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▶ 0:28:03the task force on monetary policy treasury market resilience and economic Prosperity will come to order without objection the chair is authorized to declare recess of the committee at any time this hearing is entitled examining monetary policy and Economic Opportunity without objection all members will have five legislative days in which to submit exterus material to the chair for inclusion in the record I now recognize myself uh for four minutes for an opening statement
▶ 0:28:33welcome to the first hearing of the task force on monetary policy treasury market resilience and economic Prosperity our task force is charged with examining issues related to monetary policy the Federal Reserve Act and how economic growth and price stability affect the financial well-being of all Americans all of which we'll discuss today the task force will also focus on the fundamental role that the us treasury debt plays in our economy and the resilience of the market it's impossible
▶ 0:29:04to overstate the importance of a healthy treasury market and will pay special attention to the recent stresses the market has faced and how to increase liquidity and stability for the market and its participants but today we'll focus on monetary policy how the FED controls the money supply and interest rates and why it matters to everyone in this country the FED uses interest rates it's open market operations its reserve requirements a whole host of policy tools to stimulate the
▶ 0:29:34economy or cool it down while our constituents may not monitor the actions of the FED on a daily basis they all feel the squeeze when inflation runs rampant and their dollar doesn't go as far at the grocery store or at the gas pump that's why it's important that the FED gets it right since the First Central Bank in 1791 to the Federal Reserve System system we have today the bank is evolved as the country has three recent changes are worthy of
▶ 0:30:04focus today first the fed's move to the ample reserves regime forced the FED to use administered administered rates rather than the supply of Bank Reserves to steer policy second the growth of the fed's balance sheet the four rounds of quantitative easing over the past 20 years have expanded the fed's balance sheet peing at nearly 9 trillion in 2022 we'll hear about this today as the FED now engages in quantitative
▶ 0:30:35tightening third the feds move in 2020 to their flexible average inflation targeting strategy or fait this strategy tolerates High inflation after periods of low inflation I hope to discuss the effectiveness of this strategy considering the stubbornly high inflation we dealt with since fait was announced finally Dodd Frank's considerable expansion of the fed's Regulatory and supervisory Authority has exposed the FED to more political
▶ 0:31:05pressures threatening its monetary policy Independence the FED enjoys broad Independence in its implementation of monetary policy but it is not unaccountable to Congress for its actions particularly as we see the remarkable changes I've described our conversation today will be insightful to the FED as it's wrapping up its five 5 year review of this framework the Federal Reserve System is an ongoing project congress's attention to this work is
▶ 0:31:36crucial as we know the actions of the FED indirectly impact the econ economic well-being of all Americans I want to thank chairman Hill for creating this task force and ranking member of Vargas for leading with me and I look forward to our work together with that I yield back the chair now recognizes the ranking member of the subcommittee Mr Vargas of California for four minutes for an opening excitement good morning Mr chairman and thank you very much for introducing me and again
▶ 0:32:06good morning to everybody else let me congratulate you on being named as chairman of this task force as you know I have a great deal of respect for you and I first came to Congress 13 years ago I was on the agriculture committee which you chaired and I thought that you treated everyone even-handedly straightforward and honestly and I appreciate that and I look forward to working with you and together on issues where we find Common Ground through this task force I look forward to discussing important issues that affect our constituents in the entire economy
▶ 0:32:36including the federal reserve's monetary policy framework review and the supplemental leverage ratio and the debate between rule-based and discretionary monetary policy but I also plan to defend my core principles and I know you will two of those core principles are my belief in the importance of the fed's Dual mandate and the need to protect the fed's the independence the importance first of the Dual mandate as members of this task force we're well aware the fed's Dual mandate was established
▶ 0:33:07in 1977 the amendments to the Federal Reserve Act passed that year tasked the FED with two important goals to create economic conditions that achieve both maximum employment and stable prices the inclusion of employment was no accident the addition was thanks to the large in large part to the work of ketta Scott King and many in the labor movement some have argued that the fed's reserve dual mandate has been a distraction from solely focusing on price stability but maximum employment should
▶ 0:33:37not be on the chopping block when Congress charged the FED with this dual mandate it recognized that having access to a job is a signal of a healthy economy preventing the fed from addressing employment would misunderstand this the key way that many Americans experience the economy and it would also be disproportionately hurt Working Class People low employment harms Americans who are already living on the edge working multiple jobs and surviving paycheck to paycheck chairman
▶ 0:34:07pal said that the Dual mandate has quote served us well and that he quote doesn't see the case under quote to move forward with a single Mandate of price stability and I agree as a ranking member I intend to continue to advocate for the importance of preserving the fed's Dual mandate now with respect to the independence of the FED another area where the FED has come under increased scrutiny is its independence the research is clear that the central banks around the world function at their best when they're allowed
▶ 0:34:37to operate independently elected officials mostly operate on a short-term Horizon responding to short-term political incentives but the FED must make decisions considering a much longer time Horizon that is why it is critical that monetary policy be insulated from external political pressure the president's re Rec executive order requiring independent agencies to submit proposed regulatory actions strategic plans and priorities to the White House for review only makes this issue
▶ 0:35:08more important and it's also worrisome that now treasury secretary Scott bassent has floated the idea of creating a shadow Fed chair before chairman Pal's term expires in May of 2026 we in Congress regardless of political party must continue to strongly defend the independence of the fed the new Administration has brought in a wave of uncertainty whether it's tariffs or the future Independence of the FED our constituents are increasingly unsure of their economic future
▶ 0:35:38we see it in recent National Consumer sentiment numbers which have shown that consumer confidence fell by seven points in the most recent conference board's consumer confidence survey and I'm hearing from businesses in my district in San Diego who are increasingly concerned about the impact that tariffs and trade Wards will have on the economy I hope that this task force will provide a forum for substantive debate and collaboration on these issues that impact our constituents I'm looking forward to it and with that I yield back Mr chair gentleman yields back and the chair appreciates
▶ 0:36:08the very thoughtful discussion with that the chair now recognizes uh the uh chairman of the full committee Mr Hill for a minute thank you chairman Lucas Federal reserve's dominance affects every day family business and worker decisions in our country and those fed decisions whether it's the cost of a mortgage or the return on savings or the stability of economy it's at the central plays a central role many Americans weren't alive during the 1970s or early 1980s quickly learned just how devastating
▶ 0:36:38inflation can be at the pump or at the grocery store with this 40-year record high inflation under President Biden that's why the new monetary policy task force led by chairman Lucas is holding its first hearing to examine how monetary policy shapes Economic Opportunity and what that means for the future of American prosperity to to begin this work we must first establish a solid foundation today will be a level set for our members so that we can do deeper Dives during this Congress we'll start with the fundamentals including the fed's monetary policy
▶ 0:37:09tools decision-making balance sheet policy and US Treasury markets and we're he hear how these policies have real consequences for investment wages and even the federal debt where Rising debt levels and interest costs pose a growing risk to our fiscal health I look forward to our Witnesses testimony today and I yield back Mr chairman gentleman yields uh the chair now today welcomes the testimony of Mr Donald cooh
▶ 0:37:39who is currently a senior fellow at the economic studies at the Brookings Institute he spent 40 years at the Federal Reserve System serving previously as Vice chairman of the Board of Governors uh Mr Joseph Wang is currently the chief investment officer at the monetary macro LLC a registered investment adviser from 20 2016 to 2021 he was a senior trade on the open market desk of the Federal Reserve Bank of New York and Norbert J Michelle is currently the vice president and
▶ 0:38:09director of Kato institute's Center for monetary and financial Alternatives and Michael Kel is the senior director of policy and research for the economic security project we thank each of you for taking the time to be here and each of you will be recognized for 5 minutes to give an oral presentation of your testimony and without objection your written statements will be made a part of the record uh Dr con you are now recognized for 5 minutes for your oral comments thank you Mr chairman it's a pleasure to be
▶ 0:38:39back in front of front of this committee Mr Hill told me I had an age today in the 10 years since I was last here I sometimes don't feel that way but it's nice thank you for the uh thank you for the compliment uh I uh this task force should enhance congress's ability to overse see monetary policy Congress has set goals for the Federal Reserve and the conduct of policy maximum employment gentleman redirect his microphone a little more in the direct please all right
▶ 0:39:10thank you Congress has set goals for the Federal Reserve and the conduct of policy the Dual mandate maximum employment stable prices but it has also very wisely allowed the FED to determine the best policies to meet those goals without direct interference from the political process that's because history shows that political pressures are invariably on one side for lower interest rates which people facing elections see as boosting jobs but giving into
▶ 0:39:40those pressures results subsequently in costly inflation with a high degree of policy Independence however comes responsibility of the Federal Reserve to clearly explain what it is doing and why and of the Congress to examine those your staff suggested that I might uh be helpful in this regard by giving an overview of how monetary policy works the path from policy choices on Constitution Avenue
▶ 0:40:10to Prosperity on Main Street is a long and winding one policy decisions start by asking how the economy is likely to evolve overcoming quarters relative to these goals and if it is not likely to achieve the goals soon how policy should be altered since 2012 the fed's Federal Open Market Committee has issued a statement on longer run goals and monetary policy strategy that defines the goals and gives some very general thoughts on the
▶ 0:40:40approach to achieving them in 20120 in response to a prolonged period of very low interest rates and persistent shortfalls of inflation the FED altered strategy the intention was mainly to make sure that inflation was high enough to average two % over time which in turn would keep interest rates high enough to give the FED sufficient room to lower interest rates should an adverse shock hit the economy obviously the postco recovery presented
▶ 0:41:10the FED with a very different environment and it is now reviewing its statement its strategy must be robust to a variety of shocks stresses adjusting an overnight interest rate is the main instrument the FED uses to make progress towards the goal that rate does not directly affect prices or employment rather it works by influencing prices and financial markets which in turn CH induce changes in spending and the balance of aggregate
▶ 0:41:41demand and aggregate supply note how indirect this process is Mr chairman you use the term indirect and that's exactly right the effects of a policy on objectives will depend on how financial markets react to actual and expected policy then how households and businesses respond to changes in financial markets moreover Financial conditions and the balance of aggregat supply and demand are affected by many things in addition to monetary policy in
▶ 0:42:11considering these shocks to financial conditions in the economy the FED needs to differentiate between those that happen to on the demand side of the economy and those that happen on the supply side of the economy monetary policy is well suited to offsetting the demand side shocks but it cannot offset an adverse Supply shock the rise in the price of a good say from a reduction in Supply as we experienced in the 1970s in petroleum markets
▶ 0:42:41or an increase in taxes on that good advice for policy makers in this situation is to avoid trying to offset these effects because trying to might actually worsen the outcomes but policy makers need to be very attentive to the second round effects the follow on effects of these initial Supply shocks expectations of prices and interest rates have played a critical role in our story expectations anchored around the fed's target of 2% are necessary to achieve that Target
▶ 0:43:12and expectations about future policy have important effects on financial conditions and hence on achieving objectives the better people understand fed policy and attentions the more stabilizing Market responses to policy uh and to unexpected economic developments are likely to be that's why the FED has become much more transparent over time about why it is making its decisions and its Outlook I hope my testimony has provided a framework for discussing monetary policy
▶ 0:43:42and I'm happy to take your questions thank you Dr con Mr way you're now recognized for five minutes for your oral remarks good morning chairman Lucas raiki M Vargas members of the committee thank you for inviting me I appreciate the opportunity continue to testify today my name is Joseph Wang and my work focuses on understanding the transmission and impact of monetary policy the ultimate effect of monetary policy depends on many variables outside of the fed's control so setting policy is a difficult job whose success
▶ 0:44:13rest upon good judgment the significant discretion accorded to the FED makes oversight especially important but the complexity of the subject makes its actions difficult to evaluate an understanding of the tools within the fits grasp and corresponding trade-offs in their use can be helpful in that regard but before discussing their tools I will note the fed's significant influence over the economy stems in part from the ambiguity within their dual Mandate of price stability and full employment while price stability is a
▶ 0:44:43mandate given by Congress the current 2% inflation Target was decided by the FED itself the level of unemployment rate considered to be full employment is also decided by the FED itself where they decide to set the these goal posts have wide ranging impacts on everyday people generally speaking the two mandates call for conflicting policy prescriptions the balance between the two mandates is a judgment left to the FED as is the appropriate timeline to meet their goals the fed's
▶ 0:45:13Discretions to set its own goals to balance these goals and to set timelines to achieve them makes oversight difficult moving on to the federal reserve's tools the fed's primary monetary policy tools are interest rates and balance sheet policy regulatory policy is an additional tool that does not explicitly Target monetary policy goals but also has significant impact on the economy and financial markets the Reliance on interest rate policy means that the economic impacts of monetary policy are
▶ 0:45:43primarily through interest rate sensitive sectors typically higher interest rates would dampen economic activity in sectors like housing and Autos as buyers in those sectors tend to finance their purchases this lays the Brun of economic adjustments onto blue collar workers note that the overall economy's interest rate sensitivity also varies over time where an asset light Services focused economy tends to be less interest rate sensitive interest rates also impact economic activity
▶ 0:46:13through the wealth effect where higher rates lower the price of financial assets and less the spending power of households asset Holdings are concentrated in a small percentage of the population but that group has an outside impact on economic activity one last note on interest rate policy is its impact on fiscal policy as a level of the public debt has risen so has the level of interest rate payments interest rate expenditures now exceed $1 trillion a year in part
▶ 0:46:43due to the level of interest rates an increasingly important side effect of fed actions is its impact on the nation's budget the fed's secondary tool is its balance sheet which can influence interest rates and also allocate credit the FED can create money out of thin air and lend directly to borrowers or indirectly through purchases of debt this is essential to performing its lender of Last Resort function fed purchases of Securities are limited to a very small subset of assets
▶ 0:47:14that include mortgage back Securities which is in effect allocating credit to home buyers most recently it was deployed during the pandemic where hundreds of billions of dollars worth of mortgages were purchased even as home prices nationally surged by 20% in a year the distributional consequences of those actions look to last many years regular toy policy is less visible but also an influential part of the fed's toolkit regulatory policy places constraints
▶ 0:47:44and costs on the actions of banks more stringent regulation reduces the willingness of banks to take risk and results in a stronger banking system however a more constrained banking system also limits the supply of credit credit to the public small and medium-sized businesses are more heavily Reliant upon banks for financing while larger businesses tend to borrow directly from the capital markets more stringent regulation also impacts the functioning of Treasury markets and the level of interest rates regulations like the supplementary leverage
▶ 0:48:14ratio contributed to the strength of the banking sector through the pandemic but also the malfa of the treasury market at that time in summary the Federal Reserve has large latitude in setting its own goals goal and exercising a range of tools towards achieving those goals how those goals are set and which tools are used have large impacts on the lives of the American people this makes the task of overseeing the activities of the fed both very important and difficult I thank chairman Lucas and chairman French
▶ 0:48:44for their wisdom in establishing this task force to proove to improve the performance of Monet policy towards greater economic Prosperity thank you Mr W Dr Michelle you're now recognized for five minutes for your oral remarks good morning chairman Lucas ranking member Vargas members of the committee thank you for the opportunity to testify today's hearing my name is Norbert Michelle I'm vice president and director for the center for monetary and financial Alternatives of the KO Institute
▶ 0:49:15the views that I express today are my own and should not be construed as at representing any official position of the KO Institute in my testimony today I argue that Congress has given the fed too much much to do and too much discretionary authority to carry out those mandates to secure the best outcomes for the typical American Congress should give the FED less to do with less discretionary Authority the engine that drives prosperity for Americans is private Enterprise and the FED should
▶ 0:49:45carry out its core function supplying the economy's based money by interfering as little as possible with that engine it should ensure that it does not become the source of monetary induced slowdowns or inflation and it should remain transparent and directly accountable through elected officials goals that can be best accomplished with a monetary policy Rule and I'll make three main points in support of my position first stable prices
▶ 0:50:15should not be equated with 2% inflation every year optimally the rate of inflation would vary with the nation's productivity sometimes gently Rising sometimes gently Falling by targeting an always positive rate of inflation even as productivity improves monetary policy has been biased toward expansion and that has hurt Americans by preventing them from enjoying the full benefits of a growing economy through much of the past several decades
▶ 0:50:45the price level should have fallen gently but it hasn't meaning that Americans have experienced an unnecessarily High Cost of Living second is the recent inflationary episode clearly demonstrates Americans hate inflation as I'm sure I don't need to tell you they understand that it lowers real income and that it reduces their real returns to savings they also understand that the FED cannot simply flip a switch and stop inflation once it takes off
▶ 0:51:16and that expansionary fiscal policy makes the fed's job even harder they do get it they don't want to hear that over time nominal incomes tend to rise offsetting inflation they don't want to wait and they don't want High inflation they know that it increases their cost of living and that's what they care about but increase in inflation is only one side of the monetary policy coin If the Fed mishandles monetary policy it can also lead to an economic slowdown one where output
▶ 0:51:46employment and income Falls as the economy shrinks during the past few decades we've been spoiled and not had to endure many of those types of monetary induced slowdowns but the potential is there and must be considered during any efforts to reform the fed and improve monetary policy together those types of slowdowns and inflation are examples of why congressional oversight of the FED is so important and why it is critical that Americans are given the opportunity
▶ 0:52:17to hold both Congress and the unelected officials at the FED accountable finally the FED should not be expected to fine-tune or manage the economy to hit precise macroeconomic targets much less precisely improve micr level metrics for certain groups of Americans monetary policy is a very blunt tool one that works in conjunction with fiscal policy and providing funds whether through loans or grants to specific
▶ 0:52:47groups or companies financial or otherwise is not an appropriate role for a Central Bank and a representative democracy if Congress wants to provide loans to just for example Municipal governments then it can appropriate the money and do so in a transparent manner so that voters can either approve or disapprove of those actions taken by their elected representatives so in closing I'm arguing that Congress has given the fed too much to do and that it's hard enough to get monetary
▶ 0:53:17policy right in the first place many of these other tasks given to the FED have only exacerbated that problem thank you for your con consideration and I'm happy to answer any questions you may have thank you Doctor uh Mr consel you are now recognized for 5 minutes for your oral remarks thank you um chairman Lucas ranking member Vargas and distinguished members of the task force thank you for inviting me to testify my name is Mike consel and I'm the senior director of policy and research at the economic
▶ 0:53:48security project where we advocate for ideas that build economic power for all Americans previously I was a special assistant to the president and chief Economist at the national Economic Council under President Biden where I specialized in macroeconomic issues I applaud this task force for investigating Central Bank Independence in the Dual mandate despite the challenges after covid the US economy performed better than many peers and by late last year we were on a solid footing the balance between Full Employment and price stability free from short-term political pressures has worked well for us I want to
▶ 0:54:18make three key points here today first the Federal Reserve helped the US avoid a recession after the inflationary shocks caused by covid in the war in Ukraine achieving a rare soft Landing second this achievement is now at risk due to current Administration policies and third the key macroeconomic decision this year will revolve about whether or not Congress worsens the Deb and deficit which will put pressure on the Federal Reserve interest rates and everyday Families First there is a growing consensus that the global wave of inflation following the reopening was driven by rapid shifts in the
▶ 0:54:48composition of demand and shocks to supply chains and key inputs like semiconductors made far worse when global commodity markets went into chaos following Russia's provoked invasion of Ukraine as Ben bernacki the former Federal Reserve chair and chairman of President George W Bush's uh Council of economic advisers recently said quote I think that the inflation was caused pretty much by the supply side and the demand factors were not strong enough end quote professional forecasters and financial markets did not predict this inflation which was in fact Global other countries saw inflation in the same range
▶ 0:55:18as the United States even countries like Canada and Australia that had less direct exposure to Russian energy though all of their growth lagged our own many thought that this inflation was driven by excess demand and spending and thus we need a recession higher unemployment and slower demand growth for inflation to decline but inflation fell six percentage points as growth took off at an annualized 2.9% over the past two years well above the average of the 21st century now the for people for the Federal Reserve and others this strong economy now faces three immediate macroeconomic
▶ 0:55:48risks from the frankly irresponsible policies of this current Administration unexpected tariffs weaken State capacity and pressures on Federal Reserve Independence publicly announcing High tariffs outside formal processes in an inconsistent and confusing manner not only weakens an investment but risks inflation expectations normally tariffs are small strategic and have little effect on aggregate prices however the tariffs currently under discussion are significantly higher and broader than anything in recent history and already the University of Michigan survey found inflation expectations
▶ 0:56:19peaking in February to levels not seen since 1995 and certainly was not hit as inflation expectations were managed under the Biden Administration this is exacerbated by attack on state capacity cutting government waste and fraud is important and congress's own Research Services found many ways in which that can be done but this is not what's happening right now U this will raise prices and costs for everyday families whether or not it's weakened Consumer Financial protections poor Social Security Services or the inability to contain bird flu we also dealt with Aven
▶ 0:56:49flu outbreaks in the B Administration but we're able to work with government agencies such as USDA to contain it instead now Communications are altered for ideological reasons and severe cuts at USDA include those tasks with managing bird flu egg prices now exceed the peak seen during the commodity Market turmoil and avian flu outbreaks under the B Administration but the most important and I think the thing the task force is most uh is most important you engage with is the removal of Central Bank Independence though the executive order removing Independence currently says that Federal Reserve monetary policy
▶ 0:57:19Exempted I believe that that is an unstable Arrangement as the politicization of other Federal Reserve functions and Personnel will deep into monetary policy and Central Bank policy nothing could disable an economy faster the president sought to influence Central Bank actions during his first term the threat of him doing so again would risk the overall economy and the stability premium that we have as a nation nothing this task force will discuss will matter for the long-term stability of macroeconomic conditions as much as stopping this effort third and last the most important immediate determine for macroeconomics this year
▶ 0:57:49will come from fiscal policy in particular how Congress handles the expiration of the tcga um right now we are seeing that uh non-par and estimates have the current bill under discussion increasing that primary deficit to or the deficit to 6.8% uh rate far higher given the near full employment we currently have worse this exploding deficit will be used justification for painful cuts to healthcare and social insurances and weakening some of the few counter cyclical programs we have if a recession happens the overall plan of tariffs and spending cuts creates a potential
▶ 0:58:20cruel double whammy where the proposed tariff packages could Skyrocket the cost for everyday Goods coupled with cuts for critical iCal Services meanwhile corporations getting these tax rates can simply pass their costs on to Consumers the Federal Reserve is left with a very difficult decision about how it manages the subsequent uh price acts I look forward to taking your questions gentleman y back the chair now recognized the general woman from California the ranking member of the full committee Miss waters for one minute thank you very much Mr chairman um I thought we
▶ 0:58:50were we're going to talk about Capital formation today rather than monetary policy if we really want and discuss the cost of living we should discuss president Trump's policies that have left workingclass families bracing for disaster just yesterday Trump announced massive new import taxes on Americans and American businesses buying things from Canada and Mexico last week Republicans voted to advance Trump's budget and cut up to
▶ 0:59:20880 billion in Medicaid funding which could eliminate coverage from nearly 16 million people experts have said that chairman Hills district alone would lose 2.3 billion in funding for more than 180,000 of his constituents covered by Medicaid and other programs we should reject these misguided policies that are raising the cost of living for most families while IM mus
▶ 0:59:50and billionaire class push for their taxes to be cut thank you and I yield back the balance of my time gentle Le yields back we'll now turn to member questions the chair now recognizes himself for five minutes for questions uh Dr con you spoke in your testimony about fed Independence we know an independent Central Bank is is important in making sure that monetary policy is not subject to the whims of partisan politics that does not mean that the
▶ 1:00:20FED can't or shouldn't be held accountable to Congress and the public can you talk more about the limitations of fed Independence where it's important for Congress to exercise its constitutional authority to conduct oversight absolutely Mr chairman I agree with what you said so I think uh the FED has arms length relationship with the political uh system it makes the decisions on the setting of its uh of its policies in order to
▶ 1:00:51in order to achieve the goals that you gave it and it is it should be account it is accountable to the public and to you so it you need to press it why did you make that decision why was it this way how is that going to further your goals I think the Federal Reserve benefits from good focused questioning from the Congress switching subjects Dr Con in the past two decades the FED has moved to the ample reserves regime
▶ 1:01:21and since then we've seen a dramatic increase in the size of the fed's balance sheet stress in dramatic in 2022 the FED began quantitative tightening and has decreased the size of its balance sheet chair pal has said that the FED will stop QT when Reserve balances are somewhat above the level judge to be consistent with ample reserves where should the FED look to Target its balance sheet size is there an ideal level of reserves they should aim for so
▶ 1:01:51I think what they're aiming for is as chair pal said is to to reduce its balance sheet until reserves are just just large enough to stabilize uh Market interest rates and it is it is looking very carefully at those Market interest rates to see whether it's gotten down that far or not and so far the market rates have been stable there's no sense of instability so it's continuing to reduce its balance sheet I think that's fine I don't think I
▶ 1:02:21I don't see it as a big deal as to whether reserves are are um two trillion or one trillion I mean this is the Fed has government securities on one side of its balance sheet IT issues reserves to the banks on the other side of the balance sheet um I I I think the ample reserves regime should work work just fine to control interest rates and that's what you need it to do Mr Wang you include in your written testimony a discussion
▶ 1:02:51of the supplemental leverage ratio and the fed's regulatory relief during the pandemic you write that the fed's current regulations on the SLR decent incentivize low risk activities like holding treasuries given the stress we've seen in the treasury market do you think the FED should re-evaluate the SLR thank you for your question chairman Lucas and I absolutely agree so the SLR is basically a regulation that makes Banks hold
▶ 1:03:22Capital based on the size of the balance sheet without regard to the riskiness of their Assets Now when you're looking at assets for example like reserves which are very liquid have zero credit risk or treasury Securities that are have no credit risk and very liquid it does not make sense to have to hold Capital against those and looking across the world there are also other countries who have regulations that that don't acquire reserves in the SLR so I think some adjustment there would significantly increase
▶ 1:03:52the capacity of the banking system and improve the functioning of the Market Dr conen back to you for just a moment in the time I have remaining there have been many significant developments in our economy the market conditions the fed's implementation the monetary policy these last five years are the issues you think the FED what are the issues you think the FED should pay attention to during this framework review was that uh so I I think it it should pay attention it said it's going to look at the strategy so
▶ 1:04:22I think it should look at what it did in 2020 assess whether that contributed to uh a delay in responding to inflation and then uh change I think it needs the 2020 framework uh review U stressed the strategy was what do I do to counter the low interest rate low inflation environment that 2010 to 2019 put it
▶ 1:04:52remember interest rates are zero for a lot of lot of this and it didn't think about a high inflation environment so they need to have a strategy that's robust to all kinds of different outcomes and the minutes of their last meeting suggest that's what they're trying to do they're trying to modify the that framework thank you my time's expired the chair now recognized as the ranking member of the task force Mr Vargas for five minutes for questions thank you very much Mr chairman and again I want to thank all the witnesses here today appreciate
▶ 1:05:22it it's interesting that we seem to have an uneasy agreement with the independence of the FED I mean I was curious to see that the first question that the chairman asked was the limitations that the FED has in their independence and Mr con the question was directed to you and you gave a very interesting answer I would ask Mr kol I mean it is interesting that we seem to agree on the independence of the fed and then very quickly we go to limitations of the FED could you speak a little bit more because
▶ 1:05:53you said that this is probably the most important issue we'll talk about on this task force go a little more into depth about that because I think that again with the Dual mandate and the independence those are the two most important things that we should focus on in this task force go ahead sir yeah absolutely so um you know uh accountability is quite important and Congress obiously sets the goals for the central bank as you know um legislative bodies across the world set the goals for their central banks uh and then you know there's reporting back you know obviously um chair
▶ 1:06:23Powell and other Federal Reserve chairs have common you know talk to Congress twice a year uh there's a lot of transparency in the way that they're talking about their actions how they're carrying them out uh I actually feel that there's a lot of public accountability with media and so forth on their actions as well um what I would worry about is executive control of their day-to-day functions uh excessive control about the way in which they're conducting um in the way that they are prioritizing and balancing um they different priorities uh in a ways that reflect short-term political
▶ 1:06:53gains but may have long-term economic costs well I mean one can I can I pick up a little bit so I think the main limitation on Independence is you guys set the goals that so they don't have independence with respect to their objectives that's set by The People's Representatives that's just Independence about how they well I think this is where the rubber hits the road because obviously we have political pressures that the FED should not have
▶ 1:07:23for example the last time uh president Trump was President Trump he clearly wanted to be influence the FED I mean I I think we could all agree on that he certainly said that about Mr pal I mean that's where I get concerned and some of these executive orders get very close to that Mr Council isn't that correct yeah absolutely in the executive orders as currently stated and obviously everyone's trying to figure out what's going to actually happen but to the extent they can politicize the Federal Reserve functions of um Financial regulatory policy many other
▶ 1:07:53things I find that there's no way to have a strict wall and separation between um the monetary policy and the regulatory policy I just I do not think that works in practice when I talk to people who have worked at the Federal Reserve they agree that that's not a clear separate room you can just put someone in the supervisory functions seep into the monetary and open market policy discussions uh in a way that I think um really risks the stability of our macroeconomy in a way that I you know we're going to talk about a lot of different things here but I really want to emphasize yeah so I I do want to now move to the Dual
▶ 1:08:23mandate now one of the things that uh I heard today in testimony I think it's true that most of the assets of the United States are held by very few people most people most families really deal with the economy with their job their employment and that's that I think that's why it's so important to have the Dual mandate because again this shouldn't be uh the FED shouldn't be for the very wealthy that control most the assets should be for the economy of all the people and most the
▶ 1:08:53people the way they interact with the the economy is their job employment could you comment a little bit about that yeah what I'd emphasize and obviously we're going to talk about the 5-year review um you know there's many different central banks among peer in developed countries that have many different ways of trying to implement their policies and so all of them saw the same inflation we saw so the ECB uh is a very auster Central Bank it has just a price stability mandate um you know their inflation peaked at 10% and it was Rising even before Russia's invasion of Ukraine you can
▶ 1:09:23go to New Zealand which uh was one of the first inflation targeting Banks it has a reputation as a particularly effective Central Bank they use a range from 1 to 3% which I think you know might be a very effective thing for us as well and their inflation also peaked at 8% so the Dual mandate did not cause our inflation uh what probably played an important role in was the huge labor market recovery we saw both in 2019 before covid and over 2023 and 2024 where we have record high levels of Labor Force participation for women for minorities for people with disabilities
▶ 1:09:54this is where I reclaim my time I think one of the things used to drive me crazy about Janet Yellen when he was I think she's one of the smartest people was here and every time she was asked about inflation she never put it in the wider context of the world instead of course my good colleagues on the other side would beat us up and and and and rightfully so about inflation because it was hurting our people but she never put it in the context of the whole world the EU was running much hotter than we were and she never mentioned it once even though I have great respect for her she sure blew it on that one with that I
▶ 1:10:24yield back gentleman yields back the gentleman from Arkansas Mr Hill the full chairman of the committee is recognized for five minutes thanks chairman appreciate appreciate the panel great uh testimony we're grateful for that uh Dr Michelle you said that you think the fed's trying to do too many things uh I heard that and uh Mr um Wang talked about that as well um in uh Dr Con in your testimony you say maximum employment is given
▶ 1:10:54by influences outside the control of the FED particularly the structure of labor market and then you say inflation is also subject to outside influences but over time the FED can control inflation so would you say that of the so-called dual mandate that price stability is certainly something the FED has more direct influence over rather than quote unquote full employment which is severely impacted by regulatory policy tax policy spending
▶ 1:11:24policy policy budget deficits is that true yes I think economists would agree that over time inflation is as Milton Freeman put it everywhere and anywhere a monetary phenomenon that doesn't mean that the money supply directly feeds inflation but the Federal Reserve can now can control inflation over longer periods of time in terms of full a maximum employment basically the level of Maximum employment the lowest possible unemploy
▶ 1:11:55employment rate is uh inferred from the behavior of other variables around it so if you push the unemployment rate but you're not a you're not arguing that you're a Phillips curve guy are you Dr con uh yeah I'm a Phillips curve guy all right well we'll have another visit about that I I think I think the last 50 years have discredited that economic thought but you've been such an important voice in the FED we're glad to have you back before the committee I heard you answer the question about uh
▶ 1:12:25the fed's framework issue what do you um what do you think would be the most single most important thing that would go into that assessment about whether they missed it this time I mean I would argue I don't support setting two% either under former chair Yellen because that means in 25 years we're happy that we've lost 50% of our purchasing power I mean I think that I mean how can you argue for that as a public official so what what do you think when you're if you were sitting back
▶ 1:12:55in that meeting what would be the most important Point you'd make about having missed it in 2021 so I think a lot of what um what happened in 2021 was a bad forecast and the Fed was not the only person making a forast that inflation was going to come down over 2022 as these Supply constraints the supply chain stuff remember the ships off of Long Beach and the chips and all that thing came off people returned to work work
▶ 1:13:26then uh prices would come back down again and that took much longer and in addition there was way too much pressure in the labor market so it wasn't only Supply constraints there were demand constraints but I think the bad forecast was a major reason why the FED took so long I think another reason was uh the forward guidance they gave on interest rates So Married with that forecast they said we're going to keep them at zero until we're back at employment
▶ 1:13:56so I think it all delayed it now if the FED had gone a few months earlier would that have made a big difference no but it might have made a little difference yeah I think I mean certainly if you look listen to Dr Summers and other very prominent former officials in the Obama Administration for example going in Q4 of 2020 and starting the shrinking of the balance sheet and slightly raising rates would have been potentially better but I think you there you have bad monetary policy to decisions which we've talked about
▶ 1:14:26but equally bad fiscal policy decisions you know by the incoming administration at the time of the Biden Administration I do think the FED is let me get let me reclaim my time I want to switch subjects thank you for that please respond in writing if you want to talk some more about that uh let me talk about the FED balance sheet Dr Michelle uh you were talking about the FED allocating credit is one of those things that you thought was beyond strictly scope on price stability so do you think that uh that that's the case in
▶ 1:14:56buying mortgage back Securities oh yeah no doubt I mean you're should should the treasury should treasuries be the only uh open market asset for the FED for the Open Market Committee that would be that would be my preference yes uh short-term treasuries only and is there uh what do you think can have you looked at the pernicious impact of uh as as was said in your testimony too much gas on the fire for housing at the right of the time the housing market was rebounding
▶ 1:15:26yeah no that never made any sense at all yeah would you would you give us some more background on that in writing please and with that I you back Mr chairman gentleman yields back the gentleman from California Mr Sherman who's also the ranking member of the subg on Capital markets is now recognized for five minutes thank you Wang and I believe Mr Michelle uh you may be right that the FED should only buy uh US government uh paper uh rather than picking winners and lo losers in the economy or
▶ 1:15:57uh but I I would argue that it shouldn't just be short-term paper uh there are times when we have to drive down long-term interest rates which I think are more significant for those making investments in housing and in Factor especially factories and Mr M Michelle I got to strongly disagree with you on deflation even gentle deflation being a good thing and if we're going to design things so that we may have gentle deflation then we would have to realize that sometimes
▶ 1:16:27we would have uh uh ungentle inflation you don't always get it right I want to bring to the attention of this task force that uh a few hours ago the SEC sent an email to its staff offering $50,000 to every staff member who will resign those resignations are required by March 21 they're available to the top 60% this is no way to run an agency it means you lose
▶ 1:16:58the best people the ones who can between now and March 21 line up a job on the outside it means you have no control over which parts of your agency gets smaller and which stay the same size your support Personnel to uh Personnel gets radically changed because none of these buyouts were available to 40% but most importantly
▶ 1:17:28I oppose defunding the police whether it's crime in the streets or crime in the suits and when we um offer $50,000 to every cop uh to quit we get more crime in the streets and I'll point out this is all courtesy of Elon Musk a man who has been investigated time and again for violating our Securities laws seems to have violated them even more on the issue of Dogecoin and uh letting Al
▶ 1:17:59Capone set the size of the Chicago Police Department strikes me as a very bad idea um let's talk about uh Independence uh Mr goel uh we have an independent fed uh some countries don't turkey comes to mind as places where there is intense pressure has that worked out well for other countries to let uh politicians or even dictators uh tell their Central Bank what to
▶ 1:18:29do I would say no couldn't agree with you more uh project uh 2025 has some ideas that are interesting uh such as uh as I said uh limiting which kinds of bonds the FED would buy uh and limiting uh the lender of Last Resort function uh when we were crafting uh uh DOD Frank I was a strong voice for trying to T hem in the right of the fed to bail out uh private entities but the key thing that's
▶ 1:18:59being talked about is the Dual mandate Mr kzle if if we just had if we didn't have a dual mandate so we told the FED don't care about unemployment would we get more unemployment I believe so I believe we probably would have caused an unnecessary recession to bring down the inflation that came down anyway I think a lot of people at the margins of our labor force would be left behind under that kind of rine like to focus on tariffs but particularly their effect on housing we need millions of new housing units built in this
▶ 1:19:29country we now need uh to replace all the housing units in the Palisades and uh most of them in Altadena um and uh the John Burns research and Consulting folks uh say that the proposed White House tariffs will raise the cost of building structures in this country by 5% um is that good for people who are looking to own a home no I believe the cost of housing is already too high because of many
▶ 1:19:59things including regulations and I think the Tariff regulation would be quite bad for housing and if uh another thing a little off to the side of the FED but part of 2025 is to quote privatize Fanny and Freddy we had them privatized once where the taxpayers took all the risk and the private shareholders were supposed to make the profit uh should we go back to that Mr cous no I think the old system was quite broken and any system of uh de conservative ship would have to be done carefully and accountable
▶ 1:20:30and if we just didn't have Fanny and Freddy could we get give 30-year mortgages with 10% or 5% down payments to ordinary Americans no I I believe mortgage rates will be quite higher even higher than there already are under Trump I yield back gentleman yields back the gentleman from Michigan Mr hazinga who also is vice chairman of the full committee is now recognized for five minutes uh thank you thank you Mr chairman and uh Dr con good seeing you again has been a while I was I was around
▶ 1:21:00first time uh you were in but um the Federal Reserve System I there's been a lot of talk about the Dual mandate it actually is focused on three key monetary policy objectives maximum employment price stability and moderation of long-term interest rates somehow that seems to get uh sort of Forgotten I'm going to ask you a yeah uh a uh a too high too low or about right uh for a response to this question are
▶ 1:21:30interest rates right now too high too low or about right Dr con so I don't have a judgment on what ex you know right level they're they people's I don't have time for an explanation you think they're about right they're about right for what people expect okay Mr Wang uh today the 10 year yield is about 4% I think that's about right okay Dr Michelle sure I have really no
▶ 1:22:00idea and I don't think they do either okay Mr coel they're slightly restrictive which I think is appropriate given inflation right now so too low slightly too high too high apprpriate but but higher than they should be in the long run great so I obviously I I wasn't here for the creation of Dodd Frank 2010 I got elected in 2010 but I've been living with the echo effects of it uh ever since um I believe that today the FED has even more power more influence and more control over our financial system than it
▶ 1:22:30than ever before while improvements as Dr con you had said have happened in transparency partially because of the push that came out of this committee uh the it does I believe remain shrouded in mystery to most of the American people um and frankly we're not talking about groundbreaking stuff right now I mean this is the these are things that we talked about over a decade ago and we were asking many of the same questions how could the FED be more transparent to Congress and the American people how could they communicate its
▶ 1:23:01policy choices uh better and then direct uh and the direction it was taking so that consumers and investors uh could make informed decisions about today and in the future Dr Michelle let's start with you uh you uh you noted uh and cited a paper by economist John Taylor one of my favorites uh titled monetary policy rules work and discretion doesn't as you know Dr Taylor became famous for the Taylor rule which essentially has a suggestion of
▶ 1:23:31guides how central banks uh could adjust interest rates to stabilize economic activity um I had suggestion when uh when Cher Yellen was in here that she could create the Yellen rule it didn't really matter what it was but were there some rules that were were published now everybody says well we do this behind the scenes but the problem is it's behind the scenes and and nobody really knows what they are doing there's seeing a guessing game so could you explain to the committee uh Dr Michelle uh how something like the Taylor rule or
▶ 1:24:01the Ellen rule or any other rule uh could have impacted the fed's decision during the most recent economic downturn sure if if we go by the standard any of the standard rules really that are accepted uh by macroeconomists then in that case yes there are rates are too restrictive at the moment um if they had been following a rule at the very least we would know what they're doing and why they're doing doing it and by we I mean you guys Congress uh and I think that's the most important thing there's no way
▶ 1:24:32judge how good or how badly they're doing because you don't really know what doing okay and that's why our rule is important something like the form act which had been piece of my legislation would that be a good starting point no I think that's a perfect starting point because it provides what we call a flexible rule they they put a base rule in place they can pick the rule that they like and they can stick to it until they don't as long as they explain to Congress what they're doing that's different and why
▶ 1:25:03um I'm having I'm running out of time so I'm having to jump around here a little bit um obviously the FED now sets rates administratively partly through interest on reserve balances and and there's significantly more reserves in the system now uh don't want to put words in Dr con's mouth but it almost sounded like you said doesn't really matter what the reserves are um and I I mean I what I need to know though is has the FED incentivized financial institutions to hoard reserves instead of putting Capital to work for the real
▶ 1:25:34economy I think the liquid the liquidity regulations put a premium on holding liquidity and they need to look carefully at that as to whether they're over incentivizing holding liquidity I don't think they are it's important for financial stability so I I I agree that there are adjustments Wang said to the to the uh leverage ratio that could be made that uh enable uh Banks to intervene more or
▶ 1:26:04more aggressively in stabilizing the treasury market and that and that would be helpful for example exempting reserves from the leverage ratio okay um the time has expired we may be following up some with some written questions I yield back thank you gentleman yields back the chair now recognizes the gentlewoman California the ranking member of the full committee Miss waters for thank you very much um Mr conso a reporting has shown that American families are bracing for higher prices as consumer
▶ 1:26:35confidence failed drastically in February uh in response to Trump's actions as president so far in my home state of California a dozen eggs are going for $9 or more and that's just the beginning families expect the price of housing groceries gas and basic necessities to to rise even further this is especially true now that Trump said he would Institute 25% import taxes on consumers and businesses
▶ 1:27:06are buying goods from Canada and Mexico and stock markets dropped in response given these Trends what are the Republican policies aimed at decreasing the cost of living are under Republican leadership can we only expect the cost of living to rise I think the policy independent I think the policy uncertainty about what's happening for instance um you know I was off the grid last night so I didn't know whether or not we were going to have a North American
▶ 1:27:36Trade War when I woke up this morning uh apparently we do um that kind of policy uncertainty is very poor for investment it's very poor for growth and the emphasis on uh prices increasing at a period where consumers and everyday people are much more sensitive to prices than they may have been in decades you know more recent decades I do worry it will feed into inflation expectations price increases wage demands in a way that would be much more persistent than what we saw during the B Administration but let me just ask you
▶ 1:28:07um this business of um increasing the tariffs uh on our neighbors will that absolutely increase the cost of living for Americans because there may be retaliation a of some sort um very very much so I mean that's kind of the point of the tariffs to raise prices um you know we're already seeing Auto prices going up over the last several months in anticipation of this I believe uh after having declined for
▶ 1:28:37you know about two years beforehand and you know the way it particularly hits internal supply chains um because so many like a car will go across the border so many times I think will be pretty complicated very difficult for firms to do even if there was clearer Communications and a better process for implementing them committed Democrats have many proposals to address the rising cost of living we're fighting for legislation to grow the middle class lower cost and fight against wealthy corporations I'm especially committed to addressing
▶ 1:29:07our nation's growing housing and homelessness crisis through bills like my housing crisis response act ending homelessness act and down payment to an equity act if Republicans will take up these bills and pass them would Democratic policies lower Americans housing cost I I believe so I believe there's you know a real Supply issue as well um but I do believe that getting more money into people's pockets will help um
▶ 1:29:37you know provide Economic Security uh and crucially finding ways to like build the labor force build the middle class You Know Better Health outcomes better education outcomes I think builds our labor force and our productivity and our ultimate growth do you have any idea what percentage of the American public uh are paying 30% or more for rent for example it would not Shock me to be quite High I I don't know I'm sorry do you believe that um with the bills that I've just
▶ 1:30:08uh identified that we're passing uh this would increase uh perhaps the ability to develop more housing uh more affordable housing for people who are making uh lower incomes I believe so and so would you recommend uh that these bills be passed not only by democrats but by Republicans who are having tremendous problems in their own districts with people not being able to afford a
▶ 1:30:38decent cost of living I think housing is a serious concern for bipartisan support of major initiatives yes thank you very much and I you're back General lady heels back the chairman from the gentleman I should say from Kentucky Mr bar who's also chair of the subcommittee on financial institutions is now recognized for five minutes thank you Mr chairman Dr Michelle thank you for your lone dissenting voice in lesie stalls biased and one-sided 60 Minutes report on Doge's
▶ 1:31:08audit of the cfpb which as you know is funded entirely uh from the FED in uh in M stalls uh critique of Doge's access to personal private financial information she failed to point out and by the way D former director choer also failed to point out uh that the only reason why Doge had access to that information is that the bureau itself collected that information so uh
▶ 1:31:38let me just uh ask you to correct the record for 60 Minutes uh would Doge have had access to personally identifiable financial information of Americans had the cfpb not collected it in the first place no no okay so uh can you also inform the American public who maybe were misinformed by that 60 Minutes interview what happened with all that personal uh financial information that the CFB
▶ 1:32:09collected in uh and I believe it was 20 March of 2023 when the cfpb experienced a data breach uh well I mean that well that was they had a data breach so I mean a lot of people got access to information that they shouldn't have had access to because that was collected in the first place yeah so I I what's the greater threat to uh American financial data privacy the cfpb or Doge well I I did answer on
▶ 1:32:39that interview I don't think I don't know that it got made the segment but I said I have no greater concern that anybody in the administration now has access to that information than I did that the agency the bureau itself had so I I I would say yeah my problem is that they have that information to begin with yeah exactly so let me ask you this does the fed's role in funding the cfpb politicize the FED absolutely it should not be set up that way so if you're concerned about politicization of the Federal
▶ 1:33:09Reserve why don't we how about this take the bureau away from the Federal Reserve and subject it to the Congressional Appropriations process you think that's a good idea absolutely yeah let's let's join in a bipartisan way reassert congress's appropriation Authority and actually depoliticize the Federal Reserve by taking the bureau out of the FED um Bank regulation um uh Mr Wang um I want to ask you about bank regulator the bank regulation's impact on monetary policy
▶ 1:33:40specifically the way the SLR is currently calculated disincentivizing Banks from serving as intermediators in the primary secondary and repo markets for US Treasury Securities decreasing liquidity in the treasury markets Mr wangw and increase in Market liquidity and stability help bring the long end of the yield curv down which would in turn reduce mortgage rates and therefore reduce the cost of living for Americans I believe it would and does this uh give the Federal Reserve would this give the Federal Reserve greater
▶ 1:34:10flexibility to lower the FED funds rate and ease monetary policy yes it would so this is very important for all of us to remember if you want to lower uh interest rates if you want to lower inflation uh the FED needs to um uh uh uh focus on deregulation uh and especially with the SLR uh let me ask you about the balance sheet and and i' I'd like uh uh Dr con to weigh in on this you know shrinking the balance sheet on on the one hand uh obviously pulls
▶ 1:34:41uh the money supply back um and and and from that standpoint U might be uh disinflationary but also shrinking the balance sheet decreases demand for treasuries uh possibly pushing upward pressure on the 10-year is shrinking the balance sheet inflationary or disinflationary I would say it's disinflationary to a minor extent for the reason you said pulling it back probably puts a little bit of upward
▶ 1:35:11pressure on that 10year okay uh let me ask final question a lot of conversation about the 50 basis point cut in September um certainly if it even If U chairman pal is right that uh they're not focused on politics the perception was really bad it was a bad look uh two months before a major election to cut that aggressively 50 basis points uh in my view um and was this a mistake because uh
▶ 1:35:41the the even though the federal funds rate was cut aggressively uh you still had uh an increase in the 10year all the at the same time anyone so I don't I don't think the increase in the 10year reflected the cut in the federal funds rate there was very little increase in inflation expectations as measured in the market it was mostly term premium over the next few months and that's about uncertainty and certain their uncertainty created by the election by
▶ 1:36:12financial and economic development so it wasn't really about the cut in the in the funds rate well obviously the 30-year fixed rate mortgage shot up right despite rate cut and gentlemen's time I would also flag that that summer we had breached the S rules so many people were quite worried about an incoming recession and rates were quite restrictive at that point so the gentleman's time has expired the chair now recognizes gentlem from Illinois Mr Caston for five minutes uh thank you I just note that Mr Bar's support for giving
▶ 1:36:42um unvetted Personnel access to the treasury payment system with unsecured devices hacking in not only us taxpayers information but other information held by the treasury is neither patriotic nor supported by the full committee um I want to ask a really dumb question first and this is not a gotcha question does anybody disagree with the statement that price increases inflationary I see okay so we agree that the Tariff policy that Donald Trump is imposing to raise
▶ 1:37:12prices on imported goods is inflationary I I am sure we may we may have differences we certainly have differences up here about the fiscal consequences of that but it raises questions about what happens when the fiscal policy of the United States is at odds with the monetary policy of the FED one is trying to bring down inflation one is actively working to bring it up the 1890s Show an example of what happens I would rather not make America great again back in that time period even though a lot of the White House seems to support what life was like in 1890s
▶ 1:37:43but for us to manage that we are going to have to keep an eye on the data in the system do all of you support as chairman Powell indicated when he was a few weeks ago that we have to make sure that data at the Bureau of economic analysis and the Bureau of Labor Statistics stays pure stays accurate stays Untouched by political appointees trying to change that data well I think the accuracy and the purity of that data are absolute and The credibility of that data are absolutely essential can I make a distinction between price increases
▶ 1:38:13I want I want to just move on because I want to get to another point that I that is not as as partisan and I think more supported but I I appreciate you saying that because when Donald Trump is saying that he wants to go in and put schedule left employees get rid of them make this political there's bad things that happen I I want to shift to a different issue I've heard uh concerns from a number of people who I trust about the surging volumes of dollar denominated deposits in non US Banks um and specifically that um and I I have
▶ 1:38:44a hard time getting data that's all some of this the data gets a little stale but in 2021 Global Banks were holding over 15 trillion in dollar denominated deposits first quarter of 202 three um it broke a streak of three consecutive constractions it was an increase of $326 billion of US dollar deposits in foreign Banks and so I guess Dr con given your work on the Federal Reserve board is is that consistent with what you're saying that we're seeing increased dollar deposits in non- US Banks uh I don't know anything
▶ 1:39:14about that okay um have any of you seen seen this data or heard the concern before um okay the issue that's been raised to me by several folks is that there's a consistent bipartisan push at treasury to have a strong dollar because it lowers our borrowing costs that in terms makes the dollar very attractive for remittances it makes the dollar very attractive um you know as the you know makes our exports stronger and if we have increased dollar deposits at
▶ 1:39:44US Banks we don't have the FDIC doesn't regulate those Banks and so if there is a run on those dollars there's a there's a macroeconomic concern con ER and bis recently noted that Global banks are turning to increasingly flighty funding services to secure those um in the first half of 2023 dollar funding by money market funds to Global Banks went up by 53% um and most of that came in the former repos so I guess Mr conso I'll start with you are there are are there
▶ 1:40:14any hidden risks sitting out there in the repo market and should we be concerned about you know any broader contagion if there's a run on those do I don't know enough to comment I apologize and anybody have any intel that so I was a repo Trader on the Federal Reserve the repo loans are secured by treasury collateral so they are very safe in the past a lot of banks traded unsecured there was credit risk then but today it's a much more stable form
▶ 1:40:44of financing but but but I guess like the the the security of money market funds make sense when we're looking on our own borders and and the concern I have is like what happens if we have large volumes I mean maybe if you any just want to answer academically if you're not familiar with the immediate data if you have large growing volumes of dollar deposits that are outside the FDIC system and those are being backed by money market funds it should we be concerned about that like it it seems like with all of the checks we have
▶ 1:41:14internal to our economy we know how to regulate those because our banks are regula in the US what happens if you've got huge numbers of dollar deposits at the Bank of China historically what happens if we have dollar disturbances abroad is the Federal Reserve has foreign swap lines FX swap lines will they will lend to foreign central banks who in turn can support the dollar deposits in foreign jurisdictions but but doesn't that then create an issue where like our foreign adversaries could potentially be creating a run that we would have to step in and back stop with taxpayer
▶ 1:41:45money that is possible depending on a jurisdiction not all jurisdictions have swap lines yeah I I do think it's important for the authorities in the US and globally to look for spots uh examples of things that might be might become unstable because of runs I don't know whether this is that you've actually spotted one or not but I'm I'm getting the tap I don't know there is a run it's just it's a it's a concern and I if you learn more I'd love to chat with you gentleman's time has expired the gentleman from Nebraska
▶ 1:42:16Mr flood who's also chairman of the subcommittee on housing and insurance is now recognized for five minutes thank you Mr chairman uh good morning everyone I too have been concerned about uh the size of the federal reserve's balance sheet quantitative easing is a monetary policy tool that is less than two decades old and it's already led the Federal Reserve to carry a significant balance over the last decade today the federal reserve's balance sheet remains at more than $6.7 trillion doll of assets despite
▶ 1:42:46recent efforts at quantitative tightening my concern is that with a pattern of quantitative easing over the next couple of years I feel that we'll see the fed's balance sheet grow much faster in bad Economic Times than it will shrink when the FED moves to quantitative tightening during the good times in this scenario we could see the fed's balance sheet grow larger and larger and larger over time I'd like each one of our panelists to comment on this concern that I have uh and here's the question do you feel that it's
▶ 1:43:16misplaced or do you think that there's reason to have concern about the possibility of what I'm talking about uh Dr con uh let's start with you so I think the balance sheet would grow only if interest rates were already at zero and there were a threat to the US economy so I'm glad that the Federal Reserve has the authority uh and would make the decision to grow the balance sheet in order to lower interest rates and stimulate spendings at time of weakness so I'm not particularly concerned about that thank
▶ 1:43:46you Mr Wang so under current banking regulations banks are required to hold lots of liquid assets among them reserves and so in a sense in order for banks to to meet those requirements we would expect the Federal Reserve to gradually grow its balance sheet maybe not at the same rate as it does during emergencies but over time simply to produce liquidity for the banks to hold thank you Dr Michelle yes so especially if anything else happens any other emergency situation not
▶ 1:44:17necessarily as bad as the covid crisis but the runoff is so slow uh as it was the first time that it's more likely to increase than decrease in the long run I think for now thank you uh Mr consel um I think there's a very big academic debate about whether or not we are near still in so-called secular stagnation or in a period of very low interest rates in normal times uh if we are still in that world it would probably expand again in the next recession but if we're not and the Federal Reserve has enough uh leeway with its interest rate
▶ 1:44:47policy to manage a business cycle then then not so my my assumption is Baseline um probably declining okay so now that the Federal Reserve is amassed such a large balance sheet one concern is that quantitative tightening too quickly could lead to instability in the market for treasury Securities uh here's the question if we're unable to unwind quantitative easing measures in a timely manner due to concern with the treasury market does that raise questions about how viable quantitative easing is as a long-term
▶ 1:45:17sustainable monetary policy tool uh Dr con let's start with you I think that I would answer that question the way I answered the previous one I think they can still go out and buy more Securities if they need to under the circumstances there's really no relationship between the size of the balance sheet and inflation I know that people worried about that in the 201s people from this committee I had conversations with staff on this committee the balance sheet is blowing up we're
▶ 1:45:47going to have inflation didn't happen until the covid thing right so I I think it I don't I don't worry about the size of the balance sheet relative to inflation for thank you I'd like to Pivot to Federal Reserves emergency liquidity 133 Authority Dodd Frank made some changes to section 133 and in the economic downturn accompanying the the uh onset of Co 19's pandemic we saw the Federal Reserve use this revised Authority for
▶ 1:46:17the first time in its new form with treasury uh Mr Wang what lessons can we we learn from how the Federal Reserve Ed Section 133 uh facilities during 2020 and how should we in Congress be thinking about this Authority moving forward so when I take a step back and look it seems like these 133 facilities are growing in their extent and we saw them come out during the great financial crisis to help money market froms asset back commercial paper this time around in 2020 they
▶ 1:46:47also helped uh corporate credit mainstream lending facilities it seems that they keep growing growing and the FED is in effect being the lender of Last Resort to everyone in the in the economy so I think it's worth thinking about if that's the design of the FED if that is in agreement with the wishes of Congress thank you Mr Wang and thank you Mr chairman for for chairing today's committee and with that I yield back gentleman yields back the chair recognizes gentleman from Louisiana Mr fields for five minutes thank you Mr chairman uh for hav is here and
▶ 1:47:17also the the ranking member and I also want to thank the witnesses for being here uh I only have uh three questions and I'm going to direct all three of them to uh Cel um first the the Trump administration's uh plan to shut down the Consumer Protection Bureau uh could lead to many consumers um to financial exportation including predatory lending and fees uh could the
▶ 1:47:47absence of strong consumer protection contribute to the economic instability or financial distress for the working class yes I believe so and uh the Trump Administration also has openly U pressured to feds into uh to to cut rates and while chair chairman proud uh pow has um
▶ 1:48:18uh consistently said uh that he has resisted those pressures and and he has do you believe that the FED uh is facing greater risks of political influence to dat and previous administrations yes I believe the attack on the independence of the independent agencies including the Federal Reserve um is you know we haven't seen that kind of risk in a long time uh and I think the way that they are trying the Trump Administration is trying to thread a needle
▶ 1:48:48where they're saying the FED won't be independent except for monetary uh is unstable uh and the people I talk to uh who would know the Federal Reserve and you know nonpartisan analysts um believe that that's not really a stable Arrangement and that the whole institution including monetary policy will be politicized under this Administration and my last question is there are reports that the feds have recently removed uh public um remove public diversity and
▶ 1:49:19inclusion data from his website uh following the Trump Administration in my opinion unlawful order to dis uh uh to eliminate uh Dei programs do you see this as a concerning Trend uh and how could we uh um reduce transparency in the workplace and uh and and have an impact um
▶ 1:49:49Financial policy making so this is not my world but I do know many experts are worried not just about this or that initiative but a more wholesale attack on civil rights law in this country uh we saw with some of the executive orders that came out uh you know Financial inclusion is quite important it's a huge priority for administrations and you know you see things about research being pulled because it's looking into say the way credit or other things impact uh different populations I think not being able to research that or address that would leave many Americans
▶ 1:50:20behind all thank you Mr chairman I you back to balance of my Time gentleman yields back the chair now recognizes gentlem from Montana Mr Downing for 5 minutes thank you Mr chair and the witnesses the panel thank you so much for your time and being here today um I'm going to start out a little on uh transitory inflation uh Dr con the Biden Administration and the Federal Reserve spent most of 2021 assuring the American people that the inflation they were
▶ 1:50:50seeing was merely transitory and that no action was needed you know what what followed was the worst rate of inflation since the early 1980s when the Federal Reserve finally changed course but you know inflation hits rural areas like Montana's second district that I represent uh the hardest so how how did the Federal Reserve get this you know wrong for so long I I think F first of all the Federal Reserve was not
▶ 1:51:20alone in getting it wrong most eon e omist had it wrong so if you look at surveys of economists they had that wrong secondly I think we need to recognize how unique and unusual the situation was once a century the global economy closes down because of a pandemic right so 1918 and last time so there's really no precedent how do an Analyze This what's going on how soon it's going to unwind is very very difficult
▶ 1:51:51and thirdly I think to the fed's credit they recognized they made a mistake and they tightened quite substantially in 2021 and they would be the first to tell you no we should have gone a little earlier if we knew now you know if we had good foresight we would have gone earlier but it was a very difficult situation to separate the supply effects when they were going to run off versus the demand effects and tightening policy yeah thank you SW switching here a little
▶ 1:52:21bit um this is um Mr Wang you know the the United States now exceeds $36 trillion do in debt that's over $100,000 per person uh staggering um United States pays more on its interest than it does on National Defense every year and at our current Pace you know the interest on our debt will be the second largest US expenditure by 2035 after Social Security you know chairman Powell has repeatedly stated our national
▶ 1:52:51debt is on un un unsustainable path so what does an actual debt crisis look like and how much longer can the us stay on this debt path I think in the case of the United States we are special in that we can print our own currency and so in that sense we can always afford our debts but there are macroeconomic consequences to this where that could be ultimately uh Place upward pressure on inflation thank you um you know
▶ 1:53:21switching again this is for Dr Michelle and I know that chairman Hill asked a similar question to Dr con but I'm going to try to rephrase and I'd love to hear yours um you know the Federal Reserve has a dual Mandate of stabilizing prices and maximizing employment we also know an economy that's too hot is likely to suffer from high inflation and the Federal Reserve has um had to react to the trillions of dollars in spending from congressional Democrats during the 117th Congress by raising interest
▶ 1:53:51rates and uh you know I I noticed in your opening remarks that you said uh you know Congress gives the fed too much to do and uh too much discretionary Authority um but my question to you is would the Federal Reserve be more effective if its sole mandate was to achieve stable prices yes no I I believe it would uh it would you would be giving it something to do that it could actually control and that it could actually directly affect as opposed to something that's nebula
▶ 1:54:22and very difficult to Define much less uh control thank you uh Dr con back to you uh during the first two years of the Biden Administration Congressional Democrats spent trillions of dollars in economic stimulus despite early warning signs of inflation does this sort of unprecedented spending make the federal reserve's job of combating inflation difficult so I think the FED still had the tools to combat inflation I think if what disapp pointed me
▶ 1:54:52a bit was that they took so long to use them and they should have seen the demand enhancing effects of those spending and that should have sent their antennas quivering perhaps a bit a bit faster on that inflation so the FED could have fought the inflation but there was difficulty analyzing it and difficulty figuring out when when to move right well I I I thank you for your answers and unfortunately I run
▶ 1:55:23out of time so Mr chair I yield gentleman yields back the chair now recognize a gentleman from Oregon Miss B him for five minutes thank you Mr chair and thank you to our Witnesses today um the first question I have is kind of I'm a mom I've have got four kids two of them are college age I love them I want them to live in our community but it doesn't feel like there's a whole lot of Hope for our kids moving out of our homes these days and so I wanted to ask if any of you knew the average age
▶ 1:55:53of the firsttime home buyer and whether we should be concerned I believe it's I believe it's risen up to 32 38 was what I was told 38 okay I believe and it's in the 30s now which is higher than it had been yes um I if if you're asking me if I'm concerned about that no would you elaborate well I don't think that the policy that the US Congress implements or that
▶ 1:56:23the federal government implements should be directed at picking a particular age for the first-time home buyer and I think that the reason that the age is gone up is a whole set of circumstances um some of which they can't control and and I don't think that that should be the goal anyway so yeah a lot of this is a response to uh constriction on local Supply so I think a lot of this has to do with our local communities and the zoning laws and we need to increase the supply of house hous and that would make that
▶ 1:56:53more affordable but a lot of that is just state and local regulation okay that's very helpful thank you um Mr conso so Rising mortgage rates have made it much harder for firsttime home buyers to afford a home and so many existing homeowners are locked in to low rates limiting our housing supplies some of which was just alluded to so given that monetary policy plays a role in interest rates but isn't the only factor in housing costs what policy Solutions
▶ 1:57:23do you think could complement the fed's efforts to ensure affordability without increasing pressures um estimates vary uh but you know I I think you know associations believe they're somewhere between three and six million too few homes um so policies that allow us to build homes faster and cheaper more generally productivity and construction and housing has lagged quite a bit over the last few decades there's been a lot of research um trying to figure out why but you know as as um
▶ 1:57:54Dr Cohen mentioned uh you know local constraints seem to play a role in that I will say efforts to boost income security for young families is quite important you know I look at the monthly um child tax credit that was fully refundable that was past part of the American Rescue plan which you know cut child poverty in half uh I think was an incredibly good investment in families and community and then you know that investment in Children and Families pays off dividends decades later as Better Health outcomes better education outcomes and better outcomes for everyone
▶ 1:58:25thank you um my second question on that is we know that increasing the housing Supply is critical to long-term affordability but the highering higher borrowing costs have made it more expensive for developers to build new homes so how do we ensure that efforts to curb inflation don't worsen the housing shortage and make affordability even harder in years to come that that was an irony and a a ult part of the recovery was that you know one place where we knew
▶ 1:58:55um higher in restrictive interest rates were particularly binding was on the housing market which slowed quite dramatically after having picked up um that said the housing deficit is a longer term problem it certainly comes from the aftermath of the financial crisis and the large wave of foreclosures that happened after that and the very um the you know the much lower rate of housing building that happened following that so you know that was something the Federal Reserve obviously took into account um the fact that you know housing in the way housing inflation was measured was quite
▶ 1:59:25high but they were also restricting the supply of new housing um but that was a you know more temporary um and short-term problem you know as rates normalize hopefully we can see Home Building pick up and we can find ways to make homeing construction productivity even better thank you Mr chair I just like to put on the record I am very concerned that our young people um based on the testimony of the the witnesses here today can't really look forward to um being able to purchase a home in the next 10 years if
▶ 1:59:55they're just graduating college at about 22 I mean that's I think that's what you're seeing um as an uprising in this country and that's really challenging for me so maybe it's on policy makers and maybe what you all are suggesting it's not on the FED but it's on policy makers to make that a reality for our young people gentlemen gentle ladies duly noted statements comments duly noted thank you I yel back gent lady Ys back the chair now turns to the Gent from Indiana Mr
▶ 2:00:25stutzman for 5 minutes thank you Mr chairman and thank you gentleman for being here uh today and for your comments um I'd like to go to Dr Michelle and then would also invite any other comments from the panel as well but uh as we know the Federal Reserve is mandated by Congress to ensure price stability and promote maximum employment but it was only in 2012 that the FED public made it known that it had a 2% inflation Target
▶ 2:00:56uh Dr Michelle your testimony describes some of the reasons the FED has used to justify the 2% Target and practically speaking what does it mean to Target a constantly positive rate of inflation is it fair to think about it as debasing the value of the dollar by 2% a year I think there's a lot of focus on this 2% inflationary inflation number I'd like to hear your comments on that that that that that's fair that's an accurate way of looking at it um I the
▶ 2:01:26the most common sort of reason uh given is that the FED needs to keep inflation going so that the economy keeps moving sort of a grease the wheels uh thing and motive rather and and and there's really there's a lot of academic research that suggests that that's not really the way that that works and if you do have a growing economy an increasing Supply everything else constant you should see prices come down more goods and services available uh they should become less
▶ 2:01:57expensive um we prevent that from happening and I and I don't solely blame the FED because there is a fiscal component a spending component to that um but in conjunction I do blame federal policy partly on the FED side uh for trying to ensure that the price level never Falls and uh contrary to what Mr Sherman believes uh it is perfectly okay and it has been historically to have a gently falling price level it does not mean that there's a Calamity
▶ 2:02:27there's a huge difference between a collapse in asset prices and a gently falling price level and the and the latter is not a bad thing it's a good thing I mean supply and demand dictates price levels to a point but it feels like we're also trying to manipulate the market to hit this 2% number M Mr wayang would you want to comment or you're shaking your head there like you're no I agree so the 2% Target is something the FED said itself whereas the Mandate given by Congress is price stability it
▶ 2:02:57seems like that could be defined by by Congress if it were of their choosing so I like the definitions that chairman vulker and greenpan gave to price stability that is inflation low enough that people don't have to take account of it in their everyday activities and I think we have a lot of evidence that 2% reaches that no one was talking about inflation when inflation was two or just a little under through the teens or two in the early
▶ 2:03:282000s so I think and another I mean uh Dr Michelle is right that one of the reasons that people favor a little bit of inflation is it greases the wheels of the and I have some empirical studies that I can counter him with but I think another reason is the level of nominal interest rates so expected inflation gets built into nominal rates if nominal rates are already at one or zero and something bad
▶ 2:03:58happens to the economy there's very little the FED can do to lower interest rates and it'll be forced into buying Securities so keeping nominal keeping nominal rates high enough to embody that 2% inflation and a one or two% real rate 4% means in equilibrium then something bad happens then the FED has 4 percentage points to lower to lower interest rates to stimulate the economy without resorting to QE
▶ 2:04:28I me I know my district I want to come to you Mr Cil and my District's full of small businesses manufacturing Agriculture and uh you know to anticipate you know these marks is is sometimes difficult it's more important to look at where you're at in the business and where do you believe you can make profits Mr conso would you I was just going to amplify you know the committee seems very concerned about the level of balance sheet and you know that that is something that people you know wonder about but if we were trying to Target 0% inflation the balance sheet would be much more volatile because that would basically be
▶ 2:04:58the only tool you have so you think the 2% Target is the right target I uh personally prefer a 1 to 3% Target it has served New Zealand and many other countries that have really fantastic macroeconomic concerns I think the point target is a little hard and gets into this averaging question that the FED is currently doing there's actually a wide variety and I think it wouldd be a great thing for the task force to study all right Mr chairman I'll I'll yield back to balance of my time but I do think supply and demand economics is critical for our country to be really successful gentleman Ys back the chair now recognizes
▶ 2:05:29gentleman Wisconsin Mr Fitzgerald for five minutes thank you chairman thank you uh gentleman for being here uh so Jason Ferman I think whose name came up earlier was President Biden's top Economist at the cea and um he recently published a lengthy oped admitting that bomic was a failure uh his arguments what he argued was uh I think a lot of uh Democrats were kind of in denial of this but
▶ 2:06:00the inflation was principally caused by too much government spending and I know there were numerous bills and uh that were rolled through while I was a member the last couple of congresses and and not just the global shock of uh the the supply chains right so um and yet when I read uh um Mr kzo your written testimony you you don't acknowledge uh that the government spending
▶ 2:06:30led to the inflationary increases at all so I I'd just like to hear your response on that because I I think it's important as we look back on what happened now you know what is the case by those that say that that did not happen I don't want to put words in your mouth so absolutely I'm I'm very familiar with Jason's article um you know I to me it's an it's an argument from 2022 Jason Ferman at that point argued um you would need a mild recession to get inflation below 4% and a Severe recession to get inflation
▶ 2:07:00below 3% right now inflation is about 2.5% still a little higher than we'd like it but with a period of growth that was above Trend and unemployment below 4% on average so I think that argument the which is what the argument is of of the piece um there's a lot of different arguments about how much the ARP American Rescue plan may have contributed price Rose about 21% under President Biden's four years normally they would have risen about 8% um I've seen some arguments that maybe about 2% of
▶ 2:07:30that could have been attributed to fiscal stimulus um so you know would 19% instead of 21% prices really have changed the needle for everyday families probably not um and the income security that came particularly through the child tax credit and many other things helped stabilize balance sheets that I believe gave us the best recovery following the invasion um you know you can look at Blue Chip for as was brought up before this private nonpartisan you know even after the American Rescue plan passed you know the highest estimate in Blue Chip for inflation in 2022 was
▶ 2:08:013.2% the actual number was 8% um I think the shocks of the reopening the shocks of huge changes and and demand and you know as a reminder the um unprovoked invasion of Ukraine by Russia really through commodi markets into turmoil which you know in the long run those relative prices don't matter but in the short term you know the price of good Skyrocket but the price of services do not fall and that increases overall inflation and services come back online into a higher price level so you know we can argue at the margins uh how
▶ 2:08:31much of difference it made but the idea that it was the primary driver of an inflation that was Global and was seen by other pure countries I just don't think the uh evidence is there so Dr Michelle wasn't inflation the result of not just supply side shocks related to the pandemic but just too much government spending I mean I the yes definitely was a cause one of the causes for sure and that it did occur globally by the way we're not the only country that did a lot of government spending so that we're not unique
▶ 2:09:01in that regard either well um so uh Mr Co let let me just kind of switch topics real quick uh recent economic data indicates long-term interest rates have disconnected from the fed's expectations uh with 10year rates now about 40 basis points higher uh than when than what the FED expected I think um do you think that was predictable or do you feel like everything that's
▶ 2:09:31happened you know we've had the chairman before the committee numerous time the full committee uh what do you think we are we are right now I think there have been a couple of contribut couple of different contributors to the rise in long-term rates one is that because the economy was so strong in the fourth quarter and coming in into the first quarter and financial markets were so IM bullant people took out some easing that they had built into the FED policy so they thought the
▶ 2:10:01economy was going to be weaker fed policy was restrictive Fed was going to have to cut interest rates by more now they put a little more back in there but the FED itself and the market saw less need for easing so it wasn't a a question the FED would need to raise rates but it would be easing less secondly there's a little bit of extra inflation in there partly because of the concerns about the tariffs and what that would do to the price level near-term inflation and third a lot of it is the so-called
▶ 2:10:31term premium the stuff we don't we can't attribute to expected policy or inflation it's uncertainty about what's coming next the fact that if you're holding a long-term security you're taking risk because the price of those Securities go up and down you need to be compensated for risk and you have concerns about the risk some of it could be the fiscal trajectory that we've been talking about the unsustainable fiscal trajectory and few hints that it'll
▶ 2:11:02change anytime anytime soon so I think there are bunch of different reasons for that uh basis point increase in the in the 10e rate thank you Mr chairman before I yield back can I ask um unanimous consent to insert Jason furman's oped titled the post neoliberal delusion and the strategy of B bomic into the record seeing no objection so ordered and the gentleman's time has expired I would like to thank all of our Witnesses for the testimony and simply to note as we would
▶ 2:11:32say back home monetary policy is a chess game it's not Checkers is it gentlemen without objection all members will have five legislative days to submit additional written questions for the witnesses to the chair the questions will be forwarded to the witnesses for their response Witnesses please respond no later than April 30 2025 this hearing
▶ 2:14:50e for