Fed Chair Jerome Powell testifies on Capitol Hill about policy and the economy — 3/7/23

I'm going to do my best to enforce 5 minutes. We got everybody's here. This hearing will come to order. Welcome Chair Powell. Thank you for doing your duty and aiming to enjoy it when you come to our committee. Thank you for seeming to enjoy it. Today we examine the Fed's actions to combat inflation, whether these actions are actually working, including how those actions affect American jobs and their paychecks. Prices are still too high across many parts of the economy. We know who feels it the most when the cost of rent and groceries go up: it's not the economic pundits and politicians who lecture us about discipline and stability; it's not the corporate executives who pretend they're making tough choices about prices while reporting record profit increases quarter after quarter and doing more and more stock buybacks; it's the people working hourly jobs to make ends meet, it's seniors on fixed income and Social Security, it's everyone who gets their income from a paycheck each month, not an investment portfolio. It's those same Americans who stand to lose the most if the Fed's actions to curb inflation go too far. No matter what goes wrong in our economy—a global pandemic, a war in Eastern Europe, weather disasters—profits somehow always manage to go up. Workers are left paying the price. As you've noted, Chair Powell, the Fed's tools are only one element in our fight against inflation. It's a complex problem. Interest rates are a single, blunt tool. Raising interest rates can't rebuild our supply chains and fix demand imbalances from the pandemic. Raising interest rates won't end Russia's brutal invasion of Ukraine. Raising interest rates won't prevent avian flu from devastating one-third of our egg supply, or weather disasters from destroying key crops. And raising interest rates certainly won't stop big corporations from exploiting all of these crises to jack up prices far beyond the increase in their costs. Last year, corporate profits at a record high. Corporate PR chiefs assure us that these companies just have to raise prices—their costs are going up, the workers just want to be paid too much, they have no other choice, they tell us. Yet when you look at their profits and their executive salaries and their stock buyback plans, it sure doesn't look like corporations have exhausted every available alternative. So brazen, even global bankers called on the Fed to identify this profiteering as one of the biggest drivers of inflation. Paul Donovan, Chief Economist of Global Wealth Management at UBS, wrote: 'The Fed should make clear that raising profit margins is spurring inflation. Companies have passed higher costs onto consumers, but they've also taken advantage of circumstances to expand profit margins. The broadening of inflation beyond commodity prices is more profit margin expansion than wage cost pressures.' Think about that from a chief economist at UBS. I'll say it again: they've taken advantage—these companies have taken advantage of circumstances to expand profit margins. 'The broadening of inflation beyond commodity prices is more profit margin expansion than wage cost pressures.' Unquote. The Fed understandably can't force corporations to change their ways or rewrite the Wall Street business model on its own, but the Fed can talk about it. High interest rates, falling wages, increasing unemployment are all hallmarks of failed policies that end up helping Wall Street, the largest corporations in the country, the wealthiest people in the country. Because let's be clear what we're talking about: when people use the economic speak that can cloud this conversation, 'cooling the economy' means laying off workers; 'lowering demand' means workers get fewer raises. Of course there are times when the Fed must act; we can't allow inflation to become entrenched. We've seen encouraging trends that that isn't happening. And there are other ways we can bring prices down instead of lowering demand, again making people poor, laying people off, denying worker raises. We can speed up and strengthen our supply chains, we can bring critical manufacturing back to the U.S., we can rebuild our infrastructure. It's what we're doing with the CHIPS Act, with the Inflation Reduction Act, with the Bipartisan Infrastructure Bill. For the first time in decades, we're finally recognizing the damage that I and many of my colleagues warned the corporate offshoring would do to our economy. Look at East Palestine, Ohio—a community that Senator Vance and I have visited a number of times recently. America learned about this small town last month when a Norfolk Southern train derailed and spewed hazardous material into this community. East Palestine is more than just a disaster headline. Columbiana County was once the center of American ceramics manufacturing, at one time producing 80 percent of the dishware in this country. One county produced 80 percent of it. When I was there last week, I was talking to the sheriff at the 1820 Candle Company; he was talking about how the last one closed just a few years back. Like so many industries, these jobs moved overseas. And we know why: the same reason Norfolk Southern cuts costs at the expense of safety, eliminating one-third of its workforce in the last 10 years. Then you're surprised with these derailments? It's the same reason corporations now keep prices high even as supply chains stabilize. It's the Wall Street business model. Chair Powell knows that, I know that, my Republican colleagues and Democratic colleagues know that. It's a Wall Street business model: quarter after quarter, corporations are expected to cut costs at any cost. They skimp on safety, they move production overseas to countries where they can pay workers less because of trade deals that they lobbied for. And Wall Street demands they post profit increases even in the middle of a global pandemic. That's the problem with our economy. And not only will higher interest rates not solve it, if they're overdone they'll make it worse. We can't risk undermining one of the successes of our current economy: for the first time in decades, workers are finally starting to get a little power in this economy. Unemployment is at a historic low, 3.4 percent. That's not just a number; that means Americans have more opportunities, more options even in places that have seen a lot in recent years. It means people have the power to demand raises and retirement security and paid sick days and some control over their schedules. It means more Americans have the dignity that comes with a good job that provides for your family. We must ensure that all Americans have the opportunity for that dignity of work. It's a critical time; the consequences of missteps could be severe. Mr. Chairman, two more things that affect your job: it's not just monetary policy that threatens American pocketbooks. Some of my colleagues have threatened the nation's full faith and credit by holding the debt ceiling hostage for partisan politics. Instead of paying our bills on time, they're threatening all Americans. The Fifth Circuit's Consumer Financial Protection Bureau ruling could also cause unimaginable instability and chaos for families, for consumers, but also, as the chair knows, for the financial system. The Fifth Circuit is Wall Street's favorite courthouse, no doubt about it. It recently ruled the CFPB's independent funding is unconstitutional. If the Supreme Court upholds the Fifth Circuit's ruling, it will not only devastate the CFPB, it will threaten the independent funding of many other federal agencies, including the Federal Reserve. I look forward today to hearing how the Fed will balance its dual mandate and continue to promote an economy where everyone who wants a good job can find one, an economy that works for everyone.

Senator Scott? Senator Scott? Sorry, sorry. Good morning, Chair Powell. Sitting here looking at my prepared remarks, thinking about, hey, there's an opening coming where Vice Chair Brainard is moving on. I think it's really important for us to make sure that all the information that we need in order to make a good decision on the next nominee, that we have it in a timely fashion. So I would really implore the chair to make sure that happens, that every question, every questionnaire that is asked from the person, we get every member of this committee has their questions answered in a timely fashion, and that the staff has their answers in timely fashion. Listening to Chairman Brown, I thought to myself: fascinating. Truly fascinating. I concluded that, well, I know Chairman Brown pretty well, I am sure he is sincere in his rant. But let me just say this: spending and printing trillions of dollars, caving to the radical left in this country, seeing policies posited and then implemented that led to the worst inflation in 40 years, seeing our inflation at 9.1 percent, seeing American families struggle because of the weight of the government on their shoulders, seeing the devastation from South Carolina to Ohio is unbelievable. That's progressives in this country who caused a 9.1 percent inflation, unwilling to look somewhere besides in the mirror to see the absolute devastation caused by their out-of-control spending. Remarkable. Remarkable. To stop the out-of-control inflation caused by the out-of-control spending, the Fed steps in to cool the economy. Well, the definition of cooling the economy is necessary because we've seen the most radical approach to a problem that was in our rearview mirror being used as a Trojan horse to bring in a level of socialism and spending that our nation has not seen in my lifetime. The facts are very simple: when you get to 9.1 percent inflation in this nation, as a kid who grew up in a single-parent household mired in poverty, a 40 percent today, a 100 percent just a year ago increase in gas prices devastates single mothers around this country, for seniors on fixed income whose savings are being depleted with an average cost just last month of a $433 increase because of inflation. For my friends on the other side of the aisle to look any place besides a mirror, I find stunning. The truth is that when your food prices go up over 20 percent, when your electricity is up over 20 percent, you have to ask yourself: where in the world are they? Cannot be in this universe. It must be an alternate universe where in fact it's okay for us to see prices go through the roof and our economy not stumble but fall into a ditch. Why are we in the ditch? Because progressives used the pandemic as a way to usher in a form of spending that takes the money out of the pockets of everyday Americans and puts it in the coffers of the government. There is a better way. The better way is to trust the American people. And when you do so, we don't have to have the Fed come in and raise interest rates so high to quell the challenges in our economy, so that today versus 18 months ago, the price of the same house for your mortgage payment is twice as high. Why? Because of the runaway spending of our friends on the other side of the aisle. I'm sure I do not have time for my opening comments, but I will say without any questions: as I look around the country and I ask myself how devastating is it that today it costs $433 more dollars than it did a year ago, the answer is it is a crisis. When the average family in our country just a couple years ago didn't have $400 in their savings for an emergency, to have prices go up by this amount, it's devastating. To have a conversation about rents around the country, looking at the inflationary effect and the absolute devastation of a snarling supply chain that we haven't seen in my lifetime, run by my friends in the progressives—unbelievable. But to get to you, Chairman Powell: one of the comments that you've made that I think is really important, and one of the speeches you gave in January—and I apologize for my rant, I just wanted to make sure my rant was consistent with my friend here—it is essential, you said, that we stick to our statutory goals and authorities and that we resist the temptation to broaden our scope to address other important social issues of the day. Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence. You further noted that, and I quote, 'Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not and will not be a climate policymaker.' Do you still stand by those comments?

Finally—I know we're not in the question, I know I get it—finally, yes, I knew the chairman would dock that from my time, and I appreciate you doing so. Well, the great humor, great humor. Finally, several of my Republican colleagues and I sent a letter to you discussing Vice Chair of Supervision Michael Barr's plan to conduct a holistic review of capital standards. I look forward to discussing those capital standards during my Q&A, and I will thank you for our recent conversation that helped illuminate some of the necessary challenges that we face as a nation and your answers to it. Thank you.

Speaking of illuminating, thank you, Senator Scott. All right, thank you for allowing me to use it today. We'll hear from Chair of the Federal Reserve Jerome Powell on monetary policy and the state of our economy. And I don't expect Chair Powell to weigh in on the mini debate we just had, but I think we all know that the debt increase was much larger under President Trump and a Republican Senate than it has been since. Chair Powell, thank you for your service and your testimony today.

Thank you, Mr. Chair. There are 23 of us on this committee; almost everyone will be here today. I ask each of us to stay as close to the five-minute mark as we can because we have votes at 11:30. So thank you all for your cooperation. Chair Powell, thank you. Job growth is strong, unemployment remains historically low—you might not know that from the opening statements. Many drivers of inflation—corporate greed, rising inequality, supply chain disruptions, Russia's bestiality, if you will, in Ukraine—won't get better because of interest rate increases. Every indication is that this post-pandemic economy is different. Should we be worried, Mr. Chair, that the Fed is treating this economic period as it has in the past instead of reacting differently?

Okay, understanding you have limited tools to address inflation. In our conversations in the past, I've shown my concern about continued rate increases that may not actually address the root cause of inflation and hurt workers. And I, like many of us, contend we can't follow the same old playbook. Next question: last year, three banking regulators issued proposed updates on the Community Reinvestment Act to account for changes in our banking system. My question is, does the Fed remain committed to work with FDIC and OCC to finalize the CRA rule, and when will that rule likely be finalized?

Thank you. Banks weathered the shock of the COVID-19 shutdowns mostly because of the fiscal response provided by Congress. We now see a spike in loan delinquencies, an increase in overall risk. Banks are again plowing billions into stock buybacks, which makes me concerned that if there's a downturn in the economy, banks could end up with too little capital. That's why I'm worried about any potential rollbacks of safeguards or regulations. Can you assure me that the Fed will keep capital requirements strong and exercise more long-term, forward-thinking than corporate CEOs that seem to be focused on the short term?

I didn't expect you to comment on or give me an opinion about you looking more forward than companies that look at the short-term benefits of stock buybacks. Mr. Chair, when you last testified, I asked you about the risk posed by crypto assets and stablecoins, the Fed and other regulated possibilities. How is the Fed evaluating the risks of crypto-related activities by your supervised institutions?

Thank you. And I will close with this: I've long pushed for the Fed to prioritize workers and for the leaders of the Fed to reflect the diversity of our country. We've made progress, but our work is not done. We have a new opening—understand it's not your job to appoint the new Fed member—we have it, and we have a number of upcoming vacancies at the reserve banks. I support Senator Reed from Rhode Island, Senator Menendez from New Jersey, and other colleagues who are pushing for more diverse voices at the Fed.

Senator Scott? Thank you, Chairman. Obviously, the chairman and I both have strong passions about the challenges that we face as a country. The one thing that I do believe that we agree on is the importance of having strong capital markets as it relates to making sure that Americans have the ability to continue to grow their businesses and to solve their challenges. And frankly, I hope that we get there. Building on the same comment that Chairman Brown had, capital standards is where I'm going to go with my thoughts today. But I think back on these last few years: it's hard not to recognize the extraordinary efforts our financial institutions of all sizes frankly undertook to administer a program like the PPP, all while weathering the shutdown of our global economy. I welcome your thoughts, but from my viewpoint, our banking system was resilient. Our financial institutions stepped up and delivered aid to support families and businesses every single day. That's why Vice Chair Barr's broad comments around holistic review of our capital concern me so much. We should be laser-focused on our economy and addressing the needs of everyday Americans trying to afford a new future and helping them open the door to opportunity. As you and I both know, capital and its quality must be continually scrutinized, but increased capital does not necessarily provide an increased benefit. And requiring banks to hold capital that is not risk-based and appropriately tailored to a bank's size, scope, and activities can cause more harm than good. At a time of record inflation where everyday needs are more expensive, we should not be pursuing actions that are harmful. Rather, we should be supporting the engine of our economy: small businesses. While I remain greatly concerned by the Vice Chair's comments, I am hopeful that you will ensure this review is appropriate, keeping the impacts on our banking system front and center. We must promote and further the growth of our economy and thereby our people. Anything less should be unacceptable. To that end, will you commit that any ongoing capital review by the Federal Reserve will follow the law and that any follow-on regulatory proposals will be risk-based and tailored to an institution's activity, size, and complexity, and not a one-size-fits-all?

Thank you very much. Two weeks ago, I sent a letter with Chairman McHenry to Chair Gensler regarding the SEC's climate disclosure rule, urging him to rescind his proposal and reminding him that the SEC is a market regulator, not a climate forecaster. Much like Congress designed the SEC to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation—and not to advance progressive climate change policies—Congress designed the Federal Reserve to promote price stability and maximum employment, not to play politics. To that end, I find worrying the Fed's announcement of recent actions to consider climate-related scenarios, coupled with remarks by the Vice Chair of Supervision, as attempts to incorporate broader ESG policies into the financial services system. Banks have and continue to account for weather-related risks in their risk management, but efforts that attempt to predict climate change far into the future fall outside the scope of their authority. Importantly, the level of speculation required in these models should highlight their arbitrary and capricious nature. At a time when our economy is suffering from historically high inflation, I expect our central bank to focus its time and resources on bringing inflation down, not on policy outside of its mandate. I noted in my opening statement a recent speech that you've given about the state of the Fed and how you should resist the temptation to broaden its scope to address social issues. Do you agree that the Federal Reserve does not have the authority or statutory direction to use its monetary policy or supervisory tools to wade into ESG or other climate policies?

Mr. Chairman, I have 20 seconds left. I'm going to defer because my earlier questions of opening statement. Thank you, Senator Scott.

Senator Menendez is close but not here yet, so Senator Rounds? But nice try, whatever. Thank you, Mr. Chairman. Mr. Chairman, first of all, welcome. It's always good to have you in front of our committee. As you know, both core and headline inflation have remained persistently elevated, and over the past 12 months, real average hourly earnings fell by 1.8 percent, about 4 percent since President Biden took office. To make ends meet as prices increase, more Americans are leaning on credit cards. At the end of 2022, credit card debt hit a record of $930.6 billion, an 18.5 percent spike from a year earlier, and the average credit card balance rose to $5,805. Over the past year, the Fed has acted aggressively to tame inflation, and yet we are still seeing price increases. And as we've discussed this several times—I recognize that it's been an ongoing discussion—but I believe that this further proves that we have long been feeling the effects of a policy-induced inflation resulting from decisions by the administration, primarily cutting off the resources necessary to improve and increase domestic energy production. I continue to be concerned that if you attempt to use the tools that are available at this time for the Fed, then I believe that we're going to have a challenge of not being able to address specifically the challenges brought out when you have a policy that is promoting higher prices with regard to energy, as opposed to what you're trying to do, which is to bring down the total overall cost. And I just wanted to ask—and you're going to think this is something that we've heard before—but do you believe that you currently have the monetary policy tools to actually reduce inflation? And I just put it in this perspective: in January of 2021, the CPI was 1.4 percent when the Biden administration began. In January of 2022, and this is before the Russian invasion of Ukraine, CPI was at 7.5 percent. Today, March of 2022, CPI is 8.5 percent. Wouldn't it be fair to assess that a lot of the inflation that we've seen here may very well be due to policy decisions by this administration?

In other words, you've got a limited number of tools available to you, and the limited number of tools that you have are designed to impact simply the reduction in prices and so forth. And yet, if there are competing interests out there that are pushing prices higher, you don't have the wherewithal to decide one tool versus another based on whether it's policy-induced or whether it's a matter of a shortage in supplies from outside or whether it's war-related.

So if there were policies in place that actually help to reduce inflation—in other words, and by that I'm just going to look at energy alone as a good example—if policies were in place that were actually allowing energy prices to come down in the United States, then you would have less of a need to use the very blunt tools that you do right now with regard to increasing rate increases. Is that a fair statement, sir?

Yes, but I will say on energy, energy has tended over time to fluctuate up and down and is not mainly affected by our tools. So the things we look at are really things that are tightly linked to demand in the U.S. economy; those we can affect. And I think just the fact that you've been increasing interest rates and yet inflation continues to ride up would suggest, just as you've just indicated, that when you have high energy prices, it's tough to impact that part of it with the monetary policy that you've got available to you.

Thank you. One last question: last June, Vice Chair of Supervision Michael Barr testified before this committee that he would defend the use of the aggregation method as an alternative approach to the insurance capital standards, the ICS proposed by the IAIS, as the final compatibility criteria set to come out later this year. Can you confirm that you share Vice Chair Barr's views on this?

Okay, thank you. Thank you, Mr. Chairman.

Senator Menendez of New Jersey is recognized. Thank you, Mr. Chairman. Mr. Chairman, I want to take this moment to remind my colleagues that there are more than 62 million Latinos that call the United States home. We are the largest minority group in the country; we account for nearly 20 percent of the United States population; we contribute almost $3 trillion in GDP. Yet Latinos have no representation in the Federal Reserve's leadership. In the 109-year history of the Federal Reserve, there has never—never—been a single member of the Board of Governors or regional bank president who has the lived experience of being Latino in the United States. And in practice, that means that the voices of nearly one-fifth of our country's people are repeatedly drowned out when the Fed is making critical decisions on economic policy—decisions that affect whether a Latino family can afford their first home, find a job that pays a living wage, send their children to college, save for a comfortable retirement, or get a loan to expand their business. Right now, the Biden administration has a clear opportunity to make history with its next nomination to the Board of Governors. It has identified a number of highly qualified Latino candidates who have dedicated their careers to the fields of economics, who are committed to the Fed's dual mandate, who will preserve the independence of the central bank. The administration has rightly nominated and advocated for a number of diverse candidates with similar qualifications both at the Fed and elsewhere, but despite having five opportunities over the past two years to nominate a qualified Latino economist to serve at the Federal Reserve, this administration has repeatedly chosen not to. Representation, or lack thereof, does not happen by accident. It is a choice. And I hope the administration makes the right choice with this nomination. Mr. Chairman, would you say that it is an axiom that the United States dollar is the reserve currency of choice in the world?

Is it not?

Now, 12 years ago, a Republican House brought us to the brink of defaulting on the debt for the first time in the history of this country, jeopardizing our credit and the world economy. I'm getting a sense of déjà vu because once again, Republicans are recklessly demanding draconian spending cuts to programs that hard-working U.S. families rely on in exchange for allowing the Treasury Department to pay for spending that Congress, including most of them, have already voted to authorize. You want to talk about spending cuts? It seems to me that the budget is the time to do that, but not to put the full faith and credit of the United States at risk. Chairman Powell, can you talk about the catastrophic damage a debt default would inflict on the economy?

Well, I think that's a mild statement of what would happen. I understand I didn't ask you to engage in the congressional-executive branch roles; I asked you about the abstract question of what happens if you have a debt default. Isn't even this constant fight putting into question the possibility that the United States will not honor its full faith and credit have consequences within the economy?

Now, seeing your testimony before the committee, is it fair to say that you'll do whatever is necessary to tame inflation?

And primarily that means additional rate increases, would it not? What other tool do you have?

So the question is, when does that part of doing anything necessary to tame inflation come into conflict with your other mandate of maximum employment?

Thank you, Senator Menendez.

Senator Kennedy of Louisiana is recognized. Thank you, Mr. Chairman. Chairman Powell, thank you for being here. Thank you to you and your team for helping to save the economy during the pandemic meltdown. For what it's worth, I'm generally supportive of the actions of the Fed right now, and I'm not going to ask you today to blame anybody. When Congress spends money, it stimulates the economy, does it not?

Well, and when Congress borrows money to spend even more, that stimulates the economy even more, does it not?

Okay. If Congress reduced the rate of growth in its spending and reduced the rate of growth in its debt accumulation, it would make your job easier in reducing inflation, would it not?

All right, let's try to unpack this then. I'm not trying to trick you. You're raising interest rates to slow the economy, are you not?

And one of the ways you measure your success, other than fluctuation in gross domestic product, is the unemployment rate, is it not?

Okay. So in effect—I'm not being critical—when you're slowing the economy, you're trying to put people out of work. That's your job, is it not?

No, you're trying to raise the unemployment rate. I know you don't like the phrase, so let me strike it. You're trying to raise the unemployment rate, are you not?

Channels like, for example, just job openings. Let me put it another way. Okay. The Economist did a wonderful study. They looked at 10 disinflationary periods in America going all the way back to the 1950s. Disinflation is what you're trying to do, it's a slowing in the rate of inflation. Am I right?

In other words, prices don't go down, they just don't go up as fast. Deflation is when prices actually go down. You're trying to achieve disinflation, are you not?

Based on history, in the ten times that we got inflation down, disinflation since the 1950s, in order to reduce inflation by two percent, unemployment had to go up 3.6 percent. Now that's history, is it not?

Now right now, the current inflation rate is 6.4 percent and the current unemployment rate is 3.4 percent. Now if history is right, unless you get some help, in order to get inflation down from 6.4 percent to let's say 4.4 percent, the unemployment rate is going to have to rise to seven percent based on history. That's what the record would say. Okay. And to get inflation down to two percent, unemployment would have to go to 10.6 percent. Would it not?

Yeah, I don't think that kind of a number is at all... I know you're reluctant to admit it and you don't want to get in the middle of a policy dispute, but I think it's undeniable. It's undeniable that the only way we're going to get this sticky inflation down is to attack it on the monetary side, which you're doing, and on the fiscal side, which means Congress has got to reduce the rate of growth of spending and reduce the rate of growth of debt accumulation. Now I get that you don't want to get in the middle of that fight, but the more we help on the fiscal side, the fewer people you're going to have to put out of work. Isn't that a fact? Please answer.

Thank you, sir. Thank you, sir.

Senator Reed of Rhode Island is recognized.

Thank you very much, Mr. Chairman. Thank you, Chairman Powell, for being here today. We saw in the wake of COVID, the globalized supply chain was disrupted significantly, and we're in the process in some respects of rebuilding a supply chain with emphasis on sourcing in the United States. To what extent did that disruptive supply chain contribute to inflation, and to what extent will the new supply chain that is located in the United States and other friendly countries affect inflation?

And is there anything you can do that would target that service area without affecting the other areas?

But it is certainly something that you've had people examine for possible ramifications?

Thank you very much, Mr. Chairman.

Thank you, Senator Reed. Senator Britt of Alabama is recognized.

Thank you, Mr. Chairman. Chairman Powell, it's great to have you here today. Over the past two years, we've seen the highest inflation of my lifetime, driving up costs for American families across the board. According to the U.S. Department of Labor, the annual inflation rate in 2021 was 7 percent, and in 2022 it was 6.5 percent. According to the U.S. Department of Agriculture, the cost of food went up 10 percent in 2022. The real effect of that is moms and dads across this nation working to put food on the table for their kids had a harder time doing that. This has devastated hard-working Americans, causing a kitchen table crisis in every corner of our country as the price of food, energy, and housing have all skyrocketed. In response, the Federal Reserve has raised the federal funds rate more than four percentage points. Far from being transient, inflation has remained persistently high and well above the Fed's long-run goal of remaining under two percent. In the coming year, what factors and indicators are you paying attention to as you and the Federal Open Market Committee decide on whether to increase rates?

If there were an increase of energy production in this country, do you feel like that would help drive down inflation?

Understood. But I feel like the cost of energy is not just what you pay at the pump, but it ends up affecting every good across this great nation. Additionally, I'd like to ask you about labor participation. When you look at the unemployment rate, and we've heard my colleagues discuss people having to be displaced in order for us to maybe get to the inflation rate that we would like as a nation, I'd like to focus on the labor participation rate. Right now it's 62.4 percent. If there were an increase in people coming back into the workforce, would that be a positive factor with regards to driving us down to the two percent rate that you want to achieve?

Amen. I believe that. Last week, I joined many of my colleagues in sending you a letter that expressed concerns that if the Federal Reserve decides to conduct a holistic review of capital standards, as we heard Senator Scott talk about earlier, is the Federal Reserve concerned that the impact to the economy of increasing capital requirements on financial institutions at a time when inflation remains persistently high would cause an issue?

I know I'm out of respect for the chairman and trying to stay in my time, I will just end by saying I heard what you said. Obviously, as you have said, the Federal Reserve is not and will not be a climate policymaker. I just want to thank you for your public statement on that. I agree with you that there's a difference between policymakers and financial regulators, and certainly look forward to working with you in the future.

Thanks, Senator. Senator Warner from Virginia is recognized.

Thank you, Mr. Chairman. Chairman Powell, it's good to see you again. Let me start by saying, depending on who's asking questions, they're either pounding you for how quickly we're going to drive that inflation back to two percent, or pounding you on making sure that we don't push the economy into a recession and drive up unemployment. I got to tell you, these are maybe not the cheap seats, but I actually think you've done a pretty good job in terms of both ratcheting up rates and then starting to tail off a little bit. I think we all were concerned by the January numbers that popped up a little bit more. I wish we were having this hearing two weeks from now because we're going to have a lot more data later this week and next week. But net net, we've still got ways to go, and the January numbers were concerning, but I do think your tailored approach, we can all second guess, but I think it has been the right approach. I'm going to commend you on that. I want to get into two questions. One of the areas that I am very worried about is commercial debt. We've got a Bloomberg story showing we're going to hit a six trillion dollar wall this year on refinancing. Where I'm particularly concerned is the issue around commercial real estate. As we recover from COVID, a lot of things are getting back to normal. Clearly, the transformation of where people work is going through a fundamental transition. I hope people do return more to the office, but lots of folks prefer working elsewhere. That's going to fundamentally change the real estate market on the commercial side, and I do believe we're going to hit potentially a cliff of a totally unexpected problem in terms of commercial real estate. How are you looking at that issue, recognizing there's lots of bumps coming out of COVID, this one seems to be more unique in nature?

That will morph me into my last question. Something we've talked about, a lot of my colleagues have talked about, with the large institutions. I do think even some of the biggest critics of Dodd-Frank would acknowledge our banking system is a heck of a lot stronger and was able to withstand COVID in a very healthy way. But what we've also seen evolve is a vast amount of financial institutions move beyond the regulatory perimeter. The fact that we now have way over half of mortgage origination coming from non-financing institutions, because a lot of the large entities, hedge funds, other funds that may be doing some of this commercial debt or some of the CRE debt. I'd like you to talk generally, in the last 40 seconds or so, about how you think about this regulatory perimeter. I'm a big believer, and I know some of my colleagues are, that we ought to look less at charter and look at same risk, same regulation, maybe as a guiding principle. Senator Warren has been working on some work, I've been working on some work around crypto around that area. But there's a vast amount of activity taking place outside the regulatory perimeter. How should we be thinking about that, and how do we make sure that doesn't create the kind of crisis that snuck up in 2008 on the non-regulated side of the house?

Thank you.

Senator Vance? I'm sorry, Senator Hagerty of Tennessee.

Thank you, Chairman Brown, and thank you, Ranking Member Scott, for holding this hearing. Chairman, it's great to see you again. I appreciate your presence and the opportunity to talk with you about an item that I'm particularly concerned about, and that's the holistic review that Senator Britt just brought up, that Vice Chair Barr is undertaking right now. It's generating a sense that higher capital requirements are on the horizon for us. As I think about that in the context of what we've weathered, you think about the situation in 2020. It was an acute, real-life stress test, if you will, and I think that our financial system navigated that admirably. In the past year, you've told this committee that our financial system has proven resilient through 2020, and that the capital levels at that point in time, and I would note that those capital levels are at multi-decade highs, are in aggregate adequate. I just wanted to follow up on those prior statements and see if you still feel that way.

As the review is underway, and I appreciate that context, one aspect of it seems to us as an apparent willingness to undo the tailoring requirements that were enacted as part of S2155. I understand that nothing has been finalized regarding the regulations, but it's a concerning prospect if that's the case. The Fed's General Counsel just yesterday alluded to undoing 2155 by pushing down the Basel requirements on banks that were intentionally given relief in that bill. So I want to be perfectly clear that the banking regulators themselves can't just simply ignore or selectively enforce the laws. Again, I realize that the details of the study haven't been finalized or made public, but if the proposal put forth by Vice Chair Barr is either unduly aggressive or appears to contradict the spirit of S2155, will you vote for it?

Given the legislative intent here and the concerns that we maintain, in the face of what General Counsel said just yesterday, I appreciate your perspective in terms of keeping that in place. I'd like to come with my next question. I'll start the question by underscoring the importance of the independence of the Fed's monetary policy. Right now, the economic picture is about as uncertain as I can remember. We've had large companies in the private sector who are in the midst of planning layoffs and forecasting serious economic weakness in the quarters to come. Yet on the other hand, the current economic data seems to be robust. Inflation showed some signs of softening in the past several releases. So I just hope, Chair Powell, that you could briefly tell us how you synthesize these seemingly contradictory data.

In that context of thinking about where the tightening goes and when it might let up, where do you see the terminal fed funds rate landing in this cycle?

Got it. Thank you, Mr. Chairman.

Thank you.

Thank you, Mr. Chairman. The Fed has raised interest rates eight times over the last year in what has been the most extreme rate hike cycle in 40 years. The Fed's goal is to slow inflation, and your tool, raising interest rates, is designed to slow the economy and throw people out of work. So far, you haven't tipped the economy into recession, but you haven't brought inflation entirely under control either. Maybe the reason for that is that other things are also keeping prices high, things you can't fix with high interest rates, things like price gouging and supply chain kinks and a war in Ukraine. But you are determined to continue to raise interest rates. So I want to take a look at where you're headed. In December, the Fed released its projections on the state of the economy under your monetary policy plan. According to the Fed's own report, if you continue raising interest rates as you plan, unemployment will be 4.6 percent by the end of the year, more than a full point higher than it is today. Chair Powell, if you hit your projections, do you know how many people who are currently working, going about their lives, will lose their jobs?

It is a direct consequence. People who would lose their jobs, people who are working right now, making their mortgages. Chair Powell, if you could speak directly to the 2 million hard-working people who have decent jobs today who you're planning to get fired over the next year, what would you say to them? How would you explain your view that they need to lose their jobs?

Let me ask you about what happens if you do this. Since the end of World War II, there have been 12 times in which the unemployment rate has increased by one percentage point within one year, exactly what you're aiming to do right now. How many of those times did the U.S. economy avoid falling into a recession?

I've written a book on this. There have been 12 times that we've seen a one-point increase in the unemployment rate in a year, exactly what your Fed report has put out as the projection and the plan based on how you're going to keep raising these interest rates. How many times did the economy fail to fall into a recession after doing that? Out of 12 times, I think the number is zero. I think the number is zero. That's exactly right. So then the question becomes, we've got 2 million people out of work. Can you stop it at 2 million people? History suggests that the Fed has a terrible track record of containing modest increases in the unemployment rate. Once the economy starts shedding jobs, it's kind of like a runaway train. It is really hard to stop. In fact, in 11 out of the 12 times that the unemployment rate increased by a full percentage point within one year, unemployment went on to rise another full percentage point on top of that. If that's what happens this time, we'd be looking at at least 3.5 million people who would lose their jobs. So Chair Powell, if you reach your goal and 2 million people get laid off by the end of this year, and then just like in 11 out of 12 times that unemployment has risen by a point in a single year it keeps on rising, and then we've got 2.5 million people out of work, we've got 3 million people who get laid off, we've got 3.5 million people who get laid off, what's your plan?

I'm looking at your own report. Explain that to the 2 million families who are going to be out of work.

In other words, you don't have a plan to stop a runaway train if it occurs. Chair Powell, you are gambling with people's lives. There's a pile of data showing that price gouging and supply chain kinks and the war in Ukraine are driving up prices. You cling to the idea that there's only one solution: lay off millions of workers. We need a Fed that will fight for families, and if you're not going to lead that charge, we need someone at the Fed who will.

Senator Vance of Ohio.

Thank you, Mr. Chairman. Chairman Powell, thanks so much for being here. I have a question that's slightly far afield, but how often do you get to talk to the Federal Reserve chairman? So I might as well ask it. To give some context, my family comes from Appalachia, particularly my grandparents grew up in Southeastern Kentucky coal country and then moved to Southern Ohio, where I now have the honor of representing all of Ohio. One of the things that you hear a lot when you study the regional history of Appalachia is it's often described as possessing a resource curse. There's a lot of coal in central Appalachia that enables a certain amount of consumption, obviously consumption is good, people need food and medicine and other things, but there's also a pretty good argument that for a host of reasons it causes malinvestment in the region, and consequently you have lower productivity growth, lower innovation, an economy that's much less diversified and much less dynamic. I'm wondering, when I hear about the history of Appalachia and the resource curse, I'm struck by the idea that you could make a similar argument about the reserve currency status of the United States dollar. Americans have enjoyed one of the greatest privileges of the international economy for the last nearly eight decades: a strong dollar that acts as the world's reserve currency. This has obviously been great for American purchasing power, we enjoy cheaper imports, Americans when they travel abroad benefit from lower costs. But it does come at a cost to American producers. I think in some ways you can argue that the reserve currency status is a massive subsidy to American consumers but a massive tax on American producers. Now I know the strong dollar is sort of a sacred cow of the Washington consensus, but when I survey the American economy and I see our mass consumption of mostly useless imports on the one hand and our hollowed out industrial base on the other hand, I wonder if the reserve currency status also has some downsides and not just some upsides. Let me just put a final point on this. We are of course now the main supporter of a massive land war in Europe between the Russians and the Ukrainians. I read recently that the United States is trying to ramp up production from 14,000 artillery shells to 20,000 artillery shells per month, while the Russians are firing 20,000 artillery shells in Ukraine per day. When I look at the American economy, we have a lot of financial engineers and a lot of diversity consultants, we don't have a lot of people making things. I worry that the reserve currency status and the lack of control we have of our currency is perhaps driving that. I'd love to get your feedback on that. What are the upsides and downsides of the reserve currency?

Two minutes, Chairman Powell, so plenty of time.

Do you think it gives us less control over our own currency, the fact that it's become the world's reserve currency?

Do you think it makes it harder for us to affect or fight back against currency manipulation, to control the export and import flows in a way that stabilizes our own manufacturing sector?

Thank you, Chairman Powell.

Thanks. Senator Van Hollen of Maryland is recognized.

Thank you, Mr. Chairman. Chairman Powell, thank you for being here and for your service. I know the Fed is experiencing lots of challenges these days. I've got a couple questions that are just basic yes or no's, and then some longer questions. Would you agree that changes in the size of corporate profits can be one of the factors that affects the inflation rate?

Right now, recently we saw that the Employment Cost Index, which measures the growth of wages and benefit costs, grew at roughly four percent on an annualized basis in the fourth quarter of 2022. Is that right?

So if corporate profits were to decline from the extremely high levels that we saw recently, would it be possible to sustain the four percent growth rate in the Employment Cost Index for an extended period of time, even as we get inflation down to the target of two percent?

So you would not, without a very large increase in productivity, which would be great but we don't expect, you wouldn't be able to sustain four percent wage inflation over the longer term. Over the shorter term, though, yes. So over the shorter term, that would not be a justification in and of itself for raising rates, is that right?

But that's more a prediction about your efforts to fight inflation. Are you saying that simply looking at the current four percent growth rate in the short term is an excuse for jacking up interest rates?

The larger point here, based on your response to that first question about growth and profits, is that corporations have a decision as to whether they're going to pocket more for profit, which they can, or provide higher wages to their employees. If you actually lowered your profit margins, you could sustain a higher wage increase without violating the two percent inflation target. Isn't that right?

But profits are the margin. They're going up beyond what they were before, which means that even with the increase in cost because of supply chains, they're making more profits. They can do that, but my point is that as a contributor to inflation, as you indicated in response to the first question, let me ask you about the tight labor market. One of the issues in the tight labor market is parents with kids, including a lot of moms, who would like to go back into the market but are not able to do so because of lack of affordable child care. The other issue is immigration. I know that you've gotten some recent data on how some immigration figures have softened a little bit, the tightness in the labor market. Can you just talk broadly about those two factors, affordable child care and more legal immigration, and how they could affect labor force participation and therefore also reduce inflation pressures?

Thank you.

Senator Cramer of North Dakota is recognized.

Thank you, Mr. Chairman. Thank you, Chairman Powell, for being here. I can't resist responding to a few things that my friends on the left have said. For example, in his opening statement, Chairman Brown had a long list of things that raising interest rates won't do. Raising interest rates won't fill in the blank. I'm going to fill in the blank with a couple things. How about raising interest rates won't stop Senate Democrats and President Biden from overtaxing, overspending, overborrowing, overregulating? Chairman Brown said we should rebuild our supply chain by curbing offshoring. I agree. He talked a lot about corporate greed contributing to inflation. Okay. But how about regulatory greed contributing to corporate greed? How do you expect corporations to reinvest money if you overregulate their ability to invest that money right here in the United States of America? You want to onshore some things? How about energy policy? How about instead of looking to Venezuela or Iran for oil supply, or Russia, or rather than looking to China for electric vehicles and chips and solar panels, how about we have a strategy that onsures those things by reducing regulation, reducing taxes, and letting those corporations reinvest their profits rather than stock buybacks or dividends? This idea that somehow the Federal Reserve is supposed to keep inflation in check while half of the government works against it is mind-boggling. Now, I know, Mr. Chairman, you don't like to comment on policy. You and I went round and round about this. You were anxious to advise us to spend lots of money during the pandemic. I don't think a lot of people blame you for that. You wouldn't respond to efforts by the Biden administration after we're in a robust recovery to not spend so much money. Okay, I can appreciate the change. But now we're in this debate between Republicans and Democrats, between particularly the House Speaker and the President, on how to raise the debt ceiling, and you've made some pretty strong comments about raising the debt ceiling absent structural reforms that would actually help us get back to a reasonable growth. So I just warn you again, if you're going to make political comments, if you're going to advise us on policy, be consistent with it. Now I want to get back to the greening of the Federal Reserve. I call them stress tests, you can call them whatever. But I'm concerned that now the Federal Reserve is starting down this path, maybe slightly at first, about climate stress testing. I just want to ask you this: if we're going to go down that path, if the Federal Reserve is now going to become part of the federal climate police force, are we going to consider the ramifications of having entire communities and economies, factories and manufacturers, energy entities, large server farms, leaving them susceptible to a very unreliable, very expensive energy source? Is that part of the stress test?

Well, yeah, I would like you to, because if we're going to start doing stress tests for the six largest financial institutions related to climate, which really is more weather than climate, then are we going to consider the effects of an unreliable energy source at several locations throughout our country?

I completely agree, and I hope you stick to that. I think you can ask the banks to consider what vulnerabilities that might expose. With regard to what Senator Warren was saying in her monologue, one thing about ideologues is they have the luxury of binary choices. You have a really big job, and you have a single, in my mind one and a half maybe two, missions. I think the first one handles the second one okay, but it's got to be tough when the White House is working against you. You don't have to comment. Thank you.

Thank you, Mr. Chairman.

Senator Tester of Montana is recognized. Chair Powell, thank you for being here today, and thank you for serving in this critical role at this critical time. I have talked many times in this committee, and I especially right now cannot overstate the importance of...

Senator Tester, your time has expired.

From a climate standpoint, I would just tell you it's entirely artificial right now anyway, because if you look at the hundreds of billions of dollars this country puts out every year in disasters due to climate instability, we ought to be asking our question: is that sustainable? Because quite frankly, it has to be done, and I don't think it's sustainable. So we've got to start looking for some solutions on the climate side sooner rather than later. The Fed has a tough job, and I really appreciate how you've done it, working together, making hard decisions for the good of the economy. We have to get this right. So the question is: how much has inflation decreased since its peak?

And as unemployment has gone down as inflation has gone down, unemployment has gone down?

So the question becomes... I always think back to 1998. I bought some property, and the interest on that property was 10% in 1998, and I thought I got a hell of a deal, by the way. I thought it was just great. But the truth is, interest rates have been artificially low for the last 20 years probably. And the question becomes, as you look at the economy and as you try to make the determination whether the inflation is caused by demand or supply, where does all that fall into your decision making moving forward?

When you're looking at interest rates, I know we talk about energy prices here and the price of gasoline. And if you go over to Europe, it's much higher. Are we comparable? I'm just curious. How do we compare what their interest rates are with say, Europe?

If we do not get the inflation under control, and like I said, I think the steps you've taken have been reasonable and measured, if we don't get it under control, what are the impacts of that?

Thank you for your work. Thank you for your independence.

Senator Tester, and I'll be handed off to Senator Cortez Masto when I'm finished up as well.

Mr. Chairman, good to have you here today. When I am back in Montana, the number one issue I hear across the state is the high cost of gas, the high cost of groceries, and overall how their paychecks are shrinking because of inflation. It's a crushing blow. It has real life impacts. It's a top-of-mind issue for Montanans. It's also important to note the devastating impact it's going to have on our nation's economic future. In fact, in October of last year, I sent a letter to Congressional Budget Office Director Swagel regarding the impact that high inflation and the elevated interest rates would have on the cost of servicing the federal debt. His response painted a less than rosy picture. But then we got CBO's updated 10-year baseline forecast in February, and it confirmed the truly dire situation that we find ourselves in, driven by interest payments on the debt. The CBO now projects the cumulative deficits during the 10-year window will exceed $20 trillion. The cumulative deficits, not talking the debt, because it's going to grow the total federal debt to more than $51 trillion by 2033. Now, 2033 used to sound like a long ways away, 10 years away. 10 years goes by very, very quickly. Within five years, we're going to spend more on annual interest on the national debt than we spend on national defense. You think about that for a moment. And these are coming out of the CBO, these absolutely shocking but quite frankly predictable projections. Go back to a debate we vigorously had here in the banking community. Remember when Lawrence Summers, of course the former Secretary of Treasury under President Clinton, economic advisor to President Obama, he warned us. He said, and he's practically warning my colleagues across the aisle, you can't move forth these purely partisan, at that time $1.9 trillion spending extravaganza. We had a trillion dollars of unspent covered money in December of 2020. And that passed on a purely partisan vote. We said it's going to start to ignite the inflation fires. So I certainly hope the president's budget, which we expect to see later this week, will propose pro-growth policies that can get us out of this mess. And I would argue, almost an existential crisis as we look at what's going to come at us here over the next 10 years with debt and service on that debt. Unfortunately, as the president said in the State of the Union Address, the president said he's going to raise taxes. That's a recipe for disaster. It's going to crush productivity, good investment, stifle economic growth even further. I want to turn to my questions now. Chairman Powell, you're raising interest rates to combat the inflation we've seen in the economy over the past few years. Is that correct?

And although this is the domain of Treasury, a higher fed funds rate will mean higher borrowing costs. Is that correct?

So I just want to connect the dots. Inflation was sparked, one of the big reasons was massive spending here in Washington. And now we're going to be burying the challenges with higher debt service over the course of the next several years, where we can see debt service exceeding defense spending, which we see the threats of China, threats around the world. I think it's very, very concerning. Now, as a grandfather of four, soon to be five grandchildren, it's things you think about more and more as you look forward. I want to change here and talk about American energy. When the war in Ukraine broke out, many feared that Russia would cut off natural gas exports and cause energy inflation to spike. Prices didn't spike as much as anticipated, due in large part to the fact that American companies stepped up to the plate. As of late last year, the European Union now receives more liquefied natural gas from United States producers than it does from Russian producers. That's a good thing for the world to see more U.S. produced energy. Chairman Powell, do you believe that European and American inflation would have been manageable if not for American energy producers?

Any sense of how much worse the global energy picture would be if you imagine a world where we're not producing and shipping energy to other countries?

We made some prayers that we need to pray for a warm winter for Europe, and I think they got one, which has been helpful. I'm at a time hearing. Send this back over to Senator Cortez Masto.

Thank you, Chairman Powell. It's great to see you. Thank you so much. I know it's been a long morning. Always appreciate you coming to talk with us here on the committee. I want to first align myself with the remarks from Chairman Menendez supporting a Latino nominee to the open seat on the Federal Reserve. It's been more than 100 years and a Latino has never served on the Federal Reserve Board, and I know there are many strong Latino economists and economic experts who would capably serve. So I want to put that out there. Chairman Powell, I also sit on Senate Finance right across the way. We are talking about affordable housing. I think for purposes of so many of us across the country, including in Nevada, when we talk about affordable housing, it's also about workforce housing. It's about making sure families that are working so hard have an opportunity to keep a roof over their head. Right now in Nevada, if you're making minimum wage, you have to work 75 hours a week just to be able to afford housing. So I want to talk to you about this. I was distressed to see in the report that activity in the housing sector has contracted as a result of the elevated mortgage rates, and you've been talking about that. I often hear from Nevadans who say, 'I don't know if I'm ever going to own a home,' and many feel resigned to being stuck in a cycle of renting. So Chairman, how do the Federal Reserve economists and leaders think about the balance between keeping interest rates low to spur that affordable home building and home buying while addressing inflation?

Yes. And so I want to have you have the opportunity to address Senator Warren's conversation with you earlier about the tools that you have and the impact it has on causing potentially more people to be unemployed. And this obviously has an impact on their ability to afford homes as well. Can you address that?

For purposes of the general public, the Nevadans that I know that are struggling, we have one of the highest unemployment rates in the country. Our service sector was hit so hard. We're still at over 5% just in southern Nevada. We have high gas prices, we have grocery prices, we have housing prices that are high. So one of the things that you have commented on, and you just did again, but I know it was in your opening remarks, and it's quoted right here: 'Our overarching focus is using our tools to bring inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored.' For the general public, for those working families of people, why 2%? Why is getting it to 2% so important?

Thank you. I noticed my time is up. Thank you so much.

Senator Lamas.

Thank you very much, Madam Chairman, and welcome, Chairman Powell. When you're setting these rates and making these decisions, seeking that 2% magic number, are you considering the cost of borrowing for the United States, knowing that Congress has over-borrowed and that we have overspent, and that the national debt is now at least 97% of GDP, and that we're going to face challenges of our own making? This is not about what the Fed has done; this is about what Congress has done that you have to factor into your decisions. Do you think about the costs of borrowing for the United States itself?

It's your opinion that the level of debt we have is sustainable?

Thank you. I'm going to switch to stablecoins. You're a member of the President's Working Group on Financial Markets. The working group called for bank-like regulation of stablecoins in late 2021. Then on January 3rd of this year, in a joint staff statement, the federal banking agencies stated that even after a bank's capital, BSA/AML, and risk management, a bank issuing a stablecoin on an open, public, or decentralized network is highly likely to be inconsistent with safe and sound banking practices. I'm going to say that again: even after a bank's capital, BSA/AML, and risk management, a bank issuing a stablecoin on an open, public, or decentralized network is highly likely to be inconsistent with safe and sound banking practices. So I'm a little confused about where we're heading on stablecoins. Does the January 3rd statement mean that the Fed has decided that stablecoins on a permissionless distributed ledger have no place in banks?

Properly regulated stablecoins, do you think they could have a place in our banking system?

Thank you. The European Union, UK, Australia, Switzerland, Singapore, and others have all moved over the last few years to create a legislative framework for digital assets. The European Union in particular is attempting to be a standard setter again, like it was with its data protection rules. Is the United States in danger of being a rule taker, not a rule maker, when it comes to digital assets?

Thank you. Senator, I agree with you. One area we've already seen is in the Basel Committee on Banking Supervision. They proposed a prudential treatment for crypto assets framework, setting forth banks' capital standards for digital assets. The Basel Committee's framework does not impose a capital charge for digital asset custody, whereas the SEC's Staff Accounting Bulletin 121 imposes a prohibitive capital charge through the back door and places consumers at risk in bankruptcy. Similarly, the Basel Committee framework allows banks to issue or hold digital assets on their balance sheet if the requisite capital is set aside. So back to January 3rd, 2023: the Fed and other bank regulators have said that it is forbidden for a U.S. bank to conduct these activities, no matter the capital. So my question is, what does the rest of the world know about digital asset regulation that we do not, that the Fed does not?

What concerns me is that the Fed and other federal banking agencies are not following international norms on digital asset regulation. That's just my comment. Thank you, Chairman Powell, for being here.

I now recognize Senator Smith.

Well, thank you. Chair Powell, it looks as if Senator Britt and I are the last people standing at this committee hearing. Thank you for passing on the gavel to Senator Lamas. I want to thank you for your service and for our recent conversation. Before I get into my questions, I would just like to note that there's been a good back and forth amongst our committee around some of the big economic challenges and opportunities we face in this country. I would just like to note that the programs and the spending that the ranking member and some of our colleagues have blamed for inflation provided critical relief that kept working families and small businesses afloat during a global pandemic. In fact, many of these policies were passed on a bipartisan basis and signed into law by both Republican and Democratic presidents. I also just want to add that the laws that the Democrats passed to lower prescription drug costs and health care costs and to lower energy costs for Americans are helping to lower basic costs for families, all of which, by the way, was fully paid for. So I return, Mr. Chair, to what you have said to me privately and to all of us publicly, which is that what we ought to be looking for is striving for bipartisan solutions to find a path forward. In fact, Senator Lamas and I were just talking about this yesterday when it came to housing policy. So I just want to put that out there. When you and I spoke yesterday briefly, we talked about the Community Reinvestment Act. I know that I appreciated the chair raising this point earlier in the hearing. I want to just return to that briefly. I am very glad to see it's been about a year since the Fed, the OCC, and the FDIC issued their proposed rule to modernize implementation of the Community Reinvestment Act. I don't think that the proposal was perfect by any means, but it does make really important improvements to how, through the CRA, financial services organizations can serve and meet the needs of communities that are full of assets but lack the resources to make it happen like wealthy communities can. I think Chair Powell, you indicated that you expect this new CRA rule to be finalized in the coming months. Is that what you indicated?

Can you just tell us, with the departure of Dr. Brainard, who will be spearheading the CRA efforts?

That's great. Thank you. I was glad to see that disaster preparedness and climate resiliency were added to the definition of community development activities that would be eligible for CRA credit. This is important because low- and moderate-income folks and the communities that they live in often face some of the worst impacts of climate change and extreme weather events. This isn't social engineering; this is dealing with the actual costs and challenges that people experience because of climate change. So Chair Powell, can you talk to us a little bit about how you see that change and how it fits with the CRA's overarching objectives?

Thank you, that's fine. I'll look forward to continuing this conversation with you and with Mr. Barr. I appreciate this. I think my view of this is that climate change and the economy are inextricably linked, and the reality is that climate-related action or inaction has a direct financial impact on people and our economy. I was wondering if you would be willing to update us briefly on some of the next steps that the Fed is going to be looking at as you evaluate the resilience of financial institutions with respect to climate risk. There's this pilot project that just started in January of this year, and I'm curious to know how you see next steps there.

Great. Thank you very much, Mr. Chair.

Thanks, Senator Smith. Senator Tillis of North Carolina is recognized.

Thank you, Mr. Chairman. Chair Powell, thank you for being here. In your opening statement, I was here for that. I think you touched on some of the interest rate sensitive components of GDP and non-interest rate sensitive components of GDP. I think you said that we do have a concern in the latter group: inflation expectations, labor market tightening, etc. Can you tell me a little bit about how you're looking at the interest rate sensitive and non-interest rate sensitive readings, and whether the Fed, what sort of Fed actions can take place to avoid a soft landing?

Thank you. I know the chairman in his opening comments mentioned, I believe, I don't want to misquote them, but I believe that we have too little capital in the banking sector. That may be true of a couple of banking institutions, but how do you feel about the current capital that our broader banking sector has, irrespective of where they are and size? What concerns, if any, do you have about the capital that we see out there already?

I'm going to be meeting with the Vice Chair; we'll drill down on that topic. But I do know, I was over in Finance Committee so I wasn't here, but I do know that several members, well first off, we know that Vice Chair Barr is looking at a holistic review of capital requirements. I think that that's a good idea. But I have to ask a question: do you think the Fed considers the bipartisan past Senate Bill 2155, which is currently the law of the land, to be superior to any of the Basel requirements or any holistic review process? In other words, it is the law of the land. How does that weigh into how these reviews go?

What we were trying to accomplish is a part of that. I don't expect you to respond. I know that we're coming to the end of the hearing. Is that a holistic review of a financial services institution is going to reveal the fact that many of these financial institutions are very different based on the activities that they're most involved in, and those sort of holistic reviews may actually result in increasing capital requirements for two banks that look like peers but not for another because the inherent risk associated with their business focus. Does that make sense?

Thank you.

Thanks, Senator. Senator Warnock is recognized from Georgia.

Thank you so very much, Mr. Chairman. Before I begin my questions, I know that this committee will soon consider a new nominee to serve on the Federal Reserve Board of Governors. While it has not historically been the case, it seems to me that the board should reflect the diversity of our nation, that those things are connected, policy and representation are connected. I hope that we will see sitting before this committee a nominee that pushes us closer towards our ideals of E Pluribus Unum, out of many, one. I support Senator Menendez and others who have called for a diverse nominee, specifically the fact that we've never had a Latino person serve on the Federal Reserve Board. I think it's a huge oversight, and I hope we can move quickly in that direction. That said, my state of Georgia is in a housing crisis, like much of the country. The Federal Reserve Bank of Atlanta has designated owning a home in Atlanta as unaffordable to the average home buyer. But this is not just a city problem. Harris County, Georgia, with a population of less than 35,000, sitting on the border of Alabama, is also rated as unaffordable. In the midst of this housing crisis, the Federal Reserve continues to raise interest rates. This makes mortgages a lot more expensive for families, especially young families looking to buy a house. According to the National Association of Realtors, the share of first-time home buyers is at an all-time low, while the average age of a purchaser is at an all-time high. Chair Powell, you have said that there has been an imbalance in the housing market. But if you're a Georgia family, parents in their mid-30s, young children, and all you want is to be able to afford your first home and place and build equity to one day pass that equity onto your kids, how are the Fed's actions helping that family afford a home?

I understand that the tools and the mandate, but my concern is that we could have a cure that's worse than the disease. It doesn't do families any good if we stabilize housing prices while mortgage rates continue to skyrocket. It doesn't matter to me why a house is unaffordable. Maybe the house is unaffordable, maybe the mortgage is unaffordable. Unaffordable is unaffordable. How does the Federal Reserve consider the total price of home ownership, including costs of mortgages, in executing that mandate to keep prices stable?

If we're seeing mortgage rates go up, yes or no, does this discourage folks who may have a low interest mortgage rate from putting their home on the market and then possibly paying double the cost or the mortgage for their new house?

Does raising the federal interest rate change the cost of borrowing for a company hoping to develop new housing?

Does it make it more expensive for suppliers to finance expanding production and meet supply needs?

Does it give businesses less wiggle room to offer higher wages and attract qualified workers?

So all of these actions have to be taken into account. The Federal Reserve does not control housing supply, but its actions do have a massive effect on housing supply. Some of these supply effects, it seems to me, will be felt for many years, well beyond when interest rate hikes have slowed or rates have even gone down. I know you've got a difficult job and a tough situation, but I just hope that the Fed will think more about its actions and how they affect housing supply, even as it attempts to control housing demand. Thank you.

Thanks, sir. The last question, I believe, is Senator Sinema, who is remote from Arizona.

Thank you, Mr. Chairman. Chairman Powell, thank you for being here today. In raising interest rates last month by 25 basis points, the FOMC cited Russia's war against Ukraine as a key contributor to elevated global uncertainty. The war has serious implications for global energy and agricultural markets, and as you know, energy inflation in particular can appear in the form of higher prices of other goods and services. This feels like a substantial driver of inflation overall. In my mind, you can't understand the global economy fully without assessing the range of possible outcomes in Ukraine. As we've also seen, the war created new supply chain problems overnight and has caused abrupt price swings in select commodities. How is the FOMC assessing the economic impact of the war and the range of potential outcomes in order to inform how it sets monetary policy?

Thank you. At home, Arizona families are struggling to navigate this economy. Higher prices are making it more difficult to afford groceries, gas, rent, and airfare. But on the other hand, rising interest rates are crowding out investment and making it more difficult for first-time home buyers to buy a home. Inflation has also slowed housing development to a halt in Arizona. And as you know, Chairman, housing is a major economic contributor in my state. It's also clear that more spending comes with trade-offs, and it's why tackling inflation has historically been so difficult, and yet it's more important than ever that we get it under control. There's been much debate about a soft landing, where we get inflation under control without triggering a recession, versus a hard landing, where inflation comes down but triggers a painful recession. Some economists are currently saying they see no landing right now, that growth is actually accelerating and that more aggressive actions will be needed to get inflation under control. If true, that would be problematic. What do you think about that assessment?

Well, thank you. On February 23rd, the Fed, the FDIC, and the OCC released another joint statement on crypto assets and liquidity risks posed to banking organizations. It's clear that regulators see undue risk for banks in the current environment and are taking a more conservative approach. Do you believe these risks are inherent to crypto assets and how they behave, or are some of the risks a product of the current regulatory and policy landscape for crypto assets in the U.S.?

Thank you.

Thank you, Senator Sinema. We conclude the hearing. The Fed must make sure that workers and families are at the center of every decision it makes to strengthen our economy. We've heard a lot today about the role that Wall Street plays in our economy too. As you've said, Mr. Chair, we know that higher capital requirements make banks safer and stronger. It allows them to make investments in their workers and their communities and our economy. That's what they should be doing instead of spending billions on buybacks. I look forward, Chair Powell, to working with you to strengthen our economy. For senators who wish to submit questions for the hearing record, these questions are due one week from today, Tuesday, March 14th. To Chair Powell, please submit your responses to questions for the record 45 days from the day you receive them. I thank my colleagues for the very, very good attendance today. Only one member on each side was not here: one for health reasons, the other just because he's doing 12 different things. So I appreciate all that, and thanks for your testimony and your public service, Mr. Chairman.