee chairmen. This
second idea is a bipartisan proposal that has already passed
the House and something Senator Ossoff has mentioned in regard
to various Federal agencies in the past.
Likewise, Congress should also explore making the
presidents of the regional Fed banks Presidentially appointed
and Senate-confirmed positions. This is another bipartisan
idea, as Senator Reed previously proposed this requirement for
the New York Fed president position, and in 2015, Chairman
Brown himself raised this idea during a Banking Committee
hearing on reforms to the Fed.
The time has come to revisit these sensible ideas, and
others in order to the make the Fed more transparent and more
accountable.
Thank you, Mr. Chairman, and I look forward to Chairman
Powell's testimony.
Chairman Brown. Thank you, Senator Tillis.
We will hear from the Chair of the Federal Reserve on
monetary policy, the state of our economy. Congratulations
again on your second term, second confirmation, to your second
term. Thanks for your service and your testimony. Please
proceed.
STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you, Chairman Brown, Senator Tillis, and
other Members of the Committee. I appreciate the opportunity to
present the Fed's semiannual Monetary Policy Report.
I will begin with one overarching message. At the Fed, we
understand the hardship that high inflation is causing. We are
strongly committed to bringing inflation back down, and we are
moving expeditiously to do so. We have both the tools we need
and the resolve it will take to restore price stability on
behalf of American families and businesses. It is essential
that we bring inflation down if we are to have a sustained
period of strong labor market conditions that benefit all.
I will review the current economic situation before turning
to monetary policy.
Inflation remains well above our longer-run goal of 2
percent. Over the 12 months ending in April, total PCE prices--
that is personal consumption expenditures prices--rose 6.3
percent. Excluding the volatile food and energy categories,
core PCE prices rose 4.9 percent. The available data for May
suggest that the core measure likely held at that pace or eased
slightly last month.
Aggregate demand is strong, supply constraints have been
larger and longer-lasting than anticipated, and price pressures
have spread to a broad range of goods and services. The surge
in prices of crude oil and other commodities that resulted from
Russia's invasion of Ukraine is boosting prices for gasoline
and fuel and is creating additional upward pressure on
inflation.
And COVID-19-related lockdowns in China are likely to
exacerbate ongoing supply chain disruptions. Over the past
year, inflation also increased rapidly in many foreign
economies, as discussed in a box in the June Monetary Policy
Report.
Overall economic activity edged down in the first quarter,
as unusually sharp swings in inventories and net exports more
than offset continued strong underlying demand. Recent
indicators suggest that real GDP growth has picked up this
quarter, with consumption spending remaining strong. In
contrast, growth in business fixed investment appears to be
slowing, and activity in the housing sector looks to be
softening, in part reflecting higher mortgage rates. The
tightening in financial conditions that we have seen in recent
months should continue to temper growth and help bring demand
into better balance with supply.
The labor market has remained extremely tight, with the
unemployment rate near a 50-year low, job vacancies at
historical highs, and wage growth elevated. Over the past 3
months, employment rose by an average of 408,000 jobs per
month, down from the average pace seen earlier in the year but
still robust.
Improvements in labor market conditions have been
widespread, including for workers at the lower end of the wage
distribution as well as for African Americans and Hispanics. A
box in the June Monetary Policy Report discusses developments
in employment and earnings across all major demographic groups.
Labor demand is very strong, while labor supply remains
subdued, with the labor force participation rate little changed
since January.
The Fed's monetary policy actions are guided by our mandate
to promote maximum employment and stable prices for the
American people. My colleagues and I are acutely aware that
high inflation imposes significant hardship, especially on
those least able to meet the higher costs of essentials like
food, housing, and transportation. We are highly attentive to
the risks that high inflation poses to both sides of our
mandate, and we are strongly committed to returning inflation
to our 2 percent objective.
Against the backdrop of the rapidly evolving economic
environment, our policy has been adapting, and it will continue
to do so. With inflation well above our longer-run goal of 2
percent and an extremely tight labor market, we raised the
target range for the Federal funds rate at each of our past
three meetings, resulting in a 1\1/2\ percentage point increase
in the target range so far this year. The Committee reiterated
that it anticipates that ongoing increases in the target range
will be appropriate.
In May, we announced plans for reducing the size of our
balance sheet and, shortly thereafter, began the process of
significantly reducing our securities holdings. Financial
conditions have been tightening since last fall and have now
tightened significantly, reflecting both policy actions that we
have already taken as well as anticipated actions.
Over coming months, we will be looking for compelling
evidence that inflation is moving down, consistent with
inflation returning to 2 percent. We anticipate that ongoing
rate increases will be appropriate. The pace of those changes
will continue to depend on the incoming data and the evolving
outlook for the economy. We will make our decisions meeting by
meeting, and we will continue to communicate our thinking as
clearly as possible. Our overarching focus is using our tools
to bring inflation back down to our 2 percent goal and to keep
longer-term inflation expectations well anchored.
Making appropriate monetary policy in this uncertain
environment requires a recognition that the economy often
evolves in unexpected ways. Inflation has obviously surprised
to the upside over the past year, and further surprises could
be in store. We therefore will need to be nimble in responding
to incoming data and the evolving outlook, and we will strive
to avoid adding uncertainty in what is already an
extraordinarily challenging and uncertain time. We are highly
attentive to inflation risks and determined to take the
measures necessary to restore price stability. The American
economy is very strong and well positioned to handle tighter
monetary policy.
To conclude, we understand that our actions affect
communities, families, and businesses across the country.
Everything we do is in service to our public mission. We at the
Fed will do everything we can to achieve our maximum-employment
and price-stability goals.
Thank you, and I look forward to your questions.
Senator Reed [presiding]. Thank you very much, Mr.
Chairman. Now let me, on behalf of Chairman Brown, recognize
Senator Warren.
Senator Warren. Thank you, Acting Chairman. I appreciate
the help of the Chairman this morning. And thank you for being
with us, Chair Powell.
Americans are struggling with rising costs and all eyes
turn to the Fed. Last week, you announced that the Fed would
raise rates by three-quarters of a percentage point, the
biggest increase in nearly 30 years.
So let's talk about what the Fed is and is not doing when
it raises interest rates to try to bring down inflation. Let's
start with gas prices. The price of gas is up 40 percent since
Russia invaded Ukraine in February.
Chair Powell, will gas prices go down as a result of your
interest rate increase?
Mr. Powell. I would not think so, no.
Senator Warren. OK. And that matters because gas prices are
one of the single biggest drivers of inflation. Energy prices
overall dropped a third of the inflation last month, but the
Fed's tools, as you say, have no impact here.
So let's look at another necessity, food. The price of
groceries is up nearly 12 percent this year. Americans feel the
pinch. No matter how much groceries cost people have still got
to eat.
Chair Powell, will the Fed's interest rate increases bring
food prices down for families?
Mr. Powell. I would not say so, no.
Senator Warren. OK. So a Fed increase will not bring down
these prices, and why? Because rate hikes will not make
Vladimir Putin turn his tanks around and leave Ukraine. Rate
hikes will not break up monopolies. Rate hikes will not
straighten out the supply chain or speed up ships or stop a
virus that is still causing lockdowns in some parts of the
world.
So let's talk about what interest rate increases can do.
Chair Powell, you said last week that interest rate increases,
quote, ``moderate demand.'' Can you just explain a little more
about what that means?
Mr. Powell. Sure. So we think about interest rate increases
as affecting financial conditions and then the economy through
three broad channels, the first of which is interest-sensitive
spending. So that is durable goods and automobiles and things
like that. As interest rates go up, people's demand, as a
result of higher interest rates, will moderate or decline, so
that supply and demand can get into better balance.
The second channel is just asset prices generally. Interest
rates, as they go up, will cause asset prices to moderate
across the economy, and people spend a little bit less out of
their lower level of wealth.
The third channel is the exchange rate, which is really
just another asset price, and that just basically, as the
dollar strengthens--sorry--as rates go up the dollar would
strengthen, which would tend to drive----
Senator Warren. So I appreciate this, and I do. I
appreciate the explanation. But let me just see if I can just
put a little more plain vanilla explanation of what is going on
here.
If I understand what you said, and what economists are
saying across the board, is that when you raise interest rates
there is going to be less money to invest, and that is it is
going to dampen business investment. Is that a fair statement?
Mr. Powell. I think the idea is to----
Senator Warren. It makes it more expensive----
Mr. Powell. ----moderate demand----
Senator Warren. ----to invest.
Mr. Powell. ----so that it can be in better balance with
supply. In the current situation----
Senator Warren. OK. So it is going to make it more----
Mr. Powell. ----demand is well in excess of supply in some
areas of our economy.
Senator Warren. ----more expensive to invest, which, in
turn, is going to throw workers out of work. And when they are
out of work they have less money to spend.
So I get that rate increases stop companies from spending
money to build new plants or to buy new trucks or to hire new
people. Right, Chair Powell? When money is more expensive they
are less inclined to do that. I think that is what you just
said, on asset pricing, right?
Mr. Powell. Well, in the labor market, as you know, you
have a situation where there is a shortage of workers and there
are two job vacancies for every person who is actively looking
for work. So part of this is to get the labor market back into
balance.
Senator Warren. Well, I appreciate you call it back into
balance. What I am trying to get at, though, is what does the
tool of raising rates do? And part of what you just said is
that it increases, in effect, the cost to invest, to buy those
trucks or new plants or to hire new people.
The reason I raise this and the reason I am so concerned
about this is rate increases make it more likely that companies
will fire people and slash hours to shrink wage costs. Rate
increases also make it more expensive for families to do things
like borrow money for a house. So far, the cost this year of a
mortgage has already doubled.
Inflation is like an illness, and the medicine needs to be
tailored to the specific problem. Otherwise, you could make
things a lot worse. And right now the Fed has no control over
the main drivers of rising prices, but the Fed can slow demand
by getting a lot of people fired and making families poorer.
And while President Biden is working to increase energy
supplies and straighten out supply chain kinks and break up
monopolies and bring down prices, you could actually tip this
economy into recession.
So I just want to say, you know what is worse than high
inflation and low unemployment? It is high inflation and a
recession with millions of people out of work. And I hope you
will reconsider that before you drive this economy off a cliff.
Thank you, Mr. Chairman.
Senator Reed. Thank you, Senator Warren.
On behalf of Chairman Brown, Senator Tillis, please.
Senator Tillis. Senator Reed, I am going to defer and allow
Senator Shelby before me, and then I will follow in turn.
Senator Reed. Quite all right, sir.
Senator Shelby. Thank you. Thank you, Mr. Chairman.
Chair Powell, earlier this month, Secretary Yellen
acknowledged she was wrong about the risk of inflation.
Previously, you also acknowledged that the Fed got it wrong in
thinking that inflation would be transitory. Yet myself and
other Members of this Banking Committee here have been warning
about inflation for over a year.
Last July, nearly 1 year ago, when you came before this
Committee I raised my concerns about the risk of rising
inflation, particularly following the enactment of a $2
trillion spending bill. At that time there was already evidence
that inflation was affecting numerous areas of our economy. I
discussed the year-to-year price increases on agricultural
goods such as corn, wheat, and soybeans at that time. I pointed
out the rising costs of metals, including copper and aluminum.
I mentioned the increase in energy prices, used cars, and
airline tickets.
As someone who remembers, and I do, from this Committee,
encountering high inflation during the '70s, I warned that many
of the same conditions present then, such as loose monetary
policy and significant Government spending, were occurring
again, among other things.
My main concern last year was that the Federal Reserve
would fail to address rising inflation before it was too late.
Eleven months later, this concern has come to fruition. And as
we sit here today, inflation, as you have already pointed out,
is at a 40-year high, the average gas price is over $5 a
gallon, and we are currently in the midst of 12 consecutive
months of inflation above 5 percent, including spiking to 8.6
last month.
Ultimately, Mr. Chairman, as inflation continues to run
rampant I believe the Federal Reserve and this Administration
failed the American people by not heeding these warnings a year
ago and by not acting sooner to address it.
We are where we are today. I know that. The consequences of
being wrong on inflation are now being felt, as has been
pointed out here today, by American families and workers across
the country. And despite the recent decision to raise interest
rates, the Federal Reserve still has a long way to go to get
inflation under control.
What can we expect in the future from the Federal Reserve?
And I know you do not have total control over inflation, but
you have a lot of sticks there, and what will you use to bring
this under control?
Mr. Powell. Thank you, Senator. So financial conditions, of
course, have tightened and have priced in a string of
additional rate increases, and that is appropriate. As you
pointed out, and as Senator Tillis pointed out as well, our
policy rate is only at 1.6 percent, but all out the curve the
market is pricing in increases. So financial conditions already
reflect--have already priced in--additional rate increases.
But we need to go ahead and have them, and I think that the
most recent inflation indicators of various kinds suggest to us
that we needed to accelerate the pace at which we get up to a
level that is neutral, that is close to the longer-run neutral
level, and then we can make an assessment of how much further
and faster to go.
And so that is what we are doing. I think you can see from
the moves we are making now that we do understand the full
scope of the problem, and we are using our tools to address it
pretty vigorously now.
Senator Shelby. Mr. Chairman, explain to us again how
important--one of your mandates is price stability--how
important price stability is to all Americans?
Mr. Powell. So price stability is really the bedrock of the
economy in this sense, in the sense that you really cannot have
a sustained period of maximum employment, our other co-equal
goal. You cannot have that without price stability. And so we
must--must--restore price stability, and we will. We have the
tools and the resolve and hopefully the judgment to accomplish
that task. It is essential that we do.
Senator Shelby. What is your next step?
Mr. Powell. Well, if you look, the market has been, I
think, reading our reaction function reasonably well, and I
think what you will see is continued progress, expeditious
progress, toward higher rates. I will say this. The Committee,
the center of the Committee wrote down that rates would be
between 3 and 3.5 percent by the end of this year, as of a few
weeks ago, as of 1 week ago.
Senator Shelby. Is this Federal Reserve Board of Governors
under your leadership committed, as Dr. Volcker was some 40
years ago, to bringing inflation under control, no matter what?
Mr. Powell. I would never want to try to compare myself to
Paul Volcker in any way, but I will say that we are strongly,
strongly committed to restoring price stability. We do
understand that it is the thing that we need so that we can get
back to the kind of labor market that we all want.
Senator Shelby. But reading the standard that Volcker left
at the Fed would be a high reach but one that anybody there
should try to get there, would it not?
Mr. Powell. Yes.
Senator Shelby. Thank you, Mr. Chairman.
Senator Reed. Thank you, Senator Shelby. I will exercise my
time now.
Mr. Chairman, you pointed out in your testimony that the
core personal consumption expenditures minus gas, food, and
rent, is 4.9 percent, and even slightly declined from the
previous report. So that leaves the real culprits--gas, food,
and rent. First, the issue of gas price inflation is a global
phenomenon. Is that correct?
Mr. Powell. Yes. Gas prices are a function of oil prices,
to a significant extent, and then the refining spread as well.
Senator Reed. And that has been exacerbated by the Ukraine
invasion. We have deliberately, and the Europeans have
deliberately cutoff accessing Russian supplies, and that has
added to inflation.
And the other problem, also with hydrocarbons, it is a
cartel that sets the price. Is that accurate?
Mr. Powell. Sorry. What is a cartel?
Senator Reed. The cartel that sets the price of oil.
Mr. Powell. Yes. Globally, that cartel has a very major
impact on the price of oil.
Senator Reed. And they have decided that further production
is not as lucrative to them as just sitting back and making
money, or it appears like.
With respect to food, there are multiple factors there
also. One is climate. We have seen loss of arable land. We have
seen a lot of factors. All of this is outside the purview of
the Federal Reserve, but I think it is helpful to understand
what are driving forces in these price increases.
Transportation issues, with respect to food, that is a
function of higher diesel costs, a function of lack of drivers.
Again, the Ukraine, a significant amount of what is not being
exported from Ukraine, or from Russia, as well as fertilizers.
That is driving the price up.
And then the affordable housing issue, that has been a
crisis since I became a Congressman in 1990. I recall marching
in Washington for affordable housing in 1990. We just do not
have enough, and that, I think, is a factor too.
Are those the major causes for these increases in prices?
Mr. Powell. Those are some of the major ones. You know, you
could also point to some parts of the goods economy, which have
been at restrained capacity, and you are actually seeing
significant price increases in some of the service economy as
it really reopens fully now, and that would be the travel and
leisure sector.
Senator Reed. There is another issue too. We talked about
the cartels that dominate hydrocarbons, but we have found, for
example, during the pandemic, that there are really just four
major meat processors in the United States, and with four
rather than a multiple of that, there is the ability to
indirectly restrain supply and increase prices. In fact, some
of my colleagues, particularly in the House, have been talking
about the antitrust aspects of some of these price increases.
Is that a plausible ingredient to the problem too?
Mr. Powell. So I think that is really a matter for the
competition authorities, not for us, but sure. I think broadly
speaking our economy is very competitive. There will be some
industries where that is less the case.
Senator Reed. So you have to take action, and basically
your tool is interest rates and going in and out of buying
public securities. But we have a lot of work to do too, which
is to try to resolve some of these issues, and we have to do it
in order to assist your efforts, the fiscal policy and other
policy.
I was very pleased to see the President sign legislation
with respect to shipping reform. That is a step. But we have to
do much more too. Is that accurate?
Mr. Powell. I think that is really a question for you. We
are very focused on sticking to our knitting and carrying out
the task that we have been assigned.
Senator Reed. No, I appreciate that, and the independence
of the Fed is something that has to be protected by everyone,
including, particularly, yourself.
A final sort of issue that I am thinking of, we are at a
tremendous, I think, turning point in our economy. Factors that
10, 15 years ago were not active, things like social media, et
cetera. But one other factor with respect to hydrocarbons is
perhaps the companies that are either unconsciously or
consciously limiting investment because they are anticipating
an electrified power supply, electric cars, electric
everything.
Is that something that the Fed is looking at?
Mr. Powell. I think that is certainly, if you pick up the
annual report of any of the big oil companies you will see that
that is something that is happening, and it is a rational
economic response to expectations about where future policy is
headed.
Senator Reed. No, again I think there are so many factors
here, but I think it is good to get some of them on the table.
Thank you very much, Mr. Chairman.
With that let me recognize Senator Tillis.
Senator Tillis. Thank you, Senator Reed. Again, Chair
Powell, thank you for being here.
By the Fed's own analysis of various policy rules,
including the Taylor rule, the revised Taylor rule, the
balanced-approach rule, and the balanced-approach shortfall
rule, rates should have begun to rise long before they did.
According to the Fed's own analysis of these rules, the Fed's
fund rate should currently be above 6 percent. This is in a
report to Congress. Yet the rate currently stands at 1.6
percent. Likewise, these same rules should have prompted the
Fed to begin raising rates, 2.4 last year, 2.1 this year.
I am concerned that the Fed has opted out of rules-based to
discretionary monetary policy. As the Fed reviews monetary
policy strategy, Chair Powell, will you commit to considering
an increased weight for a rules-based strategy in Fed
decisionmaking, and if not, why?
Mr. Powell. We do use policy rules like the various forms
of the Taylor rule, in all of the analysis that we do. If you
are thinking about how monetary policy will affect the economy
you have to have some sort of a rule like that. The Fed has
never really used them in a prominent way to actually set
policy in real time. But that is not to say they do not shed
light, and we do consult them. You know, we consult them on an
ongoing basis.
You know, the rules called for deeply, deeply negative
rates during the pandemic, and we did not do that. They did
call, of course, for rates to move up, and rates now really are
moving up, much closer to where the Taylor rule, various forms
of the Taylor rule are, and I think by the end of the year we
will be pretty close to where some of the Taylor rule
iterations are.
So it is something that we consider. I think in a couple of
years, when we look at our framework again, that is something
we could look at.
Senator Tillis. Chair Powell, could you just briefly
explain the variance between rules-based decisionmaking being
at 6 and where we are today, what other factors came into play,
what other factors came into play?
Mr. Powell. Tailor rules do not take into consideration
changes in financial conditions. They just look at the
overnight policy rate. As I mentioned earlier, we began
signaling, and we are set up now to signal policy changes going
forward with the Summary of Economic Projections that we do
four times a year. Markets price that in, and you are getting a
lot of policy tightening well in advance of actually raising
rates. As you pointed out, we are at 1.6 percent only on the
Federal funds rate, but look at the rate curve. Very
substantial additional rate hikes are already priced in, and
they are affecting financial conditions, and they have been for
several months.
So that is one way of thinking about it. It is really only
at the very short end of the curve, where rates are still in
negative territory, from a real perspective. If you look
farther out, real rates are positive right across the curve,
and that is really what you are trying to achieve with policy.
In a situation like this, where we have 40-year highs in
inflation, and we know we need to have restrictive policy, that
is where we are headed.
Senator Tillis. Thank you. In 2012, the Fed adopted its
current 2 percent inflation target, then amended this in 2020,
to allow inflation to run over 2 percent target so that
inflation averages 2 percent over time. Many warned this
approach would simply give inflation a foothold before the Fed
could respond. Now inflation is at 6.5 percent per year, and
many serious analysts are predicting a recession.
According to the Fed's framework, will the Fed push
inflation below 2 percent so that it averages 2 percent over
time?
Mr. Powell. No. That was not the way the framework worked,
and I should clarify, though, the framework was carefully
focused on what we knew, which was the economy of the last 25
years. The pandemic hit a few months afterward, and I think we
have been aware since reasonably quickly after that, that the
dis-inflationary forces over the last quarter century had been
replaced, at least temporarily, but a whole different set of
forces, and those are the forces that our policy has been
reacting and dealing with. And we are well aware of that.
I think that what we were looking at was a world in which
you did not see inflation move up, even when unemployment was,
for an extended period, well below 4 percent. This is a
different economy, different forces. The real question is how
long will this new set of forces be sustained, and we cannot
know that. But in the meantime, our job is to find price
stability and maximum employment in this new economy.
Senator Tillis. Final question. There is some renewed
discussion about increased spending and increased taxes through
reconciliation. Just hypothetically, if Congress were to pass a
bill that increased spending by half a trillion or a trillion
dollars and raised taxes, would that make your job easier or
more difficult?
Mr. Powell. I swore off getting involved in these fiscal
debates a year or so ago, and I am determined to see if I
cannot stick to that. But remember, we can always incorporate,
and what we do is we take fiscal policy as given and we react
appropriately.
Senator Tillis. Well then maybe instead of policy working
through Congress but policy that was passed by Congress, do you
believe that the $1.9 trillion spending package last year had
any effect on inflation?
Mr. Powell. It is really not our job to, you know, to pass
judgment. We did not pass judgment on the Tax Cuts and Jobs Act
or the CARES Act or that Act as well, the ARP. So I really
think that is a job for Congressional Budget Office.
Senator Tillis. Thank you, Chairman Powell.
Mr. Powell. Thank you, Senator.
Chairman Brown [presiding]. Senator Cortez Masto, of
Nevada, is recognized for 5 minutes.
Senator Cortez Masto. Thank you, Mr. Chairman. Chairman
Powell, thank you for being here.
Let me start with high prices, because not only in Nevada
but across the country we are seeing high food, housing, and
gas prices, which really is creating a financial hardship for
too many families. And I want to start with gas prices first.
In Nevada, the average price of gas is $5.60, in Las Vegas,
about $5.60, in Reno, at $6.00 a gallon. And as gas prices rise
across the country, oil and gas companies, we know, are making
record profits but are using that money to continue to
consolidate their industry and pay for stock buybacks instead
of investing in increased oil production. And what I have heard
is over 9,000 permits that they have that are unused, drilling
permits, or they are not expanding their refining capacity.
We also know that reduced refining capacity is a particular
problem that has been cause, in large part, by decades of oil
industry consolidation, and is driving gas price hikes to be as
much as 61 cents a gallon higher than expected.
So when considering the drivers of inflation, how much do
Federal Reserve economists consider consolidation in an
industry, and what else can we do to hold these industries
accountable for their contributions to rising prices?
Mr. Powell. You know, those are really questions for the
competition authorities, questions of industry structure and
consolidation. They really are not questions that we directly
address. You know, we raise interest rates and our job is
maximum employment----
Senator Cortez Masto. But I have to push back. You have to
consider that. I mean, you are considering what is happening in
Ukraine as a variable on inflation and high prices. So you have
to consider the fact that we have these oil companies, they
exclusively control this commodity that is key for this
country. We know that not only do they produce and decide how
and when they are going to drill crude oil.
We also know the refineries, and quite honestly, the
refineries in this country are not prepared to refine the
domestic oil that even comes from Texas and the Dakotas. The
refineries are prepared to refine the oil that comes from out
of this country. And we also know that many of the oil
companies have their own traders that are trading on the price
of crude oil in this country.
I mean, listen. You just talked about an outside agency.
This is why this is so important and why I am a cosponsor of
the Transportation Fuel Market Transparency Act. Glencore was
just fined $1.1 billion because they were manipulating the oil
prices for their benefit.
So that is something you have to take into consideration
when we have an industry like these gas and oil companies that
are so consolidated they are having an impact on the prices, to
the detriment of the people in my State. So that has to be
something you consider and take into consideration when you are
looking at the impact that people across the country are seeing
from these high prices.
I hope it is. Please tell me you are.
Mr. Powell. Well, I think we see that the global oil
prices, which have, you know, very important effects on gas
prices here at home, are set on the global market and that, as
we mentioned earlier, there is a large cartel that is
responsible, to a significant extent, for setting those prices.
We take that as given.
Senator Cortez Masto. So do you pay attention to what Wall
Street is saying and what these cartels are doing? When you say
``cartels,'' these are these big oil companies, and they are
indicating that, well, I am not going to drill because I am
making profits because the price of gas is so high. So you
would assume--I would hope that you would take that into
consideration, that it is going to continue these high prices
because there is a challenge in holding these oil companies
accountable.
Mr. Powell. So in principle we pay attention to anything
that could affect the use of our tools, and the need to use our
tools, and I think with the future price of oil the best thing
you can probably do is look at oil futures, because futures, in
theory, should be taking into account all of these factors, and
that is what we do.
But ultimately the question for us is do we raise or lower
interest rates. We do not have tools that would address these
practices that you are discussing. Of course, we understand
them----
Senator Cortez Masto. Do you have concerns that these oil
companies are manipulating and controlling the prices that we
have right now? Do you take that into consideration with the
tools that you need to reduce inflation and reduce these costs?
Mr. Powell. Honestly, those are not judgments for us to
make. You know, questions about industry structure and
competition, it is not our assignment. Our assignment is----
Senator Cortez Masto. But the outcome----
Mr. Powell. ----maximum employment and price stability.
Senator Cortez Masto. ----the outcome of that
infrastructure is something that you have got to take into
consideration.
Mr. Powell. Yes. Very much.
Senator Cortez Masto. Unless they change, the prices are
not coming down. Unless they stop giving profits and sharing
that with their shareholders and start addressing and looking
at actually the consumer at the other end of this, who is
bearing the brunt of it, these prices are not going to come
down. I would assume you take that into consideration. Maybe I
am wrong.
Mr. Powell. Well, when you say ``take it into
consideration,'' we do have to have a forecast of oil prices,
and we do. But ultimately, though, the question for us is price
inflation, what is happening with price inflation, and it is a
macroeconomic question. It is not a question about industry
structure or corporate behavior. It is a question about what
will be the behavior of inflation across the economy.
And in particular, there is really not anything that we can
do about oil prices. You know, food prices is a bit more mixed,
but for oil prices, they are set at the global level. It has to
do with global oil prices and also the refining spread. Neither
of these are things that we have the tools to affect.
Senator Cortez Masto. Does it concern you that these oil
companies have not come to the table to look for a solution to
help us reduce fuel costs?
Mr. Powell. Honestly, I do not think it is appropriate for
the Fed or for me to be reaching out into areas of policy that
are not assigned to us. It is not up to us to comment on that
sort of thing. We have a very specific job, and precious
independence to carry that job out, and I think the other side
of that is stick to that job. And our job is maximum employment
and price stability.
Senator Cortez Masto. Thank you, Mr. Chairman. My time is
up.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Rounds, from South Dakota, is recognized.
Senator Rounds. Thank you, Mr. Chairman. Chairman Powell,
welcome again. It seems as though for the last couple of times
that we have had you in front of this Committee inflation has
been a primary item of discussion. I want to follow up, just as
my colleagues have, and I would like to take it in a little bit
different path perhaps, because when it comes to breaking down
the different causes of inflation, clearly there is the supply
side and the demand side. The reality is that a large portion
of the inflation stems from the higher energy prices, which is
part of the supply side issue.
When President Biden took office, January of 2021, through
January of 2022, the price of unleaded gas has increased by 50
percent during that time period, from $2.33 to about $3.35 per
gallon. Now that was well before the Russian invasion of
Ukraine. Higher prices are instead, I believe, a direct result
of policy decisions made by the Biden administration, like
prohibiting new oil and gas leases on public lands and waters
and choking off future access through the Keystone XL pipeline
and increasing U.S. dependence on foreign energy sources by
actively calling on OPEC to produce more oil. All of these seem
to send a terrible message to the market about the future of
investing in oil and gas processes within the United States.
At the same time, Mr. Chairman, your tools are designed, as
we have discussed in the past, to impact not necessarily the
supply side but the demand side of inflation. So if you attempt
to use your tools that are available at this time to address
what I believe to be the policy-induced side of inflation, do
you risk hurting the economy by using these interest rate
increases when, in effect, as you indicated earlier here in
this meeting, that you really cannot impact the price of gas or
the price of food?
Mr. Powell. I think that is right. We know that our tools
cannot affect certain aspects of inflation, and that would
include certainly energy inflation and food inflation.
Nonetheless, our statutory goal is headline inflation, but we
also know that core inflation is actually a better indicator of
headline inflation than headline inflation itself is because
food and energy tend to be quite volatile. They tend to move up
and move down, and that has been the history.
Core enables us to look through that volatility, so we
focus very much on that as a better representation of what
underlying inflation of the economy is at any given time.
Senator Rounds. But in this particular case that core
inflation, if we are not going to include some of those what I
think earlier we thought would be transitory in nature portions
of inflation, they have proven not to be transitory.
In fact, South Dakotans are now paying $682 more per month
on goods and services than they were when President Biden took
office, due to inflation. The Administration is claiming the
Federal Reserve can fix our inflation problem, but as you have
just indicated, you focus on core, and your tools might very
well work on core but not on those really heavy drivers to
inflation that South Dakotans are seeing, like the rest of the
country.
See, Mr. Chairman, what I believe is going to happen here,
and I just share this, clearly you are aware that you are going
to be the person that takes the fall if inflation is not
brought under control, and this Administration is going to
point to you and to the Federal Reserve, saying you have the
tools to fix inflation and you are not doing your job, when, in
essence, the portion of inflation which Americans are feeling
today may not just be the core inflation that some of your
tools do but the total cost of inflation that my citizens in
South Dakota feel, to the tune of, well, $682 more per month in
living expenses than what they were when this Administration
took office.
Mr. Powell. So we are focused on the part of it that we can
address, and that is there a job to do on demand here. There
are parts of the economy where demand exceeds supply, and that
is where we think our tools can help, and that is what we are
focused on.
Senator Rounds. Very good. Just very briefly, Mr. Chairman,
another item. The Basel Committee on Banking Supervision issued
a press release indicating that it had made substantive
technical changes to the calculation of the G-SIB score for EU-
based global, systemically important banks, the G-SIBs. The
Federal Reserve, as being a part of this organization, do you
believe right now that this change reflects the views of the
Federal Reserve as an influential member of the Basel
Committee? Apparently it looks like this may very well provide
some advantages to our European banks over U.S. banks, based
upon this reassessment of how they view risk within the EU
community.
Mr. Powell. My understanding of that is that it is really
about supervisors being able to use discretion about
transactions that go across national lines within the European
Union.
Senator Rounds. Yeah.
Mr. Powell. It does not apply at all here, and ultimately,
the capital rules that Europeans apply are decided by
Europeans, not by us.
Senator Rounds. Very good. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Rounds.
Senator Warner, from Virginia, is recognized.
Senator Warner. Thank you, Mr. Chairman, and Chairman
Powell, it is good to see you again. Thank you for your service
to our country.
I want to go in a couple of different directions. First,
and I think some colleagues have already raised this, the truth
is what we are grappling with right now on inflation is clearly
a global phenomenon. I think even the Cato Institute, a group
which does not always necessarily agree with folks on my side
of the aisle, have pointed out inflation in many industrial
countries around the world is running at the same rates, if not
higher than us.
Frankly, I just returned from a bipartisan trip to Finland,
Latvia, and Turkey, getting back late last night, so I am a
little bit jetlagged. In Turkey, I think inflation is running
at 78 percent a year. In Finland, gas prices were at $9.00 a
gallon, and I asked one of my key Republican colleagues, ``It
is amazing. Joe Biden's inflation hitting here in Finland
too.'' The point being that a lot of these effects are not due
to any single country's activities but it is a global effect. I
think colleagues have already acknowledged the effect that the
Russian Ukraine war has, some of the disruptions on supply
chains.
What I do not think has been fully addressed yet is some of
the challenges that are coming around from China, in terms of
their zero-COVID policy, a lockdown on Shanghai for literally
months on end, and how that supply chain disruption is floating
through the whole global economy. Can you speak to that, Mr.
Chairman?
Mr. Powell. Sure. So, of course, you are right. Inflation
is very much a global phenomenon. If you look at comparable
large, advanced economies like ours you will see inflation
rates that are quite similar to ours, in some cases higher, in
some cases lower. But there are important differences in the
characteristics of that inflation. Ours is more about demand, I
would say, than most of the others, and theirs is more about
energy prices and things like that.
In terms of your question on China, we do not think we have
seen the full effect of the lockdowns that we have had, so we
will expect to be seeing some negative effects on bottlenecks.
On the other hand, China now seems to be coming out of that
period of lockdown, and growth seems to be picking up. Advanced
indicators are that their economy may be recovering. But, of
course, the zero-COVID policy, as long as it is in place, it
certainly could--you could certainly have a relapse, given this
highly contagious disease.
Senator Warner. Again, we are all looking for short-term
items, and frankly, I am glad that the President, I know
particularly some folks on my side of the aisle are concerned
about the President visiting Saudi Arabia and visiting with the
leadership of that regime. I think you have got to use all the
tools in the toolkit in getting additional partners in the
Middle East to increase oil production. I think it is
important.
I have got a lot more proof to see whether some kind of
short-term gas tax holiday would actually provide relief to
consumers or simply, as we have seen in some States that have
implemented, the prices do not change and the companies may
make more money, but it does not really provide that kind of
inflationary relief. And I am concerned, as somebody who spent
a long time as Governor and as Senator trying to make sure we
pay for our infrastructure investments, it is easy to take away
a tax, tough to put it back on, and there is always an excuse
not to. But I am open to seeing a better analysis.
I do want to raise, recognizing that not everything can be
done with the flick of a switch, you know, there is a piece of
legislation that has been floating around here for almost a
year. It passed the Senate a year ago on a broadly bipartisan
basis, passed the House a number of months ago. I think the
House, frankly, took the wrong approach.
But it goes at at least one of the inflationary pressures
here, which is making sure that we have got a domestic supply
chain on semiconductor chips. Every device that has an on-and-
off switch requires a semiconductor chip. And right now we see,
particularly around auto inflation, one of the big drivers is
the lack of chip supply so cars cannot actually be sold. They
are literally sitting in warehouses, waiting for the
semiconductors to come around.
This legislation, $52 billion of investment, would build
ten semiconductor facilities here in America. I know Senator
Brown has been a big advocate for this. If we do not do this, I
do not think there will be another semiconductor facility built
in America, even though some have been announced. I point out
the fact that, you know, a year ago the Europeans had no plan
here, in semiconductor investment, until recently announced $8
billion from the German Government. When the German bureaucracy
and European bureaucracy moves faster than the American
legislative process, I do not care which side of the aisle we
are on, we are in trouble.
So in the last few seconds, I know you do not want to weigh
in on specific piece of legislation, but the notion of
investment in a key industry component like semiconductors,
long-term in terms of keeping inflationary pressures down,
right move or not?
Mr. Powell. Again, as you say, I would not comment on a
specific legislative proposal.
Senator Warner. Talk about the industry sector.
Mr. Powell. I will just say that I do think we learned a
lot about global supply chains, and we are still learning, and
it is important to take the right lessons, and I think it is an
important area to explore about how we can harden up and
improve our sources capabilities, including what should be
here.
Senator Warner. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warner.
Senator Kennedy, from Louisiana, is recognized.
Senator Kennedy. Mr. Chairman, inflation is just an
imbalance of supply and demand. Can we agree on that?
Mr. Powell. Yes, generally.
Senator Kennedy. And to put a little finer point on in, our
inflation, at this time--and this is the case with respect to
most cases of inflation--demand is greater than supply, so
prices go up.
Mr. Powell. In some parts of the economy, yes.
Senator Kennedy. Right. So we have got a situation where
demand is up here, supply is down here. You are trying to lower
demand. Is that correct?
Mr. Powell. Yes, while also giving the supply side time to
recover. There is some ground to be covered on that side.
Senator Kennedy. Yes, but you talked about your role,
scope, and mission, and your job is monetary. You are trying to
lower demand----
Mr. Powell. Well, I would say lower demand growth. We do
not know that demand has to actually go down, which would be a
recession.
Senator Kennedy. Well, 70 percent of our economy is driven
by consumer demand, and you are trying to lower demand and slow
the economy down. Am I correct?
Mr. Powell. I guess I would just say we are slowing down
growth.
Senator Kennedy. Right. That is what the economy is.
Mr. Powell. Growth, yeah.
Senator Kennedy. OK.
Mr. Powell. Exactly.
Senator Kennedy. All right. There is another way. The two
are not exclusive. You alluded to that. You can also lower
demand but you can increase supply, can you not?
Mr. Powell. Yes.
Senator Kennedy. And that would solve inflation.
Mr. Powell. Yes, it would.
Senator Kennedy. Now, Congress' job is not to deal with
demand per se. A lot of the bills we pass impact demand, but
that is the Fed's job.
Mr. Powell. Right.
Senator Kennedy. OK? Now, I am not going to ask you to
comment on any specific bill, but tell me the things that
Congress could do right now, while you are lowering demand--not
you, literally, the Federal Reserve--what we can do right now
to increase supply.
Mr. Powell. I think the things you can do are important
over the medium and longer term, but probably not so much in
the short term. But it is things like investing in people so
that they can remain in the labor market longer, things like
that. You know, infrastructure, again, things that will
increase the productive capacity.
Senator Kennedy. Well, in the long run, as Keynes said, we
are all dead. I am interested right now in the short run.
If we reduce the regulatory burden, let's say on
refineries, would that not incent refineries to start refining
more and help on the supply side?
Mr. Powell. I would say anything that could increase
capacity on that front could have a----
Senator Kennedy. Yeah, but would that help? I am not trying
to get you to endorse legislation.
Look, Mr. Chairman, we have got a hell of a mess here, OK?
Inflation is hitting my people so hard they are coughing up
bones. I do not care what the inflation is in other parts of
the world. I am sorry they are having inflation in other parts
of the world, but them in misery does not make my people feel
better. They are still miserable.
Inflation is hitting people so hard they are coughing up
bones. It is the highest in 40 years. Our national debt is
greater than our national output. Crime is up. The border is
open. Respect for institutions is way down, and 70 percent of
American people think we are headed in the wrong direction.
Now we have got a hell of a mess, and right now you are the
most powerful man in the United States, maybe in the world. I
mean, President Biden, I do not blame him. I understand
politics. He keeps saying, ``Well, your 401(k) has crashed and
gas has gone from 2 bucks to 5 bucks a gallon because the
economy is so good.'' And the American people know that is not
true.
Now other than relieving regulatory burden--well, let me
put it in the form of a question. What if the U.S. Congress
said, look, we have got a budget. We are going to freeze
spending. We are going to stop injecting more money into the
economy. We are going to freeze spending until Powell can get
control on the demand side. Would that help?
Mr. Powell. You know, I feel like giving you advice on what
to do when we are not----
Senator Kennedy. I am asking for it. I welcome it.
Mr. Powell. ----getting our own job done. I feel like maybe
a better thing to do would be for us to get our house in order
and do the job you have assigned us.
Senator Kennedy. Well, let me put it another way. Forget
about Congress. Let us suppose that every Governor in every
State, and every legislature in every State got together
tomorrow and said--I know it is not likely to happen--and said
we are going to freeze our budgets. We are not going to spend a
penny more than is already budgeted. Would that help?
Mr. Powell. Would it help?
Senator Kennedy. Sir?
Mr. Powell. Would it help with----
Senator Kennedy. Would it help reduce inflation.
Mr. Powell. It might. It might. But, I mean, it would
take--again, I am scoring fiscal policy. I am really reluctant
to do it.
Senator Kennedy. Well, I understand you are being careful,
but Mr. Chairman, the U.S. Congress, in addition to its regular
budget, has spent $7 trillion. I am not saying all of it was
unnecessary. On top of that, the Fed has increased its balance
sheet from $1.5 trillion to $9 trillion--$9 trillion. I know
you are cutting it back, but we have injected all of this money
into the economy, and then people go, ``Well, we have
inflation.'' Duh.
Give me some help here. Tell me what we can do?
Mr. Powell. I am really focused on what we can do, which is
shrink our balance sheet and raise interest rates and get
supply and demand back into alignment, and get inflation back
down to 2 percent.
Chairman Brown. Thank you, Senator Kennedy.
Senator Tester, from Montana, is recognized for 5 minutes.
Senator Tester. I want to thank the Chair and Ranking
Member. I also want to thank you for being here, Mr. Chairman.
I appreciate it.
I have just got to say one thing about Senator Kennedy. I
think freezing spending is probably a pretty good idea, except
we just had a flood that cost $1 billion worth of damage in
southern Montana, $1 billion was projected. If we freeze
spending that infrastructure never gets rebuilt.
So I hear what you are saying, and in some respects I
agree, but it is a lot easier to talk about than it is to do.
And I think that is the challenge that the Chairman of the Fed
has, is that he really needs to focus on what needs to do, and
if it was a simple solution we would have already had it done.
I am concerned about rural America and the impact inflation
is having on rural America. And I know that you have seen it.
You have seen it transpire over the last several years,
particularly as this country has come out of this pandemic. And
I know we have had a conversation that it is two-edged--it is
supply and it is demand--and you are only dealing with the
demand part, which is an important part. And in some respects
Secretary Kennedy is right. You are probably one of the
strongest people in the world to be able to deal with some of
this stuff.
But from a rural perspective, is the Fed doing anything in
particular that I could take back to my constituents and say
this is what the Fed is doing to help rein in inflation in
rural areas?
Mr. Powell. Well, so we are, of course, well aware, as you
know, we have four or five Reserve Bank presidents who have
very large agricultural economies within their districts, and
we hear excellent reports from them about what is going on. It
is clearly a tremendously challenging situation. You know,
fertilizer prices and all kinds of inputs, very difficult
situation. Cannot get parts for your equipment and that kind of
thing.
You know, overall, we do appreciate that. You are not
seeing this yet but, you know, when times do get difficult and
we work carefully with borrowers in the Farm Belt and that kind
of thing because we know that is what you do in those kinds of
times. We are not at those times at this point, but that is one
thing we have done in the past.
I mean, overall, we think we need to get back to price
stability, and that will help everybody. It will help the whole
economy, including rural America.
Senator Tester. OK. Interest rates. I know they have been
raised a bit recently, and I think three-quarters of a point--
correct me if I am wrong. And I am not going to ask you where
interest rates need to be. But I do think this is a fine line
to walk, and you tell me if I am wrong, where if interest rates
are raised too high it could drive us into a recession.
Can you tell me some of the things you are looking at to
make sure that does not happen?
Mr. Powell. Sure. When we pivoted and started talking about
raising rates last year, markets had priced in rate increases
so that all out of the curve of debt maturities, interest rates
have already moved up to reflect interest rate increases that
we have not actually made yet.
So what we have right now is a low short-term rate, which
is our policy rate. And the increase that we made, we made one
decision at the last meeting, which was to raise, by 75 basis
points, but only to 1.6 percent. And we thought that was the
right thing to do. I am happy to discuss why.
But really, the point is that our policy rate is still at a
relatively low level, and in principle we want to get it up to
a more neutral-ish level, even more expeditiously than we had
been, and that is what was behind our thinking. And so the
concern, I do not think, is about the level. It was with the
speed. Are we moving too quickly? And I think I was persuaded
that it was important that we make this move now and not wait
and telegraph it and do it 6 weeks later, for example, or the
meeting after that. It was important to do it now, because
where we are with inflation is having seen inflation come in
above target, over and over again, and we said we would move
more aggressively if it was appropriate. We thought it was
appropriate and we did.
Senator Tester. And so you said you want to get things more
to a neutral level. Are we to a neutral level now?
Mr. Powell. No. We estimate that the longer-run neutral
level of the Federal funds rate to be around 2.5 percent, and
actually we think it will be appropriate to raise rates above a
neutral level into a modestly restrictive level, because this
is very high inflation and it is hurting everybody. And we need
to do our job and get inflation back on a path down to 2
percent, and the way we are going to do that, we think, is
raise rates, to that level.
Of course, everything depends on the data that we see. We
are really strongly committed to getting inflation down to 2
percent, but we are going to be flexible as we see the data
coming in.
Senator Tester. Do you agree with the perspective--and then
I will be done--but do you agree with the perspective that if
interest rates go too high, too fast it could drive us into a
recession?
Mr. Powell. It is certainly a possibility. It is not our
intended outcome at all but it is certainly a possibility. And
frankly, the events of the last few months around the world
have made it more difficult for us to achieve what we want,
which is 2 percent inflation and still a strong labor market.
Senator Tester. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Tester.
Senator Hagerty, of Tennessee, is recognized.
Senator Hagerty. Thank you, Chairman Brown.
Chairman Powell, one of the many downsides of quantitative
easing is the fact that the Federal Reserve, and then by
extension, the American taxpayer is essentially taking a long
position in the securities that are acquired. That means that
when rates rise, the value of the securities on your balance
sheet drop. That is exactly what is happening today. And as of
March of this year, the Federal Reserve had about $330 billion
worth of unrealized loss on its balance sheet. That number is
probably close to half a trillion right now, given the rise in
rates.
So my question of you is, did these unrealized losses limit
the Federal Reserve's ability to execute its monetary policy
objectives, and specifically, will the Fed sell mortgage-backed
securities and realize a loss, or will the Fed be cornered into
holding these securities until they appreciate?
Mr. Powell. Those kinds of unrealized losses play no role
in our decisionmaking, have no effect at all on our ability to
conduct monetary policy. They are just not a consideration, and
they will not be a consideration when we decide whether to
sell, and in what quantity, MBS. We said we would look at
selling MBS when the normalization process for the balance
sheet was well underway, and that means not soon. We have not
decided exactly what that means.
And by the way, the reason we want to do that is we are
committed to having a mostly Treasury balance sheet, and with
these higher rates, MBS prepayment speeds have gone way down,
and so to achieve the mostly Treasury balance sheet we may well
need to sell MBS at some future date. When we turn to that we
are going to be very transparent and give lots of transparency,
obviously. But we will not be thinking about the balance sheet.
I mean, remember that we have contributed $1 trillion in
profits to the Treasury over the course of the last 10 years.
The reason we do not have a lot of capital is that we give our
earnings to the Treasury every year. So it is not at all a
concern for us.
Senator Hagerty. But to be clear, these long-dated
mortgage-backed securities may be sold as a loss. You are not
limiting your ability to do that, to sell at a loss.
Mr. Powell. No.
Senator Hagerty. And that could happen. I just think the
downside of quantitative easing is very much illustrated for us
when you find yourself in this situation of holding this long-
dated securities.
To turn to another point, Chairman Powell, I realize there
are a number of factors that play a role in the historic
inflation that we are experiencing--supply chain disruptions,
regulations that constrain supply, we have got rising inflation
expectations, and excessive fiscal spending. But the problem
has not sprung out of nowhere.
In January of 2021, inflation was at 1.4 percent. By
December of 2021, it had risen to 7 percent, a fivefold
increase. Since the war in Ukraine began in late February, the
rate of inflation has risen incrementally another 1.6 percent
to a current level of 8.6 percent. So again, from 7 percent to
8.6 percent.
Given how inflation has escalated over the past 18 months,
would you say that the war in Ukraine is the primary driver of
inflation in America?
Mr. Powell. No. Inflation was high before, certainly before
the war in Ukraine broke out.
Senator Hagerty. I am glad to hear you say that. The Biden
administration seems to be intent on deflecting blame, and as
recently as just this past Sunday spread the misinformation
that Putin's invasion of Ukraine is the, quote, ``biggest
single driver of inflation.'' I am glad you agree with me that
that is not the truth.
I would like to turn to the situation we find ourselves in
now, tightening. A recent survey of global CEOs showed that
more than 60 percent of executive expect a recession in the
next 18 months. Meanwhile, per its most recent forecast, the
Fed will be tightening monetary policy for the next 2\1/2\
years. Thus, the Fed could soon find itself the challenging
position of potentially exacerbating an economic downturn in
order to address the historic inflation that has been unleashed
by the Biden administration.
So, Mr. Chairman, as you know the Fed has a dual mandate--
stable prices and maximum employment. As we look to the fall,
how do you think about balancing this potential tension between
the Fed's two mandates, particularly if the economic outlook
worsens but inflation remains elevated?
Mr. Powell. We do have a dual mandate, as you point out.
Right now the labor market is extremely tight, and I would say
unsustainably hot. And there is a mismatch between supply and
demand there. As you know, there are more job openings, by a
factor of 2 to 1, than there are unemployed people looking for
work.
On the inflation side we are very far from our target. We
think that we have to restore price stability to put the
economy back in a place where, in the medium and longer term,
we can have a sustained period of what we would call maximum
employment.
So that is how we are thinking about it. Of course, we are
not trying to provoke, and do not think that we will need to
provoke a recession, but we do think it is absolutely essential
that we restore price stability, really for the benefit of the
labor market as much as anything else.
Senator Hagerty. I agree. I think you have an extremely
challenging job, particularly given some of the fiscal policies
that have been undertaken that make your job more challenging
than it should be.
Thank you very much, Mr. Chairman.
Chairman Brown. Thank you, Senator Hagerty.
Senator Smith, from Minnesota, is recognized for 5 minutes.
Senator Smith. Thank you, Mr. Chair, and welcome back to
the Committee, Chair Powell. It is good to see you again.
I want to follow up on this issue of this imbalance between
labor demand and supplies, you were just referring to.
According to the latest figures from the Bureau of Labor
Statistics, there were 5.5 million more jobs in April than
available workers. And so we have, as a result, an extremely
competitive labor market and very strong wage growth. But
inflation is even higher than wage growth, so that is wiping
out worker gains and leaving a lot of folks with what amounts
to a pay cut as they, at the same time, try to figure out how
to pay higher prices for gas and food.
So let me ask you this, Chair Powell. With all of that in
mind, what is the basis for the argument that wages are too
high and that they need to come down in order to rein in
inflation?
Mr. Powell. It is not that wages themselves are too high.
It is that the rate of growth of wages is not consistent--and I
will explain this--not consistent with 2 percent inflation over
time.
Of course, it is great when wages go up, and we want them
to go up. We want people to get strong wage increases. But at a
certain point wages become high enough that companies start
raising prices and you wind up getting high inflation. So if
you just kind of reverse engineer what level of wage increases
would be consistent with 2 percent inflation over the longer
term, today's wage increases, if you look across the numbers of
measures that we look at, they are significantly above that.
Now there is some evidence that they are flattening out,
particularly average hourly earnings. There is some evidence
that that measure of wages is flattening out so that it is no
longer going up.
So it is really not about reducing wages. It is just having
a more sustainable pace of increases.
Senator Smith. And what would you expect if wages started
to stabilize, as you say, they stopped increases? How long
would you expect it to be before the prices that consumers are
paying would start to go down, or are they ever going to go
down?
Mr. Powell. It depends. They do not have to go down for
inflation to go down.
Senator Smith. Right.
Mr. Powell. So if prices remain at the same level,
inflation goes to zero. But it depends on different businesses.
In some parts of the service economy labor costs are a very
large portion of costs, and so you would think that that gets
passed through very quickly into prices. And so we would think
that that pass-through should be shown fairly quickly, in some
parts of the economy. In others, less so. But over time, you
know, we would want wages to be moving up at the highest
sustainable rate that is possible and consistent with 2 percent
inflation.
Senator Smith. Of course, at the same time the economy, we
have got this very, very strong labor market, but
simultaneously we continue to see higher unemployment rates
among African Americans, for example, nearly double the
unemployment of white Americans.
So how do you see this sort of interplay between wage
growth and the Fed actions to cool demand on that underlying
issue?
Mr. Powell. So we do not target wage growth, of course. Our
job is price stability. We look at wage growth because over a
long period of time it is an important factor in determining
price stability. So that is really how we think about it.
In terms of the disparities, we saw those disparities
increase significantly at the beginning of the pandemic and
then reverse, as we pointed out in our Monetary Policy Report.
Those gaps have at least returned to historically lower levels.
There are still gaps, though, and those are not really gaps
that we can get at with monetary policy. But we point them out
because they are an important aspect of our economy and we do
consider them as we think about appropriate policy.
Senator Smith. I think I would agree with you. I think that
those are sort of systemic challenges on our economy that need
to be addressed through the policy that we work on here.
You know, it seems to me that, I mean, one, I think we have
a labor supply problem in this country, and we should be
dealing with that in Congress, in terms of what we need to do
to make sure that people have the skills and the capacity to do
the jobs that our economy is creating. But it also seems to me
that as long as wage growth is lagging inflation that in some
ways labor costs are actually dampening inflationary pressures
because they are not keeping up with inflation. So I think it
is just an interesting and complicated issue.
Mr. Powell. No argument there.
Senator Smith. I just have a couple of minutes left. I am
not going to have a chance to get into this, but I am quite
interested also in what we are seeing around the country
everywhere, and especially in Minnesota, about extraordinarily
high increases in housing. The Fed is raising interest rates,
which is going to have an impact on increasing housing prices
because mortgage prices are going to go up, and other costs, in
terms of building housing is going to go up.
So I am just interested in how you sort of weigh that
dilemma.
Mr. Powell. You know, after the pandemic, for a number of
reasons, housing demand went way up, rates were low, but also
people decided they wanted to live more in single-family homes
rather than downtown. So prices went up all over the country,
at very, very high levels.
Now you see the housing market slowing down because you see
higher rates are having an effect. That should have an effect
on housing prices, perhaps even fairly quickly, so that prices
will not necessarily come down but price increases will flatten
out.
We are seeing lower home sales. We are seeing lower starts.
So we are seeing a slowing in housing. And, you know, the very
low settings of rates during the pandemic were appropriate, but
part of what that did was it supported a lot of demand for
housing. We want to get back to a place where supply and demand
are closer.
I will say I agree with you on the labor shortage issue,
which is a longer-term issue that we have, but also with
housing there are constraints on housing construction. So it is
very possible that we will be in a position where there is not
enough appropriate housing at the right price, and that is a
longer-run issue, again, not so much for us as for you.
Senator Smith. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Smith.
Senator Lummmis, of Wyoming, is recognized.
Senator Lummis. Thank you, Mr. Chairman, and thank you,
Chairman Powell, for being with us today. It will come as no
surprise to you that I want to focus on digital assets in Fed
master accounts.
My first question is about the accounting treatment of
digital assets, specific SEC Staff Accounting Bulletin 121.
This bulletin requires publicly traded companies, including
banks, to hold digital assets in custody as an on-balance-sheet
liability. So will the accounting standards contained in this
bulletin, that requires it to be on balance sheet, be applied
by the Federal Reserve to banks and bank holding companies?
Mr. Powell. We, too, saw that and understood the
implications, and I think that is something we are working on
with our fellow bank regulators. And I do not have an answer
for you, but that is certainly something we are focusing on
very closely right now.
Senator Lummis. And I would note that the Basel
Committee on Bank Supervision has declined to establish a
capital charge for custody digital assets because they are
always off balance sheet. They have created a framework called
the prudential treatment of cryptoassets that continues to
acknowledge that they are off balance sheet.
So if the standards of the SEC's Staff Bulletin are
adopted, that would be the first time that custody assets are
place on balance sheet. Do you think it is smart for the U.S.
to be imposing bank standards beyond international norms?
Mr. Powell. So again, the SEC has authority over accounting
rules, and that is what this was, and we now have to consider
that exact question, and that is what we are doing. I cannot
really say more because we are working our way through it. But
my understanding of it is the same as yours, though, which is
custody assets are off balance sheet, have always been. But the
SEC made a different decision as it relates to digital assets,
for reasons it explained, and now we have to consider those.
Senator Lummis. Yeah, and thank you. I encourage you to
consider that, and I appreciate that you are looking at it and
you are aware of it. That is great.
I will turn to master accounts now, of course. The Board
and the Reserve Banks have refused to provide Congress and the
public with transparency with regard to the application
process. At its core, a master account is a public benefit,
conferred by the Fed to a private institution. And since a
master account is a public benefit, really does the public not
have a right to know which institutions have master account and
which have applied for accounts and not received them? Both the
FDIC and the OCC publicly list similar application information
on their websites today.
So could you commit, as part of transparency project, to
make publicly available a list of institutions that have
received master accounts as well as the institutions that have
applied and not received them?
Mr. Powell. I will be glad to look into that. You know our
system well, and it really is that the Board, you know, we set
rules but the Reserve Banks really make the decisions about
granting accounts, subject to those rules. And we actually
think we can improve on that system with the current proposal
we have, and are considering comments on that right now, as I
am sure you know very well.
Senator Lummis. Yeah, and as you also know, applicants for
master accounts are getting whipsawed between the Federal
Reserve Board of Governors and the banks. The Federal Reserve
says that the banks have all of the authority they need,
meaning Federal Reserve Bank of Kansas City and others have all
of the authority they need to make these decisions, and yet you
go to the Reserve Banks and they say, ``Oh no, we are waiting
for the Board of Governors.'' And so there is a whipsaw effect,
and we get no answer.
The black hole continues to exist, and my frustration level
has long since been at a boiling point. It continues to be at a
boiling point. There is no responsiveness. It is a black hole.
And I wish to just, once again, use this opportunity to
encourage you to address that. There is just no excuse. There
is no excuse anymore, Mr. Chairman. Thank you.
Chairman Brown. Thank you, Senator Lummis.
Senator Van Hollen, of Maryland, is recognized.
Senator Van Hollen. Thank you, Mr. Chairman. Welcome,
Chairman Powell. I cannot let an opportunity go by without
raising the issue of the FedNow real-time payments system
implementation. You would agree that if we can get this system
into place it will save millions of Americans billions of
dollars, would you not?
Mr. Powell. Yes, I would.
Senator Van Hollen. And so that is why I always want to
encourage you to move very quickly. As you know, the system is
scheduled to go up next year. We had an earlier hearing in May,
in this Committee, and Brookings senior fellow Aaron Klein, who
has spent a lot of time monitoring this system, shared his
concern that we were not moving fast enough to hit that date
and fully implement it.
So I just want your commitment, Mr. Chairman, that you are
focused on this and that it is a priority.
Mr. Powell. Very much so. We are very focused on doing it
right and also on time, and that is next year.
Senator Van Hollen. Right. Because it especially impacts,
of course, people living paycheck to paycheck, right, who make
a deposit in a bank but it does not clear, and then they get
tagged with all sorts of overcharge fees and things like that.
You know, other countries that are a lot less advanced in terms
of technology than the United States have figured this out and
we should be there now.
I just want to turn to really the issue of the day, which
is this challenge in navigating between keeping a strong
economy moving and low unemployment and dealing with price
stability.
On the good news front, and I think you testified to this
earlier, the United States is doing a lot better than our sort
of near-peer economies when it comes to economic growth and
quickly reducing our unemployment rate. Is that not the case?
Mr. Powell. Yes, generally. We are further advanced in our
recovery, I would say.
Senator Van Hollen. Yeah. So that is good news, and we want
to keep that going. We also, obviously, want to deal with the
price increase. And the concern which has been shared by others
this morning is that many of the causes of those price
increases are beyond the control of the Fed. And I call them
the three P's--Putin's war, pandemic supply chain disruptions,
price gouging--Senator Cortez Masto raised that.
And so I think the challenge is how do you navigate
increases in interest rates when a lot of the drivers of price
increases are beyond your control? And I want to raise a
specific kind of case study here, which is in the housing
market. Because you would agree, would you not, that increasing
the supply of housing can help reduce housing prices, right?
Mr. Powell. Sure.
Senator Van Hollen. Yeah. But what we are seeing now is
that with rising interest rates obviously new investments are
more expensive. We have seen housing starts fall by 14 percent
in May. So that means fewer housing opportunities, less supply,
fewer workers engaged in building new homes.
So if you could just use that as a sort of case study of
how you are going to navigate these cross currents.
Mr. Powell. Interest-sensitive spending is a very important
aspect of how our tools work, and in the case of the housing
market what you are seeing is higher mortgage rates, so you are
actually seeing demand move down quite significantly. Many,
many indicators suggest that fewer people are visiting homes,
the wait time for selling a home is increasing, housing sales
are moving down, housing starts are moving down, and overall,
it is a slowing in the housing market.
And I think what you will see, or many forecasts call for,
the increase in housing prices to slow pretty significantly
now. You have seen very, very large, as you know, increases in
housing prices, really since the beginning of the pandemic, to
the point where, you know, all over the country you have people
five bids above the ask the second the house comes on the
market. Well, that is cooling off now to a more sustainable
pace.
So what we hope is we can get demand, that part of the
economy, to slow to a more sustainable pace, and get the
housing market back on a more sustainable path where there is a
better balance between supply and demand.
Senator Van Hollen. I appreciate that. I am just going to
use my remaining time to sort of push you a little further on
this issue, not specifically with housing. But given the fact
that so many of the factors that are driving price increases
are beyond our control--and you talked about core inflation--
what is your confidence level that we will have what is
generally referred to as a soft landing, where we will not
overcorrect in raising our interest rates to the point that it
begins to really hurt our economy, workers, and wages? What is
your level of confidence that you can navigate a soft landing
for the economy?
Mr. Powell. I mean, it is our goal. It is going to be very
challenging. It has been made significantly more challenging by
the events of the last few months, thinking there of the war
and commodities prices and further problems with supply chains.
And the question whether we are able to accomplish that is
going to depend, to some extent, on factors that we do not
control.
Senator Van Hollen. Well, Mr. Chairman, if I could, but
this is the point, I think many of us are making. The factors
that are out of your control are not going to be susceptible to
those costs being brought down--oil, gas, food--by the measures
you are taking. And the risk is that the measures you are
taking will slow down other parts of the economy without
getting us the benefit of lower prices.
So I think that is a big theme today, and I just look
forward to continuing our conversation about how you are going
to thread that needle.
Mr. Powell. Can I say that the other risk, though, is that
we would not manage to restore price stability and that we
would allow this high inflation to get entrenched in our
economy. And we know from history that that will hurt the
people we would like to help, the people in the lower income
spectrum who suffer now from high inflation. That will hurt
them more than anyone.
So we cannot fail on that task. We have to get back to 2
percent inflation so that we can have the kind of labor market
that we really want.
Senator Van Hollen. I appreciate that, Mr. Chairman. But as
you know, the prices that people are experiencing most vividly
day to day is the price of gas at the pump and the price of
food at the grocery store, both of which are things that you
have said are beyond your control.
So thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Daines, from Montana, is recognized for 5 minutes.
Senator Daines. Mr. Chairman, thank you. Mr. Powell, good
to see you here today. Like my colleagues, I continue to be
deeply concerned with the inflation we are seeing in the
economy and its real-life impact on Montana families. When I go
back home I hear the top three concerns from Montanans. It is
inflation, it is inflation, it is inflation. The price of gas,
the price of groceries.
CPI inflation grew 8.6 percent, year over year, in May, the
highest increase since December 1981. In Montana, the Mountain
States, as you are aware, inflation grew by 9.4 percent versus
a year earlier. This rate of inflation is unsustainable for
Montanans and Americans alike.
For months--for months--Republicans in Congress and even
some Democrats, like former Treasury Secretary Larry Summers,
warned of the massive inflationary risk of the $2 trillion
March of 2021 stimulus package, what that posed to the economy.
In fact, I just pulled up the Washington Post article from
March 29, 2021. I remember being in this very room, similar
hearings, warning our colleagues about the risks of moving
through a $2 trillion spending package when we had $1 trillion
of unspent COVID money still remaining in December of the prior
year.
Let me quote from that Washington Post article. It says,
``Summers''--remember, Secretary of the Treasury under Clinton
and economic advisor to Barack Obama, a Democrat--``Summers,
age 66, who drafted economic blueprints for the past two
Democratic Presidents and was a top candidate to lead the
Federal Reserve Board under President Obama, has emerged in
recent weeks as the loudest critic of President Biden's
approach to reviving the pandemic-era U.S. economy. The Harvard
University professor, who advised Biden for a time last summer,
warns''--and this is key--``that the President's stimulus plan
may trigger the highest inflation in more than half a century
and could cost Democrats the chance to make lasting investments
in the economy.''
There were many of us warning the Administration and our
colleagues across the aisle of blindly moving forward, on a
purely partisan basis, to jam through that $2 trillion package
and the inflation risks associated with it.
Now, with inflation at a 40-year high, these same Democrats
are continuing their ill-advised effort to revise President
Biden's sweeping ``build back broke'' package, no matter the
warning signs that are flashing right now in all of our faces.
Chairman Powell, Mr. Summers has suggested several years of
greater than 5 percent unemployment might be necessary to
contain inflation. Would you agree with that assessment?
Mr. Powell. I guess I would say that I do not want to
comment on other forecasts, generally, but my assessment is
that it is going to depend, to a significant extent, on factors
like how long does the war run and how long does it take supply
chains to improve, and that kind of thing. There is a lot of
uncertainty around that. I would have a lot of humility about
trying to predict with any clarity exactly where the economy is
going to be in the next 3 years, for example.
But my assessment, though, is that there are certainly
paths to get inflation down to 2 percent with outcomes that are
substantially less troubling than what you just read.
Senator Daines. You have characterized a soft landing as
getting back to 2 percent inflation while keeping the labor
market strong. What is your confidence that the Fed can achieve
this goal without causing a recession?
Mr. Powell. That is our goal. That is our intention. I
think it is going to be very challenging. We have never said it
was going to be easy or straightforward. It is going to be
challenging, and the events of the last few months have
certainly made it more challenging. Nonetheless, there are
pathways through which that could happen, and in particular,
what we saw in the early part of 2021, when inflation went up,
was very strong demand surged against what were unanticipated
supply side constraints. And the result was prices went up a
lot, much more than could be explained by just the increase in
demand.
And so, in principle, if demand can move back down, then
inflation could move back along that path just as quickly as it
went up, in principle. No one is guaranteeing that, but the
idea is this is not the same--you know, there are relationships
in the economy for how quickly inflation would move compared to
demand moving. This could be an unusual situation because we
have had what is, in effect, a vertical supply curve, where
there is not any more supply, or a very steep supply curve. So
you get really sharp increases in prices. You could get sharp
declines for the same reason.
So that could be a difference, and I think we will find
out, ideally. But ultimately we need to see progress on the
supply side, and we are not waiting for it. Our job and our
tools work on demand, and that is what we are working on now,
is getting demand down to a more sustainable level so that
supply can catch up and is in better balance with demand.
Senator Daines. Chairman Powell, thank you.
Senator Tillis [presiding]. Thank you, Senator Daines.
Senator Ossoff, on behalf of the Chair.
Senator Ossoff. Thank you, Senator Tillis. Mr. Chairman,
welcome back.
Let me state at the outset you have an extraordinarily
challenging job and extraordinarily complex times, and much of
what you are responding to and adapting to is beyond your
control. Your success is the country's success. To a
significant extent, it is the world's success, and I fervently
hope for your success and appreciate your continued efforts.
I would like to ask you to specify, if you can, what
transmission mechanisms you believe are most sensitive right
now to the change in monetary policy, what forms of consumption
you expect to be most sensitive to it, and the extent to which
you anticipate that some of the effects that you hope to have
on aggregate demand through the increase in rates are
transmitted by financial markets, and if so, how.
Mr. Powell. I guess I would say three basic channels
through which our tools work. The first would be interest-
sensitive spending. So that is durables, including cars and
things like that, durable goods. Housing, for example. So when
rates go up, spending on those purchases, which tend to be
financed with debt, will be restrained. That is one major,
major channel.
The second is just asset prices generally, across the
economy. When interest rates go up, it raises the cost of
holding assets. It can cause assets, again, broadly across the
economy, to either moderate their growth or decline somewhat in
value, and that has an effect, a broad effect, across the
economy on spending, on everything.
The third channel is really the exchange rate, which you
can think of as another asset price. That also has the effect
of pressing down on inflation.
So we look at all of those. Starting with the first one,
you can see, we just talked about the housing market. The
housing market is the classic part of the economy that is very
sensitive to interest rates, and you are going to see a
moderation in housing demand. You are going to see declining--
well, slower increases, at least, in housing prices.
So those are the three main channels I would point to.
Senator Ossoff. Let me ask about, in terms of asset prices
and how financial markets are responding to the Fed's stance. I
have consistently asked you and Secretary Yellen, when you
appear before the Committee to talk about systemic risks, risks
to financial stability, risk of financial contagion, where you
are moving swiftly and markets are volatile there are perhaps
institutional trades that could rapidly unwind or exotic
financial instruments that no longer function well.
What do you anticipate to be the parts of capital markets
now, or the phenomena in capital markets that present the
greatest risk to financial stability as the Fed takes the
aggressive action that you are taking?
Mr. Powell. Well, I would start by saying that the banking
system is very strong, well-capitalized, highly liquid, does a
much better job of understanding the risks it runs and managing
them than before the global financial crisis, and that is a
reflection of the work that regulators did and that the banks
did. So that part of the financial system is critically very
strong, and we saw that through the pandemic and we see it now.
To your point, though, capital markets did show real
periods of illiquidity during the immediate aftermath of the
pandemic, and so we have been looking at ways--we, I say
broadly, the regulatory community--has been looking at ways to
address that.
Senator Ossoff. So you remain concerned about money
markets.
Mr. Powell. Well, that is different. So money markets, that
is a part of the economy where it has become illiquid because
the assets that they were invested in were not able to be
turned into cash quickly to fund depositors wanting to take
their money back. So we stepped in and had to provide that
liquidity for the second time. There are reforms going on there
at the SEC which should address that, and they are in the
process of being considered and then implemented. So that
should help on that front.
I was thinking more of the Treasury market, for example,
which became illiquid at the very beginning when people wanted
nothing but cash, nothing but the cash, and those cash-like
things.
The Treasury market has been functioning, though, all
through this period, when we have very significantly changed
the stance of monetary policy. So markets have been functioning
well, reasonably well, and----
Senator Ossoff. OK. My time is running short. I appreciate
that. We will probably follow up to talk a little bit more
about financial risk.
With my remaining few seconds let me ask you this. How
would you characterize the share of responsibility, if you
will, on the supply side versus the demand side, for the
elevated price levels over the last year? To what extent do you
believe that--you mentioned the supply curve being steeper than
expected and so the increased durable goods demand and consumer
demand having a greater than expected effect on prices.
Right now, is the principal driver of the increase in the
price level elevated consumer demand, elevated demand, or is it
supply constraints? I know we are facing both, but I am asking
you to allocate, as you can, some share to each phenomenon.
Mr. Powell. Yeah. I just would say it is clearly both
factors are principally at work here. You could not get this
kind of high inflation without strong demand, and you certainly
could not get it without the kind of supply issues that we have
had, both in the labor market, reflected in high wages, and
then in the goods market, reflected in what has happened with
durable goods. And cars, in particular, you look there, it has
been driven by the semiconductor shortage.
Senator Ossoff. Thank you, Chair Powell. Thank you, Mr.
Chairman.
Senator Tillis. On behalf of the Chair, Senator Moran.
Senator Moran. Mr. Chairman, thank you. Chairman Powell,
thank you for your presence here today. Let me start just by
making certain that I tell you something that I think I need to
say, on behalf of Kansans. I have never seen the level of
anxiety, uncertainty, concern for the future as I see today
when I have conversations with folks in my neighborhood and
across Kansas. There is a sense that something is not right.
Inflation is a significant component of that feeling, and the
inability to know what is around the corner is terribly
damaging to folks, both financially but also mentally or
psychologically.
There is a real circumstance out there that I want you, as
the Chairman, and your colleagues to know exists. I think
uncertainty in what the future holds is one of the most
damaging things, when people try to figure out their lives and
how comfortable they are.
I also want to highlight a particular Kansas but middle
America, across the country issue of agriculture. I was on a
farm on Saturday, participating in, observing harvest of wheat.
We live in a world in which people are starving and more are
going to starve if we fail to get more grain into markets, from
Ukraine and from Russia, but from the United States as well.
Agriculture, farming is a noble calling and it has a lot to do
with being able to feed people who are now desperate.
Part of the concern in regard to agriculture is the
interest rates have a significant consequence to the
profitability, to the survivability of producers, and profit
margins gets squeezed. If interest rates continue to climb we
face declining or lower land values. That creates greater
access to credit challenges.
Tell me how you see, one, how I can assure my Kansans and
Americans that things are going to be better, and two, how can
I assure farmers and ranchers that their future will be
brighter, based upon the activities of the Federal Reserve?
Mr. Powell. I take the sort of very low confidence readings
that we are reading about, and your comments about Kansas
citizens, as being pretty directly related to high inflation,
and I think people have not seen it. You know, most people, you
and I are old enough to remember what it was like, and it is
something that it just really does destroy public confidence in
the economy and that kind of thing. So we need to get inflation
back down to 2 percent, and all I can say is we are using our
tools to do that and the public should believe that we will get
inflation back down to 2 percent, over time.
Again, there are factors that we do not control, but those
factors do tend to wash out over time. Things like commodity
prices do not tend to just keep going up. They may remain high
but essentially they are quite volatile over time. That is what
the record shows.
So we are doing what we can to get inflation down, the
parts that we can address. So whatever that is worth, that is
what we can do and what we will do.
In terms of the agricultural patch, as you know we have,
including your Kansas City Fed president, we have some terrific
people who are Reserve Bank presidents who give us a good sense
of what is going on in the agricultural sector on an ongoing
basis, and it is obviously a very, very difficult time, with
fertilizer prices and difficulty in getting all kinds of
inputs. It is just a very challenging time in the agriculture
world. We do understand that.
Our part of it is to do what we can to get inflation back
under control. I know higher interest rates are painful, but
that is the tool we have to moderate demand and get demand and
supply back into balance so that inflation can come down.
Senator Moran. Mr. Chairman, in a conversation you and I
had on the phone you indicated, as you did today, that there
are certain aspects of inflation that you have little control
over. One of them, I think you mentioned, was energy. Let me be
reassured, if you would, that there will not be actions by the
Federal Reserve to make lending to fossil fuel producers a
component of the policies of the Federal Reserve. When you say
you have little to do with it, you could cause great damage if
you decide to go down a path that was at least contemplated by
a number of nominees for the Federal Reserve Board, and I would
love to be reassured that is not a component that you would
pursue and that we would not see resulting in increasing cost
of fuel as a result of Federal Reserve policy.
Mr. Powell. My view certainly is that it is not our job to
allocate credit to or against or away from any particular
sector of the economy. That is the job for elected officials or
for markets, but it is not a job for the Federal Reserve, which
has a mandate to, you know, pursue maximum employment, price
stability, a well-regulated banking system, and a sound payment
system.
Senator Moran. Mr. Chairman, thank you.
Senator Tillis. On behalf of the Chair, Senator Warnock.
Senator Warnock. Thank you very much, Mr. Chair, and thank
you, Chairman Powell, for being here again today.
Georgia is in a serious housing crisis, and the Federal
Reserve Bank of Atlanta has designed owning a home in Atlanta
as unaffordable to the average home buyer. But it is not just a
city problem. It is urban. It is rural. Haralson County, a
county with a population of less than 30,000, is also rated as
unaffordable.
In the midst of this housing crisis, the Federal Reserve
Bank, which has a tough mandate and a tough time of managing
inflation, has raised the Federal funds rate by 0.75 percent.
This means mortgages are about to get a lot more expensive for
families.
Chairman Powell, as the Fed raises its interest rates, what
is the Fed doing to prevent this rate increase from further
exacerbating the housing crisis?
Mr. Powell. Well, so by raising rates, what you are seeing
is a slowing housing market now. Because of higher interest
rates, mortgage rates have gone up pretty substantially, and
you are seeing a slowing in the housing market. And one of the
things that should mean is that housing prices should stop
going up at such remarkably rapid rates. Since the beginning of
the pandemic, we have had a very, very hot housing market all
around the country, and what should take place is as demand
moderates, the demand for housing moderates, for new and
existing homes, you should see prices stop going up quite so
fast. You are also going to see fewer home sales, and just
generally a lower rate of activity in the housing market.
So really what needs to happen is housing supply and demand
need to get back into better alignment, and the part of that
that we can control is really by moderating demand so that
prices stop going up quite so much and that we can get back to
a housing market where supply and demand are.
Now we do not control supply, and there are issues in this
country around housing supply. It is harder to get land and
lots and things like that. It is harder to get people to work.
So there are supply side constraints, if you meet with builders
from around the country. They will tell you that we have a
longer-term issue as a country around creating enough housing
supply. That is not something that the Federal Reserve can do
anything about, but it is an important issue.
Senator Warnock. Notwithstanding that mortgages are
clearly, at least in the short term, about to get more
expensive, it seems to me that what would be helpful is if the
Congress would pass my Down Payment Toward Equity Act to help
first-generation homebuyers afford their first home.
What effects do you expect the Fed's interest rate
increases will have on the--well, let me put it another way.
The Federal Reserve helps enforce the Fair Housing Act and the
Equal Credit Opportunity Act. What plans do you have to ensure
that as interest rates increase everyone still has access to a
fair, reasonably priced mortgage?
Mr. Powell. Higher interest rates do not change our very
important obligations under the fair credit laws that we
enforce, and so we will continue to enforce those, you know,
transparently and aggressively.
It is true, though, that mortgage rates have gone up, and
that will slow down demand, and there is some pain involved in
that for people paying higher mortgage rates and also some
people will be priced out of the mortgage market. But that is
ultimately what needs to happen if we are to get back to price
stability to a place where people's wages are not being eaten
up by inflation.
So the greatest pain would be if we allow this high
inflation to just continue.
Senator Warnock. Yeah, and I guess my point is in the
meantime, the folks who are on the margins of the marketplace
in the first place, the issue is how do we protect them as much
as possible.
Related to that, when Secretary Yellen was here she stated
that the Federal Reserve needed to not only be skillful, but
she said, quote, ``lucky'' to ensure, quote, ``a soft
landing.'' I do not like counting on luck when the economic
safety of Georgians, particularly those at the margins, is at
risk, which is why I am doing what I can here in the Senate.
I have introduced a couple of bills to lower the price of
gas, to lower the cost of groceries and other everyday goods,
to cap the cost of insulin and other medication, and I have
held the White House accountable to pursue investigation of
price gouging of ocean carriers and I have supported bipartisan
legislation addressing the same issue that just became law.
How can Congress lower costs for Georgia families, and what
steps can Congress take to support the Fed and ensure a soft
landing?
Mr. Powell. I guess I would be reluctant to give you advice
while we are trying so hard to do the job that you have
actually assigned us, which is to get inflation back down.
Yeah, I mean, I think those are authorities that those of you
who run for elected office have, and we do not have, as mere
appointees. So that is really up to you.
Senator Warnock. You would agree that the folks at the
margins of the economy are feeling the most pressure and pain,
and that has to be addressed?
Mr. Powell. I think that is always the case, and in the
case of inflation it is really that if you are spending every
dollar that you are intaking on the bare essentials of life,
and the cost of them goes up 10 percent, you are in trouble
right away, whereas middle-class people and people better off
than that, they have got some resources, some ability to deal
with it.
But that is why it is such a priority for us to get on top
of inflation before it does become entrenched. Inflation has
only now been around for--you know, it really did not start
until March of last year. So it is not at all too late for us
to get this job done and get back onto the kind of path we all
want to be on.
Senator Warnock. Thank you so much. I am concerned about
this, and it is why, in the meantime, I have introduced several
bills the lower costs for essential items like gas and
groceries and medication.
Thank you for your testimony.
Mr. Powell. Thank you, Senator.
Senator Tillis. On behalf of the Chair, Senator Sinema I
think will join virtually.
Senator Sinema. Thank you, Mr. Chairman, and thank you,
Chairman Powell, for joining us today, and congratulations on
your recent reconfirmation.
You know, the inflation numbers continue to be concerning,
and this is the number one issue I have been hearing about from
Arizonans. Families and small businesses are paying higher
prices and they need relief from soaring inflation so they can
make ends meet.
But we also know that this is not only a U.S. problem.
Countries around the world, both big and small, are also seeing
high inflation. So how is the U.S. positioned relative to other
countries with respect to inflation?
Mr. Powell. I would say our level of inflation is broadly
comparable to that of other major economies. You saw Canada
release their inflation number today. It is not far from where
ours are. Same with the Western European democracies and the
United Kingdom.
But there are different compositions. So I would say
generally, to generalize, in the United States our inflation
has more of a demand-driven component whereas in Europe it is
more, to a greater extent, driven by very high energy prices,
for example, although the United Kingdom kind of has a mix of
both of those. We also have high energy prices here. So the
levels are similar but the composition is a little bit
different here in the United States.
Senator Sinema. Thank you. You know, crypto markets have
experienced substantial volatility in the past several weeks.
Has the Fed been tracking these events, and what implications
do they have for how the Fed is viewing the broader economic
outlook and making decisions with respect to monetary policy?
Mr. Powell. We are tracking those events very carefully of
course, and not really seeing significant macroeconomic
implications so far. But I think the principal implication is
really what we have been saying, and others have been saying,
for some time, which is that in this very innovative, new
space, really there is a need for a better regulatory
framework.
The same activity should have the same regulation no matter
where it appears, and that is not the case right now because a
lot of the digital finance products are in some ways quite
similar to products that had existing in the banking system or
the capital markets but they are not regulated the same way. So
we need to do that. And I think that is the main takeaway I
would have.
Senator Sinema. What is an appropriate proportion of
current U.S. inflation to assign to Russia's illegal invasion
of Ukraine, and how are you thinking about these events in the
context of setting monetary policy?
Mr. Powell. Well, I would say that, you know, the increase
in commodity prices are clearly connected to the war in
Ukraine, so that part of inflation would be certainly much
lower than it is without the war in Ukraine. And, you know,
really there is nothing that our tools--our tools work on
demand, and there is a job for our tools to do here. There is a
job to moderate demand so that it can be in better balance with
supply. But we do not think that we have the answer to higher
oil prices due to the global oil situation.
Senator Sinema. I know the Fed tracks the core personal
consumption expenditures index closely when thinking about
monetary policy. Many trends in our economy, including a big
shift toward technology and e-commerce, accelerated during the
first year of the pandemic, and it is possible that the
indicators and weights used to measure inflation may need to be
revised to accurate measure inflation as Americans are
experiencing it.
So we all know inflation is high, but how high it is
matters to ensure that we have an appropriate response.
Congress and the Fed should make decisions based off the best
information that most accurately reflects the challenges that
families and businesses are facing.
Have you given thought to this issue?
Mr. Powell. Well, yes, in the sense that we look very
carefully at the way we measure inflation in this country. We
actually use personal consumption expenditures, which is a
little different and a better approach, we think, than the more
traditional consumer price index. This was a change we made
about 20 years ago, and I think economists generally think that
PCE inflation does a better job of measuring the inflation that
people are actually experiencing in their lives. So that is
what we do.
And we keep it updated. The Government agency that manages
it keeps it updated on a regular basis. So we think that is the
right approach in terms of measuring inflation. Of course, we
look at CPI as well, but we have chosen to make PCE inflation
our principal measuring stick.
Senator Sinema. OK. Thank you. Mr. Chairman, I see my time
has expired. I yield back. Thank you.
Chairman Brown [presiding]. Senator Menendez, of New
Jersey, is recognized.
Senator Menendez. Thank you, Mr. Chairman. Chairman Powell,
I want to start on the issue of diversity at the Fed. I have a
letter that we sent you yesterday, and signed by nine Senators,
including five Members of this Committee, urging you to
undertake a number of simple reforms to the process for
selecting bank presidents and Class B directors. That process
has to include meaningful transparency and public engagement if
we are ever going to have Fed leadership that truly represents
the public, as required by the Federal Reserve Act.
So I will wait for your written response because we just
sent that letter, on the details of those proposed reforms, but
for now can I have your commitment that you will provide us
with a substantive response by July 22nd?
Mr. Powell. Yes.
Senator Menendez. Thank you. And also will you commit to
work with me to put in place real, meaningful changes to the
process so we can have a broader array of voices to the Fed
leadership?
Mr. Powell. I will commit to having a frank discussion with
you about that. We are open to ideas of how to improve. As you
point out in your letter, you know, it is not like we have not
made tremendous strides as it relates to the Class B and Class
C directors in the course of the last 10 years. We really have,
and the diversity numbers are, I think, quite impressive for
the B and C directors. The A directors, as you point out in
your letter, less so, but those are appointed by the bankers in
the district.
But we can have this conversation. I look forward to it.
Senator Menendez. Less so, but it is worse than less so. I
mean, you do not have one bank president in the history of the
Federal Reserve who has been Hispanic. That is far worse than
less so.
Mr. Powell. I was talking about directors. But you are
right about that.
Senator Menendez. And there was a tremendous opportunity
and it did not happen.
You know, I feel like I am the lone effort on this, but 62
million Hispanic Americans, who represent $2 trillion of
domestic purchasing power, deserve a seat, where some of the
most important economic decisions are being made. So we look
forward to the engagement that you have said that you are
willing to engage in.
Now I am trying to find out, as others have raised with
you, there is no question that painfully high inflation is
affecting every family in America. But in order to develop the
right response we need to understand the underlying factors
that are driving price increases. I think you have said here
today that Russia's invasion of Ukraine, pandemic-related
supply chain issues, and the energy issues that flow from
Russia's invasion of Ukraine are perhaps some of the biggest
factors in driving inflation.
But the question is, how is it that raising interest rates
on those underlying causes of today's inflation ultimately are
going to change it? You know, energy is still energy. Supply
chain is still supply chain. Russia's invasion of Ukraine is a
continuing challenge for the world. But there is nothing about
interest rates that is going to affect any of that.
Mr. Powell. No, but notwithstanding that there are major
parts of the economy where demand exceeds supply, meaningfully,
and that is where our tools have a job to do, where we can
moderate demand and give supply time to recover so that supply
and demand get back into better balance and inflation comes
down.
Senator Menendez. Well, it seems to me that we can all
recognize that raising interest rates is a blunt tool at the
end of the day, but I am looking, going back to the beginning
of my questioning, it is essential, I believe, to be mindful of
the effects of your actions--``your'' meaning the Federal
Reserve--will have on unemployment, particularly for those
groups that we were hit hardest by the pandemic.
The Fed's latest Monetary Policy Report states that, quote,
``Employment for Blacks and Hispanics not only declined by more
than that for Whites and Asians early in the pandemic but also
recovered more quickly since the end of last year.'' Now that
we are potentially entering a period of larger and more
frequent interest rate increases, what do you expect will
happen to the unemployment rates of Black and Hispanic workers
relative to the population as a whole?
Mr. Powell. It will depend on what happens to the overall
unemployment rate. Our goal is to achieve 2 percent inflation
while still keeping the labor market strong. That is our
intention with this.
Senator Menendez. Well, I appreciate what your intention
is, but I would venture to say that what we will see is what we
have seen in the past, that crisis after crisis
disproportionately harms Americans of color. So I hope the
Fed's response to inflation does not continue that trend
because it is woefully wrong that one group of Americans
disproportionately faces consequences of policy decisions
versus the rest of America. And this is another reason to have
people at the Federal Reserve who represent this community to
share those insights with the Fed as you determine these macro
policies that are going to affect our communities
disproportionately.
Chairman Brown. Thank you, Senator Menendez.
Senator Tillis.
Senator Tillis. Thank you, Mr. Chair. Chair Powell, in
response to a question from Senator Warner and a question from
Senator Sinema, Senator Warner more or less asserted that we
are all in the same boat in terms of inflation globally, but
you made the point, on two different occasions that what is
driving inflation in largely Europe, a little bit less so in
the U.K., has to do with spiraling energy prices.
Could you talk a little bit about, beyond the pain at the
gas pump and the increased cost of transportation, how
increasing--I should say, and I believe that Europe is where
they are--this is not for you to comment on--because they moved
a little bit too aggressively and did not look at resiliency
with some of their energy inputs that were largely affected by
the Russian invasion. But could you talk a little bit about the
other commodities that are affected by rising interest rates?
We are talking about housing, and we know that pipes, a number
of inputs to housing construction have gone up. Can you talk a
little bit more about the market basket of other commodities
that are influenced by increasing energy prices?
Mr. Powell. I think energy prices go into an awful lot of
different places in the economy, including as an input into
manufacturing goods of all kinds and plastics, particularly,
and things like that. So it is a big contributor to inflation,
beyond just the actual energy prices.
Senator Tillis. Yeah, and so, my only comment here, then I
just have a closing thought, is that we are unilaterally
hamstringing your ability to bring inflation down--you do not
have to respond to this; it is a policy position--by
artificially increasing the cost of energy in this country. If
we simply would recognize that there is a way to get to a
transition to green, renewable energy and made the glidepath
sustainable, we could easily separate ourselves from the rest
of other Western democracies with respect to that tool, which
is not in your toolbox. And hopefully we can get to that
discussion and embrace the idea that the transition is
inevitable. It is a matter of timing and resiliency in the
meantime.
Just one other question. I know the Post FOMC press
conference you ruled out a 100 basis point increase. Is that a
long-term view or a view based on the circumstances as you see
them today? In other words, would that be something potentially
on the table if the measures that you are taking right now to
not work out?
Mr. Powell. I think I would never take something off the
table for any and all purposes. You know, the committee that I
chair will make whatever moves it believes are appropriate to
restore price stability.
Senator Tillis. OK. Well, I, for one, am glad you are at
the helm. I have a lot of confidence in you, which I why I
voted for your confirmation. But we will be submitting some
questions to the record back on the points that I made in the
opening statement about transparency. There is some
frustration, and I have to say it is bipartisan, in terms of
questions that we are asking and not getting answers to. The
master account is one of them, but there are other items that
we will just include for the record.
Thank you, Chair Powell. Thank you for serving.
Chairman Brown. Thank you, Senator Tillis, and thank you
for your cooperation in this hearing today. It has been a busy
day for a lot of people, and Chair Powell, thank you.
I have a series of questions. I have not asked my
questions. I was saving them for last. After my questions we
will adjourn.
You have said that Russia's aggression in Ukraine, port
congestion, and COVID lockdowns in China especially have
contributed to higher prices. Consumer spending continues to be
strong. Most Americans probably worry about inflation.
Talk for a moment, if you would, about the strengths of the
American economy now and whether or not you see positive signs
of prices stabilizing.
Mr. Powell. Well, consumers are overall--not every
consumer, but overall the consumer sector is in very strong
shape financially. There is, as you know, a very substantial
accumulated quantity of savings on balance sheets, less so at
the very bottom of the income spectrum but right across the
rest of the spectrum. So that is there to support spending,
even in the face of higher inflation. And you are seeing
consumer spending hold up pretty well.
Sorry, the rest of your question----
Chairman Brown. Well, are there positive signs of prices
stabilizing?
Mr. Powell. So in terms of prices stabilizing, what we are
looking for is compelling evidence that inflation is coming
down, and we do not have that, so nothing I could point to says
that we have that.
I will say that core PCE inflation is a pretty good
indicator of where underlying inflation is running, and it has
moderated over the course of this year reasonably significantly
from where it was in the latter part of last year. It is still
way higher than it needs to be. We need to see a lot more
progress. But it has been running at a rate over the last, say,
four or 5 months that is lower than it was, at least, but
again, still far too high.
So we are looking for that. We are not really seeing it
yet. You know, there are lots of stories out there of how this
should happen, and some people think it is very clear that it
will, and until we actually do see it happen we need to keep
moving.
Chairman Brown. And I want to be clear. From your comments
publicly, your comments to this Committee today, you say the
economy is not at the point of a recession. Correct?
Mr. Powell. I do not see the likelihood of a recession as
particularly elevated right now. You should know that no one is
very good at forecasting recessions very far out. No one has
been able to do that regularly.
But I would say that the U.S. economy for now is strong,
and spending is strong, consumers are in good shape, businesses
are in good shape. Clearly financial conditions have tightened,
and you are seeing growth slow from the very elevated levels of
last year, associated with the reopening. You are seeing the
beginnings of job growth slowing to more sustainable levels.
And, you know, there is risk in that. There is obviously
risk in that. Monetary policy is famously a blunt tool, and
there is risk that weaker outcomes are certainly possible. But
they are not our intent.
Chairman Brown. And as I said at the beginning of my
testimony, or my opening statement a couple of hours ago that
our economy is growing faster than China's. Let me ask two
simple questions about gas prices. We have heard a lot today
about gas prices from both sides. Just a few yes-or-nos. Does
President Biden set gas prices?
Mr. Powell. No.
Chairman Brown. Does Congress set gas prices?
Mr. Powell. Not as far as I know.
Chairman Brown. Do you, as Chair of the Federal Reserve,
set gas prices?
Mr. Powell. No.
Chairman Brown. I would not ask you to assign a sort of
quantum responsibility, but starting with the decisions of OPEC
and the world's major oil companies to not produce more, can
you tell the Committee briefly what goes into the price at the
pump and only what tools you have, Congress has, other
Government agencies have to bring the price down?
Mr. Powell. It is really principally, the price of oil,
which is set globally, largely by the actions of large oil-
producing countries, and then it is the refining spread, what
it costs to refine, what the refiners can charge for what the
public consumes, that refined product. So those are the two
pieces of it, and our tools certainly do not work to address
either of those things.
Chairman Brown. Let me talk for a moment about housing.
Several have asked about the skyrocketing costs for both
renters and aspiring homeowners, prices over the last 2 years,
but prices were not that great prior to President Biden and the
last administration either, we know. Last year alone, rents
went up more than 11 percent, grew faster than wages.
What are the short-term and long-term effects on inflation
and our economy if renters see more and more of their monthly
income going to housing?
Mr. Powell. That will crowd out other kinds of spending.
The very fast increases in housing prices over the last couple
of years have been very broad across the country and
unsustainably high.
Chairman Brown. And that, of course, speaks to the
importance of building more housing.
Last question I want to ask before adjournment, we have
seen cryptocurrency values collapse by some $2 trillion and
markets crash over the past few weeks, consumers losing money,
workers losing jobs. The Monetary Policy Report highlighted the
risks of stablecoins, digital assets that aim to maintain a
stable value in order to trade cryptocurrencies.
Talk for a moment, if you would, about the financial
stability and monetary policy risks that these assets pose and
how are stablecoins different? In your answer include how
stablecoins are different from the U.S. dollar, which has the
full faith and credit of the United States behind it.
Mr. Powell. A Stablecoin is an instrument really that is
backed up--there is a reserve that has securities in it that
are meant to assure the value. Let's say it is a dollar
stablecoin. So it is meant to assure that your interest is
actually worth a dollar. So that sounds a lot like a money
market fund, for example, and the way money market funds work
is there is great transparency about what is in the reserve,
and there are requirements about what must be in the reserve in
order to preserve that one-dollar value.
The world of stablecoins is new and emerging, and it does
not have the sort of fit-for-purpose regulatory scheme that it
needs to. And I think that is something you have been hearing a
lot across the board from a number of Federal agencies, and
from our own Treasury Department, which has been leading an
effort to try to put in place--and many Members of Congress now
have proposed new frameworks for regulating stablecoins, and
digital assets generally, and that seems like a wise thing.
Chairman Brown. And clearly SEC, clearly CFPB, other
agencies, the Fed's role in regulation of cryptocurrency in
your mind is what?
Mr. Powell. Well, that is one of the issues is who really
does have authority over this, and that is something Congress
would need to clarify. We have authority over what banks can
and cannot do, some banks and bank holding companies. The SEC
has some jurisdiction, has jurisdictions over securities. The
CFTC has relevant jurisdiction. So part of this will be
deciding what these things are and how they should be
regulated.
There are stablecoins that are really used in connection
with the crypto trading platforms. That is most of what happens
now with stablecoins, but there are also some stablecoins, and
even more potentially, that will be used in payments broadly.
So that would be two different kinds of regulation there.
It is just an area where Congress--and Congress is
investing bandwidth and looking at proposals, and that is, I
think, a healthy process that should lead, over time, to
something that has bipartisan support and puts in place
appropriate regulation for the whole area.
Chairman Brown. Let me drill down, and this is my last
question. So if Congress does not act--I understand, and the
Commodities Futures Trading Commission understand what you said
about SEC. Is the Fed directly involved in any of these
regulatory actions regarding cryptocurrency, absent of Congress
action?
Mr. Powell. We regulate banks, regulate and supervise
banks, and so we have a say in what our banks, you know, the
Federal Reserve-regulated banks and bank holding companies, do
with crypto assets on their balance sheets, what activities are
permitted and that kind of thing. Of course, the OCC is at that
table and so is the FDIC.
Chairman Brown. Does that suggest that a number of American
banks are cautious because of your oversight of them on crypto?
Mr. Powell. I mean, American banks are now very much
exploring are there profitable opportunities to serve our
customers in this new space? And, of course, what we are doing
is saying let's be sure that takes place in a way that
preserves and supports safety and soundness. And we have had an
ongoing set of meetings and collaborations with the FDIC and
the OCC, and that is ongoing, I guess, between us and the OCC.
So I think that is an appropriate way to carry forward. But it
is not a substitute for what I think is--you know, it is like
any other major area of innovation. Ultimately, Congress will
come together to create a regulatory framework that is more fit
for purpose for it, as it has in so many other cases.
Chairman Brown. OK. Thank you, Chair Powell. I look forward
to continuing to work together.
For Senators who wish to submit questions, those questions
are due 1 week from today, Wednesday, June 29th. To Chair
Powell, please submit your responses to these questions for the
record no more than 45 days from the day you receive them.
Thank you again for your testimony. The Committee is
adjourned.
[Whereupon, at 12 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
The Banking, Housing, and Urban Affairs Committee will come to
order.
Today's hearing is in hybrid format. Our witness is in-person, but
Members have the option to appear either in-person or virtually.
Today we've seen the fastest job growth in decades, faster growth
than China, and the lowest unemployment levels in 50 years.
But when Americans see the price of gas and groceries going up,
week after week, available jobs and long-awaited wage gains don't mean
as much and don't go as far.
American families have been through enough the past 2 years.
But for most people, it's not just the past 2years that have been
tough. Our economy hasn't worked for most Americans for far too long.
Whether it's war or disease or financial crisis or the march of
globalization, workers and their families always bear the biggest
burden--whether it's in the form of higher prices or lost jobs or low
wages or all of the above.
That's not inevitable. The economy isn't physics.
The ghost of Adam Smith would not recognize America today. There is
no invisible hand of the market.
When prices go up, it's because someone made a choice to raise
them.
In corporate board rooms, when supply chains slow down or input
costs go up or resources become scarce, executives make decisions:
Do we cut back on bonuses, do we rethink our stock buyback plan for
this quarter, do we forgo executive raises this year, do we post
quarterly profits that are still higher than last year--but maybe not
quite as high as analysts thought they could be.
Or do we raise consumer prices, and foist all the negative
consequences of world events onto the people who can least afford them.
We know what most corporations do.
They make the same choice they've always made, no matter the
economic conditions of the moment.
Most of these executives probably aren't bad people. They're just
doing their jobs, they tell us.
It's the Wall Street system. These executives have to post profit
increases for their shareholders, quarter after quarter--the
consequences for everyone else be damned.
It's why for decades, Wall Street has rewarded the companies that
squeeze their workers the hardest--companies that cut wages and
retirement benefits, and then cut corners on worker safety and on
consumer protection--just to make their stock prices go up.
It's why too many companies failed to invest in their workers or
their products.
It's why companies moved manufacturing overseas, and then neglected
the supply chains that have been crippled during the pandemic.
It's why big corporations like Amazon and Starbucks bust unions.
It's why oil and gas companies would rather charge higher prices
than increase supply to meet demand.
We aren't witnessing traditional inflation--we're watching Russia
and OPEC drive up prices and American energy companies engage in war-
time profiteering.
At the root of the higher prices and the empty shelves is the same
problem that's been shipping jobs overseas and keeping wages low for
decades:
Corporate power and concentration reaching into every industry and
market, into every corner of the economy.
Our economy doesn't have to be a zero-sum game where Wall Street
wins and everyone else loses.
We can create an economy that reflects our values and works for
everyone.
We passed the American Rescue Plan, including the Child Tax
Credit--the biggest tax cut for working families ever. And despite what
naysayers claim, it was not the cause of inflation. For the Ohio
families that I talk to, it empowered them to keep up with the cost of
raising children.
We passed the bipartisan infrastructure bill--a long-term invest in
economic growth that will create more jobs, strengthen our supply
chains, and improve our bridges and roads and public transit.
Last week, President Biden signed the bipartisan Ocean Shipping
Reform Act into law, which will bring down ocean shipping supply chain
costs.
We need to build on these successes to build an economy that
rewards work, making things in America.
We should pass my Supply Chain Resiliency Act, and bring
manufacturing back to the United States.
We should bring down the cost of prescription drugs and housing and
childcare and elder care and others costs that have been rising for
decades.
We need to pass the PRO Act, to empower workers in their workplace
and our economy.
And we need to crack down on corporate consolidation and
concentration. Fair competition is good for workers, consumers, and
Main Street businesses, and it's a core American value.
That is how we bring costs down, and ensure that workers don't
always pay the price for powerful people's bad decisions--whether it's
a dictator in Eastern Europe or a Wall Street bank executive.
In a truly fair economy, people don't have to choose between two
bad options--low wages, or high prices.
No one likes inflation, and people also want good jobs that pay a
living wage.
Americans want to work, and they want to work with dignity. That's
central to the functioning of our economy--and that's part of the Fed's
mandate.
We must continue to empower workers and strengthen the labor
market. Wages are not responsible for inflation right now.
We can't forget that 5.7 million people are still looking for
work--there are actual workers behind the numbers, whose livelihoods
are directly affected by decisions the Federal Reserve makes.
And as interest rates rise and financial stability risks increase,
it is even more important to keep a close watch on the biggest banks,
so that excessive risk-taking doesn't create even more problems.
Banks must have enough capital to withstand a crisis. They must
serve their communities--not just enrich themselves with stock buybacks
and exorbitant executive pay. And mergers must benefit the local
economy, not just shareholders.
We've seen too much evidence of big Wall Street banks behaving
badly: shunning small businesses, raking in billions in overdraft fees,
discriminating against Black borrowers.
You, Chair Powell, must also ensure we have a strong payment system
that works for Main Street banks and consumers, so that people don't
feel like the only option is a risky and unregulated alternative
financial system, backed by nothing but empty promises.
The thousands of proxy currencies, like stablecoins, and other
digital assets, that promise transparency and democracy are missing one
thing: they aren't backed by the full faith and credit of the United
States.
The Federal Reserve--our Nation's central bank--must use its
authorities to protect consumers and the financial system from these
risks.
And you must ensure that the Fed has the highest ethical standards.
After former Fed officials profited off of their positions in last
year's stock trading scandal, you must restore the American people's
trust in this institution that is critical for a healthy economy.
I was encouraged when you updated the Fed's policies, but we need
rules that have the force of law. That's why we need to pass my Ban
Conflicted Trading at the Fed Act.
As Chair of the Federal Reserve, you have an important role to play
to make sure our economy works for everyone, not just those at the top.
I urge you to remember the millions of working Americans who are
counting on you.
______
PREPARED STATEMENT OF JEROME H. POWELL
Chairman, Board of Governors of the Federal Reserve System
June 22, 2022
Chairman Brown, Ranking Member Toomey, and other Members of the
Committee, I appreciate the opportunity to present the Federal
Reserve's semiannual Monetary Policy Report. I will begin with one
overarching message. At the Fed, we understand the hardship high
inflation is causing. We are strongly committed to bringing inflation
back down, and we are moving expeditiously to do so. We have both the
tools we need and the resolve it will take to restore price stability
on behalf of American families and businesses. It is essential that we
bring inflation down if we are to have a sustained period of strong
labor market conditions that benefit all.
I will review the current economic situation before turning to
monetary policy.
Current Economic Situation and Outlook
Inflation remains well above our longer-run goal of 2 percent. Over
the 12 months ending in April, total PCE (personal consumption
expenditures) prices rose 6.3 percent; excluding the volatile food and
energy categories, core PCE prices rose 4.9 percent. The available data
for May suggest the core measure likely held at that pace or eased
slightly last month. Aggregate demand is strong, supply constraints
have been larger and longer lasting than anticipated, and price
pressures have spread to a broad range of goods and services. The surge
in prices of crude oil and other commodities that resulted from
Russia's invasion of Ukraine is boosting prices for gasoline and fuel
and is creating additional upward pressure on inflation. And COVID-19-
related lockdowns in China are likely to exacerbate ongoing supply
chain disruptions. Over the past year, inflation also increased rapidly
in many foreign economies, as discussed in a box in the June Monetary
Policy Report.
Overall economic activity edged down in the first quarter, as
unusually sharp swings in inventories and net exports more than offset
continued strong underlying demand. Recent indicators suggest that real
gross domestic product growth has picked up this quarter, with
consumption spending remaining strong. In contrast, growth in business
fixed investment appears to be slowing, and activity in the housing
sector looks to be softening, in part reflecting higher mortgage rates.
The tightening in financial conditions that we have seen in recent
months should continue to temper growth and help bring demand into
better balance with supply.
The labor market has remained extremely tight, with the
unemployment rate near a 50-year low, job vacancies at historical
highs, and wage growth elevated. Over the past 3 months, employment
rose by an average of 408,000 jobs per month, down from the average
pace seen earlier in the year but still robust. Improvements in labor
market conditions have been widespread, including for workers at the
lower end of the wage distribution as well as for African Americans and
Hispanics. A box in the June Monetary Policy Report discusses
developments in employment and earnings across all major demographic
groups. Labor demand is very strong, while labor supply remains
subdued, with the labor force participation rate little changed since
January.
Monetary Policy
The Fed's monetary policy actions are guided by our mandate to
promote maximum employment and stable prices for the American people.
My colleagues and I are acutely aware that high inflation imposes
significant hardship, especially on those least able to meet the higher
costs of essentials like food, housing, and transportation. We are
highly attentive to the risks high inflation poses to both sides of our
mandate, and we are strongly committed to returning inflation to our 2
percent objective.
Against the backdrop of the rapidly evolving economic environment,
our policy has been adapting, and it will continue to do so. With
inflation well above our longer-run goal of 2 percent and an extremely
tight labor market, we raised the target range for the Federal funds
rate at each of our past three meetings, resulting in a 1\1/2\
percentage point increase in the target range so far this year. The
Committee reiterated that it anticipates that ongoing increases in the
target range will be appropriate. In May, we announced plans for
reducing the size of our balance sheet and, shortly thereafter, began
the process of significantly reducing our securities holdings.
Financial conditions have been tightening since last fall and have now
tightened significantly, reflecting both policy actions that we have
already taken and anticipated actions.
Over coming months, we will be looking for compelling evidence that
inflation is moving down, consistent with inflation returning to 2
percent. We anticipate that ongoing rate increases will be appropriate;
the pace of those changes will continue to depend on the incoming data
and the evolving outlook for the economy. We will make our decisions
meeting by meeting, and we will continue to communicate our thinking as
clearly as possible. Our overarching focus is using our tools to bring
inflation back down to our 2 percent goal and to keep longer-term
inflation expectations well anchored.
Making appropriate monetary policy in this uncertain environment
requires a recognition that the economy often evolves in unexpected
ways. Inflation has obviously surprised to the upside over the past
year, and further surprises could be in store. We therefore will need
to be nimble in responding to incoming data and the evolving outlook.
And we will strive to avoid adding uncertainty in what is already an
extraordinarily challenging and uncertain time. We are highly attentive
to inflation risks and determined to take the measures necessary to
restore price stability. The American economy is very strong and well
positioned to handle tighter monetary policy.
To conclude, we understand that our actions affect communities,
families, and businesses across the country. Everything we do is in
service to our public mission. We at the Fed will do everything we can
to achieve our maximum-employment and price-stability goals.
Thank you. I am happy to take your questions.
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Additional Material Supplied for the Record
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