First, let me welcome our witness, the Honorable Kevin Warsh, in his first appearance before Congress as our new chairman of the Federal Reserve. Annual inflation is still running above the Fed's 2% target. One only need to recall the bitter experience of double dip inflation from the 1970s and early 1980s, and the actions of then chairman Paul Volcker was forced to take to defeat it, to know why this second surge needs to be stopped. There's no more punishing tax on American industry or on the hardworking, innovative citizens of our nation than inflation.
In its first statement under your leadership, Mr. Chairman, the FOMC said that it quote will deliver price stability close quote. Congress expects the Fed to remain focused on that mission and keep it until price stability is achieved. Today, we face the consequences of some of the Fed's former choices. In August 2020, the Federal Reserve adopted a flexible average inflation targeting framework in which it decided to allow inflation to run open quote moderately above 2% for some time, close quote, after periods in which it had been running persistently below 2%. This framework combined with the irresponsible fiscal policy and a slow response to inflation that began in March 2021 led to an inflationary surge the likes of which had not been seen since those early 1980s.
In 2025, the Fed wisely abandoned its flexible average inflation targeting framework. Going back further today, we will also review the consequences of the Fed's experiments with large-scale purchases of treasuries and agency mortgage-backed securities, better known as quantitative easing or QE. Though perhaps justified in its first round during the immediate onset of the 2008 global financial crisis, long past that crisis, the Fed repeatedly expanded QE with the cost of each successive round of QE higher and benefits lower. And while the emergency facilities in QE were resurrected in early 2020 in response to the unknown economic and social ramifications of the COVID-19 pandemic yet with a clear V-shaped recovery well underway, those facilities and policies were not ended and promptly phased out. The result of these decisions was a Fed that held a quarter of the federal debt in 2022. And though that share has decreased, it still creates incentives for fiscal policymakers to avoid the tough decisions on debt and deficits today and leave the consequences to our kids and grandkids.
You have said recently that inflation is a choice. I want to echo this and say that debt and deficits are also a choice. For years, the Congress chooses unrestrained deficits and out-of-control debt and has repeatedly drafted the Fed into being an enabler. Both, in my view, have to stop. Turning to the Fed's regulatory and supervisory policy in the recent past, the Fed has engaged in mission creep resulting from political capture by certain partisan actors attempting to accomplish policies through the Fed on which they cannot build a consensus and pass through the Congress. From crusades against digital assets to trying to make the Fed a climate regulator, these decisions took the Fed far beyond the boundaries that Congress has authorized in statute. It's not the Fed's role to make decisions for the American people on major questions of political or economic significance. That's Congress's responsibility. The Fed needs to avoid repeating the mistakes of the past and reform itself to guard long-term monetary policy independence and restore the reputation of the Fed as an apolitical agent carrying out the Congress's statutory directives. I look forward to your testimony today, Mr. Chairman, and I yield back. I now want to recognize our distinguished ranking member of the committee, Mrs. Waters, for four minutes for an opening statement.
Thank you, Chairman Hill. Chairman Warsh, you are taking the helm of the Federal Reserve at an important moment. Congress designed the Fed to stand apart from politics so that it can support stable prices, maximum employment, financial stability, and the long-term interest of the American people and not the personal interests of a president. Today, working families are being crushed by the rising cost of living. They pay more at the grocery store, more at the gas pump, and more for housing than they did a year ago. Just today, the Bipartisan Joint Economic Committee reported that Americans have paid a total of 56.4 billion dollars more in gas since Trump began his endless war with Iran. That's $477 for each household in America. In fact, the Federal Reserve's own research shows that one in 10 Americans skips meals because they simply cannot afford it.
Workers are also worried about what artificial intelligence means for their jobs and their financial security. The one common thread of all of this is Trump, whose policies and actions made the economy and the concerns of American people so much worse. His tariffs have driven up costs for consumers and businesses. His attacks on independent financial regulators have undermined confidence in the mission of institutions that have protected the public. His war in the Middle East, which has no end, continues to hurt gas and grocery prices. Despite this pain being felt by American families, there is one family making fistful of money. The first family, the Trump family, has earned more than two billion dollars since Trump returned to office, primarily from new crypto ventures that Trump's administration is supposed to oversee. Yet, instead of addressing these growing conflicts of interest, Republicans are legitimizing all of them. They blocked all efforts to stop this profiteering when they passed the stable coin and crypto legislation.
Chairman Warsh, I understand you have committed to divesting all of your financial assets to avoid conflicts of interest. That should also be the case for the president of the United States of America. Turning to the Federal Reserve, Trump has repeatedly attacked your predecessor, Chairman Jerome Powell, because he refused to kiss the ring and bend monetary policy to the president's demands. His administration continues to try to remove your colleague, Governor Lisa Cook. I hope we hear from you today how exactly you will defend your colleagues and the Federal Reserve. You should also take no comfort in the Supreme Court's shielding the Fed when it overturned Humphrey's executor. The court vastly expanded presidential authority over independent agencies and it is likely to still come for other functions of the Fed like bank supervision. Next committee, Democrats will continue fighting to protect the independence of the Fed and other agencies, strengthen consumer protections, and build on an economy that prioritizes working families, not the president, the wealthy or the well-connected. So, I look forward to your testimony today. I yield back the balance of my time.
The gentlewoman yields back. I now recognize the chair of the task force on monetary policy, treasury market resilience and economic prosperity, Mr. Lucas of Oklahoma for a one-minute opening statement.
Thank you, Mr. Chairman, and welcome, Chairman Warsh, to your first hearing as chairman, and congratulations on your confirmation. We look forward to your testimony today on the monetary policy report. In your first meeting, you announced a number of welcome reforms, including establishing five task forces that many members are eager to get your thoughts on. For example, former chair Powell had committed to review some of the Fed's communication tools. And although we expected that to be completed last August alongside the review of the consensus statement, it is yet to happen. A review of the Fed's communication tools is long overdue, and we look forward to your focus on completing that project through the task force. We also spent time this Congress examining the composition and the size of the Fed's balance sheet, an effort that you are now undertaking at the Fed. It is vital that the Fed get this right. We welcome continued collaboration on that front and I have a lot to talk about today. I look forward to your testimony and our discussion and I yield back, Mr. Chairman.
Thank you, Mr. Lucas. I recognize the ranking member of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, Mr. Vargas of California for one minute opening statement.
Thank you, Mr. Chairman, and Ranking Member Waters for calling this hearing. Further, thank you, Chairman Warsh, for coming before this committee, especially so early on after being confirmed. Public service is a noble undertaking, as you know. So, thank you once again for taking it on. We appreciate it. I enjoyed our conversation last week. And as ranking member of the task force on monetary policy, Treasury Market resilience, and economic prosperity, I will remain vigilant of the actions you take as chairman. The independence of the Federal Reserve is my top concern. No influence from the president or others to raise or lower interest rates whenever they want to. That independence is one of the essential pieces that maintained the strength and reliability of the US monetary policy. I encourage you and the entire Federal Reserve to keep that independence for the betterment of all of us, not just a few. That Mr. Chairman, I yield back.
Gentleman yields back. Today, we welcome the testimony of the Honorable Kevin Warsh, chairman of the Federal Reserve Board of Governors. Chairman Warsh, we thank you for taking time to be with us today. You'll be recognized for five minutes to give an oral presentation of your written testimony. Without objection, your testimony will be made part of the record. I now recognize you for five minutes.
Thank you very much, Chairman Hill, Ranking Member Waters, other members of the committee. Good morning. It's a real privilege to join you. At my very first appearance here before this panel, I'm particularly honored to represent my superb colleagues from the Federal Reserve system. In submitting the monetary policy report, as is our obligation and our duty, I think of a long line of central bank chiefs that have appeared in this very room before Congress in keeping with the Federal Reserve Act. One of the largest figures in Federal Reserve history is Alan Greenspan, who passed away about a month ago after a century of life. We at the Fed recall the chairman's strong and steady leadership, his strong hand in a period of rapid economic change, and today we honor his memory.
As a country, we just marked our 250th year. And when Americans count our blessings, we include an economy predicated on the brilliance of our constitutional design and a system of ordered liberty. An economy without equal in all it's done for human flourishing. Some forms of Fed communications, which I've spoken about previously, are discretionary, but not this one, and for good reason. It's a prudent and wisely conceived obligation designed to keep the Fed accountable, responsible, and faithful to its congressional mandate of full employment and price stability. These obligations are of a piece with the Fed's rightful independence in the conduct of monetary policy.
Stepping back, I would say today, as we sit here, Mr. Chairman, we're at a hinge point in history. It's up to all of us to meet this moment. The task for this generation of policy makers and of individuals and households in the private sector is to ensure that the American economy excels far into the future. Now, at the Fed, our number one objective is getting monetary policy right. That's our clear and constant aim, the star we steer by. And if we get policy right, and I can assure you we will, the inflation surge of the last five years will be a thing of the past.
Just a month ago, I chaired my very first meeting of the FOMC. My colleagues and I recognized that high inflation has been an undue burden on American households and businesses. And while monthly price volatilities and variations are inevitable, especially in an unsettled world, underlying inflation over longer time horizons is determined largely by monetary policy. As the chairman said at the outset, inflation's a choice. The members of our committee have no tolerance for persistently elevated inflation and we share a resolute commitment to ensure price stability. This was the focus of our June meeting at which we decided to hold the target range in the Fed funds rate at 3 and a half to 3 and 3/4%.
Now, naturally, our work at the Fed demands a proper reading on economic conditions. As you see in our report, economic activity grew at a solid pace, showing remarkable resilience in the face of recent developments. Household consumption moderated. Manufacturing output, it moved up steadily this past year. The housing sector, however, gives us a somewhat different picture and continues to lag. I want to highlight the most striking feature of this economy right now and its business investment. The rapid pace which appears to be accelerating reflects in part the construction of data centers and other infrastructure and the immense demand for AI related equipment and software.
Investment in equipment overall increased about 8% for the year in the first quarter. Within that category, high-tech spending logged an especially impressive growth rate of nearly 25%. At the Fed, we don't yet know fully the extent to which the economy will benefit from AI. Yet, it seems inevitable that which we're now calling AI investment will soon just be called investment. Even so, new opportunities for the economy introduce new challenges for central bankers. We at the Fed are monitoring the implications for employment and for inflation.
That brings me briefly. I'll end here so I don't go afoul of the time commitment to the supply side of the economy which deserves equal measure of discussion. Productivity growth has been strong predating gains from AI adoption. America's labor force appears stable. Job creation has in fact kept pace with the workforce. The unemployment rate is low and changed little over the last year and we've seen relatively few layoffs. In closing, I will say this. I came to my new position as a believer in the very best of the Fed's traditions. I'm heartened by the welcome I've received and by the encouragement of my colleagues in considering how best to advance the conduct of monetary policy. We have a duty to point this institution forward, to take a fresh look at current practices, to make sure we're serving the objectives you gave us, and we're going about it systematically. I've appointed task forces that you've already referenced in five key areas to improve the broad conduct of monetary policy. One, Fed communications. Two, our balance sheet policy. Three, our use of existing data sources. Fourth, productivity and jobs in an era of remarkable transformation. And five, and not least important, the Fed's inflation frameworks. The purpose of this initiative is to equip the Fed to make better decisions in monetary policy and put these years of high inflation behind us. We're starting a new chapter, Mr. Chairman, at the Federal Reserve. In this consequential time for our nation, I can report to you that we at the Fed intend to be fit for purpose and focused on the future. We are the Federal Reserve, Mr. Chairman, and we're determined as ever to fulfill the mission that Congress has given us. Thank you, Mr. Chairman. I welcome your questions.
Thank you, Mr. Warsh. We'll now turn to member questions. I recognize myself for five minutes. As outlined in your statement, inflation is the result of many factors. Of these, the Fed has control only over one, monetary policy, as expressed through its interest rate and balance sheet policy. Today, a potential second surge of inflation is appearing due to factors outside the Fed's control. What the Fed can't control is how it reacts. Though upward pressure on prices may diminish on its own, it's not a sure thing. The Fed may be able to look through these inflationary pressures, but the Fed has believed that before and has been wrong. High inflation affects Americans in the here and now, not in some hypothetical future composed of long-term projections or of inflation expectations. Mr. Chairman, I was very encouraged to hear it both in your testimony and your opening FOMC statement about restoring price stability as a top priority for you. When we think about that in the near term though, how do you and your colleagues on the open market committee plan to accomplish that given the policy tools at your disposal?
Well, thank you, Mr. Chairman. We want economic growth to be more broad-based and we want the change in prices, the increase in inflation to be more limited. There are a lot of things that are happening that are outside of our control as you mentioned. Conflicts overseas and the rest. We can't have and shouldn't have a direct control on that. But inflation's a choice. We monetary policy makers need to choose lower prices and that's the commitment my colleagues have made. In direct answer to your question, I would say we're doing three things. One, commitment. What you heard at our first FOMC meeting and I hope you heard today is we're committed to the Fed to deliver price stability. We're committed to the 2% inflation goal. And so for businesses or households or market participants who came into this saying well they said before they were committed but they seem to have tolerated a higher level of inflation. That commitment is resolute. Second thing that we can do is take ownership. This isn't a time for us to pass the buck to blame others. The Federal Reserve can and will deliver price stability. We have the tools that you mentioned, both interest rates and balance sheet policy that can help us achieve that aim. And we have the tools to deliver that. So it's a function of commitment, responsibility, and tools. And we're three for three and we'll deliver.
Thank you. I referenced in my opening statement about the 2020 decision on tolerating higher inflation and that it's now been abandoned by the board. Clearly, I think that was a policy error. It was praised by some at the time in August of 2020, but I found it alarming at the time it took place. First of all, do you agree with the FOMC's decision to abandon that? And secondly, how do you consider this past six years of experience when you look at the task force work on the framework question for looking at inflation?
Yeah. So, there's no secret that at the time that the framework in 2020 was announced, the new framework which was intended to get inflation higher at the time and in subsequent years before finding my way into this job, I was very critical of it. That central bank wasn't the first central bank to ask for a little more inflation and end up with a lot more. It was a mistake. The framework did not succeed in its objectives and I am pleased that before my arrival that my predecessors took that and cast it aside. All central bankers are going to make some share of mistakes, but when they make a mistake, they've got to call it out. Had that mistake been called out sooner, I don't believe we would have been burdened with this undue tax over the last five years. It's nearly the same degree. That's why we are reform oriented. That's why my colleagues and I are so driven by these task forces to think about them anew. And in final response, I'd just say one of the task forces you mentioned is to revisit the inflation frameworks that the Federal Reserve uses so that we can better understand what will cause inflation to rise and fall and what we can do about it.
Well, thank you. And you also referenced courage in your opening statement and you've just outlined the toughness of the set of policy choices that you and your fellow governors have. So difficult that your long-time predecessor Arthur Burns described that mission as the anguish of central banking to try to cope with the different structures. So in the last seconds I have left, will your task force work review the issue of what you have control over versus what is in the control of the Congress and regulatory and executive branch authority?
Yeah, I'll be brief in my response given the time. There's no anguish in central banking here, Mr. Chairman. We have the commitment, the power, and the responsibility to deliver on the mandate that this committee gave us, and we will. We've got full ability to do it. So, you will not hear me blaming anyone else.
Thank you, Mr. Chairman. My time is expired, and I recognize the ranking member, Mrs. Waters, for questions for five minutes.
Thank you, Mr. Chairman. Chairman Warsh, section 10 of the Federal Reserve Act states, and I quote, 'No member of the board of governors of the Federal Reserve system shall be an officer or director of any bank, banking institution, trust company, or Federal Reserve Bank, or hold stock in any bank, banking institution, or trust company,' quote unquote. This prohibition ensures there's no conflict of interest arising from your role in making decisions as a regulator that could lead to your personal profit. Yes or no? Do you think that's a sensible prohibition?
Check your mic. Excuse me, ranking member. It's the law you've written and it's the law we will follow.
Let me keep going. Vice Chair Bowman and FDIC Chair Hill testified last year that this prohibition is good public policy as it ensures that bank regulators serve the public's best interest and not their own. Now, unfortunately, President Trump undermined the independence of financial regulators mandating the White House must now review and approve regulatory rules put forward by banking regulators, including the Fed, except when it comes to monetary policy. And instead of focusing on the job Americans elected him to do, the president is grossly profiting off of his position to the extent the president and other executive branch officials now have a say in regulations the Fed issues. Chairman Warsh, should those officials be prohibited from owning any businesses where they have a role in regulating them, whether it is crypto company or bank or anything else? Yes or no?
So, ranking member Waters, I don't mean to disappoint you, but we're going to stay in our lane at the Federal Reserve. The more we stay in our lane, the more we stay out of politics. The rules and obligations for others outside the Federal Reserve are not something at which I feel it's appropriate for me to opine.
I have here President Trump's most recent financial disclosure which shows that Trump made billions of dollars in the first year of his presidency, the bulk of which came from his family's crypto businesses, all while he is responsible for overseeing the agencies regulating crypto. This is an egregious conflict of interest and Congress must put an end to it. Now, I want to just show you in case you haven't had time to look yet that this is the president's disclosure of his financial interest. He had this is how many pages? 900. This is 900 pages of financial interest. When you have time, I want you to go through them so that you'll know and understand exactly what I'm talking about. So, let me ask you, do you believe we must put an end to it?
Ranking member, you've given us a big job. We've tackled, we've begun in six short weeks to tackle the big job, and I'm focused on that.
Well, let me just go further with the prediction markets. I'm deeply concerned by the potential for regulators to profit from the use of material non-public information on prediction markets. There's a pattern of insiders appearing to profit ahead of market moving Trump administration decisions like when officials with close ties to the administration make trades prior to major tariff announcements. Chairman Warsh, what oversight does the Fed conduct over its employees with regard to insider trading? And given the rise of prediction markets, is the Fed increasing its oversight for its employees profiting from the use of material non-public information?
Ranking member, at the end of my very first week on the job, I sent a letter to the 23,000 employees of the Fed reminding them the best of the Fed's traditions, which is our culture. And included in that culture is integrity. Included in that culture is ensuring that we abide by the law and the very highest standards. That's a commitment that we've made to each other and we'll make to you.
Well, thank you, Chairman Warsh. 2019 I posed a simple question to former Chairman Powell. I asked if you get a call from the president and he said I'm firing you, pack up and it's time to go. What would you do? Chairman Powell said of course I would not do that. The answer would be that...
The gentleman's time is expired.
I asked further. He does not want me to go any further. Do you think the president doesn't have the...
He can answer that answer. He can give you an answer in writing and I'm sure he will do that in a timely way. Thank you so much. The chair recognizes the chair of our task force on monetary policy. Mr. Lucas of Oklahoma, you're recognized for five minutes.
Thank you, Mr. Chairman. And Mr. Chairman, I want to start off discussing these task forces you've created. Clearly, Chairman Hill's monetary policy task force idea is catching fire as we see this go across the landscape. What do you anticipate the result of the task forces to be? Can we expect public reports or other documents? How do you envision presenting the results of these findings, Mr. Chairman?
Thank you very much. Right now they're in discovery mode. I've given the five task forces a tall task to go back to first principles. See what we're doing, see what can be improved upon. They were starting with a blank sheet of paper and you had a highly credible central bank running the most important monetary policy in the world. What would we do? Are there existing practices we could improve upon? Are there hard questions we could answer? The changes in the economy relevant to that. In terms of disclosure, we're going to make sure that the external independent task forces, which are staffed by some superb Fed staffers, that they get to share their views first with the decision makers. There are going to be 19 of us around the table that are committed to listen to them with an open mind and make decisions. But there's going to be nothing held in secret here. This is a public discussion on these five and I'm happy to share the results and the thinking periodically between now and the end of the year at which point I hope we've got some real conclusions.
Of course, the committee task force is very sensitive on this thing. Let's move to the communications and balance sheet. A concern I raised with your predecessor is the potential for confusion on the purpose of adjustments to the Fed's balance sheet absent clear and frequent communication. For example, the trading desk announced yesterday it's continuing the $10 billion in bill purchases this period, presumably to maintain ample reserves. I understand not wanting to preempt the work of the communications task force, but can you share your thoughts on balance sheet policy communication? Will you make it clear to the markets when shrinking the balance sheet is intended to tighten monetary policy rather than a deregulatory effort to avoid market distortions?
Yeah. You raise a couple of very good points. First that some of the boundaries of these task forces will overlap in some sense. Each of the task forces are charged with obligations that are ultimately the FOMC and the board of governors. So the communications task force and the balance sheet task force there might be some overlap in their work. Let me cut to the chase. The balance sheet policy since the global financial crisis when I last served, the balance sheet regime has changed quite significantly. The size and duration of assets the Fed's holding have changed massively. They changed first in a period of crisis. That was the design of this new balance sheet policy. I don't want to prejudge decisions that this task force makes, but it's no secret of my long-held views. And I'll just state them three ways. One is the balance sheet is part of monetary policy. Monetary policy is made both through interest rates and through the balance sheet policies. The balance sheet isn't merely about plumbing. So that's point one. Second, I want to assure you that if there were a change in balance sheet policy that we would preview it, explain it, debate it, and no changes in balance sheet policy would happen without good advanced notice to the likes of this committee and broadly financial markets. And three, as we think about balance sheet policy, we at the Federal Reserve have to do, I think, a strong and compelling job to stay clear of fiscal policy. We want to be out of the fiscal policy business which is between you and the Treasury Secretary and the president and focus on monetary policy. Those are among the big questions I've asked this group of three distinguished leaders to take on and I look forward to hearing what they have to say about it.
The composition of Treasury purchases continues to trend towards more price sensitive market participants. The MPR details this trend along with the strong demand and increased liquidity. Though we know from experience conditions can worsen quickly in a crisis. How are you thinking about financial stability and the threat of fiscal dominance as Congress fails to get spending under control while the demand for our debt including the Federal Reserve continues to change?
So it's an excellent question. As we sit here today the average duration that is the average outstanding stock of assets that are held by the Fed in US treasuries is about six and a half years. The treasuries that are held in the market are about four and a half years. I understand in periods of crisis like the 2020 pandemic and the '08 crisis, central banks by design needing to step into markets to create a fair price. But in more benign times when our overall holdings are larger than the market, that's something where monetary policy is in the language of former Chairman Volcker on the edge of its authority. These are among the questions that this task force will look at.
Thank you, Mr. Chairman. Yield back, Mr. Chairman.
Gentleman yields back. Chair recognizes the ranking member of the House Small Business Committee, Miss Velasquez of New York, for five minutes.
Right here. Welcome to the committee. I would like to start with a straightforward simple question. Do you work for Donald Trump? Yes or no?
If I'm permitted to say, we're an independent central bank. We're honored to be independent. Our independence came from you.
Okay, that's enough. Thank you. What steps would you take if the president or others in the administration target you or your fellow governors because he doesn't like how many of them are voting on interest rate policy?
So, it's not my intuition to engage in hypotheticals, but I'll tell you this. The Supreme Court said that the Federal Reserve and the conduct of monetary policy is independent. The extent there were questions about it, the courts answered those questions.
I would continue to do my job.
Okay, good. Chairman Warsh, do you agree that current monetary policy exists in an extremely polarized and politicized environment?
Outside the four walls of the Federal Reserve, there's no doubt a lot of politics, but my goal inside the central bank is for there to be no politics. The extent there's politics there, we're going to get rid of them.
Well, I along with many on my side will say that the attempted firings of a sitting Fed governor and Fed chair in the central bank's 111-year history is quite the politicization and polarization of the Fed. Chairman Warsh, at your nomination hearing a few months ago, you said and I state, I am committed to ensuring that the conduct of monetary policy remains strictly independent. You just said that. Are you still committed to conducting independent monetary policy today?
Given the current mistrust of government and the political environment surrounding your appointment, the decision to limit communications and offload Fed objectives to clandestine task forces with no clear transparency calls your motivations into question. Can you commit today to institute an explanatory framework that details the reasoning of the Fed's actions following policy changes?
I'm here today, Congressman, to do just that. And I think I've demonstrated in my first six or seven weeks in office a commitment to independence and a commitment to reform. Those two are of common importance and I'm going to deliver on both of them.
I'm glad to hear that. Thank you. Chairman Warsh, at your first post-FOMC meeting as chair, you were asked how you intend to handle Fed communications going forward. You answered, and I quote, 'We made some changes today. I expect more changes to come and some of those might well be worthy of a press conference.' To me, that is not a very definitive standard. Can you commit today to creating a fixed public standard for which FOMC decisions and procedural changes trigger a press conference rather than deciding case by case which ones might be worth it? Yes or no?
So if I can be slightly longer than yes or no. The last 63 months, maybe 64 months of high inflation above the Fed's objective suggests that it is immediately important to think about reforms, including in communications. And that's what we're going to do. I don't expect any of the change in communications to be about hiding the ball. The purpose of a change in communications is to do one thing right, which is to get monetary policy right.
I hear you, but are you instituting any standards that will qualify for press conference as a worth news for the public and hear us in Congress?
So, in a word, yes. And we have a task force that's going to help us think about how to do that and do a better job of getting policy right and making sure that you know what we're doing and why.
Can you give me a single objective or criteria right now on how you will determine whether or not a change at the Fed is significant enough for you to hold a press conference on it?
Mr. Chairman, I'd invite you to answer that question in writing, please, for the gentlewoman from New York. Chair recognizes the gentleman from Texas, Mr. Sessions. You're recognized for five minutes.
Mr. Chairman, thank you very much. Chairman, welcome. We're delighted that you're here. This is your first time here, but you'll get used to coming back. You'll be here twice a year. So your report to Congress is important and we do count on the factual nature of that. I'd like to refer if I can to three questions and allow you to speak instead of myself most of the time. Number one, housing interest rates. That would be on page 21 and 37. Then understanding better the agricultural stability of that marketplace. I represent a hugely agricultural district and second or lastly the labor market outlook that's page 16. I'll let the gentleman please move forward and I'll prompt you now on first one housing interest rates. You please talk to us your view of that. It's higher than what I want but you're the person that's in the seat today.
Yeah. So, as I mentioned in my opening statement, prepared remarks, the economy is solid. Financial markets look like they're in very good condition. When we look at housing markets, the story is much more uneven. 30-year fixed rate mortgages, which is really the relevance of much of this discussion to a lot of hard Americans, it's higher than it's been. And in part, that's because of inflation that has been above the Fed's objectives.
Okay. And looking forward, so we have your goal. What can we look at you and say what is our new chairman going to do about that?
So he's going to deliver price stability with his colleagues at the FOMC and what we can do in making sure that people are confident that the change in prices is at such a level they don't have to think about it and they don't have to talk about it. That is consistent with long-term treasury yields being lower and that's also consistent with mortgages being more affordable.
Well, I agree with that and I'll look forward to that. Agricultural outlook as you know farms farmers the farm economy is going through some changes. Your viewpoint on that?
Yeah. As you know the Fed does not target particular sectors but that doesn't mean these sectors aren't incredibly important. Housing economy matters, the overall economy and so does the ag economy. It's the breadth and diversity of the US economy that gives it its strength. It's the dynamism of what's happening in each of these sectors including in agriculture that gives us great comfort that economic growth can be materially higher than it is. We are not afraid of productivity-led growth and that's not unique to AI that's across all sectors of the economy. As I mentioned, Chairman Hill, we're looking for growth to be broader and the change in prices, the inflation in prices to be more limited. Agriculture is not immune to either of those developments.
Well, the agriculture secretary has been added to some of your important committees to make sure there's discussion. I hope that you will listen to her. It is important for you to understand that when people talk about the stock market or investment, farmers and ranchers look out in their backyard at the cost of their equipment, at the cost of their land, at the cost of things. They don't have a stock market. They have their own investment. And I think that the secretary can be there to completely continue to remind you of that. Labor market outlook really looks good. Page 16. Sir, your take.
Yeah. So, the labor market has been remarkably resilient. The increase in nominal wages has been solid. You might have heard in my comments at the beginning of this a bit more focus on the price stability part of the mandate. I want you to know though that there is no disfavored part of the legislative remit that you gave us. The dual mandate is your word to us that we're going to focus on price stability and on full employment. I intend to do just that. And if I could add one other thing, in my view, the two parts of the mandate are not in conflict. This is not an either-or proposition. The more we can do to deliver low and stable prices, the more we can get it such that people aren't worried about inflation. The more employers are going to want to hire more workers. So you gave us a remit. We take both parts of it seriously. As we look out the window now, the labor markets look to be in pretty good balance. We've got some work to do on the inflation front.
Well, we in the one big beautiful bill encourage people to go back to work and that is why we do not tax overtime pay and why we do not tax what would be tips. We need to get people back in the marketplace. We hope you help us out, Mr. Chairman. Welcome to us, Mr. Chairman. Thank you for your time.
Gentleman from Texas yields back. Chair recognizes the ranking member of our capital market subcommittee, Mr. Sherman of California, for 5 minutes.
Mr. Chairman, first I want to commend you for looking to improve the data on which you base your monetary policy decisions. Up until now, we've relied on survey data as a substantial part of that. And increasingly, Americans just don't voluntarily answer survey questions. I want to commend you for declaring your independence. We saw what happens in Argentina, Venezuela, and most notably Turkey when central bank independence is eroded. I would say ironically that had your predecessor caved to Trump and lowered interest rates below what economics would call for, we would have much higher inflation today and that would have been bad for Americans. It would have been absolutely terrible for the Republican party. So the independence you have, your agency has saved Donald Trump from himself. And finally, I would say don't rely on this distinction between the Cook and the Slaughter cases. The idea that every congressionally created independent agency isn't independent except yours. You don't want to be relying on that. The distinctions the court makes between your agency and...
Every other agency are rather weak. Historically, our capital markets support our business expansion and our economy. Money market funds are an important part of that, buying short-term commercial paper from corporations. Our payment system is designed to meet the needs of honest Americans. That's why we have an anti-money laundering, know your customer rule that makes it a bad system for drug dealers, sanctions evaders, etc. There's a rival to these institutions and that is a cryptocurrency which literally means hidden money and is designed to... and then we have in particular stablecoins which are just like a money market fund except you earn zero interest and everything is hidden. Now the Federal Reserve established liquidity facilities to support money market funds in the last crisis. Will the Federal Reserve support cryptocurrency or stablecoins if they face a run from investors?
So, Congressman, thank you for mentioning many of those issues. We talked about a lot of them in your office, so I appreciate it. I still have the scars from the 2008 financial crisis. I still have the scars from the extraordinary efforts that my colleagues and I under Chairman Bernanke's leadership had to do. That is not something we want to repeat.
Can you assure us that you will not be bailing out stablecoin and cryptocurrency?
So I don't want to... I can be more broadly than that. We do not want to be in the bailout business, full stop.
But your predecessor did provide a liquidity function for stable... for money market funds. If God forbid we faced a similar circumstance in the crypto world, would you bail them out?
So, I want to be very clear. We're going to do everything we can to mitigate those sorts of extraordinary risks if and when they were to come in the next four years. We want to be in a position we're not bailing out anybody, including crypto.
You're not really answering the question. Obviously, everybody prefers our economy works well. I'm certainly concerned with giving non-banks direct access to the payment system and this Kraken filing with the Kansas City Fed is concerning, but I want to move on to Basel III. Your predecessor said that the capital requirements for banks in 2019 were about right. The current reproposal substantially raises those capital requirements. Were capital requirements about right in 2019 or should they be higher than that today?
So, the good news is we have a proposed capital rule that's out for comment. I'm quite interested in getting the reports and the comments on that and I look forward to reviewing those and making a judgment. I would say as a first principle, strong capital ratios, strong liquidity ratios, strong supervision, and strong market discipline. They're all of a piece to ensure we don't find ourselves in a world where there is unsafe or unsound institutions.
We of course want strong limits. On the other hand, if you go overboard, you hurt economic growth and hurt the economy. I hope in that review process you'll look at low-income housing tax credits where you've already moved from 400% to 100%. It should be closer to 20%. These are very stable assets. So time is expired. My time is expired.
Appreciate you, Mr. Chairman. The chair recognizes the chair of our subcommittee on financial institutions, the distinguished gentleman from Kentucky, Mr. Barr.
Thank you, Mr. Chairman, and Chairman Warsh, congratulations on your confirmation and swearing in as the 17th chairman of the Federal Reserve. I am grateful for your commitment to reforming the Fed and that appreciation is surpassed only by our shared love for Kentucky thoroughbreds and your love of the great sport of horse racing. Let me just ask you first of all since you're swearing in over seven weeks ago things seem quite a bit different over at the Fed. A few examples, elimination of forward guidance, abstaining from the dot plot, creation of these five specialized task forces, and maybe most impressively taking accountability. Instead of blaming inflation on the pandemic or supply chain interruptions or tariffs or the Strait of Hormuz, you are saying that inflation is always and every time the result of the Fed supporting printing too much money. Tell me, Mr. Warsh, you appear to be quite different from your predecessors. How are you different?
So, I've known five of my predecessors. I've learned particular lessons from each of them. I can only be my own man. I served before at the Fed for about five and a half years under Chairman Bernanke, and I learned a lot of things then, but you're right. In six weeks, we have caused, I think, a sea change in new thinking, the beginning of a set of reforms that are going to be put in place across at least five dimensions in monetary policy. And it's a broader discussion about reforms that will be forthcoming in everything we do, including supervision and regulation, where there's already been a good start in payments and the rest. We made a lot of progress in six weeks, but I think it's important to use this opportunity wisely. The 63 months of inflation above target has been an unfair burden and has been a tax on the American people and businesses. We plan on getting rid of that tax. If that means we need a regime change in policy and we need new consideration of practices, some of which have been working, some of which haven't. That's what we aim to do and we're just getting started.
Well, I appreciate your commitment to being different. Let's talk about overhauling Fed communications. This from a Wall Street Journal editorial on June 15th. They write, 'Few innovations since 2008 have been as counterproductive as the adoption of forward guidance as a policy tool. The constant yammering, long policy statements, press conferences after every FOMC meeting, non-stop speeches by Fed officials, and above all, the quarterly summary of economic projections has exposed how little the Fed understands about the economy and trapped officials in errant policies.' Chairman Warsh, why is it important to do away with the dot plot and end once and for all forward guidance?
Well, Congressman, I've made no secret probably over the last 15 years of my views on communications. I think when central bankers speak like I am before you, it's either under obligation or in this case under obligation and purpose, which is to share a set of new reforms so that American households and businesses might say to themselves, 'This is a regime change in policy.' We're only beginning it. I'm keenly interested in the views of these five task forces and ultimately these are decisions that are going to be made jointly. The best of the Fed's traditions are to work collegially and I've really been quite impressed how open-minded my colleagues have been to take it up specifically in communications. If we were to share with you our every passing thought, I worry not with us, but we're human. And if we were to give you my projection today about what we'll do when we meet in two weeks, what we'll do over the course of the year, that we'd then find ourselves sort of taking information that's consistent with our priors and rejecting information that's inconsistent. It's not the way we want to do things. We want to get policy right. And I think being somewhat more circumspect in our communications, at least for me, is a better way of calling balls and strikes.
Finally, thanks for your commitment on dealing with this mission creep. In recent years, the Fed has concerned itself with matters outside of its dual mandate, including diversity, equity, inclusion, climate change, and the like. That's why the Fed's joining the Network for Greening the Financial System distracted the Fed from the very important job of price stability. How will you keep the Fed from rejoining the Network for Greening the Financial System or veering into these peripheral and distracting matters that go beyond the statutory remit of the Fed?
By being very clear of our obligations. You told us that our job is full employment and price stability. You gave us plenty of other hard work to do. We'll have a series of reforms outside of monetary policy. Our plate is full. We will not be wandering into other areas. I can assure you, Congress.
Thank you. I yield back. The gentleman from New York, the ranking member of the House Foreign Affairs Committee, Mr. Meeks, you're recognized for five minutes.
Thank you, Mr. Chairman, and congratulations, Mr. Chairman. Your jump into this because in your testimony, you talked about the Federal Reserve's, and I quote, 'rightful independence in the conduct of monetary policy,' which is good. Now, as Chairman Hill has indicated, I also do some foreign affairs work and I'm very concerned about what's taking place in the state of Hormuz and rising cost of gas because we know that when those prices go up at the pump, it gives higher transportation and energy cost and they work their way through the economy generally making groceries higher and household goods etc. So it depends upon handling it. So Mike, if the administration's handling of the conflict with Iran contributes to another inflationary shock, will you make the decision you believe is in the best interest of the American people and the American economy in that rightful independent stance?
Congressman, that is always our commitment to make the best decision we can consistent with the remit and our understanding of the world. And as I said to the chairman at the outset, we'll deliver price stability. So, and that's, you know, still based upon what we've seen from the president thus far.
Now, I just want to be clear, make sure that because I got to be clear on this, that if the president publicly pressures you to pursue a different course than the one you believe is in the economic... that you believe the economic data supports, will you follow the president's wishes or follow the data?
My commitment to you is to follow the law and follow the data. Follow our very best judgment.
And that's even if he publicly criticizes you for doing it. If you decide this is the way to go, this is where the data shades and he publicly criticizes you and tells you how disappointed he is in you and all of that, will you still do what the data tells you to do?
I'm ready to follow the law and I'm ready for the Fed to deliver on the expansive remit that you gave us. I'll make only one other note. We have a wide lens. We're interested in what's happening in the war. We're interested in what's happening in military conflicts around. We have to take that all in, but then we have to shut the door and make our very best decision. That's what we're going to do in a couple of weeks, and that's what we'll do in the remainder of my tenure.
Thank you. So now I want you to know that I support innovation, but I also believe that the Federal Reserve has a responsibility to protect the integrity of our payment system from political pressure and short-term enthusiasm. And I believe the administration has made expanding access to fintech and digital asset firms a clear priority of his. But the Federal Reserve has long evaluated access to its payment infrastructure based on safety and soundness, operational resilience and effective risk management and the stability of the financial system, not politics, not political priorities. So, can you... and what I should say this also because what I'm concerned about is that any firm that's connected to our nation's payment infrastructure must have robust cyber security, fraud prevention, compliance, and operational controls because failures can undermine public confidence in the financial system and leave consumers exposed to significant harm. So my question is, can you commit that decisions about access to the Federal Reserve's payment rails will remain grounded solely in the Fed's independent assessment of systemic risk, safety, and soundness and not political direction?
We're going to keep politics out of the Fed. We're going to stay focused on the responsibilities you've given us. And I think you highlight something very important. This new technology revolution which is hitting the Federal Reserve and the economy provides huge opportunities. The United States can lead in payments. Our economy can be the strongest in the world and improve its growth rate, but it's not without risks. And we at the Fed are going to strike the right balance between the challenges and the opportunities in payments and more broadly.
Let me just ask this. I got 28 seconds, but what objective standards must any firm satisfy before you conclude that the benefits of innovation outweigh the risk to consumers and the broader financial system?
I like the way you think. A benefit-cost test is a good test for economists like us and the benefits exceed the cost and that's the kind of policy procedure and objective we want to pursue.
Gentleman yields back. The chair recognizes the chair of our capital markets subcommittee, Ann Wagner of Missouri. You're recognized for five minutes.
Hi, thank you Mr. Chairman and welcome Chairman Warsh and congratulations to you. My work on the capital markets subcommittee as chairman has been focused on giving the American people and our small businesses more options and access to our markets, giving the everyday investor and the local employer better opportunities to grow their financial future and kind of on their own terms. I'd say under the previous administration, we saw a heavy-handed regulatory approach that aimed to strip risk out of our markets entirely. And time after time, the Biden-Harris administration pushed policies that limited financial freedom and stifled growth. Our capital markets are, as we all know, the envy of the world. And that is because we allow Americans to weigh risk and reward for themselves and make the financial decisions that are best for them and their families. Chairman Warsh, at a high level, how do you view the Fed's role relative to the financial system, both as a central bank and as a bank regulator? And I guess what I mean is, should the Fed try to engineer all risk out of our economic system or should it act as a prudent observer that only intervenes when truly necessary?
Congressman, it's a leading question which I can answer with a... we need to strike the right balance. We are not trying to take risks out of markets in normal times. The economic growth that I mentioned to your colleague just a moment ago comes about because of a certain dynamism in our financial markets which comes from a dynamism in the real economy. That isn't created by the Federal Reserve, but we can be a foundation with clear, steady policies delivering on the remit that you gave us so that the American spirit and American economic growth can continue to be the envy of the world.
Something on the top of mind for myself and certainly for my constituents in Missouri's second congressional district is the state of the economy including the cost of living, job growth and interest rates. Though it is often characterized as being tasked with a dual mandate, the Fed in fact has multiple statutory mandates, including stable prices, maximum employment, moderate long-term interest rates, and financial stability. When the Fed leans into one of these goals, sir, it can create ripple effects on the others, forcing a balancing act between competing priorities. Chairman Warsh, how do you weigh these different mandates and the tradeoffs between them?
So, I'm a little different than some in the economics profession on that, Congressman. I do not think we have a cruel choice between stable prices and full employment. I think the mandate that you and Congress gave us are entirely consistent. If we can ensure stable prices, the American economy can thrive, businesses can hire more employees, and the dynamic economic engine we talked about can continue to be the envy of the world. I don't think we have to run a balancing test. I don't think it's an either-or proposition. We're in the business of doing what we can to ensure financial stability over a business cycle and financial cycle and we're always in the business of ensuring stable prices and full employment. At different times our focus, our lens has to turn to one of those priorities, but I think they're entirely consistent with each other.
Which leads to my next point here. There are some who believe, Chairman Warsh, that the Fed should be used as an everything regulator where instead of acting as an observer of markets, the Fed attempts to actively manage them beyond its statutory responsibility. Chairman Warsh, how does this mission creep affect the Fed's reputation? And should the Fed take actions beyond those specifically authorized in federal law?
We should follow the law. There is a tendency when circumstances get tough for any regulatory agency, any agency to go to the edge of their authorities. But that's when politics enter the door. My objective, the objective of my colleagues is to keep politics out. And the way we do that is we steer clear of things that we aren't authorized to do.
My time's expired and I think that's the answer we're looking for. I yield back.
The chairman recognizes the ranking member of our subcommittee on digital assets, Mr. Lynch of Massachusetts, for five minutes.
Thank you, Mr. Chairman. Welcome, Chairman Warsh. Good to see you. My congratulations. I was pleased to see that in your opening remarks you spoke to the issue of artificial intelligence and as the ranking member on AI and crypto I was just curious to try to tease some more of your thoughts out on that. Not only in the financial services context but AI in general. I mean in the past the Federal Reserve has been able to identify risks of impact to the financial system but also in a wider context as well. And I wonder if you'd share some of your concerns about that. And I guess I'd like to know under your leadership what will be the Fed's approach on AI and how you protect the system from some of the risks that may be attendant to the adoption of AI.
Yeah. Thank you, Congressman. We talked about this a bit in your office and I appreciate the time. This is perhaps the most significant change in our economy in my adult lifetime. I take the new investments in intelligence in some sense to be one where we have to recognize it's a huge opportunity but it also comes with risks and challenges. It is not the job of the central bank to provide or be certain of what the consequences are over the next 12 or 24 months. But we recognize that the United States is likely to be a big winner. The United States is at the forefront of these technologies. Both the human capital and the capital provided from investors are happening here. So the efficient frontier of these technologies are happening in the United States. This is a benefit broadly to our economy, but I don't want to sound overly complacent about it. These technologies also offer threats when they find their way into adversaries' hands. The infrastructure at the Federal Reserve, the infrastructure at our banks, large and small. They must feel new pressure as people are looking to use these technologies to do harm. So these technologies can be used for good and for harm. Over the long term, I think the US is the winner. Over the long term, I think there is a material improvement in productivity which should have a material improvement ultimately in wages and the strength of the economy. But the long term can be quite far out and we've got to monitor things month by month, quarter by quarter as we get there.
Yeah. The thing that troubles me is every time we talk about AI, I hear about this race and it's us against China or it's us against South Korea or countries in the EU. The problem with that thinking is that in this race and we're seeing the velocity of change is enormous. It's exceeding obviously our ability to regulate AI. At the end of the day, I don't see the United States as the winner. I don't see China as the winner. I see an artificial super intelligence as the winner. That's what we're rushing along this course. And at the end of the day, we're creating... and it doesn't matter whether the creator of artificial super intelligence is a good guy or a bad guy or a good gal or a bad gal. That super intelligence itself will be the entity that we have to confront. And I just worry about the broader impact of what's going on right now. There's tremendous resources as you know being poured into AI. I just hope that the course of regulation does not meet the same fate that the regulation of crypto did where the crypto industry spent close to $250 million up here on Capitol Hill and they got the bill they wanted. If that happens, if that happens with AI, we are in serious existential trouble not only in this country but in this world. And I do believe that the Fed, your position, has influence, has the ability to seek out those dangers that others may not identify. And I just ask you to please consider your role and the resources that you have that maybe you can put a task force together to look at the broader implications of the adoption of AI. They can't even show us... they can't even explain some of the things that they're using right now. The explainability gap is enormous. But I welcome you. I wish you the best. I really do. I wish you the best for all of us.
Gentleman's time is expired.
Chair recognizes the gentleman from Georgia, the vice chairman of our financial institutions subcommittee. Mr. Loudermilk, can you recognize for five minutes?
Thank you, Mr. Chairman, and Chairman Warsh. Welcome. Thank you for being here, and Godspeed with the position you now have, and we wish you the best of luck.
First I want to talk about Operation Chokepoint. As you are fully aware, Operation Chokepoint 2.0 involved partisan actors at the Fed using 'reputation risk' as a means to target and debank firms and individuals in the digital asset ecosystem, the energy industry and really anyone that partisan actors at the Fed believed unworthy of a bank account or loan. This was especially egregious given the fact that the Fed does not have a statutory authority from Congress to supervise for reputation risk. Well, I'm happy that reputation risk has been wiped from the Fed's guidance to examiners. Can you please tell us what steps the Fed can take to durably ensure that statutory silence is never again abused by partisan actors to attempt through the Fed what they cannot make through law and Congress and also what actions that you may be taking.
So, thank you, Congressman. Reputational risk has been removed from the dashboard that supervisors and regulators will have anything to do with. My view is that being a good supervisor and regulator is tough business and we don't need to make it harder by bringing politics into it. Vice Chair Bowman has begun a series of reforms before I arrived in this and I think you're going to find in the coming quarters and years, we're going to continue to reform and refine our regulatory system so that we can have a safer and sounder financial system and I'll add a more competitive one, too.
All right. Thank you for that. We appreciate your work in that area. The Fed currently holds a considerable share of federal debt and has for almost two decades now. With a ready buyer and low interest rates, it's not surprising that Congress has been incentivized to run up large and growing deficits over the same time frame. You've spoken before about the Fed's role here and the threat of monetary dominance and fiscal dominance. How can the Fed get out of the business of underwriting Congress's fiscal irresponsibility?
One thing we can do is think hard about when we're going to be buying debt from the Treasury. This might not sound like perfect virtue, but when we have a crisis like in 2008 and 2020, my view is you created the central bank to take extraordinary actions. In more normal times, in a more normal business and financial cycle, fiscal policy needs to be a decision that you make with the administration. Fed should have nothing to do with it. I've set up a task force to focus on the balance sheet to ask the question first, what's the effect of the balance sheet on the conduct of monetary policy and ultimately inflation? Second, what are the pros and cons of different regimes? I'm not of the mistaken view we can go back to where we were when I arrived at the Fed in 2006, but I think there are several other sustainable equilibria we can achieve. And the third question is equally important. It took us nearly 18 years to find our way into this balance sheet. We're holding a lot of long-term Treasury debt, long-term mortgage-backed securities. We won't be able to make changes overnight. Any changes that we make would be well deliberated, would be public, would be understood, and there would be quite a bit of time before any of that was operationalized. I look forward to the recommendations of the task force, and I look forward to hearing from my colleagues around the FOMC as we contemplate alternatives.
Well, thank you for that. And what are your greatest concerns with regard to the threat of monetary dominance?
Yeah. So, you have a different job than we do. The independence that many of your colleagues have spoke about this morning is a political and economic decision to give us the pen on interest rates to let us be the deciders of monetary policy. I've always taken that as part of a bargain. You're giving us independence on that and my judgment is we should be staying out of fiscal policy. We shouldn't be weighing in, no matter how tempting it might be, either directly by buying assets that have some flavor of fiscal policy or by opining on subjects that really isn't our business. We're going to try to stick in our lane at the Federal Reserve. We've been good at that for the last six weeks, but there's always a temptation to wander in other areas. I'm going to try to be reserved in my comments on fiscal policy with you and your colleagues. That's your job. It's not mine.
Well, thank you for those answers. They're very thorough and very refreshing to hear. And with that, Mr. Chairman, I yield back.
Gentleman yields back. Chair recognizes the gentleman from Houston, Texas, Mr. Green, who is a ranking member of our subcommittee on oversight and investigations. Mr. Green, over here, Mr. Chairman.
Thank you. Thank you, Mr. Chairman. I thank the ranking member as well. And I welcome you to the committee, Mr. Chairman. But I would also say to you that I will pray for you. And I'll pray for you because many of the questions that have been predicated today hinge upon a belief that you will sanction the president's desires. It is thought among the general public that you're in the position you're in because the president could not have the influence that he wanted to have with the prior chair and he believes he can have it with you. So I hope that you will stand firm and honor your commitments that you're making though some of them are not firm commitments as I understood your language. You indicated that you're interested in war. I appreciate this, but I believe you should also be interested in speculative bubbles. My assumption is that you are interested in bubbles, speculative bubbles. Mr. Chairman,
We've got a wide lens. We spend a lot of time thinking about what's happening.
I'm going to take that as a yes. Now, given that you're interested in speculative bubbles, let's just talk about a bubble that occurred. President Trump's meme coin, dollar sign Trump, profited an average of $1.74 million per day over his first year. $1.74 million per day. This amounted to approximately $636 million in total royalties and licensing fees generated at its launch. While this was happening, during that same period of time, nearly 1 million investors lost a combined $3.8 billion. This because that memecoin lost value, dropped precipitously in value. It was a bubble. By the way, it is nothing. Anybody who's listening to me, if you've invested in a memecoin, you've invested in nothing. Zero. In a righteous world, it would be illegal. But given the secretary of the treasury that we have currently, it is not. And that's very unfortunate. SEC, the secretary of the SEC. It is not. I think that we should concern ourselves with these speculative bubbles. And whether you like it or not, you have to concern yourself with it because when you lower interest rates, you lower the rates such that there's more capital available for people to use for speculative reasons. So, you have to be concerned about it whether you want to or not because you don't want to see a speculative bubble. Can I have your assurance that you will be concerned about these speculative bubbles, Mr. Chairman?
So, Congressman, we want a resilient, strong, safe financial system. And we are looking at financial markets and we're looking at the real economy to make sure we deliver on what we can. Some of these other subjects are really more in your purview and responsibility than
They're in my purview. Excuse me for interrupting, but I have to... they're in my purview, but only because I choose to have them in my purview and I make an issue of them. I have to vote on them. But they're in your purview, too, because you decide whether the rates go up or down. And if you lower them, then people can engage in these speculative bubbles such as the Trump memecoin, and they can lose a lot of money, losing billions of dollars while the president makes millions on a daily basis. This is the epitome of ridiculousness. At some point, we all have to take a stand, Mr. Chairman. This is going to be your opportunity. You're going to have to take a stand at some point because this president is interested in making money. He puts money ahead of the people of this country. The people of the United States of America are secondary when it comes to the president. They may even be tertiary or quaternary, but they're not first. And at some point, you're going to have to make a tough decision as it relates to this president. I look, I'm not going to prejudge you. I'm going to assume that given your statements and the latitude that the Supreme Court has given you, that you'll make the right decision. But you're going to have to be concerned about a speculative bubble, especially as it relates to crypto. This is something that we'll all have to address. I thank you very much.
Gentleman yields back. Chair recognizes the vice chairman of our full committee, Mr. Huizenga of Michigan for five minutes.
Thank you, Mr. Chairman, and Chairman Warsh. Congratulations. I join many of my colleagues in seeing you there as a very positive thing. In late 2021 and 2022, as has been referenced by a few others, the Fed had recognized inflation was not transitory. I'm reminded of actually a hearing we had, where we had then Secretary Yellen, former Fed Chair Yellen sitting next to the then current Fed chairman. And when I brought up the question about whether it was transitory, they did not have the same answer. And it was interesting seeing how that lag and it sort of played into the fear that many of us had that there had been more to this foot dragging coming out of the Biden administration. The quick question is while the appropriate speed of a response depends on what is driving inflation, I think you would certainly agree. I'm curious your view of how the Fed should make that judgment and act quickly once it does because I think as has been pointed out there was a lag.
Yeah. So, Congressman, I appreciate the question. We only look to the past for lessons learned. We're not trying to relitigate the decisions that are made of our predecessors, but the reforms that I've already announced in communications, the task forces that have been established are an attempt to make the conduct of monetary policy better, swifter, more sound, so we can deliver price stability. Our number one objective is to get policy right. And my judgment, as I said to one of your colleagues before, is that demands an open mind. That means not precommitting to decisions before we take it up inside the four walls of the Federal Reserve. And so you'll hear from me a lot less forward guidance and a lot of listening. Generally as a practice what we're going to try to do especially at the beginning is deeper more serious discussions among us, fewer pronouncements.
So I appreciate you don't want to relitigate the past but I do think as we all know we also learned from history and during the previous administration the Fed took some pretty major regulatory actions some within its statutory authority and my view maybe excessive but others that were clearly beyond what Congress had really authorized. And you know, everyone agrees a safe and sound banking system is essential to monetary policy, the economy, and the American people. But when the Fed exceeds its statutory authority or reinterprets or interprets old laws to claim new powers, that to me is mission creep. Can you assure us that future bank regulatory proposals will respect the important procedural guardrails established by the Administrative Procedure Act? The APA has been in many ways trampled I believe which often received only nominal consideration under the previous administration. How are you going to handle this?
So we're going to follow the law just as you say. You've established a set of laws. There's a set of regulations by which changes in supervision and regulation, changes in guidance can be made. We intend to follow them with an objective, as you mentioned, of a safe, sound, and again, I'll add competitive banking system. There's a huge strength for the United States, and our banking system is stronger and more resilient than most around the global economy.
Expound a little bit about your views of the importance of a banking system to the American people and the benefits to them of a Fed sticking to the authorities that Congress has given it rather than going far afield.
Yeah. So, we've got to keep politics out of the Fed. Politics can find their way into the Fed through any of the range of powers that you've given us. Our supervisors and regulators have a lot of authority over the thousands of banks that are regulated in the United States. Explicit authority and also authority when they knock on the door and they ask a series of questions. One of the great strengths of the US economy is the diversity of institutions we have in the banking business. Most of the G20 counterparts we have, they have a handful of banks. They're implicitly backed by their government. One of the untold strengths of our economy is the diversity of our banking system. We've got regulators that need to ensure that the regulation and supervision are tailored to what happens in those institutions. One size fits all might work for other countries. It doesn't work in the US. And the vision I have, Congressman, is liquidity and credit that comes up from the real economy through the banks.
Thank you. And gets aggregated, not top down liquidity provided by the Federal Reserve.
Thank you. Chair recognizes the ranking member of our subcommittee on housing and insurance. Mr. Cleaver, you're recognized for five minutes.
Thank you, Mr. Chairman. Let me be first before I ask any questions express my personal appreciation for you and ranking member Waters for allowing and giving my partner Mike Flood and I the opportunity to go out and deal with this housing issue that frankly I think is going to add a whole new dimension to our ability as a federal government to increase this human need for housing. So, thank you very much. I appreciate and I know he does as well all of the freedom that you guys gave us. Thank you, Mike. Mr. Chairman, congratulations for your new step and your career and for being here. I appreciated having a good conversation with you prior to this hearing. And I'm sure that you're not surprised that there's a great deal of interest in independence and in theology said there are four endowments of the human species and one of them is independence that we have an independent will. And I'm interested in a declaration of independence if you will wax eloquent on your view about the independence of the Federal Reserve.
So the independence of the Federal Reserve is sacrosanct. Part of the reason for the Fed's power comes not just from a printing press though it can be useful from time to time. It comes from our credibility, our credibility to make the best choices we can consistent with the law that you've written for us. And that credibility is bolstered if we are and are perceived to be independent. And so that's a commitment I can make to you because that's the way we can best do our job.
Well, thank you. Thank you very much. Independence is a big deal in the real world and then certainly with the Federal Reserve. But I also have to say that you know there is a terror of the unknown as part of who we are and the oldest and strongest of the human emotions is fear. It's almost the first thing we have, even babies will jump because there's a fear of falling even they may not even realize they are in the world but there is this fear and I'm not sure what to call this maybe AI anxiety but I clearly have it. And my youngest son is an actor and it would be inappropriate for me to tell everybody here to watch Sweet Magnolias on Netflix. However, I am concerned, you know he's concerned as many of the people in that business about what AI can do to that whole profession. But there's this fear that at some point the AI may become more intelligent than human beings and then put us in a position in a situation where we become obsolete. Do you have as the chair of the Federal Reserve, concerns about AI that you wish we knew and would address?
Thank you, Congressman. This is the most exciting opportunity but with it comes the kinds of risks and challenges that you highlight. We at the central bank need to look at these with a view towards what do they mean for our mandate? What does it mean for our expectations of inflation over the next couple years and beyond? What's it mean for employment? You told us that's our job. And so we have to look at artificial intelligence and the surge of technology with open eyes about it. I must admit that part of these challenges I see huge amounts of talent and thinking inside at the Federal Reserve. But I wanted to bring in some outsiders to share a view. So I've created a task force on productivity and jobs to help us think about that connection. We're not outsourcing anything. We're ultimately going to make these decisions. But American ingenuity has found its way into artificial intelligence and it's an exciting time but one that we're not complacent about.
Appreciate it, Mr. Chairman.
Thank you. Chair recognizes the chair of our subcommittee on digital assets, Mr. Steil of Wisconsin. You're recognized for five minutes.
Thank you very much, Mr. Chairman. Chairman Warsh, thank you for being with us today. A year ago on Saturday the Genius Act was signed into law and with that a series of deadlines for rules to be promulgated began and the clock began to tick. You came into your job confirmed approximately two months ago. The deadline for the Fed to promulgate rules is this Saturday. Will the Fed meet that deadline?
Well, that's a fair and open question. I have been corrected. I've not been in the job six weeks, but seven. We're racing to put that out by this deadline. I'll just add one other thing, Congressman, without taking too much of your time. I think rulemakings from the bank regulators are best when we have a family fight between and among us. So, that there would be one proposed rulemaking for comment.
Thank you, Mr. Chairman. I yield back.
Might not be exactly true this time, but that's my objective that we'd be coordinated in issuing our rulemakings at the same moment.
I appreciate that. I think from this body, I think there's a huge opportunity with stablecoin in particular to make sure that consumers are protected. That was one of the drivers of us passing that legislation. There's a lot of work to be done. You're new in your new role with the Fed, but we would like to be updated if in fact that deadline is not met, and then in fact when those rules will be promulgated, we're all anxiously awaiting. So appreciate your attention to that. Let me shift gears. There's been a lot of talk about AI obviously as any new technology as you have said brings forward opportunity but also risk. One argument of course is the labor market could collapse. We heard that offered by a couple of our colleagues. Of course, as we look back at other technological cycles in the United States, we've actually seen standard of living increasing. Jevons paradox tells us that actually as technological cycles come through, we have opportunities for greater employment in particular if we get the rules of the road right as in many ways the United States has in previous technological cycles. How are you analyzing your role with full employment in particular as it relates to this next technological wave?
If this cycle, Congressman, is like the previous positive technology shocks, the US will be richer, we'll be more productive, there'll be more labor, there'll be more wages, there'll be more compensation. That is if this follows prior trends. This technology shock is likely more significant. This is probably the biggest change in my adult lifetime because it's not just the creation of a new widget. What it is is it's changing the method of innovation and the speed of innovation and I can't think of a country on earth as well positioned to take advantage of it. So that's on the one hand, but on the other hand it can lead to disruption. My own best guess is that the advent of the technology will be augmenting existing work. That employees that were there will be more productive and ultimately at the end of the day I don't believe in the lump of labor fallacy. All the jobs that are there have already been created and the technology will remove some. Well it might be disruptive in the near term but it'll create a lot of other jobs. Just to give one example from history and then I'll close. Who knew at the creation of the internet that the internet would create a million and a half Uber and Lyft drivers? I certainly didn't. So I want to be very open-minded about the job producing elements of it, but we have a day job and it's to deliver on price stability and full employment. I've asked this outside task force of a few incredible experts to think hard about it over various time horizons and we'll keep our eye on making sure we deliver in every one of those time horizons to ensure stable prices and full employment as best we can.
Thank you for that. I think there really is optimism although there is downside risk and I think one of the imperative aspects here is that we get the rules of the road right so that the innovation development is occurring in the United States of America and not offshore. One of my big concerns was how the Biden administration looked at emerging technologies in the financial services space was that they were pushing that innovation development offshore rather than encouraging that here in the United States of America. With 30 seconds left, a lot has been said on the positive numbers that came out today. How does that shape your short-term and long-term outlook with the final 25 seconds?
So, it's one data point. The reason I create a task force on data is I don't want to overread or cherry-pick data. There might be some that look at this morning's data and say, 'Oh, mission accomplished. Everything is swell.' That is not my view.
Thank you. Cognizant of the time. Appreciate you being here today, Chairman. Mr. Chairman, I yield back.
