[Senate Hearing 117-495]
[From the U.S. Government Publishing Office]
S. Hrg. 117-495
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
__________
MARCH 3, 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
55-669 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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THURSDAY, MARCH 3, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 45
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 4
Prepared statement....................................... 46
WITNESS
Jerome H. Powell, Chair Pro Tempore, Board of Governors of the
Federal Reserve System......................................... 6
Prepared statement........................................... 47
Responses to written questions of:
Chairman Brown........................................... 50
Senator Toomey........................................... 51
Senator Reed............................................. 55
Senator Menendez......................................... 57
Senator Warren........................................... 58
Additional Material Supplied for the Record
Monetary Policy Report to the Congress dated February 25, 2022... 60
(iii)
THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS
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THURSDAY, MARCH 3, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order.
Today's hearing again is in a hybrid format. Our witness is
in person. Thank you, Chair Powell. Members have the option to
appear either in person or virtually.
I want to start by acknowledging that as we sit here this
morning, Ukrainians are showing such courage and resolve,
fighting Russian invaders in their homeland. Ukrainian families
fleeing indiscriminate bombings are taking refuge in subway
tunnels, something that Europe has not seen since the siege of
London seven decades ago. I want to express my support for the
brave men and women in Ukraine fighting for democracy, and I
know all my colleagues on this Committee, of both parties, join
me in that.
This is a Russian attack on democracy. It is only the
latest, terrible escalation of what has become one of the main
goals of the Russian Federation, to attack and undermine
democratic norms at home and abroad.
The world is looking to us right now. We are the leader of
the free world, and its oldest democracy. It is vital that we
live by our values, both abroad and at home. That means a
commitment to the rule of law, a commitment to democratic
participation, and a commitment to independent institutions
that allow our society to function, like the Federal Reserve.
We created the Fed 109 years ago, I guess, as an
independent agency, outside of any political party's control,
to be staffed with economic experts, not political cronies. It
is one of many American institutions that sets our country
apart from autocratic regimes.
It is vital that we reaffirm our commitment to the Fed's
role, showing the world what a functioning democracy looks
like. Let us show up and do our jobs, like Chair Powell comes
here, perhaps 14 times a year, it seems to him. That is the
best way to achieve a strong, growing economy, that lifts up
the whole country.
This time last year, our country and our economy were in a
place of deep uncertainty. More than 4 million people were out
of a job. Frontline workers were just beginning to get
vaccinated. We were in the midst of a public health crisis and
economic crisis that needed us all of us--policymakers,
business owners, workers, union and non-union alike--to come
together and tackle the challenge of this pandemic economy.
And that is what we did. We passed the American Rescue
Plan. We got shots into arms, money into people's pockets,
workers back on the job, and kids back in school. Against the
odds, 2021 became a year of, as the Chair, I am sure, will say,
unprecedented economic growth for our country, in job creation,
wage gains, GDP. For the first time in two decades--think about
this--for the first time in two decades the American economy
grew faster than China's economy. Think about that.
We averaged over half a million new jobs per month last
year, and we saw the fastest drop ever in the unemployment
rate. Wages rose for workers, especially low-wage workers, who
began to have a little more power in a tight labor market.
American entrepreneurs started a record-setting five million
new businesses.
This all translated into American families' household
balance sheets, which were healthier in 2021 than before the
pandemic. It is because of the actions that Democrats took in
this Congress, expanding the Child Tax Credit, and rental and
housing assistance.
The American Rescue Plan helped get most Americans
vaccinated and made a booster shot available to everyone.
Today, over 65 percent of the population is fully vaccinated,
more than 75 percent of all adults. Case counts and
hospitalizations are dropping. We are one step closer to normal
life beyond the pandemic. Americans no longer have to live in
fear.
We have come a long way, but the fight is not over, and it
has taken a terrible toll on Americans. After 2 years of
stress, of massive disruptions in our lives and in our economy,
people are simply exhausted. And they are fearful that
inflation will make it harder and harder for them to keep up
with the cost of living.
The pandemic economy has caused inflation. Families feel it
at the gas station. They feel it when they are making rent
payments. They feel it when they check out at the grocery
store.
We must acknowledge that Russia's invasion of Ukraine will
affect the global economy. We learned over the past 2 years how
fragile our global supply chains are. Some of us have said for
years that we should make more things in America and rely less
on China. Elites in Washington, in lobbying for trade change
and trade law and tax law, elites in Washington dismissed those
concerns for decade. Now they are starting to wake up.
We help prevent long-term inflation by bringing supply
chains home, and in the process we rebuild our own industrial
base.
The House and Senate have both passed bills investing in
domestic manufacturing and research and development. We need to
put a comprehensive bill on the President's desk and bring
manufacturing, research, and development back to this country.
We are building the capacity to move goods faster and more
cheaply with the Bipartisan Infrastructure Bill. While most
Americans report mixed feelings about the economy over the past
year--they may have gotten a raise and a tax cut and have more
in savings, while also being concerned rightly about rising
costs--there is one group that did better than ever last year:
America's large corporations. Corporations made record profits
in 2021 and they gave their executives and shareholders a
bigger slice of the profits than ever. They have reacted with
barely controlled glee at the opportunity to raise prices
during this pandemic economy.
We can never forget: raising prices is a choice. There is
no law saying that if the cost of an input goes up or if
transportation costs increase, companies have to raise prices.
They have options. They could cut costs elsewhere by making
executive bonuses or stock buybacks just a little bit smaller.
But of course they do not. There is not enough competition
in the economy, especially drug companies, meatpackers, oil
companies, shippers. From the meatpacking industry to the oil
cartels, corporations do not face the fair, capitalist free
market competition we need to keep prices low and wages high.
And when you combine current inflation with the expenses
that have been rising for decades--drug costs, childcare,
housing--it is little wonder that many middle-class families in
Nevada, Massachusetts, South Carolina, Alabama, Pennsylvania,
and Ohio do not feel stable.
It will take all of us to lower these long-term costs,
fight inflation, and create an economy where hard work pays off
for everyone, no matter who you are, where you live, or what
kind of work you do. All workers should be able to find a good-
paying job that allows them to raise a family, keep up with the
cost of living, and join the middle class.
The Federal Reserve has a responsibility, as you know, Mr.
Chair, to tackle inflation, to ensure we have a resilient labor
market, a safe and stable banking system, an efficient and
reliable payments system, and empowered local communities where
consumers, workers, small banks, and small businesses thrive.
And it is more important now than ever that we have a
full--full means seven members, first time in a decade; you
only have four now, as you know--a full Federal Reserve Board
making those decisions.
In a time of deep economic uncertainty, where democracies
across the world are threatened by authoritarian strongmen, we
must ensure the Fed is operating at full capacity. We have an
opportunity, Mr. Chair, as you know, and you know her well, to
confirm one of the world's leading experts on cybersecurity in
the financial system. Sarah Bloom Raskin chaired the G-7 Cyber
Expert Group. We need her in that position now more than ever.
All of us need to do our job to get her and the other four Fed
noms confirmed. We must fill these positions so that the entire
team of decisionmakers can come together, assess the data, and
address the problems Americans face.
Today, we have Chair Pro Tempore of the Federal Reserve,
Jay Powell, here to deliver a biannual update on the Fed's
actions to steer our economic recovery. Chair Powell, thank
you, and I look forward to your testimony.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. Let me begin by
fully endorsing the sentiments you expressed regarding the
appalling Russian invasion of an entirely unjustified war
against Ukraine, and share your salute for the extraordinary
courage, valor, and commitment of the people of Ukraine.
Chairman Powell, welcome. I do hope we process your
nomination soon. Of course, I have been advocating that we do
that for some time now, but in the meantime I do know that you
and your fellow FOMC members are fully able to do your job of
fighting inflation. And, obviously, there is a lot of work to
do on that front. January's inflation reached a 40-year high of
7.5 percent, and inflation like that is doing real damage to
average Americans.
Some of my colleagues like to observe that wages are
growing. The problem is inflation is growing faster, and that
causes workers to fall further and further behind, and that is
what is happening today. Savers, of course, are earning
virtually zero on their savings while inflation significantly
erodes the value of those savings.
Our current zero-interest-rate monetary policy that we have
had for some time now is probably appropriate at a period of
economic crisis or during a recession. It is hard to see that
that makes sense during a period of multidecade-high inflation.
Of course, profligate fiscal policy of the year has also
contributed to inflation. Democrat supporters of blow-out
deficit spending bills like the American Rescue Plan and Build
Back Better have looked to blame others for the consequences of
their own misguided policy. First they blame global supply
chains. Now they have shifted their blame to greedy
corporations.
Actually, inflation is pretty easy to understand. It
results from more money chasing fewer goods. The
Administration's policies such as overregulation and a war on
American energy have limited the production of goods, and
meanwhile reckless spending has resulted in more money chasing
those goods.
Of course, the Fed's accommodative monetary policy has
further stimulated demand. For several years now I have warned
that it could be extremely difficult to put the inflation genie
back in the bottle. Well, the genie is out and the Fed is
behind the curve. We need to act with urgency to get inflation
under control.
Mr. Chairman, I am also deeply troubled to what appears to
be a growing urge to use financial regulators, in general, and
the Fed, in particular, to tackle complex political questions
that are outside of our financial and monetary system.
Questions like how and how quickly to transition to a lower
carbon economy. Questions like how to address racially charged
social issues. Or even how do we improve primary and secondary
education.
Now there is no doubt these are very important issues, but
they are wholly unrelated to the Fed's limited statutory
mandates and expertise. And yet the Fed has been weighing in on
every one of these issues. Some intend to use the Fed's
recently developed climate scenario analysis as a mechanism, as
part of a tool to steer capital away from carbon-intensive
industries. All 12 Reserve Banks have hosted a Racism in the
Economy series, where invited speakers advocated for specific
policies, including racial reparations and defunding the
police, among other very liberal proposals. And the Minneapolis
Fed is actively lobbying to change Minnesota's constitution on
the issue of K-12 education policy.
Does anyone really think that these activities are within
the Fed's statutory mandates? Of course not. What they are is
they are challenging and complex issues that require really
difficult tradeoffs. And in a democratic society, those
tradeoffs have to be made by elected representatives who are
directly accountable to the American people.
Consider some tradeoffs associated with addressing global
warming. Now if we limit domestic oil and gas production
Americans will pay more at the pump. How much more is
appropriate? If we suddenly limit domestic production without
feasible energy alternatives our Nation and the world will
become more reliant on fossil fuels from autocratic nations. We
are watching that play out. When does that reliance present an
unacceptable national and global security threat?
These are just examples of the unlimited number of equally
challenging tradeoffs for all of these politically charged
topics, none of which should be decided by unelected and
unaccountable central bankers. And yet some of the Reserve
Banks are diving right, and when I have requested additional
information about their activities, the Reserve Banks stonewall
me. When I asked the Board to address the issue, everyone
passes the buck. The Fed Board says, ``Oh, those things are up
to the Reserve Banks,'' even though the Board oversees the
Reserve Banks. And except through the Fed Board the Reserve
Banks are completely unaccountable to Congress.
So when I think about this state of affairs, Mr. Chairman,
I can only conclude that we need to think seriously about
reforming the structure of the Fed. In my view, any Fed reform
should preserve and strengthen monetary policy independence,
but it should also develop mechanisms to enforce the existing
statutory limits on Federal Reserve activity that are not being
complied with today. That would require also proper
congressional oversight by increasing transparency.
So here are three reform ideas that we ought to discuss.
First, unlike the main Fed Board, the Reserve Banks are not
subject to FOIA. Well, that should change. Second, we should
consider whether or not to subject Federal Reserve bank heads,
the regional Reserve Bank heads, to Presidential appointment
and Senate confirmation.
Third, we ought to examine the historical 12 Reserve Bank
structure. That dates back to a very, very different time. For
example, it might make sense to consolidate them into 5 banks,
and make each one a permanent voter on the FOMC. Or maybe we
should eliminate the Reserve Banks entirely and have the main
Fed Board assume these responsibilities.
To be clear, I am not specifically advocating any one of
these, but I think we have to consider these and other
possibilities. I do not present these ideas lightly. But the
Fed was given independence to insulate monetary policy from
politics, and Congress has a responsibility to ensure that the
Fed does not become a political actor.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Mr. Powell, we welcome you to the Committee again, as Chair
Pro Tempore of the Federal Reserve. Please begin your
testimony. Thank you.
STATEMENT OF JEROME H. POWELL, CHAIR PRO TEMPORE, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you. Chairman Brown, Ranking Member
Toomey, and other Members of the Committee, I am pleased to
present the Federal Reserve's semiannual Monetary Policy
Report.
Before I begin, let me briefly address Russia's attack on
Ukraine. The conflict is causing tremendous hardship for the
Ukrainian people. The implications for the U.S. economy are
highly uncertain, and we will be monitoring the situation
closely.
At the Fed, we are strongly committed to achieving the
monetary policy goals that Congress has given us: maximum
employment and price stability. We pursue these goals based
solely on data and objective analysis, and we are committed to
doing so in a clear and transparent manner so that the American
people and their representatives in Congress understand our
policy actions and can hold us accountable. I will review the
current economic situation before turning to monetary policy.
Economic activity expanded at a robust 5.5 percent pace
last year, reflecting progress on vaccinations and the
reopening of the economy, fiscal and monetary policy support,
and the healthy financial positions of households and
businesses. The rapid spread of the Omicron variant led to some
slowing in economic activity early this year, but with cases
having declined sharply since mid-January, the slowdown seems
to have been brief.
The labor market is extremely tight. Payroll employment
rose by 6.7 million in 2021, and job gains were robust in
January. The unemployment rate declined substantially over the
past year and stood at 4.0 percent in January, reaching the
median of FOMC participants' estimates of its longer-run normal
level. The 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.
Labor demand is very strong, and while labor force
participation has ticked up, labor supply remains subdued. As a
result, employers are having difficulties filling job openings,
an unprecedented number of workers are quitting to take new
jobs, and wages are rising at their fastest pace in many years.
Inflation increased sharply last year and is now running
well above our longer-run objective of 2 percent. Demand is
strong, and bottlenecks and supply constraints are limiting how
quickly production can respond. These supply disruptions have
been larger and longer lasting than anticipated, exacerbated by
waves of the virus, and price increases are now spreading to a
broader range of goods and services.
We understand that high inflation imposes significant
hardship, especially on those least able to meet the higher
costs of essentials like food, housing, and transportation. We
know that the best thing we can do to support a strong labor
market is to promote a long expansion, and that is only
possible in an environment of price stability.
The Committee will continue to monitor incoming economic
data and will adjust the stance of monetary policy as
appropriate to manage risks that could impede the attainment of
its goals. The Committee's assessments will take into account a
wide range of information, including labor market conditions,
inflation pressures and inflation expectations, and financial
and international developments. We continue to expect inflation
to decline over the course of the year as supply constraints
ease and demand moderates because of the waning effects of
fiscal support and the removal of monetary policy
accommodation. But we are attentive to the risks of potential
further upward pressure on inflation expectations and inflation
itself from a number of factors. We will use our policy tools
as appropriate to prevent higher inflation from becoming
entrenched while promoting a sustainable expansion and a strong
labor market.
Our monetary policy has been adapting to the evolving
economic environment, and it will continue to do so. We have
phased out our net asset purchases. With inflation well above 2
percent and a strong labor market, we expect it will be
appropriate to raise the target range for the Federal funds
rate at our meeting later this month.
The process of removing policy accommodation in current
circumstances will involve both increases in the target range
of the Federal funds rate and reduction in the size of the
Fed's balance sheet. As the FOMC noted in January, the Federal
funds rate is our primary means of adjusting the stance of
monetary policy. Reducing our balance sheet will commence after
the process of raising interest rates has begun, and will
proceed in a predictable manner primarily through adjustments
to reinvestments.
The near-term effects on the U.S. economy of the invasion
of Ukraine, the ongoing war, the sanctions, and of events to
come, remain highly uncertain. Making appropriate monetary
policy in this environment requires a recognition that the
economy evolves in unexpected ways. We will need to be nimble
in responding to incoming data and the evolving outlook.
Maintaining the trust and confidence of the public is
essential to our work. Last month, the Federal Reserve
finalized a comprehensive set of new ethics rules to
substantially strengthen the investment restrictions for senior
Federal Reserve officials. These new rules will guard against
even the appearance of any conflict of interest. They are tough
and best in class in government, here and around the world.
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.
Chairman Brown. Thank you, Chair Powell. We, of course, are
monitoring closely Russia's invasion of Ukraine, the impacts it
will have on our partners, including our country. In November,
the Fed issued a rule jointly with the OCC and FDIC to require
banks to notify their Federal financial regulator of any
cybersecurity incident within 36 hours. They already made a
requirement of notification but you sped that up, obviously.
Given the increased threat of cyberattacks, expeditious
reporting by financial institutions is essential. How does the
Fed address any reporting about cyberattacks when they occur?
What do you do?
Mr. Powell. When we receive reports. Well, first of all to
date we have not seen any significant issues, but we remain
vigilant since the Ukraine war began. So we are in constant,
ongoing contact with the financial institutions, especially the
large ones, on cyber risk, and particularly in this
environment; we have been since a couple of months ago on very
high alert. So are they. It is regular communication, back and
forth. The channels are open, and all of us are on the highest
stage of alert, as you would imagine.
Chairman Brown. I think it is important. I know that your
focus is always on financial institutions. It is important for
us to be able to repel cyberattacks, to protect against them.
Throughout our economy businesses are reporting cyberattacks on
them, and your job is obviously with financial institutions. I
am hopeful that you will make those comments increasingly
public so that other businesses understand, while you do not
have jurisdiction, that other businesses understand the
importance of that.
We know the impact of Russia's invasion could go beyond
cyberattacks in financial institutions. It is possible because
of his actions. Prices of commodities could go up, given any
market disruptions, and Americans could see higher prices in
the grocery store and at the gas pump. How does the Fed, Mr.
Chair, evaluate the economic uncertainty caused by Putin's
actions? What steps do you take to mitigate those risks, like
inflation?
Mr. Powell. You know, so we are watching carefully to see
how this evolves. I think, to your point, the ultimate effects
on the U.S. economy of the war, of the sanctions, and of events
yet to come is highly uncertain. And so we need to be alert to
what those might be.
What we know so far is that commodity prices have moved up
significantly, energy prices in particular. That is going to
work its way through our U.S. economy. We are going to see
upward pressure on inflation, at least for awhile. We do not
know how long that will be sustained for.
In addition, we could see, you know, risk sentiment
declining, risk-taking sentiment declining, so you could see
lower investment, you could see people holding back on
spending. It is hard to say what the effects on both supply and
demand will be, and I would just echo that we need to be alert
and nimble as we make decisions in what is quite a difficult
environment.
Chairman Brown. The Monetary Policy Report that you
released highlighted great news for workers in our economic
recovery, wage gains across the Board, but especially for low-
wage workers, job growth across sectors, a drop in the
unemployment rate that beat forecasters' expectations. All good
news. But we clearly have a long way to go when it comes to
making sure everyone has a good-quality job. We know from prior
economic crises that hiking up interest rates--and I know you
will be cautious--but hiking up interest rates too early can
depress job growth.
My question is, as the Fed plans to raise interest rates,
what steps will you take to ensure that it does not affect the
pretty amazing job growth? President Biden mentioned, at the
State of the Union, 369,000 manufacturing jobs, many of them in
my State of Ohio. How do you ensure that the steps the Fed
takes do not affect that kind of job growth?
Mr. Powell. Well, the labor market as we have it today,
unemployment is down to 4 percent and wages are at historic
highs for recent history. Quits are at all-time highs or near
that. Job openings are at all-time highs. So you are right.
This is a great labor market for workers, particularly workers
in the lower quartile of earning who are getting the biggest
wage increases and really very, very high wage increases.
So the problem really that we are facing is one of high
inflation, and over time, the biggest risk to being able to
sustain a long expansion and have continued increases in
participation, for example, which has tended to lag declines in
unemployment, is to sustain or really restore price stability.
So that is the single most important thing we can do to really
try to have the kind of long expansion that we saw in the last
cycle, and saw the many benefits that flowed to people as that
expansion extended.
Chairman Brown. Thank you. In my last 60 seconds, two yes-
or-no questions if I could. Do you agree that making testing
and vaccinations accessible has already made it possible for
people to safely rejoin the labor force?
Mr. Powell. I do not have any special expertise on that but
that sounds right to me.
Chairman Brown. Do you agree that making childcare
affordable would make it possible for parents to return to work
and increase the labor supply?
Mr. Powell. As we, I think, have discussed, there is good
research that supports that proposition as well.
Chairman Brown. Thank you. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman. Chair Powell, just
so that we get this on the record here, a couple of quick,
simple questions here. Monetary policy is decided by the FOMC
of the Fed. Correct?
Mr. Powell. Yes.
Senator Toomey. And there are 12 seats on the FOMC of which
9 are currently filled. Correct?
Mr. Powell. Actually, there are as many as 19 participants,
but you are right, there can be 12 voters. So we have right now
16 of the 19 seats filled, or 9 of the 12 voters.
Senator Toomey. OK. So the FOMC is, today, right now, fully
capable of determining monetary policy, and the Fed as a whole
is fully capable of implementing that policy right now. Is that
correct?
Mr. Powell. Yes. We will do our jobs.
Senator Toomey. OK. I was glad to hear your emphasis on the
importance of price stability. Here is my concern. You know, it
is a little bit easier to raise interest rates to normalize to
fight inflation at a time when the economy is booming. What I
am a little bit worried about--and I fully acknowledge nobody
knows how this is going to play out, but I think it is fair to
say that this war has changed the risk profile a little bit
with respect to inflation, that you just alluded to. There is
certainly some upward pressure on
energy, and maybe beyond. And all else being equal, it
probably increases the risk that we will be looking at downward
revisions in growth. Nothing certain about that, but the risk
is higher.
And so I wonder if you could share with us your thoughts on
the importance of fighting inflation if we find ourselves in a
situation where growth is less robust than what we are hoping
for now.
Mr. Powell. So I would agree on both the supply and demand
side there is a lot of uncertainty. Oil prices are higher. That
typically does weigh on spending, to some extent. But at the
same time we have households and businesses that are in such
strong financial shape, it is not clear what those effects are
going to be.
So as I mentioned yesterday, I do think that it is going to
be appropriate for us to continue to proceed along the lines
that we had in mind before the Ukraine invasion happened, and
that was to raise interest rates at the March meeting and to
continue through the course of the year, based on incoming data
and the evolving outlook, to engage in a series of rate
increases.
I would say in this very sensitive time at the moment I
think it is appropriate for us to be careful in the way we
conduct policy, simply because things are so uncertain and we
do not want to add to that uncertainty. But that is where it
leaves me.
Senator Toomey. I just hope that the actual practice going
forward at the Fed is consistent with what I think you were
alluding to earlier, and that is the need for price stability
as a precondition for maximizing the well-being of American
workers. If we are in a world where we do not have price
stability, they do not have job security. They do not have
income security. It is just so important. I sure hope that we
exceed all of our expectations about growth this year, but I do
not know that.
Let me shift to ask you this. In your view, is it
consistent with the statutory mandate of the regional Fed banks
to engage in political advocacy, and specifically a racial
justice campaign or efforts to amend a State constitution? Is
that within the proper domain of regional Fed banks?
Mr. Powell. So as we have discussed, you know, the Reserve
Banks have generally had and exercised a degree of freedom of
oversight from the Board, the Board of Governors, in their
research activities, in their policy thinking activities, and
that has always been thought to be a benefit, including by me,
because it avoids the kind of group-think you could get if you
had one economic staff in one building and that is where all
the Governors were. So it has been a feature rather than a bug
of the System, for a long time.
I would echo, though, I strongly share the view that
everything we do in the System needs to be clearly linked in
ways that people understand to our mandate, and that that is
one of the very most important underpinnings of our
independence. If we are not doing that then the case for our
independence immediately becomes weaker.
Senator Toomey. Yes, and I do not think anybody can make
the case that amending a State constitution with respect to how
a State pays for primary and secondary education has anything
to do with that mandate.
Let me ask you the last question. The Fed has embraced the
idea of requiring climate scenario analyses for banks, and the
justification is this is an important way for banks to
understand the nature of the risk that they face. Whatever one
thinks of that, is it your view that among the Fed's
responsibilities is to determine the pace at which the American
economy transitions to a lower carbon economy?
Mr. Powell. No.
Senator Toomey. OK. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you. Senator Tester, of Montana, is
recognized.
Senator Tester. Thank you, Mr. Chairman and Ranking Member,
and I want to thank Chairman Powell for being here today. I
appreciate the work that you do, as always.
Look, I think inflation is on everybody's minds and how you
deal with it, and as you pointed out the last time you were in
front of this Committee, it is not only a demand problem, it is
a supply problem. You can help deal with the demand but the
supplies issue are a little different thing.
Being in the business of agriculture personally I can see
that consolidation in the marketplace is a big deal, and I am
talking particularly the meat industry right now, where you
have four packers that control 84 percent of this country's
meat supply. Competition is critically important if capitalism
is going to work. I do not need to tell you that. You know that
better than anybody. But there does not seem like there is a
lot of competition in a number of different areas, but I will
just focus on meatpacking.
No, I will not. Let me back up. Let us talk about
consolidation generally, and if that helps drive prices up or
down, and then if, in fact, you think it does drive prices up,
would inserting more competition in the marketplace help
consumers?
Mr. Powell. First of all, we are not responsible for
competition policy. Individual industries can have competition
issues, and those are appropriate subjects for the folks who
wield those tools. That is not us.
At the aggregate level, the connection between
concentration, for example, and inflation is really not clear.
Some of the industries that had a lot of consolidation were the
very ones that drove low inflation over the last 25 years. You
know, retail and wholesale consolidated a whole bunch and a
bunch of technology went in, and that was very high
productivity and very low inflation. So it is not obvious.
But again, industry by industry there will be cases in
which there are competition issues, and those are certainly an
appropriate subject for antitrust scrutiny.
Senator Tester. As we look at the war in Ukraine, and as we
look at inflation that is occurring here in this country, and I
know you are Chairman of the Fed and I know that these are
areas that you might not want to get into, but I will ask
anyway. You can always decline to answer. And that is, are
there certain things we should be doing right now, or paying
particular attention to, in the inflation realm?
Mr. Powell. I am sorry. In the sense of----
Senator Tester. In the sense from a congressional
standpoint, are there things we should be paying particular
attention to? I do not want to answer that question for you,
but I think trucking is a big issue in this country right now.
I think being able to get
products in and out of this country is a big issue right now,
from a shipping standpoint. Should we be looking at those kinds
of things? Should be looking at other things?
Mr. Powell. I do think that over time there are certainly
things that Congress could do. I think in the near term,
really, it is down to the private sector and the supply chains
and things like that getting untangled, getting fixed, and it
is down to us doing our jobs with our tools.
But I would agree, though, that we need more labor supply.
We need more semiconductors and things like that. Clearly you
mentioned trucking. We are short workers right now. We had a
shock to participation that is much larger than in any other
country, and there must be ways to address that, although some
of that is voluntary, clearly on the part of people who decided
to retire and things like that.
Senator Tester. OK. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Senator Shelby is recognized, from Alabama.
Senator Shelby. Thank you, Mr. Chairman. Chairman Powell,
welcome again to the Committee. You have spent a lot of time
with us here.
You are the Chairman of the Federal Reserve. We have this
hearing now before the U.S. Senate Banking Committee, but
millions of people around the world are watching this hearing
and watching what you say and also what you do at the Fed. Let
us talk some more about price stability because I think that is
so important. We know what the term is, but to the average
person just explain what you mean by price stability, which is
a mandate that the Congress gives the Fed.
Mr. Powell. We think of price stability as having inflation
that is 2 percent, right around 2 percent, but maybe a clearer
way----
Senator Shelby. Stable prices, stable everything. Right?
Mr. Powell. Yes. But really what it means is that people
can go about their daily lives without thinking much about
inflation. It comes down to that, that it is just not an
important consideration for people living their lives, taking
out mortgages, putting their kids through school, or for
businesses that are borrowing, and things like that.
Senator Shelby. It affects everybody in the economy just
about, does it not----
Mr. Powell. It does.
Senator Shelby.----in one way or the other.
Mr. Powell. And when inflation goes up, and you are seeing
this now, real wages, what matters is whether your wages are
going up more or less than inflation, and for the most part
real wages are declining, but not for everybody. I think at the
bottom end of the wage spectrum real wages have actually been
increasing. And that is why we need to get inflation under
control.
Senator Shelby. It is going to be harder to get it under
control once it is rampant than it would be when it starts out.
My question to you is this. We know you have a lot of
great, gifted economists at the Federal Reserve that furnish
you data on every trend on prices dealing with inflation, price
stability in the world and how it affects us here, everybody.
The Fed obviously missed the trends there. Was it a question of
not having the right data or was it a question of ignoring the
data you had? Because a lot of private--I would not say all,
but a lot of private economists predicted where we are going on
this inflation, and they were spot on 2 years ago.
Was it a question of, again, you did not have the data,
which you should have, or you misjudged the data, or you
ignored the data?
Mr. Powell. No, no. It was not about data at all. This is
really what it was about. When inflation really just about,
barely a year ago, in March of last year, started to move up
quickly, central banks and macroeconomists really
overwhelmingly look at that as like a supply shock, like an oil
shock. And what the textbook says is the shock is going to come
and it is going to go, and you should not react to it. And so
we looked at it that way. And I would say by the middle of last
year we started to move away from it, and we moved away from it
at an increasing rate of speed. Hindsight says we should have
moved earlier, and that turned out to be wrong. Not maybe
conceptually wrong, but it is just taking so much longer for
the supply side to heal than we thought.
So in hindsight you certainly would not have done that, but
I think there really is no precedent for this. We looked at it
the way it was. There were certainly some voices, and they have
turned out to be right so far. Ultimately, we think the supply
side will improve and that will help with inflation. In the
meantime, we are going to use our tools and we are going to get
this done.
Senator Shelby. About 40 years ago or more, you know, we
had rampant inflation in the United States. We had Chairman,
Dr. Volcker, who was Chairman of the Fed, and he was maligned
for a little while by people but praised later. But he brought
the leadership to the Fed and to the country that we had to
squeeze inflation out, at all costs just about. And a lot of it
was draconian. You have to do it.
Is the leadership at the Fed under you and Fed prepared to
do what it takes to get inflation under control and protect
price stability?
Mr. Powell. Well, let me say I knew Paul Volcker. I am
pretty sure I saw him testify in this room many years ago. I
think he was one of the great public servants of the era, the
greatest economic public servant of the era, and I hope history
will record that the answer to your question is yes.
Senator Shelby. So you are prepared to do what it takes
without any reservation to protect price stability.
Mr. Powell. Yes.
Senator Shelby. That would be a departure from what you
have done. Thank you very much.
Chairman Brown. Senator Menendez, from New Jersey, is
recognized.
Senator Menendez. Thank you, Mr. Chairman. The Biden
administration, in coordination with U.S. allies around the
world has placed historic sanctions on Russia in response to
the invasion of Ukraine. In particular, sanctions on the
Russian central bank, cutting off its access to international
reserves I believe will have a powerful effect on Putin and the
elites who have reaped the benefits of his repressive regime.
Sanctions are one of our most important foreign policy tools,
but it is not always easy to understand just how effective they
can be.
So Chairman Powell, can you explain in layman terms the
effect of sanctions imposed on the Russian central bank?
Mr. Powell. Sure. I should start, though, by saying that
everyone should know that we do not implement sanctions. Those
are really the province of the elected Government and the
Treasury Department. All we do is we are sort of there in the
background.
Senator Menendez. I understand.
Mr. Powell. A technical backstop.
Senator Menendez. I understand. I just want to use your
expertise.
Mr. Powell. Sure. So what the central bank does is--so
different currencies in different countries are traded all day
long, and in some cases all night long around the globe, and
the value of those currencies really matters for people when
they are trying to buy something. For example, if you are
trying to buy an American car or American radio or an Apple
iPhone, it will be priced in dollars. So the ruble weakened
dramatically through this, which is the Russian currency, and
what those sanctions do is make it very difficult for the
central bank of Russia to do its job, which is to support the
ruble on behalf of the government. And it is because the sort
of resources that it had to support the ruble were tied up in a
way that made it difficult to do that. That is part of it.
Senator Menendez. Yes. And those sanctions means that Putin
cannot access hundreds of millions in international reserves
that he could use to continue to fund his war effort. Is that
correct?
Mr. Powell. Well, yes.
Senator Menendez. Let me ask you this. As the economy
continues to recover, we have had a lot of conversation here
about managing inflation as a key challenge, the first step to
do so, in my mind, is to confirm the five highly qualified
nominees President Biden has selected for the Federal Reserve
Board, including yourself, and I hope our Republican colleagues
will allow us to do that soon.
The next and more challenging step is to address the supply
crisis that is driving up much of this inflation. Can you give
us a brief update on how persistent supply chain issues are
disrupting the recovery and contributing to inflation?
Mr. Powell. Sure. So a lot of the inflation we are seeing
is coming from imported goods or manufactured goods that
contain imported content, and the price of shipping, for
example, internationally has gone up quite a lot. And there are
long delays and the ports are full because demand is really so
high. It is a demand problem as well as a supply problem.
You know, we have been feeling very small amounts of
progress on that. I have to say, one of the little bit
unexpected byproducts of the Ukraine war, it is looking like
supply chains--it is not going to help at all with supply
chains because ships are not being offloaded and things like
that. So there are unanticipated or unexpected effects of what
we are doing, which is not to say we should not do them.
So this is not something we have any expertise in fixing,
but we have been waiting for that to happen, and it has not
happened. We have not seen much relief on the supply side.
The other thing is the supply of labor. You know, there is
no problem with labor demand. Really, the ratio of job openings
to unemployed is at, by far, the highest level it has ever
been, more than 1.7 open jobs per unemployed person. So we have
a labor supply problem. We think that getting past the pandemic
will really help with that, and, of course, higher wages should
help bring people in too.
Senator Menendez. So would strengthening supply chains and
resolving bottlenecks help to combat inflation in the long
term?
Mr. Powell. Certainly in the near term it would, and I
would think it would be certainly a good thing.
Senator Menendez. You know, we passed the Strategic
Competition and Innovation Act last May, and the House now has
its own provisions. I am looking forward to a reconciliation of
that because that would address bottlenecks, strengthen our
supply chains going forward, including funding to boost
domestic production of semiconductors and my supply chain
database provision as well.
Finally, you just mentioned labor. We are facing a dire
labor shortage across the country which is holding back our
economy. The Fed's Monetary Policy Report from last week noted
that, quote, ``Labor supply has been slow to rebound even as
labor demand has been remarkably strong.'' There are currently
11 million job openings nationwide. Immigrants are ready and
willing to fill many of those jobs. Would you say that if we
had a process in which we could bring those immigrants out of
the shadows into the light, have them go through a process,
criminal background check, and make sure they paid their taxes,
that the role of immigrants in mitigating the current labor
shortage and rising inflation would be a significant one?
Mr. Powell. Seeing that we do not do immigration policy, as
an arithmetic fact immigration has been much lower and accounts
for, you know, a meaningful part of the labor shortfall.
Senator Menendez. And that is why leading business groups
agree with you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Menendez.
Senator Crapo, from Idaho, joins us from his office.
Senator Crapo. Thank you very much, Mr. Chairman, and Chair
Powell, thank you for being with us today.
I wanted to start first by following up on some of the line
of questioning that Senator Toomey raised, just a couple of
quick questions in terms of the ability to manage the Fed and
its ability to operate right now.
It is correct that you were recently named by the Federal
Reserve Board as the Chairman Pro Tempore pending the handling
of your nomination. Is that correct?
Mr. Powell. Yes.
Senator Crapo. And in that capacity you have the full
ability to chair the Board while we wait for the handling of
your nomination. Is that correct?
Mr. Powell. Yes, it is.
Senator Crapo. I want to make it very clear, I hope that we
handle your nomination soon, and I intend to vote in support of
it. But I just wanted to also make it clear that you are fully
functioning as the Chair now, in the capacity of Chair Pro
Tempore. And it is also correct that you were named in January
by the Federal Reserve Board as the Chairman of the FOMC. That
is correct also?
Mr. Powell. Actually, I was elected by the FOMC to be
chair.
Senator Crapo. You were elected by the FOMC.
Mr. Powell. Yes.
Senator Crapo. All right. And let me move on to just one
other aspect of it. You have already discussed the dual mandate
of the Fed today, the low and stable inflation rate, and
maximum employment. Disturbingly to me, there are some who are
suggesting that the Federal Reserve should, in addition to
that, or even to claim it as a part of that, that the Federal
Reserve should stop so-called suboptimal industries from having
access to capital, either to restrict their access to capital
or to deprive their access to capital. Do you believe that any
kind of standard such as that should be something that the
Federal Reserve Board should pursue in its supervisory
capacity?
Mr. Powell. No, I do not.
Senator Crapo. All right. I appreciate that because this is
a disturbing trend that has come in a number of different
contexts over the last few years, and the notion that we should
utilize our Federal regulatory and supervision authorities to
decide which industries are optimal and restrict those that we
do not like politically from access to capital is a very
alarming idea that I think American should reject quickly.
Finally, I just have one more question. Obviously, related
to Ukraine and the issue of oil and energy markets have come to
the forefront as a result of a number of different aspects,
whether it is sanction questions or whether it is simply the
issues of depriving Russia access to the utilization of Nord
Stream, and many other aspects. Do you expect that the strains
on the oil or energy markets that we will see coming out of
this war will act to push inflation even higher or will act as
an impediment to our ability to get inflation under control?
Mr. Powell. In the near term we already see this. Oil
prices are up substantially from where they were 2 months, 3
months ago, and that will get into gasoline prices and other
fuel prices, and that will show up in higher inflation. The
question really is what will be the extent of those, and even
more important, what will be their persistence? So typically
with an oil spike prices go up and they either stay at that
level or they go down. In either of those cases they add to the
price level but not to inflation.
The concern, though, is there is already a lot of upward
inflation pressure, and additional inflation pressure does
probably raise, at the margin, the risk that inflation
expectations will start to react in a way that is negative for
controlling inflation.
Senator Crapo. All right. Thank you very much.
Chairman Brown. Thank you, Senator Crapo.
Senator Warner, from Virginia, is recognized from his
office.
Senator Warner. Thank you, Mr. Chairman. Chair Powell, it
is great to see you, at least remotely.
I want to at least point out, because I want to move to
Ukraine where my friend, Senator Crapo, raised some of the
issues. It is, obviously, the responsibility of the Fed, as we
are looking at the economy, to evaluate systemic risk to the
economy. Is it not?
Mr. Powell. Yes.
Senator Warner. Thank you. And you and others have
testified that whether we call it climate change, sea level
rise, dramatic changes in weather that brings about flooding,
storms, you name it, that is appropriate for review, and while
obviously the terminology of designating a particular industry
I agree should not be, but the systemic risks, I think, are
critically important, and I appreciate the fact that you have
recognized that. I think we need to continue to recognize that.
We lived through that, literally, and if we look at the number
of natural disasters from fires in the West to floods in my
State or floods in the South it is here to stay.
I want to talk about, I am Chair of the Intel Committee and
I am very, very concerned about what is happening in Ukraine. I
am very proud of the fact that the Administration has worked in
concert with our European allies rather than acting solo. I was
in Munich 11 days ago, and if you would have told me 11 days
later that the Europeans would have used SWIFT, struck down
Nord Stream 2, Germany would change its complete position on
funding arms, Sweden, Finland, we would have sanctioned Putin,
I think all terribly important to have a Western response to
this aggression.
On the SWIFT issue, I think it is good. I do think we need
to get our European allies, as well, to sanction some of the
smaller banks as we have. I think we also need to look at non-
SWIFT abilities of transfer. And I am concerned that--the
Chairman and Senator Warren and Senator Reed and I are very
concerned about some of the leakage that could be taking place
through cryptocurrencies. I think there is a great deal of
value in ultimately digital-based currencies, but the concern I
have is that crypto exchanges DeFi--there is a stat I got the
other day that I thought was very impressive--7,000 stocks on
our public markets, 17,000 different crypto tokens on crypto
exchanges, literally a million crypto tokens being developed in
decentralized finance.
And I know this is not directly--this is more Secretary
Yellen's purview, but you and the Fed have gained a lot of
expertise in this space. Do you see the possibility at least of
Putin or his oligarchs using digital payments and other
alternative payment methodology to avoid these sanctions, in a
sense to transfer their assets out since we have been able to
kind of clamp down within the traditional banking realm?
Mr. Powell. So you are right. This is right in the heart of
what Secretary Yellen is working on. I believe she actually
addressed this yesterday in some public remarks. And I am not
privy to any private information about this. You are reading
about it. I saw that transactions, crypto transactions are
spiking in Ukraine and in Russia.
I think it really underscores the need to have a strong
regulatory regime that permits appropriate activity but that
prevents inappropriate activity. And we do have laws on the
books and all that, but I think for digital finance generally
we need a legal framework that would really take away as much
as possible of the possibility that people could use unbacked
cryptocurrencies as a way to evade the law or to finance
terrorism and hide their ill-gotten gains, and things like
that. I think it is very important.
Senator Warner. And again, I appreciate the fact that the
Fed has, I think, both expertise-wise ramped up in this space.
I do think the notion of the United States having a digital
currency when we see the challenges around the digital yuan
from China. But I do think the amount of capital flows that are
going into this area, of nonbanked in many ways, there is not
that kind of clear regulatory overview. It is something we need
to look at, and I think as an independent source we are going
to need to continue to draw upon not only yours but the
enormous resources you have got at the Fed to at least follow
the capital flows. And I am gravely concerned that Putin and
his oligarchs may use this escape valve to escape these
sanctions.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warner.
Senator Scott, from South Carolina, is recognized.
Senator Scott. Thank you, Mr. Chairman, and thank you,
Chair Powell, for investing the time with us. We have seen you
a lot lately, and I think it is important that we continue to
have the conversation in public about the priorities of the
Fed.
One of the concerns that I have, I think both Senator
Toomey and Senator Crapo have discussed the importance of the
Fed staying on mission and not looking for ways to expand their
mission, looking at nominees like Ms. Raskin's approach in
public statement as it relates to the environmental
responsibilities that the Fed should take on. I am completely,
unequivocally opposed to that direction. I know that there is a
lot of attention being paid these days to ESG. I think that is
a bad direction for the Fed. I think the Fed should focus its
attention on its primary responsibilities, and frankly not even
get involved in congressional matters.
I know that Senator Tester had some important questions to
the wrong person about truckers. I think if we were going to
have a long, serious debate about your opinion on what Congress
should do to help truckers we would start back in the Obama
administration and look at the hours of service that curtailed
the number of available truckers that we have and the amount of
time that they could spend on the roads.
So there are a lot of things that the Fed should not do.
The one thing that we want you to continue to do is to focus on
the impact that everyday folks, like in Abbeville, South
Carolina, or in Anderson, South Carolina, are feeling the
pressure from the inflationary effects of this economy. We
cannot tie that to Russia or conflict. We can just tie that to
bad decisions by Democrats and the Biden administration when on
day one you cutoff the Keystone XL pipeline, which could have
pumped 800,000 barrels a day, and we are dependent on Russian
oil, and 600,000 barrels a day. The inflationary impact that
South Carolinians have felt since December of 2020, where
prices were $1.99 and now they are $3.40.
I think about the seniors who are trapped in too much month
and too little money. And I think to myself that too many folks
on fixed incomes throughout this country, and specifically in
South Carolina, are having to make decisions about rationing--
rationing medicine, rationing food, and rationing energy,
whether it is in your car or at your home. This is a crisis.
I love to hear that our wages are up 4 or 5 percent, but
inflation is up 7.5 percent, so the net effect is that the
invisible tax that we refer to here in Washington as inflation
is eroding and degrading the spending power of everyday
Americans, and they are not gullible. They know exactly what
has changed, and any time you put fuel on a fire you should
expect it to get hotter, and our economy reflects that same
direction.
And those are concerns that I have, and I know that
yesterday you spoke at length about how the Fed policymakers
are working to game out a variety of policy scenarios to
grapple with the uncertain economic risks posed by the ongoing
geopolitical turmoil while simultaneously working to curb
still-rising prices, and I think that is an important and
incredible balance that you will be in charge of. And frankly,
I did not vote for you the first time but I am voting for you
this time, because I think that you have proven that you have
kept your eye on the ball and it is necessary for folks in my
State and around this country.
I would love for you to spend my 90 seconds left, talk to
me about the gaming out of scenarios that the Fed is going
through so that the average person in our country can
appreciate the depth of knowledge and the time that you are
investing in helping us understand the scenarios that could
happen.
Mr. Powell. Sure. So we have tools to bring inflation down,
and they work by raising interest rates. We do that over time,
and what that does is it increases mortgage rates but just at
the margin, and the same thing with car loans and things like
that. And ultimately that slows down demand, ideally in a way
that comes to a gradual halt, and economic activity continues.
So that is what we are trying to do here.
Right now we need to move away from very low interest
rates. They are not appropriate for the current situation in
the economy. The economy is very strong. Unemployment is low,
wages are going up, the labor market is quite healthy, and
inflation is way too high. So we are accountable for inflation,
and we are going to use our tools to bring it down.
Senator Scott. May I have a little bit more time, Chairman?
I know this is your Committee. Thank you, sir. Very kind.
So a question for you. As you think about the next meeting,
when you discuss the interest rate increases, are there
increments that you would consider not foreshadowing your
decision but the incremental increases that you think would
bring the spending and the inflation down while not
overchallenging the economy?
Mr. Powell. Yes. So as I mentioned yesterday, my thinking
at this time, which is at a very, very sensitive time in
markets and in the world because of what we are seeing
happening in Ukraine, and we do not know the economic
implications of that, I said that I would be recommending and
supporting a one-quarter of 1 percent interest rate increase at
our March meeting, which is 2 weeks from yesterday.
But I also said that if we do not see inflation behaving as
we expect it to behave, which is to peak and begin to come
down, if we see inflation behaving in ways not consistent with
that, then we are prepared to raise by more than that amount,
in a meeting or meetings.
Senator Scott. Very good. I would simply say for, as I call
them, the kitchen table economists all across the country,
typically moms making hard decisions on rationing the amount of
resources that they have and the priorities that they have, I
think it is really important for us to make it as clear as
possible and as simple as possible their understanding and
appreciation for what is happening. When you are trying to run
a very strong and heavy load at home and you have a full-time
job, think what we can do to talk in a way that makes it easy
for us to digest at home, we are doing our public, the average
person in our country, a lot of good to understand what we are
trying to explain. Thank you.
Chairman Brown. Senator Warren, from Massachusetts, is
recognized.
Senator Warren. Thank you, Mr. Chairman. Right now our
country is trying to enforce strong sanctions against Russia,
weather the political economic fallout of the Ukraine crisis,
and address the pandemic-related inflation and corporate price-
gouging that is hurting American families. Much is at stake for
our country.
But Republicans on this Committee refuse to show up and
vote on five nominees to the Fed. They refuse to do their job.
This is shameful and it is risky. Any Republican talking today
about the risks facing our economy should be willing to show up
and vote on Fed nominees.
So let us talk about one of those risks, Mr. Chairman. As
Russia has invaded Ukraine, the centerpiece of the U.S.
response is economic sanctions. The United States and its
allies have rolled out some of the strongest economic sanctions
in history, severely restricting Russia's access to the global
financial system, by sanctioning the biggest banks and
companies, by kicking Russian banks out of SWIFT, the
international payments messaging system, and by freezing the
Russian central bank's foreign reserves.
These sanctions are powerful, but Russia can dodge some of
this pain by using the same cryptocurrency tools that are
currently used by drug traffickers, cyber criminals, and tax
cheats. I will pick one example here. We have all become
familiar with ransomware, where a cybercriminal infects
someone's computer system, locks it up, then demands payment in
order to unlock the system. And how do they get paid? Through
unregulated cryptocurrencies like Bitcoin.
Chair Powell, do you know who cybersecurity experts say is
the world leader in ransomware attacks and in getting paid
through cryptocurrencies that allow them to obscure and hide
their trails?
Mr. Powell. I could guess.
Senator Warren. Do you want to make a guess here, based on
what we are talking about today? It is Russia. You know, if you
listen to our own national security agencies the answer is
Russia, and that is why, when President Biden held an
international summit last year to fight ransomware, Russia, the
biggest source of the problem, was intentionally not invited.
According to one estimate by the blockchain analysis
company, Chainalysis, Russia-linked actors collected nearly
three-quarters of all ransomware revenue in the world last
year, and hundreds of millions of crypto dollars are collected
in Moscow each quarter. As much as half of those come from
illicit crypto wallet addresses. Russia is the world's expert
on moving money outside legal channels.
So Chair Powell, obviously, you do not administer sanctions
but you are an expert on the international financial system. So
I just want to take a look at this. Are other countries
currently using cryptocurrencies to evade sanctions? I am
thinking here of North Korea, Iran, Venezuela?
Mr. Powell. Honestly, it is not something we are
responsible for. I mean, I have read publicly that those things
have happened, though, yes.
Senator Warren. Well, the Treasury Department, the
Department of Justice, the United Nations, and the IMF all say
that the answer is yes. Crypto takes the sting out of
sanctions, and in fact, the Treasury Department warned last
year that crypto could undermine our sanctions regime.
Theoretically, the crypto industry is supposed to enforce
sanctions as well.
So let me ask, Chair Powell, is the crypto industry
enforcing sanctions right now?
Mr. Powell. So what I have read--again, this is really for
the Treasury Department, but I have read the same things you
have and that you had in your letter, which is some reluctance
expressed on the part of the crypto industry to do that.
Senator Warren. All right. They are supposed to, but the
problem is they have not been doing a very good job. Just read
the Treasury Department's sanctions review or the U.N. reports
on sanctions compliance. We know that many crypto exchanges and
wallets are not collecting information about the identities of
their customers, are not screening their platforms for illicit
activity, and are not reporting sanctions violations. Heck,
this is how North Korea has been able to move money around and
finance its illegal missile programs.
Here is the thing. The whole point of crypto is that it
allows someone to conduct financial transactions without having
to go through the traditional banking system or traditional
financial intermediaries. Right now, millions of transactions
are taking place that are completely unregulated, with no one
verifying who gets what. And that means that while sanctions
can make it very difficult for Russian companies, political
leaders, and billionaires to move money around in the
traditional financial system, there is another shadow
unregulated world that they can turn to.
Crypto poses a variety of threats, to financial stability,
to investor protection, to our environment, but crypto is also
providing a new way for countries to sanction-proof themselves.
Cracking down on crypto is a critical piece of holding Russia
accountable for its aggression. We cannot fool around any
longer. We need to get new crypto rules in place.
Thank you, Mr. Chairman.
Chairman Brown. Thank you. Senator Moran, from Kansas, is
recognized.
Senator Moran. Chairman, thank you. Chairman, thank you. At
least one member of the Open Market Committee has said that
combining a relatively steep path of rate increases with a
relatively modest reduction in the balance sheet could flatten
the yield curve and distort incentives for private sector
intermediation, especially for community banks.
Help me understand the relationship between balance sheet
decisions and rate increase decisions and what thought process
you would undertake in that regard.
Mr. Powell. Basically we think of the interest rate as the
active tool of monetary policy, and we think of the balance
sheet as something we do really in urgent situations. We buy
assets and that tends to drive down long-term rates.
So what we are very much about to do, and we are going to
do this over the course of this year, is both raise interest
rates and we are going to begin to allow the balance sheet to
shrink and run off. As the balance sheet shrinks, you know, the
securities are maturing is what is happening, and Treasury, on
the other side of the wall, Treasury is deciding what to issue.
So they issue long, short, in the middle. That is what they do.
And that will have an effect on the yield curve and on
financial conditions, but those are decisions that Treasury
makes.
But the way we do it, though, to answer your question, is
we want to decide a path for the balance sheet and then we want
to let it go in the background and have the interest rate tool,
meeting to meeting, be the active policy tool. I hope that is
responsive.
Senator Moran. And what is the different consequence
between altering the balance sheet and altering interest rates?
Mr. Powell. For the shape of the yield curve, you mean?
Senator Moran. Yes. What happens differently in the economy
as a result of doing one or the other, or what is the reason to
do them together?
Mr. Powell. Well, when we are using them actively, cutting
interest rates and buying assets, buying longer-term assets, we
are trying to provide support for the economy. The interest
rates affect shorter-term rates actually more than they affect
longer-term rates. Quantitative easing affects longer-term
rates, and those are important in the economy.
When you turn it around, really, as I tried to explain, we
shrink the size of the balance sheet. So for example, if
Treasury were to issue only long bonds, well that would drive
up rates and that would tend to tilt the yield curve up. But
that is a question for Treasury, the issuance question.
Senator Moran. I am trying to understand while you are
trying to explain it, and the fault probably lies with me. But
in regard to interest rates, long-term, short-term, does it
matter which of those tools you use, and is there a consequence
different to an American industry, a sector of our economy as a
result of the machinations between those two tools?
Mr. Powell. Not really. Not really. So again, our interest
rate is an overnight interest rate, right, and so when we
change it, it will affect asset prices all the way out the
curve. It will affect equity prices and things like that. But
ultimately, if you are zero lower bound and you cannot cut
anymore, then in one sense you could be out of tools. And so,
actually, Milton Friedman was one of the first to talk about
this many years ago with respect to Japan. You can always
affect longer-term interest rates by buying sovereign debt, and
so that tends to bring down longer-term rates. They all matter
for the economy. To the extent you borrow long, if you are
someone who likes to borrow very long, like investment-grade
companies, then your rates will go down for 30-year lending.
For most people the short end is more important.
Senator Moran. Mr. Chairman, I am not going to ask you
about energy policy, but let me ask what percentage or what is
the quantification of how inflation is related to energy
prices.
Mr. Powell. Energy inflation, when we talk about core
inflation we exclude inflation from energy and food prices
because those are quite volatile. So right now, I guess, if you
look at it the way we look at it, core PCE is about 5, in the
range of 5, and energy inflation and food inflation you put on
top of that is in the high 6's. So it is close to a couple of
percent, I believe.
Senator Moran. And just in my last 14 seconds, I always
worry about farmers and ranchers, small towns, community banks,
lenders to those farmers and ranchers. Interest rates and
energy prices combined have a huge consequence to those who
feed and clothe and provide energy to us and the world. And
decisions that you make have perhaps an exacerbated consequence
to somebody who borrows significant amounts of money to put
seed in the ground at a time in which fertilizer costs, diesel
fuel is extremely high. Every input a farmer faces today is
here. While commodity prices have risen, they have not risen
sufficiently to overcome the cost of production.
Mr. Powell. We are very much aware of that. Some of this
shock is going to be very tough for agricultural companies, and
that is something we will be monitoring. We do not have the
tools to deal with that very well, but that is clearly a risk.
Senator Moran. Mr. Chairman, thank you.
Chairman Brown. Thank you. Senator Smith, from Minnesota,
is recognized.
Senator Smith. Thank you, Mr. Chair. Thank you so much,
Chair Powell. It is wonderful to see you again, and I really
appreciate the questions that Senator Moran is asking about
kind of how this actually works, the mechanics of the economics
of this. Because the impacts of interest rates, the interest
rates are the tool that the Fed has to address inflation, but
in a world where the causes of inflation are so complex it can
have a tool with other impacts that you do not necessarily
anticipate--or you can anticipate it but you cannot control for
that.
So I want to come back to that, because I am very much
thinking about this in the context of workforce and what we
need to do about workforce. You laid out at the beginning of
your testimony that the American economy is really strong. We
have seen millions and millions of Americans go back to work,
fastest economic growth since 1984, unemployment rate is very
low, and the economy is in good shape, notwithstanding the fact
that we have got real challenges around rising prices for
American families.
In Minnesota, the biggest economic challenge that I hear
people talk about is the workforce challenge, that there just
are not enough people to do the work that we have. It is
interesting. The U.S. Chamber noted that women are
participating in the labor force at the lowest rate since the
1970s, and this is having significant impacts on our ability.
I cannot vouch for the U.S. Chamber's numbers but it
reflects what I have heard, which is that there is a very big
discrepancy between the number of men that have come back to
the workforce and the number of women that have come back. So
why is this happening? It is complicated, of course. There are
a lot of early retirements. But there is a real issue with
childcare and women being able to--women and men, but women in
particular--being able to come back to the workforce.
And so, Chair Powell, can you help me understand this? If
we were to invest, as a country, if we were to invest in making
childcare more affordable, more accessible, what impact would
that have on the overall economic conditions of this country, I
mean, this workforce challenge that we have? And I want to try
to understand the interplay between that and inflation and how
this all comes together.
Mr. Powell. You know, it would, of course, depend on the
design of the program and how well executed it was, and that
kind of thing. But there is research. So labor economists,
including one of our Reserve Bank presidents, have written and
done research on this and looked at other countries, try to
control for other factors, but look to see whether childcare
that can be afforded or is free contributes to labor force
participation among women, and they have come back with
positive results on that. And, you know, that does make sense.
It is intuitive, I think, but that is what the research tends
to show.
Senator Smith. Right. And so public investment--if we
decided, which I think we should, but if we were to decide to
make a public investment in making childcare more affordable,
that would not contribute to inflation, would it?
Mr. Powell. You know, to the extent it got people back in
the workforce and got them working over time it would help
relieve the labor shortage and things like that, so it would be
positive.
Senator Smith. That is the way it seems to me too, that if
one of the contributors--if you have more people working you
are going to be addressing the workforce challenges. Of course,
I think it is a good thing that wages are going up, and I think
that is part of what is happening in the economy is the
relative power of employers versus workers has shifted so that
workers have more power and they are shifting jobs if they can
get better salaries, get better wages in other places, and that
might be contributing to rising wages. But it is generally, I
think, a good thing.
So assuming the Fed does what it is planning on doing and
raising interest rates, what impact does that have on the
workforce shortage, if any? What does that interplay look like?
Mr. Powell. Well, again, our tools do not really go very
much to supply. They go to demand. So right now we have
substantial excess demand, as I mentioned, and I think the
first 15 pages of our report are actually a really good summary
of the labor market inflation and supply chain bottlenecks. I
would do that commercial. But you have more than 1.7 job
openings per unemployed person, and that is an overheated labor
market. The level of quits is at an all-time high, and the
level of job openings.
So it seems to me there is a lot that we could do to
gradually bring demand back down to where demand and supply are
more in sync, without risking damage of the kind you are
talking about.
Senator Smith. So raising interest rates would cause
companies to cut back. They are not going to have as many job
openings.
Mr. Powell. Yes. I mean, it slows economic activity across
the economy gradually because buyer borrowing costs, mortgage
rates will go up, the rates for car loans, all of those rates
that affect consumers' buying decisions, and with a lag it will
tend to slow down----
Senator Smith. Job creation.
Mr. Powell. In addition, it has effects through wealth
effects, because housing prices will not go up as much and
equity prices will not go up as much, and so people will spend
less. And what we hope to achieve is bringing the economy to a
level where demand and supply are in sync.
Senator Smith. Thank you. Mr. Chair, I am just thinking
about what President Biden said at the State of the Union,
which is that as we grapple with this problem what we want to
do is we want to lower costs, not lower wages. And so I think
this is just part of the dynamic that we are all trying to
figure out here. Thank you so much for being with us, Chair
Powell.
Chairman Brown. Thank you, Senator Smith.
Senator Daines, of Montana, is recognized.
Senator Daines. Chairman, thank you. Chairman Powell, good
to have you back here.
Everybody is talking about inflation as we are sitting here
today. It is raging in my home State of Montana, a 40-year high
at 7.5 percent in January. Core inflation rose 6 percent. And
we recognize it is both above estimates and both well above the
Federal Reserve's 2 percent target.
As we take a look at what is going on in Europe and Russia
as it relates to energy prices, energy independence, national
security, we are seeing it is all interconnected. As many
countries in Europe continue to decommission nuclear power
plants and stop investing in traditional energy, they have
become now more dependent on adversaries like Russia for
energy, and now we are seeing the cost of energy is
skyrocketing.
Sadly, I think this is a sneak peek at the path that
America is headed down if President Biden, and frankly our
colleagues across the aisle, continue to undermine made-in-
America energy. In order to help lower energy costs, help our
allies be less reliant on Putin and Russia, I believe we must
unleash American energy and support truly the all-of-the-above
American energy portfolio, which includes oil, natural gas,
nuclear, hydro, and coal. I think it is more important now than
ever before.
Chairman Powell, the Fed demonstrated unprecedented amount
of speed to cut rates in March of 2020, when it first cut rates
then by 50 basis points and followed that soon after by cutting
rate to zero and launching a new round of quantitative easing
(QE). My question is this. Has the Fed looked at what impact
$125-per-barrel oil might have on growth and inflation? Because
I think we were just here about a year ago having a
conversation about inflation. Of course, we have moved away
from any conversations about anything transitory now, as we
certainly have some inflation here that is far more than
transitory. But I think it would be fair to say none of us at
that moment would have thought we would be seeing oil at $100 a
barrel, or more.
My question is, have you looked at what $125 a barrel looks
like, $150 a barrel, even $175 a barrel, what that might mean
in terms of growth in inflation?
Mr. Powell. The answer is yes. We run simulations and we
are running those all the time right now. In addition, we have
these rules of thumb that show what happens to gas prices, what
happens to inflation, what happens to growth. They are crude
rules of thumb but they give us a way of thinking about what
the effects would be, and they are what you would think. You
know, inflation goes up, gas prices go up, and growth goes down
a little bit.
Senator Daines. So as you have done that modeling, what
kind of impact are we going to see on inflation in your models
if we have got, let us say, $125 or $150 a barrel?
Mr. Powell. Well, you know, let us say that that is $50
above where oil was during the fourth quarter of last year. I
want to say it was in the $75, $80 range, something like that.
And the thing that matters more than anything is how long does
it persist for. You can have an oil spike, and if it just comes
and goes, prices will go up but it will not actually affect
ongoing inflation. That is really the key thing.
But, you know, I want to say $10 of oil--and I hope I do
not get this wrong--is like two-tenths, something like that, of
inflation.
Senator Daines. Yes. How about on economic growth? What is
your sense?
Mr. Powell. It is more like one-tenth. These are rules of
thumb.
Senator Daines. Yes. And I think these numbers I quoted
here are not outlandish. I mean, you have seen how quickly this
is moving, how volatile the situation is. I am glad you are
modeling it, but we are very, very concerned, certainly, as you
are, where this might go.
I want to talk about the balance sheet of the Fed. The
Federal Reserve's balance sheet is nearing $9 trillion, which
is more than double where it was before the pandemic. Could you
describe how unwinding the balance sheet as a tool to fight
inflation compares to raising interest rates? For example,
would a $500 billion reduction in the size of the balance sheet
equate to a 50-basis-point hike in interest rates?
Mr. Powell. It would be a very crude calculation because we
do think that the signaling value of QE is a big part of it,
and you do not have that when you are having the balance sheet
run up. I do not have that one in my head. You are right,
though. That is the sign that it would be tightening policy.
We really think of getting the balance sheet running in the
background and shrinking in a predictable way, and we think
about the interest rates as the active tool.
Senator Daines. Last question. Do you think we could be on
the cusp of a wage-price spiral, and what factors are you using
to make the determination?
Mr. Powell. Obviously, that is something we really do not
want. The big thing we do not want is to have inflation become
entrenched and self-perpetuating. And it is a question of
inflation psychology really, and it having what we call having
unanchored inflation expectations. And that is why we are
moving ahead with our program to raise interest rates and get
inflation under control. That is a serious concern and one that
we monitor careful. And again, it will depend on--wage
increases have been very high, particularly at the low end, and
it will depend on whether those are persistent or not.
Senator Daines. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Daines.
Senator Van Hollen, of Maryland, is recognized.
Senator Van Hollen. Thank you, Mr. Chairman. Welcome, Mr.
Chairman. I was listening to your testimony, and you pointed
out that you have got a lot of job openings, a lot of
vacancies. And you pointed out that there were some commonsense
measures we could take to address those, including more
affordable childcare, so more people could ensure that their
kids are in a safe and secure and affordable place while they
are at work, and in response to Senator Menendez, allowing
people to come out of the shadows in our economy with some
immigration reform. And I think those are both commonsense
measures, as you said, that we should take.
You are in a tough position given all of the variables we
are seeing. We are seeing higher economic growth. In fact, you
have testified previously that because of the American Rescue
Plan we have seen much more robust economic and job growth than
had been estimated before then. You have got a war in Ukraine,
which is putting upward pressure on oil and gas prices, and
that in effect, that could also have an impact in slowing down
the economy. I was interested in Senator Toomey's line of
questioning. I mean, you have got to navigate that.
Another variable here, of course, is the possibility of
another variant of the coronavirus coming back and wreaking
havoc. Is that not another major unknown that you have got to
factor into your decisionmaking?
Mr. Powell. Yes. Yes, it is.
Senator Van Hollen. And as you think of that, along the
commonsense lines, does it not make sense that we be fully
prepared so that if there is another variant and outbreak that
we are able to quickly address it, quickly reduce the economic
fallout that we witnessed around the original outbreak? Does
that not also make common sense?
Mr. Powell. It sounds like it. I am not sure where I am
going here. It sounds like a fiscal proposal.
Senator Van Hollen. Well, it is like the other ones are
kind of common sense. I am not asking you to make a judgment
totally within, you know, monetary policy or the Fed's domain
in that sense. But from an economic perspective--and you have
an important role to play there--it seems to me that the more
prepared we are to fight a new variant, the better off we will
be, from an economic perspective. Right?
Mr. Powell. Yes.
Senator Van Hollen. I just point that out because we just
received a request from the President for a supplemental
assistance package to stockpile more antivirals, so people
could be treated more quickly, to stockpile tests so that we
could quickly determine where we experience an outbreak, and to
stockpile more vaccines, and also to work globally to prevent a
new variant from developing. Again, just from an economic
perspective, those preparations would make common sense, would
they not?
Mr. Powell. They would. And, you know, variant to variant,
the economy has gotten better at dealing with this, the
American people have. So I think anything that allows us to
continue living our economic lives is a plus.
Senator Van Hollen. I appreciate that. I think that we just
need to take some practical steps, as you said.
Can you just talk a little bit about the assessment that
you made regarding the households being in strong financial
shape? You mentioned that, and I think it is worth just
elaborating on that a little bit, because we have wage income
but we also have the income people received as a result of the
American Rescue Plan, right, $1,400 per person, and other
emergency assistance we provided. And that has put households,
overall, in strong financial shape. I think those are the words
you used. Is that right?
Mr. Powell. Yes. Just as you say, the level of savings,
even among those that the lower end of the income spectrum is
much higher than it was just continuing the prior trend. In the
surveys that we undertake, people feel better about their
financial situation than they have in a long time.
Senator Van Hollen. Right, and again, we have had this back
and forth about real wage growth, and I think if you look at
people at the lower end of the economic spectrum you have seen
real wage growth, as you indicated. But if you look even
overall at all households, in terms of their personal income
last year, after-tax personal income compared this year,
overall that has improved, right?
Mr. Powell. Yes, in nominal terms.
Senator Van Hollen. No. I am asking in real terms,
actually.
Mr. Powell. You know, it depends on whether you are looking
at 1 year or 2 year and which measure you are looking at. But
if you are talking about a particular piece of data I do not
have it at hand, but I know that for many real wages rose in
2020, and in the aggregate declined marginally in 2021.
Senator Van Hollen. Yes. But I am talking about all the
income available to a household, in real terms. I am happy to
follow up.
Mr. Powell. That would be great.
Senator Van Hollen. Thank you.
Chairman Brown. I think, Senator Van Hollen, you were in
part referring to the child tax credit and assistance that low-
income people had.
Senator Van Hollen. Child tax credit, $1,400 per
individual. All those helped in terms of personal household
savings in real time, in real terms.
Chairman Brown. What matters is the quality of life.
Senator Kennedy is recognized, from Louisiana.
Senator Kennedy. Thank you, Mr. Chairman. Mr. Chairman, the
President has requested that the Congress appropriate
additional money to fight COVID. Senator Van Hollen just
referred to it. Do we have that money?
Mr. Powell. I feel like I am getting into fiscal policy
here. I really want to leave this to----
Senator Kennedy. Yes, sir. But do we have that money?
Mr. Powell. Do we have that money? Well, in the sense of--
--
Senator Kennedy. Do we even have 5 percent of that money?
Mr. Powell. I do not know what you mean by ``have the
money.''
Senator Kennedy. Will we have to borrow the money?
Mr. Powell. Yes, I think we are running a deficit, so I
think a lot of spending is on the basis of borrowing.
Senator Kennedy. OK. Let me ask you about the sanctions on
Russia's central bank. The West has sanctioned its bank, and
you say it is--or some say that it has basically prevented
Russia from using those foreign reserves, because they are
foreign reserves. They are not in Russia. They are in other
banks in other countries. Has China joined in that sanction?
Mr. Powell. No, I do not believe so.
Senator Kennedy. So if China wants to it could support the
ruble, could it not?
Mr. Powell. In theory, yes.
Senator Kennedy. OK. Now does that sanction on the foreign
reserves of Russia by the West, does that stop dollars and
euros from coming into Russia?
Mr. Powell. I think other sanctions do. They are not
getting any hard currency. I think a lot of payment of dollars
into Russia is coming to a grinding halt.
By the way, I should say we are really not responsible for
sanctions, as you obviously know.
Senator Kennedy. I know that. You are not responsible for
climate change either, but that does not stop the Federal
Reserve, or for elementary and secondary education, but that
has not stopped the Federal Reserve from having an opinion, not
you but some of your colleagues.
Now the West has said, the President has said we are going
to throw Russia out of the international community and we are
going to throw Russia out of the international marketplace, and
obviously we all agree with that. And he sanctioned everything.
But he has not sanctioned Russia's energy. Europe is going to
continue to buy Russian oil and gas, despite the fact that
Europe has 1,000 trillion cubic feet of natural gas that it
refuses to produce. And America, right now, we are continuing
to buy Russian oil.
So how are we going to throw Russia out of the
international community and global markets if we do not attack
their oil?
Mr. Powell. That really is a question for the elected
Government, for the Administration, and particularly the
Treasury Department.
Senator Kennedy. I know, but I am asking your opinion,
because you are a smart man.
Mr. Powell. I appreciate that very much, but my opinion is
that it is not something I would have an opinion on, as Fed
Chair. We do not do energy policy. We do not do sanctions. We
are technical support. We are not the policymakers. It would be
like the Secretary of the Treasury coming in and talking about
monetary policy.
Senator Kennedy. OK. Let me take you back to the spring of
2020. Governments shut down the private sector in virtually
every country. Markets are panicking. Everybody is looking at
you to calm things down. You did. You did. And one of the
things you did, aside from the currency swap plan that you
established--well played--you said we, meaning the Federal
Reserve, are going to provide capital to American businesses.
OK? And you did. And you kept us going, and I thank you for
that.
Suppose, though, the Federal Reserve had said, at that
time, we are going to keep American businesses going and we are
going to supply the capital, except we are going to use this
opportunity to bankrupt the oil and gas community, the oil and
gas sector. Where would we be today if we had done that?
Mr. Powell. You would be very unhappy with me, and
appropriately so.
Senator Kennedy. Why is that? Because some of your possible
new colleagues think we should have done that. Ms. Raskin has
talked about that, said we should have taken the opportunity,
at that point, to bankrupt oil and gas.
Mr. Powell. I do not want to----
Senator Kennedy. I know.
Mr. Powell.----get into the----
Senator Kennedy. I know. I just thought I would slip that
in. I am not asking you to comment on Ms. Raskin, our reserve
trust, or the other things that we need to get to the bottom
of. I am asking you to tell me what would have happened if we
had used that opportunity to bankrupt the fossil fuel industry,
as Ms. Raskin suggested we should?
Mr. Powell. Well----
Senator Kennedy. Strike the Raskin part. That makes you
nervous. I can tell.
Mr. Powell. You know, we are a creature of law. You passed
the CARES Act. It did not say anything about picking and
choosing, and we were not going to do that, and we did not do
it.
Senator Kennedy. Do you think picking and choosing is a bad
idea?
Mr. Powell. I think, you know, we actually have a document
I have right here from 2009. It is sort of our document where
we negotiated with the Treasury Department who does what, and
it talks about the fact that we do not get into allocating
credit. We try to affect broad credit conditions. We do not
allocate credit to particular industries. And that is a
document that we think is sort of one we live with.
Senator Kennedy. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Kennedy.
Senator Ossoff, from Georgia, is recognized.
Senator Ossoff. Thank you, Mr. Chairman. Chair Powell,
thank you for joining us again. Thank you, as always, for your
service.
Please explain to the Committee and to the American public
what steps the Fed is taking and expects to take in response to
the increase in price level for consumer goods, gas, and
groceries.
Mr. Powell. Well, as I discussed yesterday, we are
embarking on a series of rate increases over the course of this
year, and no doubt beyond, and we are also going to be
shrinking the size of our balance sheet as the year goes on. So
what those things will do is they will raise interest rates
across the economy and that has the effect of moving demand
back down to where it is more aligned with supply and getting
inflation back down to a level that we would recognize, that is
consistent with our mandate of around 2 percent.
Senator Ossoff. And what considerations will inform you and
your team as you determine the rate at which you reduce the
value of assets on the Fed's balance sheet?
Mr. Powell. The way we think about that is we want to set--
and this is the meeting we are going to have in 2 weeks--we are
going to set a pace at which runoff will happen, subject to
caps, so that if there is more runoff--basically, when
securities mature we can just not reinvest that money and we
can just give that money back to the Treasury Department, and
that is what we do, up to a certain limit. We like to have caps
so that it is not volatile and it does not affect markets.
So essentially it is what we think we can do in ways that
will not interfere with market function and that will get us
back expeditiously to a balance sheet which is the one we need,
which is just the right size to implement monetary policy,
consisting of demand for our liabilities plus a buffer. Ample
reserves, we call it.
Senator Ossoff. We are seeing right now the impact of
geopolitical events on markets' likely impact on the price
level potentially on unemployment and therefore on your
mandate. I would like to request that you consider providing
this Committee with a Members-only briefing that would cover
two subjects.
The first is how the Federal Intelligence Coordination
Office that connects you and your team with the intelligence
community, performs in ensuring that you and your team are up
to date on the latest intelligence that could provide a
forewarning of geopolitical events that impact your mandate and
financial markets in the U.S. economy.
And the second is a briefing on the resilience of your
internal systems and the mechanisms of action for monetary
policy in the event of a cyberattack or a continuity of
Government event such that you can continue to do your job even
if the Nation's information technology or financial
infrastructure is degraded or under attack.
Will you and your team provide to this Committee in a
Members-only or closed or classified setting, as necessary,
that information?
Mr. Powell. Sure. The second one, for sure. I am not sure
there is a lot to really--well, we can talk about this offline
in terms of what there is to talk about, but we are delighted
to come up if you want to have us up for a briefing. If the
Chair and the Ranking Member want us to come up, we will come
up at any time.
Senator Ossoff. OK. We will coordinate that with Committee
leadership and look forward to making that happen.
How do you consider the labor participation rate when you
think about what it means to fulfill your mandate with respect
to employment?
Mr. Powell. It is one of the key measures. There are many,
many measures that go into determining what is maximum
employment. Ultimately, maximum employment is, one way to think
about it, the highest level that is consistent with price
stability. And so at a certain point, labor supply has not
increased at the pace that everyone expected it to increase at.
It is still meaningfully below where it ought to be, even based
on its trend. It is very hard to understand why that is. There
is a great discussion of it in the Monetary Policy Report.
So essentially what we do is we make a forecast, and that
forecast now amounts to relatively modest additional
improvement in labor force participation. We factor that into
how tight the labor market will be. That will give us a view on
unemployment, on wages, and things like that. And so that is
how we do it. And the reason it is fairly modest improvements
is that is what we have seen so far.
Senator Ossoff. The Chairman is a stickler for time so I am
just going to get this last question in here. Will you please
provide to my office the research that the Fed has conducted or
third-party academic research that you consider credible with
respect to the distributional effects of monetary policy over
the last 15 years, the quantitative easing programs, the
massive increase in the money supply from central banks across
the world, how that has impacted the Gini coefficient and other
distributional and inequality measures?
Mr. Powell. I would be delighted to.
Senator Ossoff. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Ossoff.
Senator Hagerty, from Tennessee, is recognized.
Senator Hagerty. Thank you, Mr. Chairman and Ranking
Member. I appreciate you getting us together today again. And,
Mr. Chairman, I appreciate you being here.
I would like to talk a little bit about what Senator
Kennedy was just talking about, what Senator Daines touched on
with respect to energy. As a candidate, President Biden
promised that he would do away with the oil and gas industry
here in America if he were elected, and I think that has been
one of the campaign promises that he has been very effective at
essentially undertaking a war on that industry, whether it is
killing the Keystone XL pipeline permits, whether it is
terminating oil and gas leases on Federal lands, pressuring
asset managers and banks to stop lending, to divest from energy
projects.
It has been a very extensive effort to decrease American
energy production. That has had the effect of costing American
jobs. It has had an effect of raising domestic prices for
energy. But it has also had an effect, as Senator Kennedy
mentioned, of making it extremely difficult for the Biden
administration to respond to Russia's invasion of Ukraine,
because it makes it very difficult for President Biden to hit
Vladimir Putin where it will really hurt. It makes it difficult
to sanction Putin's energy. The reason for that is sanctioning
Putin's energy, again according to the argument that Senator
Kennedy eloquently laid out, is going to raise prices for
energy around the world, given our dependence on Russian energy
and others.
We are in a tough spot, and energy touches so many aspects
of our economy. I hope I could get your insight in terms of how
you look at the trendline for energy prices, Mr. Chairman, and
how that is going to affect monetary policy moving forward.
Mr. Powell. Well, I mean, in the near term clearly energy
prices have gone up and they may go up further. It depends upon
events to come. And that is going to push up inflation.
Certainly in the near term gas prices will go up. As I
mentioned earlier, there will be effects on inflation, on
growth, on gas prices, and it all comes down to how persistent
will they be. You know, if it is a spike that comes back down,
or it looks like it is coming back down, then that is one
thing. If it is persistent, then that is a different thing. And
we would be much more concerned at the latter, and also,
frankly, the effect that just another oil price shock would
have on general inflation expectations. We will be watching
that very carefully.
Senator Hagerty. I wake up every morning and check futures
prices. I am sure you have got many variables that you watch,
and I would look forward to your insight in terms of what you
think are the most informative variables as you think about
monetary policy in the long run.
I would like to turn to the Fed's accountability right now,
and again, this touches on inflation. I think that the Federal
Reserve is in a very difficult situation right now, Mr.
Chairman. You and I have talked about it. A lot of the stimulus
spending, fiscal policy have made your job very difficult. We
have had that discussion in hearings before. But with January's
CPI at 7.5 percent, it really does feel like the Fed is behind
the curve right now and may have to take more aggressive
actions than otherwise would have been the case.
And I saw that the most recent Monetary Policy Report
omitted the section on monetary policy rules. And I know those
rules are not intended to be prescriptive there but they are to
consult, for contextualization. But it was concerning that they
were missing. And again, I think those rules would have
indicated that we are behind the curve, that there is more to
be done on inflation. And it brought me to think about how does
the Fed think about accountability? How do you think about
holding the Fed accountable for managing inflation?
Mr. Powell. So we will bring them back for the July thing.
Honestly, we sometimes do and sometimes do not. And, by the
way, I would recommend, the Cleveland Fed has really all of the
rules. There are a range of rules, but clearly the median rule
is, you know, so . . .
But in terms of accountability, you know, it starts with
transparency from us, and, you know, explaining to you. You are
the mechanism through which we get our transparency. We deliver
transparency and we get our democratic accountability by
explaining ourselves in understandable terms to you and by you
holding us accountable. And in our system of Government it runs
through this Committee and the Senate, and the House as well.
And so we try to be very transparent. We try to be engaged
with Members and explain and hear your concerns and all those
kinds of things. Ultimately, it is the bottom line. We both
came from the business world. It is what you deliver, and we
need to deliver price stability--we are not currently doing
that--and we are very high-
ly motivated to get the economy back to a place where we have
inflation under control, but also a strong economy and a strong
labor market.
Senator Hagerty. I could not agree with you more.
Accountable and, frankly, credibility are so important for the
Fed. I know the Ranking Member has talked a good deal about
mission creep at the Fed, politicization at the Fed. I will
just underscore and associate myself with his remarks there as
well, in terms of my concern there, because it does get very
deep to the credibility of an organization that we are all so
dependent upon to be credible, to be transparent as you
described, and to accurately telegraph where we are headed as a
Nation and as the most significant economy in the world.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Hagerty.
Senator Cortez Masto, who waited patiently in person for
her turn, is now recognized from her office.
Senator Cortez Masto. Thank you. Thank you, Mr. Chair, and
thank you, Chairman Powell, for being here.
I listened until I had to run over to the Natural Resources
Committee--but one question I have for you, and I appreciate
your candor always, clearly the focus is price stability, but
we are having challenges right now. Based on what you know now,
with our economy and the facts before us, do you believe that
the Fed should have engaged its monetary tools a year ago
instead of waiting until March to engage some of those, to
address price instability?
Mr. Powell. I am sorry. I did not hear the last part of
your question. I apologize. It was not----
Senator Cortez Masto. No, that is OK. Do you believe--and
let me know if you cannot hear me OK--do you believe that the
Federal Reserve, based on what you know now, with the facts and
the economy, should have engaged their tools to address the
price instability a year ago instead of waiting until March?
Mr. Powell. I do not know about a year ago. I would say
this. You know, we thought that the supply side problems would
get better faster than this. They have not. Had we known that
they were not going to get better then certainly we would have
engaged our tools earlier.
Senator Cortez Masto. OK. Let me talk about the Monetary
Policy Report. You make a strong case that the USA economy is
the best in the world. Do you believe that our economy has
weathered the COVID-19 pandemic more effectively than other
nations?
Mr. Powell. I think there is quite a lot of evidence to
that effect, yes.
Senator Cortez Masto. Thank you. And I appreciate your
consistent focus on leisure and hospitality industry. As you
well know, I talk to you about it all the time, coming from the
State of Nevada. Can you speak to the Fed's report that wages
in the leisure and hospitality sector are improving quickly?
Mr. Powell. Yes. I mean, that is an area where we have seen
very large wage increases, but, you know, it is still one of
those very much an in-person business, and I guess it is still
difficult to hire people, which is, of course, why the wages
have gone up so much.
Senator Cortez Masto. And why do you think that nearly a
third of all jobs added to the economy in January were in
leisure and hospitality? I am curious.
Mr. Powell. I just think that is where the job openings
are. You know, that is still the part of the economy--I do not
need to tell you--that is the part of the economy that still
has to fully recover.
Senator Cortez Masto. Thank you. That is what I wanted to
hear, because it is true. I see the unemployment numbers in my
State, the highest unemployment rates are in southern Nevada
where the hospitality and leisure industry is, and we cannot
forget that. And that has been the challenge to our workforce
in general, and getting people back to work.
I know Senator Smith asked you this question, but let me
just reiterate this, going back to a full workforce. There are
interesting facts in the monetary report, particularly in the
first 73 pages, but there was nothing in the labor force
discussion regarding about the importance of women in that
labor force. I am assuming you utilize that factor as well.
Does the Federal Reserve analyze women's workforce
participation?
Mr. Powell. Oh yes, very much so. There is a story there. I
do not know why it did not go into this, if it is not in there.
But, I mean, early on women bore the brunt of participation and
of job loss, but over the course of the pandemic much of that
effect has really reversed, so you are back now to--we were
looking at this earlier this week--if you look at the change in
participation or unemployment for men and women, it is very
hard to see any difference at this point. But that was not the
case a year ago, where women bore the brunt then, but not so
much now.
Senator Cortez Masto. And do you think impact of lack of
childcare has impacted and been a barrier for women to get back
in the workforce?
Mr. Powell. Yes, and there is a table, I think on page 11
in our book that shows who is not participating. Actually,
childcare is not so much. Caregiving overall is a big number.
But according to this data anyway, childcare as such is no
longer big from a macroeconomics standpoint. I know for the
people affected it is big.
Senator Cortez Masto. Thank you. And then one of the other
areas that we have been talking about, the rising prices that
we see and that I hear about at home, I see at home, one area
though is around housing and the focus on how we can reduce
costs and prices for affordable housing. And so there is work
being done that we have done already, but also that we can
still address to increasing the housing supply here,
incentivize that at the Federal level.
I am just curious. Would you believe that investments in
increasing the supply of housing affecting the inflation that
we see in the housing market and inflation overall?
Mr. Powell. If you are getting into fiscal policy to
support affordable housing, that is certainly a worthy and
important issue but really not our doing.
Senator Cortez Masto. No, just the fact of supply and
demand. If what we are seeing is more of a demand for housing
and lack of supply, and if we are to incentivize that increase
in the supply of housing that should lower costs, that should
help address the inflationary----
Mr. Powell. I think if you create more supply then you will
get prices going down, pretty much in anything.
Senator Cortez Masto. Yes, I appreciate that. Chairman
Powell, thank you again.
Chairman Brown. Thanks, Senator Cortez Masto.
Senator Tillis, from North Carolina, is recognized.
Senator Tillis. Thank you, Mr. Chairman. Chair Powell,
thank you for being here and thank you again for your long
track record of being very accessible. When we call you answer
the phone, and I appreciate that.
I wanted to talk briefly. Senator Smith talked about
childcare and in response--I am paraphrasing--you said it
depends on how it would be designed and executed. And then you
just made a point in response to Senator Cortez Masto that not
so much childcare but dependent care. It could be a parent that
you are taking care of. It could be a disabled spouse. It could
be any number of other instances.
And I think if we stop talking--well, let me back up, and
say, do you think that a universal childcare, flood the zone,
even for nonworking persons would be helpful in fixing the
problems that you have right? Like everybody gets it, whether
you are going to work or not.
Mr. Powell. That is really not for me to say. That is a
real legislative question.
Senator Tillis. But it is sort of a flooding. I know you
cannot answer it because there are pending proposals there, but
it just seems to me that if we wanted to really stop talking
past each other and start talking about policies that makes
sense, that free people up who have marketable skills or who
could go to school and get marketable skills, and focus on that
segment of the population, that is probably an area where we
could get some consensus, that would have a positive economic
impact on productivity, potentially even revenue, more people
working, more businesses prospering. So that is something I
think our Members should look at versus some of the positions
we have had here where we have not made any progress, and I
think we should.
We filed a bill this week, Senator Tester and I have been
working on, and I appreciate the Chair's support for what we
are trying to do for the LIBOR transition. Could you speak to
the importance--with all the other things going on here some
Members may not be dialed into it and not necessarily think it
is important. Could you speak to the importance of getting the
LIBOR transition legislation passed, which I understand that
you all are in support of in its final form?
Mr. Powell. Yes. So it is very important because there will
be some remaining contracts that are not covered by fallback
language, and this really is to plug that hole. It is very
important from a financial stability standpoint. It is good
that we are down to this last so-called hard tail, but this is
important legislation.
Senator Tillis. Thank you for that. I hope that we can get
it moved forward.
In any research or reports that you are getting, economic
research or reports, how well, and I know it would vary sector
to sector, but how well are small businesses doing right now?
Mr. Powell. You know, startups or small businesses--I guess
every startup is a small business--are really high and have
been right through the pandemic. We did not see that coming but
that has been the case.
You know, I remember seeing that small businesses at the
beginning of the pandemic did not have the resources. We were
very, very worried about losing a lot of small businesses,
through no fault of their own, at the beginning of the
pandemic, but that really did not happen.
Senator Tillis. Was that likely Paycheck Protection, other
stimulus measures probably had an impact on that? Some of them
just figured out how to weather the storm?
Mr. Powell. Yes, and I just think the overall economy, for
what Congress did and what we did, you know, I think the
economy recovered so much quicker than we were afraid.
Senator Tillis. In North Carolina we are approaching about
$90 billion in agriculture product every year. I talked with a
farmers' group yesterday that are struggling with access to
labor and increased costs. Do you think the way that they fix
their problems or businesses that are struggling with the cost
of inputs up, inflated, they can pass some of that to the
consumer, not all of it? But is it your general sense or
intuition that most of these small businesses are flush with
cash and margins?
Mr. Powell. I mean, it depends on the sector, I would
think, some of them. The agricultural businesses are paying big
fertilizer costs, and we hear a lot of stress in that sector.
Senator Tillis. So I know you are not an economist, but
intuitively do you think, just looking certain sectors in the
eye and saying cut costs is even a viable option, given where
we are with the inflationary pressures?
Mr. Powell. I think businesses are always minimizing their
costs. But if we are talking about the President's speech----
Senator Tillis. I think there is a general consensus that
any business that is not trying to cut costs so they can
increase their margins or pay their employees more, then they
are not competent business people. Could you at least agree
with that?
Mr. Powell. I absolutely agree with that.
Senator Tillis. So to suggest that they are not cutting
costs right now would suggest that maybe they are not
competent. I do not expect you to respond to that but that is
what I infer from the statements from the President.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Tillis.
Senator Warnock, from Georgia, is recognized.
Senator Warnock. Thank you so much, Mr. Chairman, and thank
you, Chair Powell, for being here again today.
Every day I hear from Georgians who are feeling the pinch
of rising costs in their wallets. Wages grew last year, but
this growth has not kept pace with rising costs for housing,
for gas, for groceries. Georgia families are swimming upstream,
and while supply chain disruptions contribute to the problem,
they are not the sole cause. Three global shipping alliances
control delivery for the majority of imported goods. Two
companies account for 70 percent of America's diaper market,
and just four meat processors control more than 80 percent of
the beef industry.
This type of market concentrations lowers competition and
gives giant companies more power to use inflation as an excuse
to raise prices, leaving Georgia families to foot the bill
while their executives and investors get richer and richer.
This is why I pushed for a Federal investigation into apparent
price gouging by international cargo carriers, carriers that
have seen as much as 2,000 percent increase in profit in the
midst of a pandemic.
Chairman Powell, yes or no. Do you agree that more market
competition is generally good for the economy and for
consumers?
Mr. Powell. I do.
Senator Warnock. And that too much market concentration
poses a risk, a risk that consumers can feel and are feeling,
in fact, right now with rising prices?
Mr. Powell. I think that concentration is an appropriate
subject for the competition authorities.
Senator Warnock. But does market concentration pose a risk
for rising prices? Yes or no.
Mr. Powell. Yes. I would not want to be heard to say,
though, that that is the main source of inflation, but it
certainly is----
Senator Warnock. So do you believe there is a role for the
Federal Reserve to promote market competition to help ease
inflationary pressures?
Mr. Powell. So outside of the banking industry we do not
have a role in competition policy as such. We do administer
statutes that bear on that, but ultimately, though, our jobs
are inflation and maximum employment, as you know very well.
The industries that you are talking about and the kind of
issues that you are talking about really are for the antitrust
people rather than for monetary policy.
Senator Warnock. But dealing with inflation is part of
your----
Mr. Powell. Yes.
Senator Warnock.----your mission and your mandate, and if
market concentration is contributing to that, does that not
involve the Fed's mandate?
Mr. Powell. But we do not have the tools to deal with
market concentration. You know, we are supposed to achieve
maximum employment and price stability. That is the classic
role for the antitrust people at the FTC and Justice Department
and at the State level, rather than for us.
Senator Warnock. Will you commit to a study on how market
concentration has affected the price of consumer goods during
the pandemic and share that study with Congress and antitrust
enforcers?
Mr. Powell. So I think I can do better than that, which is,
we actually have a good amount of research from inside the Fed
and from outside the Fed that bears on these questions, and we
will be happy to share that with you right away.
Senator Warnock. All right. Thank you so much. I look
forward to working with you to address the root causes of
rising costs for Georgia families, for American families, in
general. All right?
Mr. Chairman, I have got 50 seconds left but I am going to
defy Baptist preacher gravity and that is the end of my
questions.
Chairman Brown. Thank you, Senator Warnock.
Follow that advice, Senator Rounds, from South Dakota.
Senator Rounds. Thank you, Mr. Chairman. Mr. Chairman,
first of all, thanks for what you do. I appreciate it, and I
appreciate your openness with us.
I want to go back and kind of simplify a couple of things
if we can a little bit, just in terms of the issues surrounding
inflation. I think it is fair to say that one way you can
divide it is into two parts, one being the supply side pressure
on inflation, and the second side being the demand side.
I think the last time that you were here before this
Committee we talked about the fact that the Fed really had the
ability to impact the demand side. Is it fair to say that that
is where most of your capabilities are today?
Mr. Powell. Yes. Very much so.
Senator Rounds. In order to do that--and I know that the
question is, is trying to get inflation down to 2 percent or
so--what would you say is, of the total amount, right now we
are running 7.5 percent, how much of that can the Fed actually
impact with their policies? What part of it is demand-driven
versus supply driven in the analysis that you do?
Mr. Powell. That is a really interesting question, and I do
not have a precise answer for that. I think it is clearly both,
and that is why I would say to get back to 2 percent inflation
we really do think we are going to need help from the supply
side in the form of just the bottlenecks and shortages and all
that being alleviated as well.
Senator Rounds. When you make a determination as to the
tools that are available to you, and in particular primarily
raising the basic interest rates that are available to you
right now, how much of that inflation do you think you can
impact using the tools that you have got right now? What I am
pointing at is, it seems to me that if we decided that the
tools that you have are available to fix all of inflation, we
put you in a really tough spot, and we may very well go way
overboard on the amount of interest increases and not be able
to actually impact a significant part of the inflation itself.
A fair concern to have?
Mr. Powell. Yes, and I think we need to bear in mind, and
we will keep in mind, that some of this is because of very
strong demand meeting a limited supply, an inflexible supply.
Cars are a great example. Ordinarily, if there is demand for
cars, a lot of demand, the car makers go, ``This is great. We
will make more cars and we will raise the prices too.'' You
cannot make more cars without more semiconductors, right? You
can only make the amount that you are making. And so what
happens is it all goes into higher prices.
So we can lower car demand by raising rates, and we will do
that, but ultimately we need more semiconductors so that there
can be more cars as well, to really get back to 2 percent
inflation.
Senator Rounds. Fuel costs have gone up, in some cases, 40
percent in the last year, though. You cannot really impact----
Mr. Powell. No, we cannot.
Senator Rounds.----that portion of it.
Mr. Powell. No. Well, I mean, we can impact demand, but
really these prices are set at the global level, by and large,
and so really, we cannot affect it.
Senator Rounds. The section of the Monetary Policy Report
on our debt and deficit explains that due to the extreme
Federal spending the Federal deficit surged by 15 percent of
nominal GDP in 2020, and Federal deficits are expected to
increase by roughly $5.4 trillion by the end of fiscal year
2030. Federal debt by the public jumped to above 100 percent of
nominal GDP in 2020, the highest debt-to-GDP ratio since 1947,
and it remained there in 2021.
If the Fed is slated to raise interest rates potentially
more than five times this year, the interest on the Federal
debt will also rise, further ballooning the national debt. What
effect does a ballooning national debt have on the economy, and
how does the Fed factor that into its forecasting of that
portion of the challenge?
Mr. Powell. Our unsustainable fiscal path does not really
have a bearing on that. You know, we work in business cycle
limit. That is sort of the timeframe we can think about things,
given our tools and what they do. You know, we are on an
unsustainable fiscal path, meaning that the debt is growing
faster than the economy. That, by definition, is unsustainable
in the long run. We need to get back to that, but the time to
do that is when the economy is strong, and that is really all I
can say. That is all I can say about it.
Senator Rounds. OK. One last question. This week the Fed
announced a proposed plan to improve the process for financial
institutions looking to get access to Fed master account. It
seems unique that it would happen right now with everything
else going on with regard to nominations here before us. Would
it suggest that the Fed believes that the process has been
abused in the past or is this just an arbitrary determination
being made right now? What is the reason for this
investigation?
Mr. Powell. Well, it is just that we have had burgeoning--
it is really digital finance and all the new kinds of charters
and all of those things, and there is a need for us to--and we
put a lot of time and thought into the extent to which we
should provide master accounts to fintechs that may or may not
have deposit insurance. You know, it is highly precedential,
and we wanted to get it right.
We have been thinking about this for a long time, as one of
your colleagues knows well. And this is a proposal. It is out
for comment, I think, for 45 days, and it gives sort of three
tiers, and we want to get public feedback on that. But I think
it has taken us awhile to get to this. There is no magic to the
timing, but it is just a reflection of what is going on in the
world of digital finance.
Senator Rounds. Very good. Mr. Chairman, thank you.
Chairman Brown. Thank you, Senator Rounds.
Senator Reed, from Rhode Island, is recognized.
Senator Reed. Thank you, Mr. Chairman. Thank you, Chairman
Powell, for your great work.
Senator Cortez Masto raised the issue of housing, and for
families all across the country, particularly in my home State
of Rhode Island, this is one of the biggest forms of inflation
they are seeing. It has been reported that housing prices, year
over year, have gone up 20 percent. Rent nationwide in January
rose 14 percent in 2021, the last numbers we have.
I had school principals in yesterday, and they were
commenting about some of their families having to leave a
working-class community in Rhode Island because they cannot
afford the housing--and this is in not luxury housing--to go
into poorer neighborhoods just to have some shelter.
And I am afraid there is another factor that is going to
really exacerbate what is going on, and that is private equity
and Wall Street have decided that they are going to buy up as
many homes as they can, and that disrupts what we assume is the
typical housing market for both rental, i.e., relatively small
owners have rental properties in the State, they have a
relationship with their tenants. When it comes to homes, you
buy a starter house, and then you move up, and you sell it, and
these are families, through a realtor, selling it. Now we have
got the big machines that are just buying up houses, throwing
people out, and I think that is something that is going to
essentially sneak up on us like the derivatives crisis and a
lot of other crises in the past.
But what you are going to do, and within your authority, is
address the demand side of the economy. This is really a supply
side issue. I would assume you would agree.
Mr. Powell. Yes.
Senator Reed. But if we do not address it, we will see
continued inflation in housing and continued problems, and that
is contributing significantly to the overall inflation rate. Is
that accurate?
Mr. Powell. I think in housing it is land, labor, lots,
materials, and it is very strong demand. All of those are
scarce, and it is a very strong demand hitting, and so that is
why you are seeing prices go up.
Senator Reed. Will the interest rate increases, do you
think, affect demand for housing?
Mr. Powell. I expect they will, yes. It is a very interest-
sensitive sector.
Senator Reed. Yes. And in terms of rental housing that
typically, because of the supply shortage, will be passed on to
the renter, I would assume.
Mr. Powell. Yes.
Senator Reed. So, you know, we have a problem that affects
families all through this country, and one of the consequences
of what you are going to do is raise prices, at least slightly.
But we have to deal with it, and that is on the supply side. I
know that is not your bailiwick.
But, you know, we are talking in general terms about
inflation, and if we do not get a handle on housing inflation
the American people will still be, and particularly the lower-
income working families will be hammered by this. So I hope we
can come together on the fiscal side and do something that is
appropriate.
We are witnessing extraordinarily disturbing conflict in
Ukraine, and it is going to have repercussions in many
dimensions. I think it will also have repercussions in the
financial world, and I hope the Fed is tuning in and watching
closely.
I think the Chinese are particularly interested in the fact
that we have been able to assemble a global coalition to
basically shut down the Russian economy, and they will start
thinking about how they can avoid that fate if they get into a
similar circumstance. They have, I think, a rudimentary SWIFT
system, which they might try promoting much more, which could
interfere with the system that we have invested.
Then cryptocurrency will be exploited. I think also, too,
that the whole issue of the dollar as the medium of exchange to
the world, which is the key that is really making our sanctions
effective, the Chinese again will look very closely, as they
have in the past.
So first, I presume you are going to look at this issue
very closely, and second, inform us of what developments, and
then third, you might just indicate what you think might
happen.
Mr. Powell. Yes to all of the above. I mean, you are asking
some longer-term questions, the reserve currency and the
Chinese messaging system that is like SWIFT. In the near term,
those are not going to be big questions in this one particular
instance, but in the longer run I think those things are very
much on the table.
Senator Reed. And so we will see, at some point, and again,
not in months but probably years, movement, particularly by the
Chinese, to insulate themselves from the same thing that is
happening in Russia now.
Mr. Powell. And that is going on now. I mean, that has been
going on for some time. But it may change the trajectory.
Senator Reed. It is an accelerant.
Mr. Powell. Yes.
Senator Reed. Thank you, Mr. Chairman. Thank you very much.
Chairman Brown. Thank you, Senator Reed.
Senator Sinema, from Arizona, is recognized from her
office.
Senator Sinema. Thank you, Mr. Chairman, and thank you to
Chair Powell for being here today to speak about these
important issues.
As you know, over the last 2 years we have seen the
significant impact of the COVID-19 pandemic on our global
supply chains for both industrial and consumer goods. While our
economy is beginning to recover, we are already seeing the
impact that Vladimir Putin's illegal, violent attack on Ukraine
will have on the price of oil and gas here at home.
I am supportive of the strong, swift actions the
Administration has taken to sanction major Russian banks and
Russian oligarchs in response to the unprovoked war that Russia
is waging against Ukraine. I believe we can go farther and do
more.
I am also mindful of the impacts that these sanctions are
having and will continue to have on everyday people, not just
in Russia and Ukraine but also here at home. These sanctions
can affect the availability and pricing of essential goods for
hard-working Arizona families by further disrupting global
supply chains.
Let me be clear. Arizonans stand with Ukraine in their
fight to determine their destiny. We are supportive of the
actions taken thus far to hold Russia accountable. And
Arizonans are also concerned with the price of groceries and
everyday goods, and we are paying too much at the pump right
now.
So in a global economy, sanctions often involve economic
tradeoffs. How is the Fed assessing the impact of Russia's
illegal war and the United States and allied sanctions against
Russian banks on the pricing of oil and gas for consumers?
Mr. Powell. Thank you. Oil and gas prices have been going
up really for a couple of months now, in anticipation of this,
and then they have gone up substantially in the last couple of
weeks, and, you know, the really important question for the
economy is how long that will persist. The immediate impact
will be to raise gas prices and other fuel prices and prices
for companies using energy. So inflation will move up. People
will feel that certainly at the gas pump. And also, you know,
crudely, you would expect at least a little bit of lower
economic activity due to higher energy prices.
But again, it is both the magnitude of that, and that will
really depend on events that have not happened yet. How big
will those increases be, and second, how long do they persist?
If they are brief and go away, or if just the price of oil
stays at a certain level for a while, then the effect on
inflation will be temporary.
So we will be watching all of those things. And, you know,
we run simulations and that sort of thing. That is one of the
things we like to do, and so to make ourselves think about the
possibilities. Of course, everything is so uncertain. It is
just very hard to say where this is going. And I think in that
environment we need to move carefully with our policy, and that
is what we are planning to do.
Senator Sinema. How much do you expect these changes in oil
and gas prices to affect the availability and pricing of other
goods that rely on oil and gas in the United States, and do you
expect there to be a noticeable impact in the consumer price
index?
Mr. Powell. I think certainly you will see gas prices move
up, as they do when oil prices go up, and that will show up in
the consumer price index. It will show up in the headline
index. It does not show up in the core index but it shows up in
the headline index. And the headline index, of course, is what
people are actually paying at any given time. So it will show
up.
Senator Sinema. Does Russia's war in Ukraine change the
Fed's thinking about interest rates?
Mr. Powell. Too early to say. I do think before the
invasion we were planning to raise rates this year. We were
planning to make a series of interest rate increases. That is
still the case. I think right now, in this very sensitive time
where uncertainty is highly elevated and we really do not know
which way things are going to go, I think we need to move
carefully.
But we certainly think it is appropriate for us to go ahead
with our plan, and also our plan to shrink the balance sheet,
but just knowing that we do not want to add to uncertainty. Our
goal is always to promote financial stability and macroeconomic
stability, and that means that at times like this we move
carefully, and that is what we will be doing.
Senator Sinema. Last question. The sanctions on Russia's
central bank are also affecting American companies who have
holdings in Russia. So what assessments are the Fed making
about the impact of American companies' dealings in Russia, and
how could the Fed respond to stabilize the markets if that does
become an issue?
Mr. Powell. Particularly the large financial institutions,
but really American businesses, generally really do not have
major
exposures to Russia, and they have gotten less over the years.
So particularly with the big banks, there are some meaningful
exposures but they are not large in the context of the overall
institution.
So, in a sense, the first-order effects on the U.S. economy
from trade or from investment or from operations on the ground
are not going to be large. There can be other effects, though,
second-order effects, and unintended consequences and all that,
so we are watching the situation very carefully.
Senator Sinema. Thank you. Mr. Chairman, I see my time has
expired. Thank you.
Chairman Brown. Thank you, Senator Sinema.
Thank you to Chairman Powell for joining us today. For
Senators who wish to submit questions for the hearing record,
those questions are due 1 week from today, Thursday, March
10th, close of business. Chair Powell, please submit your
responses to questions within the 45 days from the day you
receive them.
Thank you again for your testimony. The hearing is
adjourned.
[Whereupon, at 12:23 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
I want to start by acknowledging that as we sit here this morning,
Ukrainians are showing such courage and resolve, fighting Russian
invaders in their homeland.
Ukrainian families fleeing indiscriminate bombings are taking
refuge in subway tunnels--something that Europe hasn't seen since the
siege of London seven decades ago. I want to express my support for the
brave men and women in Ukraine fighting for democracy, and I know all
my colleagues on this Committee, of both parties, join me in that.
This is a Russian attack on democracy. And it's only the latest,
terrible escalation of what has become one of the main goals of the
Russian Federation--to attack and undermine democratic norms at home
and abroad.
The world is looking to us right now. We are the leader of the free
world, and its oldest democracy. It's vital that we live by our
values--both abroad and at home.
That means a commitment to the rule of law. A commitment to
democratic participation. And a commitment to independent institutions
that allow our society to function, like the Federal Reserve.
We created the Fed as an independent agency, outside of any one
party's control, to be staffed with economic experts--not political
cronies. It's one of many American institutions that sets our country
apart from autocratic regimes.
It is vital that we reaffirm our commitment to the Fed's role,
showing the world what a functioning democracy looks like. Let's show
up and do our jobs--like Chair Powell comes here, perhaps 14 times a
year, it must seem to him.
That's the best way to achieve a strong, growing economy, that
lifts up the whole country.
This time last year, our country and our economy were in a place of
deep uncertainty. More than 4 million people were out of a job.
Frontline workers were just beginning to get vaccinated.
We were in the midst of a public health crisis and economic crisis
that needed us all--policymakers, business owners, workers--to come
together and tackle the challenge of this pandemic economy.
And that's what we did. We passed the American Rescue Plan. We got
shots into arms, money into people's pockets, workers back on the job,
and kids back in school.
Against the odds, 2021 became a year of unprecedented economic
growth for our country--in job creation, wage gains, GDP. For the first
time in two decades, the American economy grew faster than China's.
We averaged over half a million new jobs per month last year, and
saw the fastest drop ever in the unemployment rate. Wages rose for
workers--especially low-wage workers. American entrepreneurs broke
started a record-setting 5 million new businesses.
This all translated into American families' household balance
sheets, which were healthier in 2021 than before the pandemic. That's
because of the actions Democrats took in this Congress--expanding the
Child Tax Credit, and rental and housing assistance.
The American Rescue Plan helped get most Americans vaccinated and
make a booster shot available to everyone. Today, over 65 percent of
the population is fully vaccinated--including more than 75 percent of
all adults. Case counts and hospitalizations are dropping. And now we
are one step closer to normal life beyond the pandemic. Americans no
longer have to live in fear.
We have come a long way, but the fight isn't over--and it has taken
an incredible toll on Americans. After 2 years of stress, of massive
disruptions in our lives and in our economy, people are exhausted.
And they are fearful that inflation will make it harder and harder
for them to keep up with the cost of living.
The pandemic economy has caused inflation. Families feel it at the
gas station. They feel it when they're making rent payments. And they
feel it when they check out at the grocery store.
And we must acknowledge that Russia's invasion of Ukraine will
affect the global economy.
We learned over the past 2 years how fragile our global supply
chains are.
Some of us have said for years that we should make more things in
America and rely less on China. Elites in Washington that dismissed
those concerns for decades are now finally starting to wake up.
We help prevent long-term inflation by bringing supply chains
home--and in the process, we create jobs and rebuild our industrial
base.
The House and Senate have both passed bills investing in domestic
manufacturing and research and development. We need to put a
comprehensive bill on the President's desk and bring manufacturing,
research, and development back to America.
And we're building the capacity to move goods faster and more
cheaply with the Bipartisan Infrastructure Bill.
While most Americans report mixed feelings about the economy over
the past year--they may have gotten a raise and a tax cut and have more
in savings, while also being concerned about rising costs--there's one
group that did better than ever last year: corporations.
Corporations made record profits in 2021 and gave their executives
and shareholders a bigger slice of the profits than ever.
And they've reacted with barely controlled glee at the opportunity
to raise prices higher than ever.
We can never forget: raising prices is a choice. There is no law
saying that if the cost of an input goes up or if transportation costs
increase, companies have to raise prices.
They have options. They could cut costs elsewhere by making
executive bonuses or stock buybacks a little tiny bit smaller.
But of course they don't--there's not enough competition in the
economy. From the meatpacking industry to the oil cartels, corporations
don't face the fair, capitalist competition we need to keep prices low
and wages high.
And when you combine current inflation with all the expenses that
have been rising for decades--prescription drugs, childcare, housing--
it's little wonder that even many middle-class families don't feel
stable.
It will take all of us to lower these long-term costs, fight
inflation, and create an economy where hard work pays off for
everyone--no matter who you are, where you live, or what kind of work
you do.
All workers should be able to find a good-paying job that allows
them to raise a family, keep up with the cost of living, and join the
middle class.
The Federal Reserve has a responsibility to tackle inflation, and
to ensure we have a resilient labor market, a safe and stable banking
system, an efficient and reliable payments system, and empowered local
communities where consumers, workers, small banks, and small businesses
thrive.
And it's more important now than ever that we have a full Federal
Reserve Board making those decisions.
In a time of deep economic uncertainty--where democracies across
the world are threatened by authoritarian strongmen--we must ensure the
Fed is operating at full capacity. We have an opportunity to confirm
one of the world's leading experts on cybersecurity in the financial
system--she chaired the G7 Cyber Expert Group. Let's get her on the
job.
At this critical time, we must fill these positions so that the
entire team of decisionmakers can come together, assess the data, and
address the problems Americans face.
Today, we have Chair Pro Tempore of the Federal Reserve, Jay
Powell, here to deliver a biannual update on the Fed's actions to steer
our economic recovery.
Chair Powell, thank you, and I look forward to your testimony.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Chairman Powell, welcome. I hope we process your nomination soon.
In the meantime, I'm confident that you and your fellow FOMC members
are fully able to do your job to fight inflation.
Obviously, there's much work to be done. January's inflation
reached a 40-year high of 7.5 percent. Inflation like that harms
average Americans.
Even though wages are growing, inflation is growing faster and
causing workers to fall further and further behind. Savers are earning
virtually zero on their savings while inflation erodes their value. Our
current zero-interest-rate monetary policy would be appropriate for a
period of economic crisis--not a period of multidecade high inflation.
Of course, the profligate fiscal policy of the last year has also
contributed to inflation. Democrat supporters of blowout, deficit
spending bills like the American Rescue Plan and Build Back Better have
looked to blame others for the consequences of their misguided
policies.
First, they blamed global supply chains. Now they have shifted
their blame to ``greedy corporations.''
Actually, inflation is pretty easy to understand. It results from
more money chasing fewer goods.
The Administration's policies, such as over-regulation and a war on
American energy, have limited the production of goods. And reckless
spending has resulted in more money chasing those goods.
Meanwhile, the Fed's accommodative monetary policy has further
stimulated demand. For many years now, I've warned that it could be
extremely difficult to put the inflation genie back in the bottle.
Well, the genie is out, and the Fed is behind the curve. We must act
with urgency to get inflation under control.
I'm also deeply troubled by what appears to be a growing urge to
use financial regulators, including the Fed, to tackle complex
political questions outside the financial system.
Questions like: how (and how quickly) to transition to a lower
carbon economy? How to address racially charged social issues? Or even
how can we improve primary and secondary education?
No doubt, these are important issues. But, they're wholly unrelated
to the Fed's limited statutory mandates and expertise. And yet the Fed
has been weighing in on every one of these issues.
Some intend to use the Fed's recently developed climate scenario
analysis to steer capital away from carbon intensive industries. All 12
Reserve Banks have hosted a ``Racism in the Economy'' series where
invited speakers advocated for racial reparations and defunding the
police, among other far-left proposals. And the Minneapolis Fed is
actively lobbying to change Minnesota's constitution--on the issue of
K-12 education policy.
Does anyone truly think these activities are within the Fed's
statutory mandates? Of course not.
They are challenging and complex issues that require difficult
tradeoffs. And in a democratic society, those tradeoffs must be made by
elected representatives who are directly accountable to the American
people.
Consider some tradeoffs associated with addressing global warming.
If we limit domestic oil and gas production, Americans will pay more at
the pump. How much more is appropriate?
If we suddenly limit domestic production without feasible energy
alternatives, our Nation and the world will become more reliant on
fossil fuels coming from autocratic nations. When does that reliance
present an unacceptable national and global security threat?
There are an unlimited number of equally challenging tradeoffs for
each of these politically charged topics--none of which should be
decided by unelected and unaccountable central bankers. And yet, some
of the Reserve Banks are diving right in.
When I've requested additional information about their activities,
the Reserve Banks stonewall me. When I ask the Board to address the
issue, everyone passes the buck. The Fed Board says it's up to the
Reserve Banks, even though the Board oversees the Reserve Banks. And
except through the Fed Board, the Reserve Banks are unaccountable to
Congress.
From this state of affairs, I can only conclude that the Fed
requires reform. Any Fed reform should preserve and strengthen monetary
policy independence; develop mechanisms to enforce the existing
statutory limits on the Federal Reserve's actions; and strengthen
Congressional oversight by increasing transparency.
Here are three reform ideas. First, unlike the Fed Board, the
Reserve Banks are not subject to FOIA. That should change.
Second, we should consider subjecting the Reserve Bank heads to
presidential appointment and Senate confirmation.
Third, we should examine the historical 12 Reserve Bank structure.
For example, it may make sense to consolidate them into 5 banks, making
each a permanent voter on the FOMC. Or perhaps we should eliminate the
Reserve Banks entirely by having the Board assume their
responsibilities.
To be clear, I do not present these ideas lightly. The Fed was
given independence to insulate monetary policy from politics. Congress
has a responsibility to ensure that the Fed does not become a political
actor.
______
PREPARED STATEMENT OF JEROME H. POWELL
Chair Pro Tempore, Board of Governors of the Federal Reserve System
March 3, 2022
Chairman Brown, Ranking Member Toomey, and other Members of the
Committee, I am pleased to present the Federal Reserve's semiannual
Monetary Policy Report.
Before I begin, let me briefly address Russia's attack on Ukraine.
The conflict is causing tremendous hardship for the Ukrainian people.
The implications for the U.S. economy are highly uncertain, and we will
be monitoring the situation closely.
At the Federal Reserve, we are strongly committed to achieving the
monetary policy goals that Congress has given us: maximum employment
and price stability. We pursue these goals based solely on data and
objective analysis, and we are committed to doing so in a clear and
transparent manner so that the American people and their
representatives in Congress understand our policy actions and can hold
us accountable. I will review the current economic situation before
turning to monetary policy.
Current Economic Situation and Outlook
Economic activity expanded at a robust 5\1/2\ percent pace last
year, reflecting progress on vaccinations and the reopening of the
economy, fiscal and monetary policy support, and the healthy financial
positions of households and businesses. The rapid spread of the Omicron
variant led to some slowing in economic activity early this year, but
with cases having declined sharply since mid-January, the slowdown
seems to have been brief.
The labor market is extremely tight. Payroll employment rose by 6.7
million in 2021, and job gains were robust in January. The unemployment
rate declined substantially over the past year and stood at 4.0 percent
in January, reaching the median of Federal Open Market Committee (FOMC)
participants' estimates of its longer-run normal level. The
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. Labor demand is very strong, and while
labor force participation has ticked up, labor supply remains subdued.
As a result, employers are having difficulties filling job openings, an
unprecedented number of workers are quitting to take new jobs, and
wages are rising at their fastest pace in many years.
Inflation increased sharply last year and is now running well above
our longer-run objective of 2 percent. Demand is strong, and
bottlenecks and supply constraints are limiting how quickly production
can respond. These supply disruptions have been larger and longer
lasting than anticipated, exacerbated by waves of the virus, and price
increases are now spreading to a broader range of goods and services.
Monetary Policy
We understand that high inflation imposes significant hardship,
especially on those least able to meet the higher costs of essentials
like food, housing, and transportation. We know that the best thing we
can do to support a strong labor market is to promote a long expansion,
and that is only possible in an environment of price stability.
The Committee will continue to monitor incoming economic data and
will adjust the stance of monetary policy as appropriate to manage
risks that could impede the attainment of its goals. The Committee's
assessments will take into account a wide range of information,
including labor market conditions, inflation pressures and inflation
expectations, and financial and international developments. We continue
to expect inflation to decline over the course of the year as supply
constraints ease and demand moderates because of the waning effects of
fiscal support and the removal of monetary policy accommodation. But we
are attentive to the risks of potential further upward pressure on
inflation expectations and inflation itself from a number of factors.
We will use our policy tools as appropriate to prevent higher inflation
from becoming entrenched while promoting a sustainable expansion and a
strong labor market.
Our monetary policy has been adapting to the evolving economic
environment, and it will continue to do so. We have phased out our net
asset purchases. With inflation well above 2 percent and a strong labor
market, we expect it will be appropriate to raise the target range for
the Federal funds rate at our meeting later this month.
The process of removing policy accommodation in current
circumstances will involve both increases in the target range of the
federal funds rate and reduction in the size of the Federal Reserve's
balance sheet. As the FOMC noted in January, the federal funds rate is
our primary means of adjusting the stance of monetary policy. Reducing
our balance sheet will commence after the process of raising interest
rates has begun, and will proceed in a predictable manner primarily
through adjustments to reinvestments.
The near-term effects on the U.S. economy of the invasion of
Ukraine, the ongoing war, the sanctions, and of events to come, remain
highly uncertain. Making appropriate monetary policy in this
environment requires a recognition that the economy evolves in
unexpected ways. We will need to be nimble in responding to incoming
data and the evolving outlook.
Maintaining the trust and confidence of the public is essential to
our work. Last month, the Federal Reserve finalized a comprehensive set
of new ethics rules to substantially strengthen the investment
restrictions for senior Federal Reserve officials. These new rules will
guard against even the appearance of any conflict of interest. They are
tough and best in class in Government, here and around the world.
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 Federal Reserve will do everything we can to
achieve our maximum-employment and price-stability goals.
Thank you. I am happy to take your questions.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM JEROME H. POWELL
Q.1. The record levels of leveraged lending prepandemic
continue to rise and a recent report issued by the Federal
Reserve, Office of the Comptroller of the Currency, and Federal
Deposit Insurance Corporation noted that ``credit risk
associated with leveraged lending is high.'' U.S. banks have
both direct and indirect exposure to leveraged loans. How is
the Fed assessing increased credit risk associated with
leveraged loans? What are you doing to mitigate financial
stability risk as interest rates rise?
A.1. The Federal Reserve regularly monitors and assesses risks
to supervised institutions and to the broader system from
leveraged lending. We use our supervisory tools to closely
monitor risks, assess unknowns, and work to develop a
comprehensive understanding of the market. Our analysis
includes efforts to quantify bank holdings of leveraged loans
and assess the direct and indirect exposures of large banking
institutions. In terms of nonbanks, we strive to understand
their funding structures and the amount of leveraged loans they
hold. We also work to understand the characteristics and credit
quality of the loans themselves and the market dynamics in this
space. Currently, this work does not suggest that the leveraged
loan market poses a greater financial stability risk than in
other time periods.
The Federal Reserve also assesses the broader financial
stability consequences of credit and interest rate risk
stemming from increased leveraged lending activity. This
assessment is done as part of our ongoing, comprehensive
program of financial stability monitoring. Our Financial
Stability Report provides in further detail how our framework
for assessing financial stability looks for vulnerabilities in
the financial system that could amplify the effects of shocks
or adverse unexpected economic developments. We track
vulnerabilities in four key areas: asset valuations, debt owed
by businesses and households, funding risk, and leverage among
financial institutions. In the near team and longer run, the
strength of the economy will influence how the system responds
to stress. Our objective is to ensure that the overall
financial system is able to handle shocks without amplifying
them and causing damage to the broader economy.
Thus, a crucial part of our assessment is based on the fact
that the banking system remains highly resilient and bank
capital ratios have remained at multidecade highs. However, we
are not complacent and are continuously monitoring for new or
emerging risks, including those that may arise from leveraged
lending.
Q.2. In light of President Biden's Executive order on Ensuring
Responsible Development of Digital Assets, the Chairman of the
Federal Reserve is ``encouraged to evaluate the extent to which
a United States CBDC, based on the potential design options,
could enhance or impede the ability of monetary policy to
function effectively as a critical macroeconomic stabilization
tool.'' What factors will the Fed consider in evaluating the
effectiveness of a CBDC to further monetary policy?
A.2. As part of the Federal Reserve's exploration of both the
potential benefits and potential risks and policy
considerations of a U.S. central bank digital currency (CBDC),
the Federal Reserve has been researching the possible impact of
a CBDC on monetary policy implementation. We are also actively
engaged on these topics with our international counterparts at
other central banks and multilateral financial institutions to
understand and learn from their experiences.
Under the current monetary policy regime, the Federal
Reserve exercises control over the level of the federal funds
rate and other short-term interest rates primarily through the
setting of the Federal Reserve's administered rates. In this
framework, the introduction of a CBDC could affect monetary
policy implementation and interest rate control by altering the
supply of reserves in the banking system.
In the case of non-interest-bearing CBDCs, the level and
volatility of the public's demand for a CBDC might be
comparable to other factors that currently affect the quantity
of reserves in the banking system, such as changes in physical
currency or overnight repurchase agreements. A CBDC that pushed
reserves lower may have little effect on the federal funds rate
if the initial supply of reserves were large enough to provide
an adequate buffer. Over the long term, the Federal Reserve
might have to increase the size of its balance sheet to
accommodate CBDC growth, similar to the balance-sheet impact of
issuing increasing amounts of physical currency.
The interactions between CBDCs and monetary policy
implementation could be more pronounced and more complicated if
a CBDC was interest-bearing at levels that are comparable to
rates of return on other safe assets. In this case, the level
and volatility of the public's demand for a CBDC could be quite
substantial. The potential for significant foreign demand for a
CBDC in this scenario would further complicate monetary policy
implementation.
As noted in the discussion paper released by the Board of
Governors earlier this year, various design elements of a CBDC
could have important effects on the way the public comes to use
CBDCs and, by implication, the way in which CBDCs interact with
monetary policy implementation. For example, limitations on the
amounts of a CBDC that may be held or on the amount of a CBDC
that could be accumulated in a given time period could have
significant effects on the aggregate amount of a CBDC
outstanding and variations in the CBDC over time in response to
economic and financial developments. The Federal Reserve will
continue to research these and other important topics related
to CBDCs.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM JEROME H. POWELL
Q.1. Fed Master Accounts. As you know, there has been an
increasing interest among financial institutions, members of
Congress, academics, and other stakeholders regarding the
Federal Reserve's process for reviewing requests for accounts
and services at Federal Reserve Banks (Fed master accounts). In
May 2021, the Federal Reserve issued a request for comment
(RFC) on proposed guidelines for evaluating such requests.\1\
The RFC emphasizes that a ``more transparent and consistent
approach to such requests should be adopted by the Reserve
Banks.''\2\ Earlier this month, the Federal Reserve issued a
supplement to the RFC, which proposes a three-tiered review
framework for evaluating Fed master account applications.
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\1\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210505a.htm.
\2\ Id.
---------------------------------------------------------------------------
Notwithstanding, there is a lack of transparency regarding
the Federal Reserve's process for evaluating Fed master account
applications, including with respect to (1) institutions that
have previously applied and (2) the status of those
applications. As you know, a Fed master account is a type of
public benefit.\3\ Other agencies that confer similar types of
benefits are transparent about applications for those benefits
and the status of past and current applications. For example,
the public can see on the FDIC's website the institutions that
have applied for federal deposit insurance and the status of
their applications.\4\ Similarly, the public can see on the
FCC's website what entities have applied for Federal
communications licenses and the status of those
applications.\5\ However, the public cannot go to the Federal
Reserve's website to see the same information regarding Fed
master accounts.
---------------------------------------------------------------------------
\3\ See, e.g., https://www.brookings.edu/research/the-fed-wants-
to-veto-state-banking-authorities-but-is-that-legal/ (``The master
account allows a financial institution to participate in the payment
system. Without it, a financial institution can't really function as a
financial institution.'').
\4\ https://www.fdic.gov/regulations/applications/actions.html.
\5\ https://wireless2.fcc.gov/UlsApp/ApplicationSearch/
searchAppl.jsp.
---------------------------------------------------------------------------
In order to provide the public with the same degree of
transparency for this public benefit, please provide the
following information:
A list of every institution that has applied for a Fed
master account in the past 20 years, identifying the type of
each institution (e.g., traditional bank, trust company,
fintech company); and the status of each application (e.g.,
approved, denied, withdrawn, under review).
A.1. Through the Federal Reserve Act, Congress gave the Federal
Reserve Banks (Reserve Banks) the authority to open master
accounts to eligible institutions. Consistent with the
longstanding practice of the Federal Reserve, information
regarding which institutions have requested or maintain master
accounts is considered confidential business information of the
requestors and the Reserve Banks. As such, the Federal Reserve
does not disclose that information publicly.
Institutions offering novel types of financial products or
with novel charters have emerged in recent years, and many of
these institutions have requested access to accounts and
payment services offered by Reserve Banks. As you note, the
Board has proposed guidelines that are intended to ensure the
Reserve Banks use a transparent and consistent set of factors
when reviewing such requests for accounts and payment services.
Q.2. Congressional Investigation Records Request. As you know,
I made a request last year for Federal Reserve Board records
pertaining to a congressional investigation of the Federal
Reserve
and Fed Regional Banks exceeding their mandates by engaging in
politically charged activities. My staff has communicated with
Federal Reserve Board staff about this request, but to date I
have not received any requested records that were not already
publicly available.
Will you commit to producing all of the requested records?
Please answer ``yes'' or ``no.''
If so, when should I expect to receive the requested
records?
If not, please fully explain your answer.
A.2. Board staff have worked together with your staff to
respond to your records request. The Board provided your staff
with approximately 2,000 pages of documents on April 19. This
is in addition to the over 7,000 pages provided previously.
Q.3. Federal Reserve's Balance Sheet. In January 2022, the FOMC
``decided to continue to reduce the monthly pace of its net
asset purchases, bringing them to an end in early March.''\6\
As of March 2, 2022, the Fed's portfolio included nearly $5.75
trillion of Treasury securities, and the Fed was reinvesting
its maturing Treasuries at auction.\7\ In January 2021, the
FOMC also released its ``Principles for Reducing the Size of
the Federal Reserve's Balance Sheet.'' In those plans, the FOMC
announced that it will be ``significantly reducing'' the size
of the balance sheet, primarily by letting its securities
mature without reinvestment.\8\
---------------------------------------------------------------------------
\6\ https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220126a.htm.
\7\ https://www.federalreserve.gov/releases/h41/20220303/.
\8\ https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220126c.htm.
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Has the Fed determined how its balance sheet runoff will
affect Treasury auctions and cash flows?
If so, what are those effects?
A.3. Response not received in time for publication.
Q.4. Financial Stability Oversight Council (FSOC). On September
25, 2020, the Financial Stability Oversight Council (FSOC)
released a statement on its activities-based review of the
secondary mortgage market. FSOC's statement affirmed the
overall quantity and quality of the regulatory capital required
by the Federal Housing Finance Agency's (FHFA) June 30, 2020,
proposed rule to establish a new regulatory capital framework
for Fannie Mae and Freddie Mac (each, a GSE). Specifically,
FSOC stated that ``risk-based capital requirements and
leverage-ratio requirements that are materially less than those
contemplated by the proposed rule would likely not adequately
mitigate the potential stability risk posed by the
Enterprises.'' FSOC committed to ``continue to monitor . . .
FHFA's implementation of the regulatory framework to ensure
potential risks to financial stability are adequately
addressed.'' On December 17, 2020, FHFA finalized the
regulatory capital framework for the GSEs.
On September 27, 2021, FHFA proposed amendments that would
have materially reduced the GSEs' regulatory capital
requirements. In your January 19, 2022, answers to my questions
submitted following the January 11, 2022, hearing, you stated
that ``Board staff continues to assess FHFA's proposed
amendments to its capital rule.'' You also noted that ``FHFA
did not seek the Board's input on the proposed amendment to its
capital rule.''
On February 25, 2022, FHFA finalized those amendments
largely as proposed. The amendments reduced the tier 1 capital
that must be maintained by a GSE to avoid restrictions on
capital distributions from 4 percent to roughly 3 percent of
the GSE's adjusted total assets. The amendments also reduced
Freddie Mac's combined capital requirements from 4 percent to
3.6 percent as of September 30, 2021, with further reductions
likely to follow due to continued house price appreciation,
among other things. Fannie Mae's combined capital requirements
also could further decline as it reverts to prepandemic levels
of credit risk transfer coverage (about twice the year-end 2021
levels according to its annual reports on Form 10-K).
As a member of FSOC, what steps do you think FSOC should
take with respect to FHFA's now-finalized amendments to fulfill
FSOC's commitment to ``continue to monitor . . . FHFA's
implementation of the regulatory framework to ensure potential
risks to financial stability are adequately addressed''?
Do you think that these new risk-based capital requirements
and leverage-ratio requirements are ``materially less than
those contemplated by the proposed rule'' and are adequate to
``mitigate the potential stability risk posed by the
Enterprises''.
Does the absence of any comment to-date by FSOC on FHFA's
now-finalized amendments pose a risk to the credibility of the
Council or risk politicizing the Council?
A.4. The Treasury Secretary is the Chair of the Financial
Stability Oversight Council (FSOC) and is better placed to
speak to the steps the FSOC is taking to evaluate amendments to
the Federal Housing Finance Agency's (FHFA) capital rule for
GSEs. I believe it is important that the GSEs be subject to
risk-based capital requirements and leverage-ratio requirements
that are adequate to mitigate the potential stability risk
posed by the GSEs. An enhanced supervisory tool set for such
private entities should include various prudential measures,
such as resolution planning, stress testing, and liquidity
management. I welcome the efforts of the FHFA to incorporate
those measures into their supervisory framework. While these
efforts and actions by the GSEs to distribute credit risk are
positive developments, it is important to ensure that the
overall levels of capital required at the GSEs are appropriate
for the risks they are taking.
Board staff actively monitors potential developments in the
financial markets, including rules from other regulatory bodies
that may have an impact on financial stability. As such, staff
continues to assess any such impact by the amendments to the
FHFA's capital rule.
Q.5. Basel III Capital Requirements. In 2017, the Basel
Committee on Banking Supervision (BCBS) made changes to the
Basel III capital framework that would require financial
institutions to alter how they capitalize for credit risk,
market risk, and operational risk exposures. It is expected
that the United States will soon propose to implement these
reforms, which could significantly raise capital requirements
for certain banks. There are concerns that such increases could
reduce the availability of credit for employers.
How do you plan to administer Basel III in a way that does
not reduce credit for any business?
What is your expected timeline for implementation of Basel
III?
A.5. Strong capital levels are a source of strength for U.S.
banking organizations, making them more resilient to economic
shocks and allowing them to extend credit to businesses and
individuals through the economic cycle, including in a severe
recession. The U.S. banking sector entered the COVID-19
pandemic in a position of strength, having spent the previous
decade implementing and adapting to more robust regulatory
capital requirements. The experience of the COVID-19 pandemic
has demonstrated that U.S. banking organizations are well-
capitalized, including through multiple rounds of supervisory
stress tests.
The final Basel III reforms are intended to produce more
robust and internationally consistent capital requirements for
the largest banking organizations, building on the improvements
to the capital framework following the 2007-2009 financial
crisis. Staffs of the U.S. Federal banking agencies continue to
work actively on a proposal to implement the revised framework
for the largest firms, as appropriate for the U.S. banking
system. In doing so, we are considering factors such as credit
availability and the resilience of firms.
We plan to make any proposed changes through the standard
notice-and-comment rulemaking process. At this time, I do not
have a specific timeline for the proposal.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM JEROME H. POWELL
Q.1. Last year's temporarily boosted Child Tax Credit provided
families with up to $250-$300 per child per month from July
through December. These payments drastically cut child poverty
and helped Americans cover the cost of essential daily
expenses.
Did the boosted Child Tax Credit support economic growth in
2021?
Did monthly Child Tax Credit payments help parents cover
higher grocery, gas, and other living costs last year?
A.1. As you note, last year Congress expanded the Child Tax
Credit (CTC) on a temporary basis. The legislation increased
CTC benefit amounts, made the credit fully refundable, and
shifted issuance of the credit to a monthly basis from July
through December 2021, whereas previously it was issued
annually. These temporary changes in the CTC likely impacted
the U.S. economy since, generally, an increase in household
incomes likely temporarily boosted aggregate demand and thereby
supported economic growth.\1\ However, when considering such
policies, fiscal policy makers also consider a wide range of
tradeoffs, including the expansion of annual Federal deficits
or the need to raise taxes to fund these policies. It is the
responsibility of the Congress and the Administration to
evaluate the effectiveness of the CTC and decide on its
appropriate size and structure going forward.
---------------------------------------------------------------------------
\1\ For analysis of how fiscal policy, including tax credits, can
boost aggregate demand, see, for example, Cashin, Lenney, Lutz, and
Peterman, ``Fiscal Policy and Aggregate Demand in the U.S. Before,
During and Following the Great Recession'', Finance and Economics
Discussion Series 2017-061. Washington, DC: Board of Governors of the
Federal Reserve System. For additional discussion of the likely
economic effects of the CTC, see Parolin, Z., Ananat, E., Collyer,
S.M., Curran, M., and Wimer, C., ''The Initial Effects of the Expanded
Child Tax Credit on Material Hardship'', National Bureau of Economic
Research Working Paper 29285, 2021; Parolin, Z., Collyer, S., Curran,
M., and Wimer, C., ``Monthly Poverty Rates Among Children After the
Expansion of the Child Tax Credit'', Poverty & Social Policy Brief
5(4), Columbia University, 2021; and Perez-Lopez, Daniel, ``Economic
Hardship Declined in Households With Children as Child Tax Credit
Payments Arrived'', U.S. Census Bureau, August 11, 2021. For studies of
employment changes due to the introduction of the expanded CTC, see,
for example, Ananat, E., Glasner, B., Hamilton, C., and Parolin, Z.,
``Effects of the Expanded Child Tax Credit on Employment Outcomes:
Evidence From Real-World Data From April to December 2021'', National
Bureau of Economic Research Working Paper No. 29823, 2022; Bastian, J.,
``Investigating the Effects of the 2021 Child Tax Credit Expansion on
Poverty and Employment'', Working Paper, February 14, 2022; and
Corinth, K., Stadnicki, M., Meyer, B.D., and Wu, D., ``The Anti-
poverty, Targeting, and Labor Supply Effects of the Proposed Child Tax
Credit Expansion'', Becker Friedman Institute for Economics Working
Paper No. 2021-115, University of Chicago, 2021.
Q.2. As we've seen in recent weeks with the economic response
to Russia's unprovoked invasion of Ukraine, our Nation's
sanctions tools are so effective because the dollar is
ubiquitous in cross-border payments. It is an economic and
national security priority to protect the international role of
the dollar. Do you believe a U.S. digital currency can help
maintain the attractiveness of the dollar, especially as
foreign central banks have recently launched their own digital
---------------------------------------------------------------------------
currencies?
A.2. Today, the dollar is widely used around the world because
of the size of the U.S. economy, our deep and liquid financial
markets, the strength of our institutions, and the commitment
of the United States to the rule of law. It is important,
however, to consider the implications should many foreign
jurisdictions introduce central bank digital currencies (CBDC).
The Federal Reserve is examining the potential benefits and
risks of issuing a U.S. CBDC, including implications for the
use of the dollar abroad. The dollar is important to global
financial markets--it is not only the predominant global
reserve currency, but it is also the most widely used currency
in international payments. Thus, it is also essential to
consider what the future status of global financial markets and
transactions would look like with and without a Federal
Reserve-issued CBDC.
In March, the Biden administration issued an Executive
order to ensure the responsible development of digital assets
to protect consumers, financial stability, and national
security. The Executive order calls for analysis of the
potential implications of a U.S. CBDC and foreign CBDCs on the
U.S. national interest and financial centrality. The Federal
Reserve will work closely with its interagency colleagues on
these important topics, which will complement ongoing CBDC
research at the Federal Reserve.
The Federal Reserve is also working closely with
international colleagues on CBDC and related topics. For
example, in 2020 the Federal Reserve collaborated with six
other central banks and the Bank for International Settlements
(BIS) to produce a report on foundational principles for
CBDCs.\2\ The Federal Reserve has continued this work with
further analysis of policy options and practical implementation
issues, joining other central banks in issuing a series of
reports last fall on system design and interoperability, user
needs and adoption, and financial stability implications.\3\
Additionally, the Federal Reserve collaborated with the G7 to
produce a set of public policy principles for retail CBDCs.\4\
We also work with the Financial Stability Board and BIS on ways
to improve cross-border payments, which includes studying how
CBDCs might be used for cross-border payments.\5\
---------------------------------------------------------------------------
\2\ Bank for International Settlements, ``Central Bank Digital
Currencies: Foundational Principles and Core Features'' (Basel: BIS,
October 2020), https://www.bis.org/publ/othp33.pdf.
\3\ Bank for International Settlements, ``Central Banks and the
BIS Explore What a Retail CBDC Might Look Like'', press release,
September 2021, https://www.bis.org/press/p210930.htm.
\4\ G7, ``Public Policy Principles for Retail Central Bank Digital
Currencies'' (CBDCs), October 2021, https://
assets.publishing.service.gov.uk/government/uploads/system/uploads/
attachment
-data/file/1025235/
G7_Public_Policy_Principles_for_Retail_CBDC_FINAL.pdf.
\5\ Financial Stability Board, ``Enhancing Cross-border Payments:
Stage 3 Roadmap'' (Washington, DC: FSB, October 2020), https://
www.fsb.org/2020/10/enhancing-cross-border-payments-stage-3-roadmap/.
---------------------------------------------------------------------------
The Federal Reserve Board also issued a discussion paper in
January as a first step in a public discussion between the
Federal Reserve and stakeholders about CBDCs. \6\ The paper is
not intended to advance any specific policy outcome, nor is it
intended to signal that the Federal Reserve will make any
imminent decisions about the appropriateness of issuing a U.S.
CBDC. Moreover, the Federal Reserve does not intend to proceed
with issuance of a CBDC without clear support from the
executive branch and from Congress, ideally in the form of a
specific authorizing law. Irrespective of any conclusion on
whether to issue a CBDC, the Federal Reserve will continue to
play an active role in developing international standards for
CBDCs.
---------------------------------------------------------------------------
\6\ ``Money and Payments: The U.S. Dollar in the Age of Digital
Transformation'', https://www.federalreserve.gov/publications/money-
and-payments-discussion-paper.htm.
---------------------------------------------------------------------------
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM JEROME H. POWELL
Q.1. How does the Federal Reserve ascertain how much of rising
prices is due to demand exceeding supply on the one hand and a
reduction in the value of money on the other?
A.1. Response not received in time for publication.
Q.2. What is the Federal Reserve's current expectation of how
much reducing its balance sheet and increasing interest rates
will contribute to reducing inflation as opposed to other
actions Congress or the executive branch may take to address
workforce, competition, supply chains, and related issues?
A.2. Response not received in time for publication.
Q.3. At the hearing, your testimony was that you expect to be
tightening credit in order to reduce demand in the economy.
What are the ways that the Federal Reserve can increase
velocity at the same time it is reducing the money supply?
A.3. Response not received in time for publication.
Q.4. The latest Monetary Policy Report states that ``While all
groups have experienced at least a partial recovery in
employment rates since April 2020, the shortfall in employment
remains especially large for lower-wage workers and for
Hispanics, African Americans, and other minority groups.''
What effect do you expect raising interest rates to have on
unemployment of these groups?
Will the Fed continue to monitor the effects of raising
interest rates on low-income and minority workers as it
considers future anti-inflation actions?
A.4. Response not received in time for publication.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM JEROME H. POWELL
Q.1. You have now refused, on three separate occasions, to
provide Congress with the full set of requested information on
the ethics scandal arising from top Fed officials' trades in
stocks, bonds, and other investments and potential insider
trading. In my letter to you on January 10, 2022, and two
previous letters, I requested the full contents of the March
23, 2020, email reported in the New York Times, and complete
copies of any other ethics advice or information provided to
Fed officials between January 1, 2020, and the present. I was
provided with an excerpt of this email by the Board's
Congressional Liaison Office on October 21, 2021, and none of
the other information I requested. I request again that you
share this email in full, as well as complete copies of any
other ethics advice or information provided to Fed officials
between January 1, 2020, and the present.
A.1. As discussed in my response to your office dated February
14, the Federal Reserve Board's (Board) Office of the
Congressional Liaison shared all of the substantive content of
the March 23 email with your office on October 21, 2021. On an
ongoing basis, the Board's ethics office sends regular
reminders of ethics obligations to Federal Reserve policymakers
and staff.
Q.2. In my letters, I also requested that Fed staff provide my
staff a briefing on the Fed's ``broad set of new rules'' that
were announced on October 21, 2021, regarding the purchase and
trading of individual securities and the timeliness of
reporting and public disclosure by Fed policymakers and senior
staff. These new rules have since been released, yet it is
unclear that these rules are strong enough to meet the
shortcomings of ethical standards at the Fed. Will you commit
to ensuring a briefing is provided by March 24, 2022?
A.2. The Board's Legal Division conducted a briefing for the
staff of the Senate Committee on Banking, Housing, and Urban
Affairs and the staff of its members on March 23.
Q.3. I asked you to provide information on Vice Chair Clarida's
``errors'' in his financial disclosures. You did not provide a
response, citing the ongoing Inspector General investigation.
However, the existence of this investigation does not preclude
you from answering these questions, so I ask again: When did
Fed officials first learn that Vice Chair Clarida had made
``inadvertent errors'' \1\ in his initial financial disclosure?
When did Clarida file his amended disclosure? When was this
amended disclosure made publicly available on the Office of
Government Ethics website?
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\1\ New York Times, ``A Fed Official's 2020 Trade Drew Outcry. It
Went Further Than First Disclosed'', Jeanna Smialek, January 6, 2022,
https://www.nytimes.com/2022/01/06/business/economy/richard-clarida-
fed-stockfund.html.
A.3. In light of the Office of Inspector General's
investigation, it would not be appropriate for me to comment on
the disclosures of any specific individuals, including the
former Vice Chair.
Additional Material Supplied for the Record
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