▶ 0:19:16How about a watch? Committee on Financial Services will come to order.
▶ 0:19:44Without objection, the chair is authorized to square a recess at any time. This hearing is entitled the Federal Reserve semianual monetary policy report. Without objection, all members will have five legislative days within which to submit extraneous material to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. Good morning. I want to thank uh Chair Pal for joining us today. We appreciate your time and look forward to hearing more about the Federal Reserve's outlook on economic and monetary policy.
▶ 0:20:14There's been a lot of rhetoric lately, particularly from our friends across the aisle suggesting that Republicans in the Congress are steering our economy toward a recession. However, the facts tell a different story. Four months into the Trump administration, American workers and taxpayers are already benefiting from a strong, resilient economy. The Fed noted that growth is solid and even former Fed officials have dismissed the idea of a recession this year or is near.
▶ 0:20:43Compare that to the previous administration. Under President Biden, Americans endured the highest inflation rates in decades driven by reckless spending and misguided policy decisions. Now, under the Trump administration, inflation has declined to levels lower than those seen before President Biden's flawed so-called American Rescue Plan, and real wages are finally, meaningfully growing again.
▶ 0:21:09There's always some economic uncertainty when the United States engages in difficult negotiations necessary to secure more open markets for American goods and services. But that uncertainty is not without a strategy. a strategy of balanced lower regulatory costs, progrowth tax policy, and controls on federal spending, all combined with trade successes offer economic opportunity.
▶ 0:21:37One Fed official, Governor Waller, has outlined a bal how a balanced approach combining potential tax rates with targeted tariffs could foster strong economic growth. Let me clear be clear on that point. We can fight to open markets, break down non-tariff barriers, while achieving solid economic growth at the same time. That's President Trump's goal, just as it was for President Reagan in the I also want to commend you, Mr.
▶ 0:22:03Chairman, the F Federal Reserve for taking positive steps to keep politics out of the Fed, including disbanding four internal climate related committees and making the Fed leaner and more efficient by rightsizing your workforce across the system. These moves reflect a commitment to efficiency at the Federal Reserve. I'm also pleased that Governor Mickey Bowman has been confirmed as vice chair for supervision at the board.
▶ 0:22:28Governor Bowman has been a tireless advocate for community banks and this committee is eager to work with her on policies that enhance our bank's ability to provide greater access to capital and services for our families and businesses across our nation. I look forward to today's hearing and I yield back the balance of my time. I'll now recognize the Mr. Foster on behalf of the ranking member for four minutes for an opening statement. Uh thank you and I will save everyone a little bit of time.
▶ 0:22:58Chair ranking member Waters was unavail unavoidably detained. I'll just say a little bit that you know the the markets have kind of spoken on their confidence in the in the Trump economy. Uh probably the single simplest uh metric of that is that the US dollar is down roughly 10%. Okay, this is not a small thing and it is uh has caused countries around the world to question the primacy of the US dollar going forward.
▶ 0:23:24This is one of the worst uh market responses I think uh to the chaos that we're seeing uh the tariffs that are very destructive to international trade and um just everything that that uh you know the markets are seeing and trying to suffer through. I know I'm contacted all the time by businesses in my district, manufacturing businesses that can't even start thinking about investing with the level of chaos just from the tariff policy alone.
▶ 0:23:51Anyway, there's a long set of things we should be talking about and I'm happy to save some people some time and let's get to it. Yield back. Gentleman yields back. I recognize the chairman of the task force on monetary policy, treasury market resilience, and economic prosperity, Mr. Lucas, for one minute for an opening statement. Thank you, Mr. Chairman. Today's hearing will allow us to evaluate the state of the economy and review the FMO FOMC's policy decisions.
▶ 0:24:14It's appropriate to regularly take a step back and assess the central bank's performance and its responsiveness to the economic constituents our constituents face back home. This hearing is particularly timely a conversation as the Fed wraps up its five-year framework review, including a thorough look at the consensus statement, communication strategy, and other guiding policies that will have a profound effect on the lives of every American.
▶ 0:24:38Many of these topics we'll discuss today, we've taken a closer look at in the monetary policy, Treasury market resilience, and economic prosperity task force. I look forward to building on these conversations here. One issue that I think warrants special attention is the binding nature of the SLR and ESLR on the Treasury Market intermediation. I'm glad to see the Fed is looking into this tomorrow, and I hope we'll see meaningful action soon. Chairman Pal, thank you for being here. It's critically important that Congress and the central bank have an open dialogue.
▶ 0:25:07Transparency, accountability, honest communications are pillars of our system success. I look forward to your testimony on the state of the economy and the Fed's plans for the future. And I yield back, Mr. Chairman. Gentleman yields back. I recognize the ranking member of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, Mr. Vargas, for one minute for an opening statement. Thank you very much, Mr. chairman and ranking member and thank you chairman pal both for your years of public service and for being here today.
▶ 0:25:33Since 1977, the Fed has been tasked by Congress with its dual mandate goals of achieving both maximum employment and stable prices. Unfortunately, this administration has made accomplishing these goals more difficult. In the Fed's most recent summary of economic projections, we see a forecast for slower growth, stickier inflation, and rising unemployment. All of which point to a potential stagflation scenario.
▶ 0:25:57Whether it's the president's indecision on trade policy, his hiring freezes impacting the collection of economic data, his ballooning of the deficit to cut taxes for the wealthy, or his name calling. All of these actions make it tougher for the Fed to do its job. I look forward to your testimony today, Mr. Pal, Chairman Pal, and I yield back. With that, gentlemen yields back. Today, we do welcome the testimony of the honorable Jerome Pal, chair of the board of governors of the Federal Reserve System. Chairman Pal, we thank you for taking time to be with us.
▶ 0:26:24You'll be recognized for five minutes to give an oral presentation of your written testimony. And without objection, your written testimony will be made part of the record. You're now recognized for five thank you, Chairman Hill, Ranking Member, uh, and other members of the committee. It's great to be back here today. I appreciate the opportunity to present the Federal Reserve's semiannual monetary policy report.
▶ 0:26:50The Federal Reserve remains squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Despite elevated uncertainty, the economy is in a solid position. The unemployment rate remains low and the labor market is at or near maximum employment. Inflation has come down a great deal, but has been running somewhat above our 2% longerrun objective. We are attentive to to the risks on both sides of our dual mandate.
▶ 0:27:20I will review the current economic situation before turning to monetary Incoming data suggests that the economy remains solid following growth of 2.5% last year. GDP was reported to have edged down in the first quarter, reflecting swings in net exports that were driven by businesses bringing in imports ahead of potential tariffs. This unusual swing has complicated GDP measurement.
▶ 0:27:46Private domestic final purchases or PDFP uh which excludes net exports, inventory investment and government spending grew at a solid 2.5% rate. Within PDFP, growth of consumer spending moderated while investment in equipment and intangibles rebounded from weakness in the fourth quarter. Surveys of households and businesses, however, report a decline in settlement sentiment in recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns.
▶ 0:28:17It remains to be seen how these developments might affect future spending and investment. In the labor market, conditions have remained solid. Payroll job gains averaged a moderate 224,000 per month in the first five months of the year. The unemployment rate at 4.2% 2% in May remains low and has stayed in a narrow range for the past year. Wage growth has continued to moderate while still outpacing inflation.
▶ 0:28:43Overall, a wide set of indicators suggest that conditions in the labor market are broadly in balance and consistent with maximum employment. The labor market is not a source of significant inflationary pressures. The strong labor market conditions in recent years have helped narrow long-standing disparities in employment and earnings across demographic groups. Inflation has eased significantly from its highs in mid 2022, but remains somewhat elevated relative to our 2% longerrun goal.
▶ 0:29:14Estimates based on the consumer price index and other data indicate that total personal consumption expense expenditures or PCE prices rose 2.3% over the 12 months ending in May. and that excluding the volatile food and energy categories, core PCE prices rose Near-term measures of inflation expectations have moved up over recent months as reflected in both market and survey based measures.
▶ 0:29:40Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor. Beyond the next year or so, however, most measures of longerterm expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people.
▶ 0:30:03With the labor market at or near maximum employment and inflation remaining somewhat elevated, the Federal Open Market Committee has maintained the target range for the Federal Funds rate at 4 and a quarter to four and a half% since the beginning of the year. We've also continued to reduce our holdings of Treasury and agency mortgage back securities and beginning in April further slowed the pace of this decline to facilitate a smooth transition to ample reserve balances.
▶ 0:30:30We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook and the balance of risks. Policy changes continue to evolve and their effects on the economy remain uncertain. The effects of tariffs will depend among other things on their ultimate level. Expectations of that level and thus of the related economic effects reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up price uh prices and weigh on economic activity.
▶ 0:30:58The effects on inflation could be shortlived, reflecting a one-time shift in the price level. It's also possible that the inflationary effects could instead be more persistent. Avoiding that would depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices and ultimately on keeping longer run longer term inflation expectations well Our obligation is to keep longerterm inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem.
▶ 0:31:28As we act to meet that obligation, we will balance our maximum employment and price stability mandates, keeping in mind that without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans. For the time being, we're we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance. To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission.
▶ 0:31:57We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions. Thank you, Mr. Chairman. We'll now turn to member questions. I recognize myself for five minutes for questions. Over the past few weeks, our Democratic colleagues have suggested the following after the initial release of the GDP report. The president is driving the economy into a recession.
▶ 0:32:20Chairman Pal, the latest FOMC statement described economic activity have to continue to expand at a solid pace and you just reiterated that in your testimony this morning. In your view, is the term recession and the economy growing at a solid pace? Are those synonymous with each other? I would say no. Um, and you you note that the labor market continues strong. The economy is at a standard pace.
▶ 0:32:45And you also referenced in your testimony that that first quarter GDP initial react was also from front-end loading as you noted imports to try to avoid tariff impacts. Also, I looked at the Atlanta Fed GDP now model which forecast GDP growth for the second quarter of this year at nearly 4% with core GDP forecast at 2%. Does that Atlanta model suggest a recession to you? Uh, no. I would say it doesn't.
▶ 0:33:13So, uh, in looking at your remarks about tariffs today and then the ones that you made during March and and April, um, I was looking back at uh, a Fed study that noted that up until March, tariffs have already been partially passed through in consumer prices, leading to a contribution of merely onetenth percentage point increase in core PCE prices.
▶ 0:33:39and a Harvard study last week showed that prices have only modestly adjusted since the announcement of tariffs. Finally, the longerterm inflation expectations remain consistent with the 2% goal. Governor Waller laid out a pathway that allows for rate cuts provided that average effective tariff rates remain close to 10% or I assume he means 10% or lower. The labor market remains solid, prices continue to disinflate.
▶ 0:34:07So given that data I've outlined, I'm sure data that you're very familiar with, um, for the economy to avoid persistent inflation, do you concur with Governor Waller that there is a pathway for good news as it relates to the regulatory policies, the tax policies that I've discussed in a world with lower tariff So first, I I wouldn't comment on any other FOMC members comments one way or the other, but I I will say this.
▶ 0:34:36Um I think many paths are are possible here and certainly the one you you mentioned is is a possible one. We could see inflation come in not as strong as we expect. Um and if that were the case that would tend to to suggest cutting sooner. We could see the labor market uh weakening and that would also uh you know suggest cutting sooner. On the other hand, if we see inflation coming in higher or if the labor market were to uh to remain strong then we would probably be moving later.
▶ 0:35:05So, I think a range of possible paths are possible and certainly the one you mentioned is one of them. In February of 2021, uh you told us in this committee this that you would stay in your lane and not comment on President Biden's proposal for the American Rescue Plan or or sharply increasing federal spending. Uh and you know, you said it was an issue, but that you would stay in your lane and not comment on it.
▶ 0:35:34But here in this year, you have commented on this idea of tariffs being set by the executive branch. So is are tariffs in your lane, but a huge fiscal spending by the Biden administration not in your lane? Explain to the committee why you chose to be silent in February of 21, but outspoken this spring. Sure. So we we haven't commented. It would be inappropriate for us to comment on the policy of tariffs. We don't have a view. It's not our job. Um and we just wouldn't do that.
▶ 0:36:02Ju just as we wouldn't comment on on the reconciliation package that you're working on right now, we're not commenting on tariffs. What what our job is is inflation, keeping inflation under control and and also keeping maximum employment. And when policies have what appear to be short, you know, short and medium-term implications, meaningful implications for that, then then they kind of not the policies themselves, but the inflation becomes our job. Yeah. You know, my views on price stability. I think it's a first among equals uh in your dual mandate.
▶ 0:36:33I've argued for that. I've introduced legislation to make the dual mandate the the sole mandate. And we've talked about that before, but I was very curious about your thoughts on a former president of the Cleveland bank, uh Cleveland Bank, uh Loretta Meester's quote that I read from last fall.
▶ 0:36:49She says, "I think that maximum employment is the maximum level of employment consistent with price stability." In other words, she elegantly ties that together that price stability is what you can have more control over rather than, you know, all these other factors that enter the employment picture like legislative and executive branch. What's your thought about her quote? I personally think that's a very reasonable way to think about it. Thank you very much. I yield The gentleman from New York is recognized for five minutes.
▶ 0:37:19Thank you, Mr. Chairman. Uh good morning, Mr. Chair, uh Chair Powell, and thank you for being here. Uh last week the FOMC decided to maintain the target range for the federal funds rate at four and a quarter to four and a half%.
▶ 0:37:38While I was not surprised by the decision to hold rates steady, I was surprised by the committee's revised forecast since March, which represented a decrease of 0.3 percentage points for GDP, a similar increase for core RPCE, and an uptick in the unemployment rate for to four and a half%.
▶ 0:38:04Can you explain the incoming data that the committee has seen since March that caused it to make these Sure. So, um first of all, these are individual this is not a committee forecast. These are just individuals submitting their own personal uh uh you know forecasts and and you know we don't bless those as a committee but um I think people are looking at the incoming data and having a range of different judgments.
▶ 0:38:30If you look at the range, if you look at the uh the central tendency, you'll see that it covers quite a wide range. Those are the medians that you're talking about. I think so inflation is projected to have moved up because of what we've seen particularly from tariffs. And I think if you look at other other outside forecasters, you'll see very much the same thing. And what data are you looking for? Well, we look at the incoming data on uh we look we look at at our own forecast and we ask ourselves what's likely to to happen.
▶ 0:39:00You know, monetary policy has to be forward-looking. A forecast is a prediction of what's going to happen in the future. Thank you. In its statement, the committee announced that it will continue to monitor the implications of incoming data and adjust the stand of monetary policy as appropriate. Some analysts predict two rate cuts by the end of the year are still on the table.
▶ 0:39:23Is this a fair and accurate assumption and what incoming data will the committee need to see to consider these costs? So what what will what will actually happen with rates is going to depend on the path of the economy and that's highly uncertain.
▶ 0:39:38So I I would just say what that what that means at at at this moment in time is that um a significant majority of the committee but also there's a there's a pretty significant minority that doesn't agree but a significant majority feels it will be appropriate to reduce rates later this year.
▶ 0:39:54And what that means is that each of those persons who wrote down an incre a cut in in rates uh later this year, they think that there's some uh state of the world where inflation doesn't prove to be as high or the labor market weakens where or some combination of those two things that it will turn out to be more likely than not appropriate to reduce policy rates subject to great uncertainty. I mean we will you know the story has been evolving and and our thinking has been adapting and that will continue.
▶ 0:40:24Okay, thank you. Uh, Chair Powell, although a ceasefire has been uh, tentatively reach in the Middle East, the situation still has the potential to open global and energy markets, especially if the ceasefire is broken. While at this point, Iran is seen as unlikely to close the strait of harmless. That decision could change.
▶ 0:40:52How is the Fed assessing the current situation and incorporating those assessment at is as it considers future adjustment to economic uh projections and it stand on monetary monetary policy. So I think it's too early to to know what any implic economic implications might be and I would not want to speculate like everyone else we are of course watching the situation. Thank you.
▶ 0:41:20And Chair Powell, after reviewing the economic data following uh the meeting last week, it seems to me that the committee is indicating that we could be headed for a situation where inflation accelerates while unemployment rises and growth become more sluggish. In this scenario, this will put the Fed's dual mandate of maximum employment and price stability in tension with one another.
▶ 0:41:48in this scenario, how does the Fed balance these priorities in order to achieve both mandates? So, let me say that we're not facing that right now and and that isn't really our forecast that we will face such an issue in a serious way. But if if that does happen, then what we do is we look at the two goals and we see which one of them is farther from its goal. Two variables, you know, is is maximum employment or price stability farther from its goal? And we prefer the one that's farther than its goal.
▶ 0:42:16And then we also ask ourselves how quickly will they return to goal. It's a very difficult situation for uh for any central bank and you know I would say again we're not we're not in that situation right now. Thank you Mr. Chairman. You're back. The gentleman's time has expired. The vice chairman of the full committee Mr. Heising of Michigan is recognized for five minutes. Thank you Chair Hill and Cher Powell. Good to see you again. Um I got a lot to cover so we're going to try and keep this concise.
▶ 0:42:39Uh but following up a bit on what chair Hill had been talking about um you know you had said in January 29 2025 quote we don't know what will happen with tariffs with immigration with fiscal policy and with regulatory policy we I would add energy into that by the way we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be. This is no different than any set of policy changes at the beginning of the administration.
▶ 0:43:04However, December 18 of 2024 at the FOMC press conference, you noted, and I'm paraphrasing, that some Federal Reserve officials began to incorporate preliminary conditional estimates of how fiscal policies might impact the economy into their forecasts. Uh, this seems inconsistent and and I I sidebar with the with the chair to say, okay, did I hear this correctly? His question and sort of your answer.
▶ 0:43:30What I heard is that there was a belief that the IRA would not be inflationary but that tariffs could be. Therefore, uh suddenly you and others were commenting on on tariffs and uh for the institution. I I know you try to be consensus driven.
▶ 0:43:50Um, why are there FOMC participants making fiscal policy assumptions into their forecasting when you yourself said that fiscal policies need to be articulated before the FOMC can make a plausible assessment into their implications uh what those will be and and I think if there's different participants having different assumptions that would render the uh the SEP summary of economic projections biased uh meaningless useless less impactful uh and when you're not comparing apples to apples So wouldn't
▶ 0:44:20it make more sense for all the forecasters to make the same fiscal policy assumptions at the same time or if not shouldn't each participant disclose what assumptions that they're that they are using and building into that? So here here's here's the question.
▶ 0:44:35So that that's a great question that really when the summary of economic projections was originally designed and put into effect uh in this way the way it works is that individuals are free to make whatever assumptions they want and they do disclose them they they'll they disclose them in their in their speeches and things like that. So there will be situations where some people incorporate something and and others don't and we you know that's that's we try to be transparent about that but that is that's kind of the way it works.
▶ 0:45:03When I say we don't take it into account, I'm really talking about policy and the committee as a whole where we won't take things into account until we know. And you believe that the participants disclose their their assumptions when they're doing their Well, they I think they do that in their speeches. Each of the each people go out.
▶ 0:45:21You may have noticed there are a lot of speeches and I I guess the opakeness of the Fed has been something over the arc of my 15 years on this committee has been one that has been debated greatly including uh uh auditing the Fed and a number of other uh things that have gone on. Um I I I've got here a brief moment. I I do feel like I need to touch on interest rates. I not to be a shock. You asked how the family business was doing back in Michigan.
▶ 0:45:46uh families involved in uh sand and gravel and aggregates and construction and things like that. It's uh it's been strong. Um we need uh more labor. We need a few other things on that what's happening. Uh but I I mean I think there's no recession that's been that's been established. Uh there's no hyperinflation or certainly not as what some had been projecting.
▶ 0:46:10uh yet there seems to be higher than expected or certainly desired uh interest rates for for many of us and um and and I'm curious uh how high interest rates they hurt Americans who are paying car loans, credit cards, mortgages. You had FHA uh FA Director PY asking for lower interest rates which would obviously impact home buyers as well.
▶ 0:46:32Um, so what is it that's keeping in your mind the the Fed from what many of us believe is the right thing to do, which is to lower some interest rates and by the way match what the Bank of Canada, Bank of England, the European Central Bank, the Swiss Central Bank, a number of emerging central banks, by the way, that's your own assessment on page 33 uh as where you're uh where you're laying that out. Why aren't we doing what the rest of the world is doing? Is it because we're at full employment? Is it because of those tariffs concerns that you said weren't part of part of the analysis?
▶ 0:47:01Was it energy, groceries, durable goods? Why? So, um, the you're right that if you just look in the rearview mirror and look at the existing data that we've seen, you can make a good argument that that would call for us to be at a neutral level, which would be, you know, a couple of cuts or maybe more kind of thing.
▶ 0:47:24The reason we're not is the forecast in the by all all professional forecasters that I know of on the outside and the Fed do expect a meaningful increase in inflation over the course of this year. When I said we weren't going to talk about uh tariffs and inflation that was that was to to say until we see what the policies are and so now we know six months since I said that. So anyway, I'd be happy to continue this with you. Thank you. Gentleman Tom has expired. Gentleman from Michigan, Mr.
▶ 0:47:54Lee, is recognized for five minutes. Thank you so much, Mr. Chairman. Um, Chair Pal, last month there was research published um in the Journal of Urban Health that found that more than half of black women of reproductive age, that's the term they use in the counties that I represent that had experienced some sort of eviction during their lifetime.
▶ 0:48:18Um, so that's like 50% of black women in the two two largest county, Wayne County and Oakland County and Michigan. U and these numbers are horrific. Um, as you know, were you aware of that? No, I was not. And you know, evictions are often very traumatic experience, but also it it creates a cycle of poverty, but also this instability for many families.
▶ 0:48:43Um, but especially when it comes to a lot of our uh, black neighbors, the access to equity, the access to housing has diminished even more. In Michigan, we lost more black home ownership than any other state in the country during the last recession. So, we know the housing crisis, I believe, is structural. Um, and some may say it's a policy choice.
▶ 0:49:03While there are many factors at play and you know this chairman, high mortgage rates, the finance rates and so forth, uh the uh that drag the supply of new housing, but last month new housing hit a 5-year low. Are you familiar with I'm not sure exactly what statistic you are referring to. Okay. I don't know. There was um there was all this uh articles about the housing market and the impact of tariffs and so forth, and they said again it hit a five-year low.
▶ 0:49:33And again, I'm getting this from a source, but this sets the market up for higher inflation uh and more burdensome housing costs um to years to come. So, Chairman Pal, you know, I'm I'm looking at this monetary monetary uh whatever policy framework that you guys have put together, um do you think that the way it's structured and and again, I I'm trying to understand how you're looking at this in the housing crisis, do you believe it's eroding new rental supply?
▶ 0:50:02um under construction right now leading to high inflation in future years. So I I think there are two things going on quickly. One is just there's a longer run shortage of housing in the United States which there's nothing that the Fed can do about that's not not something we can affect. There's also if I may say in the short run rates are high and that's going to weigh on housing activity.
▶ 0:50:23that the best thing we can do for the housing market, the absolute best thing is to restore price stability so that rates come down and so that rates can be at Don't you think that the restrictive monetary policy you all the framework you all put together undermines long-term price stability right now by reducing the supply? No, I mean that I think it restores price stability. The point of higher rates is to end. So you don't think the higher rates is impacting future supply of housing?
▶ 0:50:49So I think what that does is I think interestsensitive sectors like housing are very much directly affected when we cut rates or when we raise rates. That's right. But that's part of the mechanism for restoring general price stability. So keeping the high interest rates does not impact future supply of housing.
▶ 0:51:08It does not you know it over over the long I need to go back to talk to over the long run women that the study will not be our policy will not be a driver of longer run housing supply in the United States. So okay let me ask you what is the difference and honestly confused I I want to learn here and and I'm sure people listening to this want to learn what is the difference between demand driven rent inflation and supply driven rent inflation like you you you guys use these terminologies. What is that? How do I communicate that to the public?
▶ 0:51:38What is the difference between supply driven versus demand driven rent? You know, those are those are not terms that we that we use particularly often. What's supply driven uh formula? That would mean that you know that that that there's not enough supply to meet demand. But at the same time, it also means there's more demand than there is supply. So, are you guys ignoring that? No. But as I said again, we our policies will not affect in the long run in the long run demand or supply.
▶ 0:52:08I'm being serious, y'all. We're talking about a housing crisis that is getting worse right now because we're not paying attention to future instability that the current rates and you can raise your eyebrows and and all this stuff behind. I don't know. I mean, do you understand like I come from a community right now that I believe right is now being impacted by the current framework that you're putting together that I do feel like is going to be long-term effects on the housing crisis and you're ignoring it?
▶ 0:52:38No, we're not actually. We think the very best thing we can do is to fully restore price stability at the aggregate level. That will be the best thing for homeowners and for home builders and everybody else. That's in the long run. That is the single thing to do. But you see where I'm coming from. It is impacting future supply of housing, right? Not in the long run. No. Okay. Mr. The gentleman from Wisconsin, Mr. Style, who's also the chair of our subcommittee on digital assets, financial technology, and artificial intelligence.
▶ 0:53:08You're recognized for five minutes. Thank you, Chairman Hill. Thank you, Chairman Powell, for being with us today. I want to dive into two actions the Fed's recently taken uh to get a little additional color on. Yesterday uh the Fed announced that reputational risk would no longer be a component in bank exams. I viewed that positively. I viewed u the reputational risk as often uh being a catch-all for political bias. I think it's positive to depoliticize bank exams and instead focus on uh the core and measurable risks.
▶ 0:53:38Could you provide colors to whether or not any new or new information came to light that led to the decision of the Fed to remove that yesterday? I'm I'm not aware of any new uh information. No, we just we just think it's the right thing to do and of course made an announcement on Monday under Governor Bowman's Vice Chair Bowman's leadership. Why would it not have been done previously if it's the right thing to do? I I agree with you. It's the right thing to do. Why was it why any any timeline as to why that was done yesterday versus previously?
▶ 0:54:05No, I I think this is a problem that we came to understand as a problem over the course of the last couple of years and you know be actually began uh considering what's going on here. We're hearing a lot of reports of debanking and and that sort of thing and over the course of really 2024 came to the view that this was a serious problem that we need to address and and we've said that publicly and now we've we've we're doing this and so are the other agencies by the way. I I I appreciate you taking that action.
▶ 0:54:34I do agree that there were real political bias uh in some of those exams in particular as it related to regulated entities uh engaged in the digital asset space. Let me let me shift into the digital asset space. Uh if I can um another action recently taken by the Fed uh the novel activities uh supervision program um was ended and withdrew several statements on digital asset related uh risks that deterred uh bank involvement in particular.
▶ 0:55:00you uh in the Fed and others in the Fed have spoken positively uh about the House and Senate work uh to regulate stable coin in particular a real opportunity to dollarize the globe and be a significant purchaser uh of US treasuries following that action uh by the Fed.
▶ 0:55:15Have you seen an identifiable shift uh in banks or other regulated entities as it relates to engagement in the digital asset you know, I wouldn't be the one to be to be picking that up first, but uh what what I do see is a ve a very significant change in the tone and it, you know, it really does reflect evolving thinking and and the evolving status of the crypto industry and uh I would expect over time we'll see more activity.
▶ 0:55:39How how is the Fed uh evaluating overseeing uh banks or the regulated entities uh that are in the digital assets or crypto space? So, our view is that banks get to decide who their customers are. That's not that's not our decision. And um so banks are free to provide banking services to uh crypto the crypto industry to crypto companies and bank banks are also free to conduct crypto activities as long as they do so in a way that is you know protective of safety and soundness. Thank you very much.
▶ 0:56:08Let let me shift gears because I want to give you just a little bit of an opportunity to comment uh on on on the housing uh sector once again but give you a little freedom here to to speak to that area. Um you correctly are trying to balance uh inflation uh and price stability uh but also higher rates have a significant impact uh on the housing market as shelter and housing costs uh are a significant driver of why many families can't afford the things that they need.
▶ 0:56:32Uh can you provide color as to how you're analyzing um the the impact that housing and shelter costs have uh on families and on inflation uh with your desire to maintain price stability the interest rates uh that is currently set by the Fed. Sure. So, you know, we realize that people are feeling high housing costs and high financing costs. Um, in terms of inflation, uh, we we look at something called owner's equivalent rent and rentals and and that's meant to capture both rented housing and owned housing. And it's been very sticky.
▶ 0:57:01You know, it's been one of the one of the stickiest parts of inflation. I'm happy to say now it actually is coming down quite regularly. That's very good news. That's been the part really it's been the service inflation that's been stickier than than other parts of inflation. So that's good news for people I think and it is showing through into measured inflation now. Again in the long run the best thing we can do is restore price stability and let the market work. Even then though we're still going to have a housing shortage.
▶ 0:57:28Do can you pro what what data do you think is leading to to the reduction that the the rent equivalent? I just think it took time. So the the thought is um when you would think that if rents come up every year, you would think it would take one year or two years for for a lack of growth in rents to show up in a lack of growth in housing prices. It turns out it takes four years or three years.
▶ 0:57:51It just it if you're an existing tenant, it's it's a complicated thought, but if you're an existing tenant, you don't actually catch up the way you would if it if new tenants came in. And so that's made the measurement of of inflation stickier. But I'm happy to say we've been through that period now and we are really seeing now uh housing services inflation pretty close to where it was when inflation was solidly at 2%. Thank you. I yield back. Gentleman yields back. Gentleman from California, Mr. Licardo is recognized for five minutes. Thank you, Mr. Chair.
▶ 0:58:22Mr. Chairman, thank you for your testimony today. I I appreciate that your dual mandate is full employment uh and price stability and I appreciate your efforts on behalf of our country to achieve those. My understanding is that critical data is collected by the Bureau of Labor Statistics to help um formulate the indicators that you rely on that we rely on to understand unemployment rates, CPI and other inflation indicators.
▶ 0:58:52Uh we are certainly hearing a lot about the impacts of Doge on our workforce and specifically about the elimination of many of those positions in BLS and now we have a proposal in front of Congress to cut $56 million from that agency. Are you concerned about the ability of your team to get accurate data and about the ability to have reliable indicators to make good decisions upon?
▶ 0:59:21I wouldn't say that I'm concerned about the data today, although clearly there has been a very mild degradation of the of the scope of this of the surveys and things like that. But I would say the direction of travel is is something I'm concerned about and that is um me measuring the US economy carefully and well is a project that's been going on and we're getting better at it for a hundred years and more.
▶ 0:59:45And it's really important not just for the Fed, but for Congress and for businesses, frankly, to know what really is going on in the economy. What's what's happening? Is growth high? Is it low? And all those sorts of things. So, I think it's I think it's a smart investment to just continually try to get better at measurement of what's happening in the economy. And I I don't like to see that uh you know uh the kind of stories I'm reading and the idea being that that the data is going to become more volatile and less reliable.
▶ 1:00:11that's not gonna that'll make it more difficult for the private sector and for you and for us and I I don't like to see that direction. I agree. Thank you. Uh I appreciate that it's not your role to comment on the advisability specific policies but given your critical role in ensuring price stability and reducing uh I have had conversations with quite recently just a week ago with a seuite executive of a major world global retailer
▶ 1:00:42uh who informed me because I asked you know why aren't we seeing the impact of these tariffs and price data yet and he said it's coming it's coming in the third quarter because it takes time uh for tariffs to work their way through distribution chain often what you have on the shelf today may have been imported two or three months ago Is that your understanding? Do you anticipate there may be impacts down the road? Yeah, that's very much what I hear.
▶ 1:01:09I happen to meet with an unusually large number of business people in this last uh FOMC cycle, and that's a typical thing that they'll say, especially the retailers, that what's being sold now was in inventory in February, let's say, and and it just isn't showing up yet. So we we do expect to show up tariff inflation to show up more to but I I want to be honest. We really don't know how much of that's going to be passed through to the consumers. We just don't know and we won't know until we see it. It could be lower than we expect. It could be higher.
▶ 1:01:38We have to wait and see which is which is kind of what we're doing. I appreciate the uncertainty. Another thing he told me had me very concerned was that often they will increase prices on goods not subjected to tariffs to compensate for the very substantial losses they have to suffer uh with the increase of tariffs on relatively price inelastic uh price elastic goods.
▶ 1:02:04So in other words, necessities uh will also tend to bear a higher price even if they're not subjected to tariffs. uh is that your understanding of the potential impacts? You know, that that very much is something that companies will tell you that they do. If they can't if they can't cover the losses on the thing that's being tariff, they'll find other ways to do it. We actually don't have prominent examples of that yet, but that's that's certainly a possibility and that did happen in in um in the last tariff episode with washing machines and dryers.
▶ 1:02:34Thank you, Mr. Chairman. And and finally, you know, there's indications in the introduction of the report uh that uh the Fed is losing its ability as as we see interest rates getting closer and closer to the the the minimum threshold. Uh the ability to stimulate this economy in times of recession. Uh we haven't had a recession or at least we haven't had an extended recession in a decade and a half.
▶ 1:02:59Uh I am particularly concerned now as we are looking at debt uh that is being considered to be imposed on future generations by this particular bill. Uh could there be a combination of very high debt and very little room to move and monetary policy that could undermine our ability to respond to the next recession? So we faced that issue quite a bit in in the era of very low interest rates, but you know we're at higher levels of interest rates now.
▶ 1:03:27significantly more room to cut than there was then. Gentleman yields back. Gentleman from Wisconsin, Mr. Fitzgerald, you're recognized for five minutes. Thank you, Chairman. Uh Chairman Pal, thanks for being here today. Appreciate it. Uh I want to go back to something I we've had we had some brief discussions about this in the past, but in September of 2024.
▶ 1:03:49Uh with core inflation still being above target and the labor market was holding steady at the time, uh the Fed made a decision to cut rates by a full half percentage point. Um it it kind of raised some serious questions as to whether or not uh the data like truly supported such a move at that time. And I think some of us were surprised that it was a full half percent. Um, so c can you revisit that again?
▶ 1:04:18What what the Fed was thinking at that time because it seems to be somewhat of an enigma now. It stands out as you know why was this done? Why was the half percent done at that point? I'd be glad to. So um, first of all, the the actually the inflation and employment readings were very similar then to what they are now. They weren't they weren't terribly true a tenth or two, right? But the difference then was you mentioned that the um that the labor market was stable.
▶ 1:04:44It wasn't the labor the unemployment rate had actually gone up almost a full percentage point. I was very clear about this. We were very clear about it in real time too. The concern at that time was uh that that the the there really hasn't been an experience or hadn't been an experience in the modern era in which the unemployment rate has gone up close to 1% that hasn't been followed by much higher levels of unemployment and a recession.
▶ 1:05:08So we were looking at that and saying and remember at that point at the point we're talking about the federal funds rate was 5.3%. So definitely very restrictive level. We were the last of the big central banks to cut. So we wanted to make a statement that we were supportive of the labor market and not just inflation. We'd been focusing on inflation. I was I was quite clear about this. So that it was all about the labor market. Inflation was the same and uh unemployment was roughly the same. But it was the rate of change with the unemployment rate that raised a lot of concerns.
▶ 1:05:39And remember we were being criticized for being late to cut. So uh we could have done 25 if we' done 25 in July. We were criticized for not cutting in July. Instead we cut 50 in September. and it seemed like the right thing to do, you know, and at the end of the day, we we do what we think is the right thing when we think it's the right thing to do. We don't we don't take into consideration political factors. If we start doing that, I don't know where that stops. Once you start considering elections and stuff like that, where does it stop?
▶ 1:06:07You know, so and I didn't I didn't want to I didn't want to insinuate that it had anything to do with with the election itself, but there just seems to be some very similar numbers right now. And I'm wondering uh and I don't bring this up because I want to kind of make a point about did the Fed do the right thing or not. I bring it up because it seems like everything's in place right now to kind of do the same thing, make the same move.
▶ 1:06:32I know you've, you know, this morning already you've talked a little bit about where you were on inflation right now and kind of what you're watching, but um is there any is there any lesson there? I mean, are we in a position where where it would be appropriate to do something uh as as as big as a half percent cut again? Well, look, I as I as I said earlier, if if not for if you just look at the the basic data and don't look at at the forecast, you would say that we we would have continued cutting.
▶ 1:07:02The difference of course is at at this time, all forecasters are expecting pretty soon uh that there that some significant inflation will show up from tariffs. now and you know we can't just ignore that but but we're not we're not we're just saying let's wait and see more. That's all we're doing. And if you you will have noticed a substantial majority of the committee has written down rate cuts in the in the remaining four years four uh four meetings this year.
▶ 1:07:28So it's just a question of being prudent and careful and but at a time when the labor market is still strong we don't see weakness in the labor market. If we did that would change things. you know, we're going to continue to adapt as the data adapt, but that is the difference between then and now. Then inflation was forecasted to continue to come down. Here it's forecasted to go up by all forecasters. So, and again, we're not overreacting to that. We're just saying, hey, let's as long as the economy is strong, we can take a little bit of a pause here.
▶ 1:07:58And that's what we're doing. And again, continue to adapt as the data comes in. If we see data that suggests that inflation's not going to produce big increases, you know, that would matter. And if we saw the labor market weakening, that would matter too. But we don't see those things. What about supply chain in 2020? That was a big issue obviously related to COVID, but I know myself and other members when we're in our districts and we're specifically talking to light manufacturing, there's there's concerns about the supply chain.
▶ 1:08:28Is that part of the data package that you review when you make a decision about where we're headed in the future? Very much so. You know, I think that's one of the one of the great uh well, won't call it a great thing, but one of the lessons to be taken from the last episode is supply chains really matter. We're watching that carefully. It's too soon to say really on that. We're not seeing it yet, but um we gentleman's time is expired. Thank you, Chairman. Yel back. Thank you, Mr. Fer. The gentleman from New Jersey, Scott, you recognized for five minutes. Thank you, Mr. Chairman.
▶ 1:08:55Uh, Chairman Powell, as a member of the intelligence committee, I'm deeply concerned about the threat of Iranian cyber attacks on our financial system as retaliation for our strikes on their nuclear facilities. In its cyber security report last year, the Fed acknowledged that critical infrastructure, including financial services, is at risk with rising geopolitical tensions. Iran has a history of targeting American infrastructure companies and financial institutions and banks, uh, which could obviously threaten uh, and cause economic damage.
▶ 1:09:20What actions is the Fed taking now to monitor and defend against Iranian or proxy cyber threats targeting our country's financial institutions? So, we're we're in touch with um with the other regulators and the parts of the government that that that work on cyber uh as you know and um you know, we're in touch with the banks to to to say you know to for people to be on the alert for for for things like that to happen and also we're on the alert because you know we're a target as well. So, you're right to raise it.
▶ 1:09:47It's a, you know, it's a big issue and uh you feel like you have the resources right now to be prepared for that? Yes, I mean I I think we do. We're, you know, we've we spend a lot and and the government generally spends a lot on these things and we've we've uh but you know, you you can never ever be comfortable in this area because, you know, the bad guys are always getting better. So, we need to keep to get better. Thank you, Chairman. Uh switching gears, uh the president and members of his administration have recently called you out.
▶ 1:10:16um various name calling um uh for certain decisions you've made. I know that some people worry that the president's bullying will impact your decision-making. I know you worked together and I know that and respect obviously your independence greatly. Anything you want to add and and give you a chance to reiterate your independence to the American people. Yeah, I just I I would just say we're we're focused on one thing and that is we want to deliver a good economy for the benefit of the American people. That's it. uh and anything else is kind of a distraction.
▶ 1:10:46I don't mean to refer to any particular thing, but we stay focused on that task all the time. We always do what we think is the right thing to do. And you know, we live with the consequences and uh that's I don't know how else to do the job, right? The name calling and the Mr. too late and all that stuff. We shouldn't the American people shouldn't worry about that. You're focused on being independent. Just Yeah. I that's what I care about. I care about doing the job for the American people. the our the things we do matter a lot for people's lives and that really concentrates the mind.
▶ 1:11:16Uh you know you you want to just stay focused on that task as long as you're sitting in these chairs that we occupy. Focus on that task. Do what you think is the right thing and take the consequences. Thank you Mr. Chairman. You've previously stated that you view stable coins as a form of money. Payment stable coins are already being used for both retail and wholesale payments as well as for settlement. Recently, this committee passed the stable coin act and the Senate passed the Genius Act, both aiming to establish clear regulatory frameworks for fully reserved dollarbacked payment stable coins.
▶ 1:11:45Given their design to maintain a stable value and be redeemable for US dollars, should the SEC or other regulators explore treating these stable coins as cash equivalents for accounting or financial reporting purposes? Let me say I I think it's a it's a great thing that that bills are moving. We need a we need a stable coin framework. On that particular issue, I don't have a I don't have a view for you. I can come back to you on that. I'd I'd be grateful. Thank you. Um, high rates have also caused, as we've discussed, the cost of paying off our nation's debt to skyrocket.
▶ 1:12:14The CBO estimates that interest payments will cost the US a trillion dollars in fiscal year 2026, continue to rise to almost 1.8 trillion by FY 2035. How do you see us continuing to be able to afford to pay off our debt at this rate? And as the US continues to borrow, how does that impact your decision to keep or cut rates? Obviously foreign countries like Japan who are significant buyers of our bonds which start decreasing their purchases significantly. Other internal pressures worldwide are having that impact. Are you worried about this global issue?
▶ 1:12:44You know fiscal policy and and really is is not our job and it's not something we take into consideration and making monetary policy. That's really elected people's jobs. And uh I I would add that you know for some time now the US federal fiscal policy is has been on an unsustainable path and you know I'll limit myself to that. Um last question.
▶ 1:13:09Uh last week you chose to keep rates steady and families in our state as you'll hear from a lot of people today are really struggling with the higher cost of borrowing and putting off bigger purchases on things like cars and homes. as a result, their wallets being crushed by these price hikes and obviously the president's tariffs. What do you have to say to Jersey families who are struggling with higher costs and how you look at how they should forecast themselves for their own families? We're committed to returning returning inflation sustainably to 2% and keeping it there in the long run.
▶ 1:13:37And what we're doing now is we you know we had cut rates by by 100 basis points. So they've come down quite a bit. And um you know when the time is right I expect that that will continue and that will that will depend on um on economic factors you know in the coming months for Thank you. I yield back. Thank you sir. Gentleman yields back. Gentleman from Nebraska the chair of our housing insurance subcommittee Mr. Flood. You're recognized four or five minutes. Thank you Mr. Chairman. Uh Chairman Pal.
▶ 1:14:06Earlier this week, the banking agencies will be proposing changes to the supplementary leverage ratio, which we think are long overdue considering the Fed in 2021 indicated that they would soon put out proposals for reform to the SLR and never actually did. However, our understanding is that the proposal being considered this week will not allow for treasuries to be excluded from the SLR calculation.
▶ 1:14:31Secretary Bent earlier this year had argued that such a change could serve as a boost for banks and their ability to intermediate in the Treasury market and could potentially pull treasur Treasury yields down 30 to 70 basis points. Chairman Powell, do you agree with the Treasury Secretary's comments on the potential positive impact of SLR reform on the Treasury market? And what is the rationale for not excluding treasuries from the SLR calculation in the proposed rule?
▶ 1:14:59Um so I agree that when the rel when the um leverage ratio is binding it discourages banks from um undertaking low margin fairly safe activities such as mediation in the treasury markets. So this should encourage more mediation. I don't have a a uh numerical estimate of of how much that would matter but I do think it would matter. I think it was important.
▶ 1:15:24I've supported leverage ratio reform for a very long time since before In terms of the of the of the structure of the thing, I think we're we're seeking comment on on on a particular proposal that doesn't involve exclusion, but uh but we're also asking a question about exclusion. Uh Mr. Chairman, considering the Fed temporarily excluded treasuries from the SLR calculation during the COVID pandemic, were you aware of any safety and soundness or financial stability problems that arose as a result of that decision?
▶ 1:15:53And if not, why was that relief terminated in 2021? So that was an emergency measure from be the beginning and end. It was e an an emergency measure. I think you know my my long-held view is that we should have a permanent measure and now we're going to and we have an open board meeting on uh on Wednesday afternoon and u after I finish my hearing on the Senate side and I'm very much looking forward to putting this proposal out to for comment. Thank you.
▶ 1:16:19In March, the Federal Reserve together with the FDIC and the OC announced that they intend to issue a notice of proposed rulemaking to repeal the 2023 Community Reinvestment Act and replace it with the legacy CRA framework. Nearly three months have passed since this announcement. What is the status of this project? Well, we're we're we're going to do what we said we were going to do. It's just a question of execution, and I I think you'll see that coming.
▶ 1:16:45This would be uh um so vice chair Bowman has the uh has the job of sequencing these things and and that one's certainly coming. Uh do you intend to issue a proposal that will be a clean recision and replacement of that rulemaking or are you considering amendments to the legacy rule? I you know honestly don't know. We'll come back to you on that. Okay. So we should know more later this week. We might. Yeah. Okay.
▶ 1:17:09Uh finally, I'd like to build off of what Congressman Style uh asked previously on the supervision of novel activities program. Do you feel any changes could be made to it to encourage innovation? And do you anticipate any such changes to the program? I do. And I I also think um Governor Bow, Governor Bowman, now Vice Chair Bowman is is someone who is actually deeply knowledgeable and experienced in supervision and that that hasn't really been the model. We've more had people who are experts on regulation.
▶ 1:17:36I think she brings a particular ability to move supervision in a in a healthy direction while also pres preserving safety and sta uh soundness and that's what you mentioned is one of the dimensions in which I think that will be true. Thank you for your testimony today. Appreciate your service to the country and with that I yield back Mr. Chairman. Thank you. Gentleman yields back. The chair recognizes the ranking member of our full committee Mrs. Waters for five Uh, thank you very much, Mr. Chairman.
▶ 1:18:07Uh, Chair Powell, I appreciate that despite the repeated attacks by the president and his cabinet on you personally, that you stood your ground and you did not bow to pressure from Trump, especially given the current state of economic uncertainty due to his policies. Last week, the Fed held interest rates steady.
▶ 1:18:30Afterwards, you said that you and other experts continue to expect a meaningful amount of inflation due to tariffs uh Trump's tariffs. You said that it may take some time for the tariffs to work their way through the supply chain, but that you found, and I quote, "Many companies do expect to put some or all of the effect of tariffs through to the next person in the chain and ultimately to the consumer." quote end quote.
▶ 1:19:00So while the president may try to claim other countries pay these tariffs, can you confirm that it is indeed consumers and businesses in the United States that will bear these costs? So it can be anybody from the exporter, the importer, the retailer, the manufacturer or the consumer that winds up paying these these tariffs.
▶ 1:19:25In the beginning, it will be the importer that pays the tariff, but ultimately it will be spread out among those five, each of which will try very hard not to contribute. But in the end, the tariff will be paid. And uh and you know, all of the data suggests that at least some of that will fall, not all of it, but at least some of it will fall on consumers. Well, you indicated it may take some time for tariffs to work their way through the supply chain.
▶ 1:19:53Would you elaborate on this, including when can when is it that we can see negative impacts to inflation from Trump's tariff policy? So, you know, the things that are being sold at retail now, they might have been put into into the tariffs in February or or March. Um, so we we think we should start to see this over the summer, you know, in in the June numbers and in the in the uh July numbers. And if we don't, I think we're learning here.
▶ 1:20:21If we see less less uh pass through uh there aren't historical experiences we can consult here really. So it may turn out that the pass through is less or more than we think. And I think we're going to be learning, you know, we'll get a we'll get a a number for uh for June, you know, an inflation number for June. We'll learn something then we'll get it for July. As we go through the summer, we should start seeing this. And if we don't, I think we're, you know, we're perfectly open to the idea that the pass through will be less than we think. And if so, that'll matter for our policy.
▶ 1:20:51Well, you know, I've been talking with a lot of my constituents about these tariffs. And the question that comes up is now, is this going to only hurt uh maybe the big businesses? What about our small business people? What about the people that we buy goods and services from every day in our communities? Is this going to hurt big business as well as small business? Yes.
▶ 1:21:19I mean, I I don't I don't think it's um I think it will certainly if you're a smaller company that maybe imports a single product, that's that's a common business model these days, then you may you may if if your product is tariffed, you may you may be the one that's affected significantly. Whereas bigger companies have more resources and a more diverse product line. Why do you think you can resist the president uh basically telling you what to do? What gives you that authority? I don't think about it that way at all.
▶ 1:21:49I think I have a job that I'm sworn to do and all I think of is how much people rely on us to get it right. You know, it really matters that we get it right and that concentrates one's mind. And so that's what we think about at the Fed. We think about what's the right thing. You know, I I have all I want to do in what's left of my time at the Fed is have the economy be strong and have inflation be under control, have a solid labor market. I want to turn it over to my successor in that condition.
▶ 1:22:18Of course, that's that's what it keeps me up at night is to do that. And um that's what I think about. That's the only thing I think about. So, how are you protected? By law, by constitution? Where does your authority come from? I think I you know, I've covered all that. I do think we're fully protected and and again we're I don't I don't think about that anymore. What I think about is let's just do our jobs and and that's what we do. You know, we don't talk about those issues at all and all we do is do our jobs as best we can.
▶ 1:22:47And you know, it's it's not an easy job, but it's one we've willingly taken on and very important that we remain focused just on the job and not on other things. Thank you very much. I yield back. The gentleoman yields back. General, the chair recognizes the gentleman from New York, our vice chair for communications, Mr. Lawler, you're recognized for five minutes. Thank you, Mr. Chairman.
▶ 1:23:10Chairman Pal, uh, as recently as yesterday, Fed Governor Bowman indicated that if inflame inflation pressures remain contained, the Fed should consider lowering rates uh, and said she is open to a rate cut in July. uh Governor Waller uh said uh very much the same. Uh do you believe that we are in a position uh where we may be able to cut rates in July?
▶ 1:23:40So I would say this I think um if if it turns out that inflation pressures do remain contained then we will get to a place where we cut rates sooner rather than later. But I I wouldn't want to say I wouldn't want to point to a particular meeting. I don't think we need to be in any rush because the economy is still strong. The labor market is strong. If we were to see the labor market, you know, meaningfully weaken in a way that was concerning, that would matter for that decision.
▶ 1:24:08But if and if we see inflation um you know, continuing not to move up, we we hadn't expected inflation to move up much. We do expect it to move in in the summer. And if we see it not happening and you know, we'll learn from The September 2018 teal book suggested that the Fed seeing through tariffs inflationary effects is an appropriate response so long as inflation expectations are firmly anchored and that the pass through costs are relatively short-lived.
▶ 1:24:37Would you agree that this assessment from the teal book still applies to today? I would. Those are the exact um factors that we cite when we talk about this situation plus that plus the size of the tariffs. Right. So let's let's assess the current economic situation. The monetary policy report states that longerrun inflation expectations quote continue to broad to be broadly consistent with 2% inflation unquote.
▶ 1:25:03And a Harvard study argued that despite the relatively quick price responses to tariff announcements, the overall magnitude of these changes remains modest. So if these conditions hold, is it not unreasonable to think that underlying inflation trends should continue its path towards 2%. That's that's a that's certainly a a very defensible position.
▶ 1:25:27I think what you you know what people others on the committee think and what I think is that this is a question we need to be careful with because it's different than it was in 2018. Uh the difference is that we haven't had 2% inflation at in 2018. We hadn't had an inflation as high as 2% for a decade anymore. Right? This is a different situation. We haven't fully restored price stability and another shock. We have to be careful if if there's a meaningfully large and sustained inflation shock.
▶ 1:25:57We have to be careful about that. And so, you know, I think we're just trying to be careful and cautious. And we really think that's the best thing we can do for the people that we serve. If that happens, we need to be there for it. And so, uh, you know, we're in a difficult situation in in in in deciding exactly when to move. But again, if we if we continue to see inflation come in, you know, and not prove up at the high levels that we higher levels than than we expect, then that would matter for our decision-m.
▶ 1:26:27Chairman Pal, economist John Taylor once noted that the Federal Reserve should deviate from its own Taylor rule in the event of an oil shock. Uh, similar to the tariff scenario, a one-time price increase from an oil shock should not be accompanied with an increase in interest rates. Do you agree with that assessment? I generally do. Yes. Previously, you said that if you wait for inflation to get back down to 2% to cut rates, you are already too late.
▶ 1:26:56You also said in November 2024 that inflation was on a sustainable path to 2%. Given that the FOMC believes that interest rates now are moderately restrictive and that an oil or tariff shock may not impact underlying inflation in a significant or meaningful way because as the monetary policy report established, inflation expectations are firmly anchored. What is the reason not to cut rates?
▶ 1:27:26Well, it's uncertainty about the size and potential persistence of of the um of the potential but highly uncertain inflation from tariffs. By the way, we we we put we have five uh tailor rules in the monetary policy report. Four of them say that that the policy rate is in the right range and the other one calls for a hike. Right? Just for the record.
▶ 1:27:48back in the beginning of the Biden administration, okay, when we talk about inflation, they increased federal spending by $2.5 trillion dollars each year, $5 trillion in new spending. That's what gave us inflation by printing all of this new money and borrowing. And yet, you did not respond to that by raising rates. In fact, you were late to raise rates. And now, again, we see a situation where you are late to cut rates. That is the challenge here. Gentleman yields back.
▶ 1:28:19Chair recognizes the gentleman from Georgia, Mr. Scott, for five minutes. Thank you, Chairman. Chairman F. To the best of your knowledge, has President Trump put forward a coherent tariff policy? Is that your opinion? That is not a judgment uh for me to make or to Well, what do you think, sir?
▶ 1:28:49It would be interesting your opinion, does he have a coherent tax uh tariff policy? You ought to have an opinion on that. You run our economy. This is your belly wig. Do you think he's got a a good policy? Answer me. I I would never comment on the president of the United States in that way.
▶ 1:29:20All right. Do you think What do you think uh our policy should be? We we play no role in either uh establishing or commenting on tariff policy or fiscal policy for that matter. Not our business. We have a specific mandate. We try to stick to it. Let me tell you something.
▶ 1:29:45Uh, chairman, in my state of Georgia, I got the fastest growing, uh, trade group down there. The Port of Savannah is indeed our nation's fastest uh, party. And it's seen and it's rising even more.
▶ 1:30:09the cost, the expenses our business community is suffering and I want to know what you think of our tariff policy. What do I tell my people? What do we tell the American people? And you're a good man. I want to know the answer to this question. And I want to know how you feel.
▶ 1:30:39This old tariff question. It's a tax increase. It's running people out of business. What do you think about that? Give me some sort of answer. Do you think anything about our talent policy? Don't you feel you have a responsibility here? Are you afraid of President Donald Why don't you deal with this?
▶ 1:31:10Because our economy are suffering in a mighty bad way and uh I've got to represent my constituency and they are let's take Georgia's sector mostly pecans and poultry and cotton exports.
▶ 1:31:34They've been hit hard by retalatory tariffs from key trading partners like China. Why are you running away from the tariff fight? Give us some understanding of Honestly, I this is just not our role.
▶ 1:31:58We we are we are not a uh you know an institution that that comments on or analyzes decisions that the president makes or or or the things that he runs for office on and is elected on and then does. We don't that's just completely out of our lane. It's really inappropriate for me to have any comment on that. I'm sorry to say, Mr. Scott, we're having these regional dis disruptions.
▶ 1:32:28Our economy is in a bad way and I want to see you and the president, you got to get together on this. We got pecans in Georgia. We got peanuts. We run the biggest group.
▶ 1:32:47We got the fastest growing trade uh mechanism in the Savannah Port We're crushed in Georgia. My business folks are coming to me on it. I got to get some answers from you.
▶ 1:33:06What do I tell them that the Fed chairman feels about their experiencing this tariff? I think uh we I think we need to get you and the president together. Gentleman's time is expired. Appreciate the gentleman from Georgia. Gentleoman from Florida, Miss Salazar, is recognized for five minutes.
▶ 1:33:35Hi, thank you very much for being here. Appreciate your time. And uh my name is Maria Salazar. I represent the city of Miami, which is uh one of the cities most composed of Hispanic Americans and people that adore living the American dream. So, um putting that into context, I wanted to ask you a few questions about uh the labor force.
▶ 1:34:00We agree with what the President Trump is doing uh or what the administration is doing in deporting illegals, criminal illegals. We do not want trenagua. We don't really want people who have committed any type of crime even more if they are illegals. And um but we do know that unfortunately what's happening right now after six months of of being Mr. President being in in office that we're losing thousands and thousands of workers.
▶ 1:34:27what uh the ICE leadership has called collateral damage. And most of those people are working in three main sectors, construction, hospitality, and agricultural. Even the president said the other day in a tweet that he understands that he that those hands are needed. We're talking about 15% of the economy, construction, hospitality, and agricultural.
▶ 1:34:47So my question to you is what is the economic what is the growth effect on the economy if this type of removal of people of hands being removed from those three main top sectors. So immigration is another area where nobody put us in charge. We we we're not you know congressional budget office and other agencies can make assessments like that.
▶ 1:35:14you know, our um we do have a role to maximize employment, but we take immigration policy as just we take it as it comes. What it's obviously done is it's it's really reduced the amount of growth in the labor force and so uh at the same time demand for workers has been coming down as well because they've been coming down. So one drop at a time reduce the growth. Why don't we talk a little bit more because we want to continue growing. We're the number one economy in the world. We need to continue growing.
▶ 1:35:43So you're saying that what's affecting the growth? Well, there are two things that affect grow growth. One is growth in the labor force, more people working and the other thing is productivity. How much how much do they produce per hour worked? And when you so when you significantly slow the growth of the labor force, you will you will slow the growth of the economy. But I think again it's not for us to have a view on on immigration policy. No, no, no.
▶ 1:36:09I understand that was just my comments, but you you do agree that if we don't have those hands, then we don't grow. I think that growth growth will slow and actually is slowing this year and that's one of the reasons. Well, we don't like that. So, now let's talk about over the next 10 years, 2025 to 2035, Americans are not having enough kids. So, that means that we need other people, right?
▶ 1:36:31So over the next decade, based on the current trends that I just explained to you and that you just reiterated, will there be enough workers to fulfill the labor needs of our economy in the 2020 between 2025 and 2035?
▶ 1:36:48So I think labor economists do see do they do do observe the phenomenon you're talking about which is demand for is demand for labor going to be met by the by the domestic population the nativeorn population and the answer appears to be probably not over the next 10 years and then what about if we do not have that labor force over the next 10 years what happens so many many things will happen you know you can see a big increase in productivity which would mean we don't need as many workers For example,
▶ 1:37:18artificial intelligence could be implemented in a way that creates widespread productivity gains. I wouldn't count on that, but it's a You would not count on that. I wouldn't count on it. You would not. No, I mean think I think there'll be gains because well because with productivity enhancing things, they typically take longer to be implemented and then it takes a while for the gains to be shown. I think in the case of artificial intelligence, those gains are coming, but they may take longer or be less in the beginning than than expected.
▶ 1:37:47And during the time that those changes happen, then what happens? Our economy doesn't grow. Is that what you're saying? Yes. But I mean, those who make immigration policy are entitled to weigh these factors. You know, we can report on what happens, but it's really not our job. I I understand it's not. I just want to hear your what you're thinking. What's your expertise based on those immigration laws that we're implementing right now? Well, ask them because I only have 30 seconds.
▶ 1:38:11Do you think that with everything that we have talked about, do you think that we can continue remaining or the United States economy can continue being the number one economy in the world and and that we could compete if we were to have the immigration laws that we have right now? I think you you could have, you know, the highest per capita uh earnings, but if you're talking about the aggregate output, then um you know, population growth may be a constraint. And which one of the two is more important?
▶ 1:38:41Gentleoman's time has expired. Good question. Well, you can I think he gentleoman's time is expired. All right. Let me let me turn to the ranking ranking member of the House Intelligence Committee, Mr. for five minutes. Thank you, Mr. chairman and and and and welcome Chairman Powell. Um let me start uh by thanking you for your uh careful keeping in your lane and steering clear of fiscal policy.
▶ 1:39:09Um and in particular for your stalwart defense of independent monetary policy. you're getting pressure from very powerful places and lots of commiting from uh lots of members on the uh interest rate question and I most know better that our independent monetary policy is the very bedrock of our economy. So thank you for that. Uh Mr. Mr.
▶ 1:39:29Chairman, I want to talk just a little bit about um some of the technical matters associated with energy prices and inflation because obviously turmoil in the Middle East has sent oil prices uh swinging wildly with West Texas Intermediate in the last month or so being anywhere between $61 and $75 a barrel. Um we recently saw the Iranian parliament vote to close the straight of Hormuz, which currently handles around 20 million barrels a day, uh a fifth of global demand and a little bit more in terms of natural gas.
▶ 1:39:58Um, Chair Powell, you said last week that conflict in the Middle East in the 1970s resulted in very large inflation shocks. In contrast to the 1970s, uh, today the United States does not import most of its energy. Uh, we call ourselves energy self-sufficient on a net basis. Um, but I hear the argument made that I think is wrong that because we're energy self-sufficient, somehow we are insulated from global energy price market prices.
▶ 1:40:28Um, can you comment on that? Is is there any validity to the notion that we are not American consumers of energy are not subject to global swings in energy prices? Yeah. So, um, the the place price of oil is set globally, right?
▶ 1:40:45And I think if you go back u a few years, the thought was that when the global we had we had a natural shock absorber which is that we would just drill more and and that we would if prices went up we would drill more and so you wouldn't have these sustained price shocks that we had during the 1970s and the original OPEC era.
▶ 1:41:03I think that is actually in question now because you know uh the oil industry in the US is is being much more careful and focused on return on investment than they were having been burned with over capacity right and and I mean yeah in the long run you can invest in additional extraction technologies but this does not respond to day-to-day spot prices so not quickly the point I'm trying to make is that the conflict in the Middle East if it resulted in $120 barrel oil which is where oil was in 2022 that would have a fairly
▶ 1:41:33substantial inflationary impact on the American household. Is that correct? We would certainly feel that you know and as we discussed earlier you there's a lot of lore around looking through oil price shocks but that depends on the facts and circumstances. What as a technical matter we tend to refer to CPI which is a basket of goods and we measure the price changes. Roughly speaking what percentage of that basket is comprised of energy? I don't have that on the top of my head. much less than it was.
▶ 1:42:04Of course, the oil consumption is much less than it was in the 70s as a percent of GDP, but energy includes natural gas and gasoline and that it's it's a meaningful portion of the Yes. Although, of course, we have we have more natural gas than we have so much natural gas. So, that wouldn't that'll that'll always be there for us. So, none of us can predict um what's going to happen in the Middle East in an hour, much less in a week or a month or a year.
▶ 1:42:28But um as a technical matter, at price for a barrel of oil does the American household begin to feel inflationary effects? So we're, you know, we're at $75 a barrel roughly right now. At what price point does the American household begin to feel some inflationary effects? I I don't want to throw out a number. You know, I think we're and you know, we're frankly it's too early to say that something like that's going to happen and I know you know that.
▶ 1:42:57Um, but I wouldn't want to throw out a specific number. If, you know, if prices went up materially, people would feel that. Okay. Okay. Um, again, I think if I look at the data here, uh, WTI per barrel about 12, it peaked at about $120 in uh, 2022.
▶ 1:43:18Um, what do your models suggest would occur to inflation and how would it influence the Fed's thinking should we be back at $120 a barrel? Well, let's just say there's a big price spike in that in that range. So, you know, we would look at that and we would ask ourselves um we look at the the overall situation. We would ask ourselves, should we react to that?
▶ 1:43:40So, for example, during the what we called the Arab Spring back in the early teens, um oil prices went up a lot and that went into the price and then there was a discussion and I think the right answer was to look through that. The question you'd be asking to yourself because by the time you react the price comes back down. I think the question today would be, you know, is the situation different and and what would be the implications of those differences? Gentleman's time is expired. I thank the gentleman from Connecticut. Chair recognizes the gentleman from North Carolina, Mr. Moore.
▶ 1:44:10You're recognized for five minutes. Thank you, Mr. Chairman. Chairman Pal, I want to touch on international standard setting bodies like the Basel Committee on Banking Supervision. Their goal is to promote better harmonization for global capital flows and regul regulatory standards. But the Biden administration's implementation of Basel 3 ingame demonstrated the pitfalls when the US was a follower instead of a leader in the international arena.
▶ 1:44:37That's why both Democrats and Republicans shot down former vice chair Michael Bar's proposal which made capital less acceptable and put US firms and businesses at a global disadvantage. Do you agree that the United States should only implement international standards in a way that is consistent with our own domestic legal and regulatory scheme? I do. I appreciate the Federal Reserve's announcement yesterday to end the use of reputational risk during banking examinations.
▶ 1:45:06This supervisory practice was used as a tool to pressure banks to refrain from offering financial services to politically disfavored individuals or industries. What further steps is the Federal Reserve taking to help usher in these changes, such as ending examination practices that informally encourage banks to close certain accounts without written justification?
▶ 1:45:27So, we're um we're developing I should say Vice Chair Bowman is is developing a range of policies that will help in that area and I should let her speak to it. But, as you know, we've we've eliminated reputation risk largely in a thoughtful way from those things. Uh I think we became more aware of that problem over the course of last year and and like the other agencies decided to to move away from that. We're very conscious of the of the fact that we shouldn't be telling banks who they can lend to.
▶ 1:45:55that that's decision for them in the private sector. Let me ask you this. How are you ensuring though that like the frontline examiners are aligned with this new direction and not continuing with any past practices? you know, um I I will say uh that that is the ultimate question is is will the and and I think they will and I I think uh as a former bank examiner, Vice Chair Bowman is actually very well positioned to engage with supervisors and um
▶ 1:46:25and in a way that someone with experience can do successfully, whereas if you're uh if you don't have that experience, I think it might be harder. Thank you. Uh, you know, Secretary Bessant recently announced a drive to change the culture of supervision through improvements to examination procedures, enhanced monitoring of of examiner's compliance uh, with those procedures and more realistic processes for appealing supervisory findings.
▶ 1:46:51That includes defining unsafe and unsound by rule uh, using more objective measures rooted in financial risk. Do you support this initiative and will we be seeing further rule changes at the Federal Reserve to achieve this goal? So, I like the sound of all that. I will say I on issues of supervision, um, Vice Chair Bowman has, you know, significant authority and also she's got the background and the understanding and I would the first thing I would do is I would ask her what she thinks about that. Yeah.
▶ 1:47:18Um, just sort of a change changing direction on a couple questions. During the volatility in the Treasury markets last April, some have speculated that foreign investors were dumping Treasury securities. Since then though, recent data has showed that foreign investors holding of US treasuries held close to a record high in April. Does this data show that Treasury safe haven status and the dollar's global reserve currency status remain strong while the administration conducted trade negotiations?
▶ 1:47:48I would say yes to that. I I I think we need to be careful about these narratives that pop up quickly. I mean, we're we're the world's reserve currency and the world's greatest democracy and I think the the dollar end is always going to be, you know, for anyway for a long time is going to be the reserve currency and the place where people want to be. Let me ask you this. Do you believe there's a possibility that Treasury markets will crack just as Jamie Diamond has recently warned at the Reagan National Economic Forum?
▶ 1:48:17You know, I wouldn't I don't want to say things like that. I I I don't think that's something that's happening. Treasury markets are functioning well and normally and they did function through a period of pretty substantial stress and as you pointed out Mr. Moore that that they're focusing well now. Thank you. With that uh I yield back and actually if Miss Salazar is still here I'll give her my remaining time. If not I yield back Mr. Chair. Gentlemen yields back. Chair recognizes Miss Williams of Georgia. You're recognized for five minutes. Thank you Mr.
▶ 1:48:45Chairman and thank you Chairman Pal for being here. It's been a while since I've had the opportunity to ask questions. Sitting at the bottom of the the room, but I am happy to have this conversation today because the last time we talked last July, I mentioned that combating economic inequality is a critical part of the Fed's dual mandate. And that is something that I am deeply deeply interested in.
▶ 1:49:08Back then, we were talking about how we can get everyone in our economy to have the opportunity to contribute to their fullest potential because that's how we get our economy firing on all cylinders and work to continue to close the racial wealth gap, which my home city of Atlanta continues to lead the nation in. That seems like such a far cry from where we are today, almost a year later. Forget our economy firing on all cylinders. Now, our economy and our nation seem to just be on fire.
▶ 1:49:36We're looking at tariffs that are raising the prices of groceries, fuel, housing, and everyday goods. Chairman Pal, I get feedback every time I'm in a hearing about my nails because I like to get my nails done. And my nail tech told me about the increased in cost of so many of the different products that would be used just for me to get my manicure monthly because tariffs are frightening so many of our small businesses, which we know are the backbone of our economy.
▶ 1:50:04And so it's hurting my community in Atlanta, but it doesn't seem like our president and my Republican colleagues are really interested in making sure that our economy fires on all economies as on all cylinders as long as billionaires continue to get richer because that's what we've seen and all of the the gutting that has been done to the federal government.
▶ 1:50:28and chairman pal, I'm I mean I'm sure that this is coming to your department as well with the recent events that we've seen. We know that it is very dangerous to gut the federal government, agencies that we depend on and politicizing the work of agencies such as yours. Chairman Pal, this current president has tried to reclassify tens of thousands of non-political public servants just to make it easier to fire them.
▶ 1:50:57And that includes people who have served in Democratic and Republican administrations. It even includes people who served in independent agencies just like yours, Chair Pal, as a chair who our current and previous president routinely has threatened to fire. I think I just heard something on CNN today while you were here testifying. But what effect has this policy had on the career civil servants in your agency? And are these threats making it easier or harder for the Fed to do monetary policy?
▶ 1:51:28They're having no effect. We're doing our jobs. You're doing your jobs. I appreciate you doing your job even when it might not be easy. It is important to tune out the things that you hear on the media because I hear it every day representing a district that has a lot of federal employees, a lot of people who work at your agency. I hear from people all the time. Thank you so much.
▶ 1:51:51Um, and not only do I have thousands of federal employees in my district, but my district has one of the widest racial wealth gaps in the country. Much of that has to do with our worsening housing crisis. And unfortunately, as we've seen with the past six months, our this administration has been focused on this big billionaire bailout bill, gutting HUD, and releasing a budget that does not help the supply of fair and affordable housing nationwide.
▶ 1:52:19Now, we've heard the president talk about having the power to control interest rates. In your opinion, Chairman Pal, what would you expect the effects would be on the housing market if the president were to lower interest rates without addressing the housing supply crisis nationwide? Sorry. If he were to what? If the pres So, the president has talked about having the power to control interest rates.
▶ 1:52:41In your opinion, what would you expect the effects would be on the housing market if the president were to lower interest rates without addressing the housing supply crisis Honestly, I I I it's not our job to speculate on on things the president might do. So, what impact do do interest rates have on the on housing access over the long run? They they don't really affect housing supply, you know, assuming that rates will go up and down.
▶ 1:53:10Um well, not on the supply, but on the housing market. The supply is separate that we need to address going into this. If we're going to move interest rates up and down, that's not going to be the end all beall to getting people into housing. We must address the housing supply crisis. But what impact do interest rates have on the housing market in general? Well, interest rates really affect housing demand. So, if you with lower rates, you see more demand and higher rates, maybe less demand. Thank you, Chairman Pal.
▶ 1:53:40I am out of time, but I have lots of questions as I continue to work to close the Russ racial wealth gap in this country, specifically focused on my district in Atlanta where it is so pre prevalent. Thank you so much. Gentlewoman's time is expired. The gentleman from Indiana, Mr. Stsman's recognized for five minutes. Thank you, Mr. Chairman, and Chairman Powell.
▶ 1:53:59Great to see you and and u again as I mentioned to you before always appreciate your steady hand at the wheel and uh uh not u I guess getting out of your lane necessarily but um obviously you you have a huge impact on uh the economy and what's happening there at the Fed.
▶ 1:54:17Um, I want to kind of follow up a little bit on housing as I've I've been hearing a lot about housing uh concerns in Northeast Indiana and I know, you know, you're not uh you're used to being beat up on a lot by folks all around the country and but I want to speak specifically to one particular uh individual uh Cardone Capital, Cardone Capital, Grant Cardone.
▶ 1:54:43He he made some pretty strong remarks about uh the uh your policy when it comes to the housing industry. And uh he said uh you know that's why you have 500,000 more homes listed than buyers for those homes. When the rates come down, prices will also come down with it because you'll have more supply in the marketplace and supply is what controls prices.
▶ 1:55:07Um he went on to say that you know interest rates do not control prices and he explained that lower rates could stimulate activity in the market and activity is what makes the economy work and and I agree with his comments you know overall but I believe as you said earlier the economy seems stable um and I would agree with that coming from an a and manufacturing area it's not booming yet but I believe most people are optimistic that the good times are coming and
▶ 1:55:37that the structure is set and in place. But when it comes to housing, it seems like that's where a lot of Americans are. They're stuck. You know, they've had low rates. They've got a good mortgage rate, but if they want to make a move, they have to go out of that 3% interest rate into, you know, four and a half, five or higher um percent interest rate. thoughts on addressing housing because there prices are up for sure but people aren't there's no activity.
▶ 1:56:07It's there's the the velocity is very slow. Would you regard or like to comment on any of that? Sure. Um so yeah we we we see the same thing you do in the in the housing market. It's it's tough. There's not uh people are locked in. they can't afford to get out of their house because the cost of getting to a higher mortgage higher higher price mortgage would be would be a lot.
▶ 1:56:28So, um the best thing we can do though is to get inflation sustainably down to 2% and have it stay there over a long period of time, a long period of time. And that that is really what we can offer to them. Um, and I think, you know, to so if you go back to the be beginning of the pandemic when we we cut to zero and we did all those programs, we really saved the housing industry because they're the front line for interest rates.
▶ 1:56:55At a time like this when when rates are, you know, I would say modestly restrictive, not even moderately, but modestly restrictive. They feel it and and their customers feel it. We understand that, but we only we only have one tool for the whole economy, not just for housing. So, it's something we consider, but we have to consider the bigger picture. And I do think in the in the medium term, uh, we as rates come down, you'll see normalization in housing. Of course, there'll still be a national housing shortage. I don't know about your district, but yeah. No, there's a shortage.
▶ 1:57:25I mean, considering the macroeconomics of of interest rates, I mean, how much consideration do you take housing into that decision as you address interest rates? You know, we're always briefed on it. We always talk about it. We always look at it. But at the end of the day, it's the it's the big US economy, the whole aggregate thing that matters. Uh we we we we also talk about the agricultural economy a lot as well.
▶ 1:57:50But ultimately and manufacturing, it's got it's got to be the whole and um not any one particular piece. Yeah. I just, you know, would mention it's it is hard for American families to make that move and they're and they're stuck.
▶ 1:58:04Um, and so I would just, you know, highly consider, you know, ask you to consider that piece of it because when Americans can't move and Americans can't upgrade or or move laterally even, uh, it it really keeps the economy um, in a kind of holds the economy back a bit when Americans don't have that. But again, I I want to say thank you because you have a tough job, but um, I haven't heard from anyone in my district asking interest rates to go up.
▶ 1:58:31So, uh, I'll just pass that along from Indiana's third district. So, with that, Mr. Chairman, I'll yield back. Gentleman yields back. The chair now recognizes gentleoman Colorado. Miss Peterson is now recognized for five minutes. Thank you, Mr. Chairman, and great to see you, Chair Powell. Thank you so much for being here today. I I want to thank you for your long service to our country. I I know that you've served under many Democrats, Republicans.
▶ 1:58:59uh you've always been nonpartisan and done your job to put our country first and we appreciate your steadfast leadership and if you are not reappointed it will be very missed here. I have some concerns when I think about I know we've you've touched on this a little bit through the questions today but around the independence of the Federal Reserve.
▶ 1:59:24your job, no matter what president you served under, Republican or Democrat, was to make sure that this was not a political position, while you brought news that some would would not be happy about because it reflected what you had to do to address inflation.
▶ 1:59:42You know, when I think about uh the conversations we've had coming going through the global pandemic and the economic fallout and how we had to infuse money throughout our country to keep our services afloat, our our businesses afloat. And while we suffered from inflation like the rest of the world, we had the quickest strongest We we were leading the globe and so much of that was because of your leadership.
▶ 2:00:11Uh, and so when I think about what this position means, how important it is that there's independency, independence, what are your biggest concerns about a potential successor that that doesn't put that, prioritize that, and wants to do what is politically asked of them versus what they need to do for the country?
▶ 2:00:36and what are their long-term repercussions if you're not acting on addressing the economic uncertainties and trying to address inflation in this position? So, I wouldn't speculate on on that, but but I would say um you know the credibility on the Fed of the Fed on on price stability is very very important. Um people believe that we will bring inflation back down to 2% over time.
▶ 2:01:01And once they if they really do believe it and it's true, then, you know, that'll that'll have big effects on not just short-term rates, but long-term rates. If that were to be called into question, then you'd see long-term rates go up. I mean, that that that um that credibility once lost is very expensive to regain is is what the historical record says.
▶ 2:01:20So I just think it's I think people should understand that that you know credibility on inflation is hard one and uh and something we need to constantly tend and you know that's what we're doing in our with our with our current policy is just being careful um with with potential inflation risks. We haven't overreacted. In fact we haven't reacted at all. Uh but we're being a little bit careful about about that set of questions as we decide what to do next. And thank you for bringing uh that up.
▶ 2:01:49As we look at where we were, how far we had come in our economy, things were starting to stabilize and we were starting to finally see a relief on the interest rates. They were starting to go down. Now they're holding steady. Can you talk about why the instability, you know, when we look at tariffs around the increase in the deficit by the proposed uh big ugly bill that is being brought uh through Congress right now and increasing our debt by trillions of dollars and having our credit downgraded
▶ 2:02:20uh again because we are increasing our deficit. Um so with this economic where we were going we were on the way down for uh reducing our our rates and now we have to hold steady to address the instability. Is that correct? I'm I'm sorry. Could you just briefly restate your question there? I apologize. Yes. I'm going to do this as the best I can with uh with Sam here.
▶ 2:02:49that with the um with with our having to address inflation as we've started to see it, you were able to decrease the rates. Um we were starting to go down a little bit. We were seeing that we were we our economy was finally in a solid prices were starting to go down and now with the economic uncertainty we're starting to see that you had to hold steady whereas everyone was projecting before this administration came in with these changes um that it was going to continue to go down.
▶ 2:03:19Can you talk about why you have had to had to choose to hold steady on the interest rates? So we just you know we're we stick to what we're assigned to do which is maximum employment and price stability. We don't have opinions on uh fiscal policy or trade policy or immigration policy or any one of another or regulation policy um other than other than that we have our regulatory responsibilities and so we take what comes as it comes and you know uh um elected
▶ 2:03:50politicians do what they do and we don't criticize that we don't have opinions. Gentleman's time is expired and the gentle ladies. Thank you and thank you Sam. Chair now recognizes the gentle woman from Texas, Mrs. Dea Cruz for five minutes. Thank you so much and um thank you um Chair Pal for being here with us today.
▶ 2:04:12I am Congresswoman Monica Dela Cruz and I am from deep south Texas, a largely Hispanic district, a rural community right there on the border of Texas and Mexico. I serve as the vice chair for housing and insurance subcommittee and it's difficult for families right now to afford a home on an average paycheck.
▶ 2:04:39I'm committed to finding affordable housing solutions for the people in my community but also for all over the nation. So, Chair Pal, mortgage rates remain significantly elevated relative to Treasury yields with spreads well above historical norms.
▶ 2:04:59To what extent does the Federal Reserve believe its balance sheet policy, particularly the runoff of MBS holdings, is contributing to this widening? and how does that factor into your broader assessment of financial I don't think that our um runoff of of MBS is a particularly large contributor to to that situation. I also think it's not just interest rates.
▶ 2:05:29It's so many things around housing now. It's insurance. It's it's materials. It's uh it's land acquisition. It's labor. There's so many cost pressures that are pushing up housing costs. Thank you. With that being said, um moving on to an entirely different topic.
▶ 2:05:47If the Federal Reserve focuses on issues outside its dual mandate, there are more opportunities for policy mistakes, how can you ensure that no other climate policy work is being done at the Federal Reserve? So, it's a it is a big risk to our independence if we were to stray into areas where we where we shouldn't. that really aren't part of our mandate. And I would agree that climate is the is the the biggest risk.
▶ 2:06:15So we have we we really did the bare minimum. We did much less than I think people understand in the climate area. All we did was was one piece of guidance and then we ran one stress scenario and and by the way didn't find anything. And I think we're, you know, you don't look to us to try to take on a bigger role or really to play any role in climate, which I personally think is an important issue and one that needs to be dealt with by elected officials.
▶ 2:06:43And and to to to for bank regulators just to step in and take that on without a mandate from Congress is a is not a good idea. It's not a good solution and it's not a good way to remain independent. Reclaiming my time, what kind of climate guidance did you make? So we for just the big banks I believe we we asked them to uh monitor um their to have a framework for which they would monitor their risks from lending.
▶ 2:07:13That's all it was. And I would say that CL you know that that that guidance is something we're looking at pulling back. When you say their risk for lending the risk for lending based on political uh climate change is that correct? Well, the idea was that um you know ch the changing climate could I mean I'm not defending this. I'm telling you what the idea was.
▶ 2:07:36The idea was you know climate change would would cause certain kinds of assets to lose value and that banks lend if banks are lending to the in in those areas or to those industries then uh they should at least be able to measure. It wasn't didn't ban anybody from doing anything. It wasn't prescriptive. At the same time, um, you know, we you have the feeling that that the side effect of it would be to discourage lending and we don't want that to be the case.
▶ 2:08:06So that's why we're looking at it. Well, it does sound like that is um policy that is based on political agenda. And when it comes to banking, it should not be based on political um political agenda, but instead on facts. facts such as credit facts as monetary good monetary policy.
▶ 2:08:29So I I would have to disagree with you on the fact that the Federal Reserve stayed outside or outside of political agendas when it comes to climate change. That is a political agenda and I would have to disagree with you on that. Thank you. I yield back. Gentle lady yields back. The chair now recognizes the gentleman from California. Mr. Sherman is also a ranking member of the capital markets uh subcommittee for five minutes.
▶ 2:08:58We don't notice good bank regulation. Things just go smoothly. But in 2023 we saw the effects of inadequate bank regulation where we lost three banks. Uh there was a proposal uh that passed the house that would have cut the pay rate of your uh re uh bank inspectors and regulators down to 70% of the rate paid by at FDIC.
▶ 2:09:28So you would have been you know 70% of what the other major bank regulation agency did. I know you've denounced things about headcount, but I'm focusing here on just the rate of pay.
▶ 2:09:41Um, fortunately, we were saved by not Superman, but Superwoman, Elizabeth Mcd Mcdana, uh, the Senate But what effect would it have had on our ability to have good bank regulation uh if uh you had to go to all uh the folks in doing bank regulation at the Fed and say that their pay is going to be cut to 70% of the rate of pay over at the FDIC.
▶ 2:10:08Uh it would have made us hard hard made it harder for us to attract or to retain personnel. It also would have knocked down something we've had for 90 years, which is a sort of a moat that allows us to to take care of of HR issues on our own without Congress. Gotcha. Uh there I've got a couple of questions I'd ask you to respond for in the record. The first is section 899 of the big ugly bill, uh big beautiful bill, whatever you want to call it.
▶ 2:10:37Um enforcement of remedies against unfair foreign taxes. What this does is it imposes a tax on those residents of about two dozen foreign countries should they invest in the United States, including in our treasuries. And we're trying to attract capital from abroad. This is to push out capital abroad. And it doesn't affect China. It just affects two dozen of our friends uh particularly in Europe.
▶ 2:11:05The other thing I'd like you to respond for the record is the tariffs and the effect that that has not only on the inflation rate but therefore on interest rates. And uh at your press conference you said increases in tariffs this year are likely to push up prices and weigh on economic activity. And I'd certainly like to know more about that.
▶ 2:11:29Um, the Treasury has our reserves, but you also have a liquidity fund, which I believe involves buying and selling foreign currencies. And so that begs the question whether if you're allowed to buy uh uh the euro, whether you're allowed to buy Um, and of course the president has said that some agency of the federal government should have a strategic crypto reserve.
▶ 2:11:59Do you or your have the legal right to take assets of the Fed and buy Bitcoin or Trumpcoin? No, we don't. And we we do not seek this I hope very much that your successor is not someone who tries to stretch existing statutes and come to an opposite answer.
▶ 2:12:24Um the uh like to focus a little bit on uh when you came before our committee uh last I guess in February, I asked you uh if you would take a holistic look at bank capital requirements including the riskbased capital ratios like Basel 3 endgame and stress testing to make sure uh that you don't have a contraction in the ability to provide credit to main street businesses and you said you would do yet.
▶ 2:12:54Uh so my question this time is how does the plan Fed plan to sequence the various capital requirement reform proposals uh that we expect to see in the coming months? In what order will you proceed uh with reforms on uh uh Basil 3 weight risk capital leverage ratio stress testing and the GIB uh service charge?
▶ 2:13:19Um, knowing that these have interactive effects, can you tell us what the se the sequence will be? So, I I um I really do this is the heart of what the um the vice chair of supervision is assigned to do is to bring proposals to the board and I read that as giving her the she's the one who who will decide that sequencing. You're right there. There are many things and it's really up to her to decide what's the timing, what's the priority and I I don't actually know exactly what what she's only been confirmed for a couple of weeks.
▶ 2:13:48So we're just going with you as the head of the agency even if she is supposed to decide the sequencing that your agency and would uh tell us what the sequencing is going to be and uh understand how important it is for people to know what that what the order th those various regulations have and I yield back. Gentleman yields back. The chair now recognizes the gentleman from Iowa, Mr. Nun, for five minutes. Well, thank you Mr.
▶ 2:14:17chairman and thank you chairman Powell for joining us again here. Um we have a saying, you know, Iowa is nice, kind of boring. We want our Fed chairman to be just the same and you're doing a great job at that. We appreciate it. Thank you. Um nothing against boring. We we like that, too. Look, you have a lot of great staff that come from Iowa as well. I appreciate you having them on your team. Uh we also want to recognize the fact that, you know, folks in Iowa are still feeling the challenges of the last four years. We're middle America.
▶ 2:14:45It is um the heartland of the country, but it also means that impacts that change things on the coast don't always get felt the same way in the Midwest. And so, as a result, folks are stretching every dollar as they face everything from higher grocery prices, eggs, to trying to buy just that first car or even maybe that first home. And interest rates to them matter as they do everywhere else, but they're even more.
▶ 2:15:08Now, I will offer the president has made great strides uh in making progress for Iowa families and wage growth is moderating nationwide. Many in Ians still feel though that inflation spikes impact them. And with the president focused on rebuilding the middle class, I'd like to talk a little bit about how the Fed ensures that this heart of the heartland uh can feel the benefits of a soft landing as you've laid out.
▶ 2:15:35Oh, you're asking me how you will feel the benefits of the of the of the Well, I would think um pretty open-ended question. So I and I think you know our goal is to keep the economy strong, the labor market strong and price stability fully restored.
▶ 2:15:50So that that's really what we can provide is a long period of stable prices and we define that as um as chairman Greenspan used to which is people can make economic decisions in their families in their jobs where they don't have to think about inflation all the time and we're getting back closer to that place but we're not quite there yet. That's the main thing we can now do.
▶ 2:16:11And that if once we restore price stability, you know, very soundly, that gives us the ability to react more strongly to downturns in the economy without having to worry about inflation. And so that that's, you know, we have limited uh scope, but those are two very very important things that we can deliver that benefit all families. I would agree. So I guess I would also like to focus here on the short term.
▶ 2:16:34The Federal Reserve has slightly lower rates to ease borrowing costs for rural communities and long-term trade negotiations strengthen our global position. Would you agree that the agricultural sector in particular is vulnerable to both interest rates and recognize international markets and how would the Fed evaluate the unintended consequences of policy on commodity dependent economies in a state like Iowa?
▶ 2:16:58So we, you know, we have a um a number of our of our Federal Reserve uh bank presidents represent districts which have extensive agricultural operations and families and farms. And so we hear from them kind of all the time, but we hear from them in great detail around every FOMC meeting. And we understand that time's, you know, pretty challenging right now in in uh in the agricultural sector. We take that into account.
▶ 2:17:25um you know ultimately we're responsible for the aggregate level of the economy and for keeping inflation under control and maximum employment. So but we do very much uh think about and and take into consideration the agricultural sector and the people in it. We appreciate that evaluation. I know there are farmers back home as well as um you know our bankers who value that because they're the ones providing the capital for it. I want to talk a little bit on the national security side as the vice chair of NATSC here.
▶ 2:17:51If foreign actors begin weaponizing treasury sales or dollar reserves, what tools does the Fed have to help preserve financial stability and the dollar status as a reserve currency within the You know, essentially what what makes us the reserve currency is a few things. It is uh our great democratic institutions. It is that we have uh open capital markets, very open capital markets. And it is that we have price stability and the rule of law. Those are the things that make you the reserve currency.
▶ 2:18:20and what you can keep that status as long as you maintain those things. Of those things, the thing that we contribute is price stability over the long run. So people who want to invest in or use the dollar, they can be confident in the value of the dollar over time that it won't fluctuate wildly or decline in ways that and so that's our role really. Treasury is responsible for stewardship of the dollar, but we have that role to play as well. Very good.
▶ 2:18:47Um, in the brief time that I have left here, I just came back from a trip to Saudi and the Arab states. Um, big concern here in the world we're living in right now with Iran looking at asymmetric ways to threaten the United States. Cyber attacks have been on the rise. You got a a question here earlier on cyber security. Help us feel confident the Fed is doing everything they can to protect um us from a cyber threat.
▶ 2:19:12So our part of it is the financial sector and the and the institutions we regulate and they spend a lot of time and money on on uh cyber security. We spend a lot protecting ourselves and there are other parts of the US government that are very much involved in in uh in making us aware of cyber issues and making sure that we're all ready uh and you know we never sleep on this because it's it's always getting harder. Thank you Mr. Chair. I yield my time. Gentleman's time's expired. The gentleman from California, Mr.
▶ 2:19:40Vargas is also a ranking member and my colleague on the monetary policy task force is now recognized for 5 minutes. Thank you very much, Mr. Chairman. Thank you, ranking member. Appreciate it. And of course, Mr. Pal, thank you very much, Chairman Pal, for being here. Um, I'm 64 years old. You're a little bit older than I am. In in my lifetime, I know what the most dramatic economic event is, at least that I believe.
▶ 2:20:05In your lifetime, what do you think is the most dramatic economic event that you live through as a country, as a world? So, as an adult, I would say um the global financial crisis and the pandemic. No, just one. You get to pick one. Sorry. You get to pick one. You pick two. Just one. I would say there's a third, which would be the great inflation. So, I'm going the wrong way here. You're going the wrong way. Yeah, just pick one. Uh I'd say the global financial crisis was in a lot of ways scarier than the pandemic.
▶ 2:20:35U for me. Yeah, it it's interesting because both of them were ones that I lived through too. And I have to tell you the most dramatic for me was the pandemic um in so many ways. I'd never seen anything like it where everything closed down. I remember flying here from San Diego where I live on a 737 and there were four passengers. There were four of us on the plane. Of course, some idiot sits right next to me. I like what are you doing you stupid moves boy?
▶ 2:21:02But anyway, it it is interesting that we didn't fall into the recession and we didn't fall into a depression. I was really scared about what was going to happen because of the way we closed down. We didn't know it was going to go. We didn't know it was going to happen. And I think a big reason for that was the sort of the strength that we had of the Fed and and the country came together and said, you know, we're going to figure this thing out. And we did that. You didn't panic. Um you guys are very independent.
▶ 2:21:31I I think everyone did their job. The reason I say that is because I do worry about the independence of the Fed now going forward. So question, can the president appoint himself as the Fed chair? It's a question, but not for me. You're the Fed chair. You should know. You should know what the requirements are to be the Fed chair. Can he appoint himself? I I don't know. You don't know that question? What What is Well, you're the Fed chair. What is the requirements to be the Fed chair?
▶ 2:21:59confirmed by the nominated by the president, confirmed by the Senate. I think I think you probably have to be a US citizen probably, but I don't not sure. So, so far it seems like the president fits those. He's a US citizen. He can appoint he can propose himself and I assume that senators over there could confirm. Why couldn't he become the Fed chair also? Again, not a question for me. Okay.
▶ 2:22:21I wouldn't The reason I asked that is because again I I do think that we have a great system because of the independence of the Fed. And it worries me that more and more and I I assume I'm not going to ask you this embarrassing question although I would like to you know whether you read all the things that he says about you. I'm sure you do or some people tell you. Yeah. But um I won't tell you what they are.
▶ 2:22:47But I'm glad you've been independent and I think that that's so important because you do look at long terms. It it's not missed on you. You know that we want you all to lower the rates. We you know that both sides, right? You get The answer could be yes or no. Honestly, I'm not sure. I do know that. I I've talked to members from our side.
▶ 2:23:14We'd love to see the rates go down and I've heard from a number of my colleagues on the other side. We'd love to see the rates go down. I talked to a lot unanimously like privately. You're doing the right thing. I hear that from a lot of members privately. In any case, we have to do you were appointed and confirmed, my colleagues and I do what we think is right. That's exactly right. And that's why I say it because I think you it's not lost on you that we all want the rates to go down. In fact, it's really real when you say, you know, someone's locked in at 3% at their house.
▶ 2:23:43you know, their interest rate. So, they don't want to move and get a 7% rate. I mean, they they don't want to pay that. That's that's real. My colleagues mentioned that. That's truthful. And that's why it's so important to be independent. Now, lastly, I do want to ask because again, it's so darn important to have an independent Fed chair and independent Fed. Secondly, the dual mandate. Um, I respect the chairman very much. Um, and and he's a friend. Hope that doesn't hurt him politically.
▶ 2:24:08But that being said, he did ask you a question about the dual mandate in a way that he quoted somebody else and said, is that the way you see it? I do want to see how do you see the dual mandate? It seems to me that you gave a little bit of a preference to price stability over maximum employment. Is that the case? No, I think the two the two things are are equal under the law.
▶ 2:24:32But the the thought is, you know, we haven't defined it in in exactly the way that that the chairman said, but not not with I do think it's a reasonable way to define it, which is the maximum employment is the maximum maximum level that's sustainable or consistent with price stability over the long run. That doesn't make it to me an inferior. Gentleman's time is expired. Um, thank you. I think it's kind of implicit in a way.
▶ 2:24:57The chair now recognizes the gentleoman from Michigan, Miss McClan, for five minutes. Thank you and thank you so much for being here. I appreciate it. Um, as a as a business owner, small business owner myself, access to capital is extremely important to me. Um, so I want to talk a little bit about the Fed's balance sheet and just get a better understanding of how we're thinking about it.
▶ 2:25:20I mean, some experts say that the Fed's balance sheet or large balance sheet is distorting the markets and keeping long-term rates, let's say, too low. Um, also, I think it limits the access to capital, right?
▶ 2:25:36Historically, if if I'm accurate, um the balance sheets been about four trillion um prior to the pandemic, then we raised it almost doubled it to about 9 trillion, and now it's on a kind of a downward trajectory to about 7.2 again, if my math is right. Um do you think we're on the right track in in shrinking this balance sheet? I do. Yes.
▶ 2:26:02Do you I'm trying to get a sense of what the landing spot in your opinion should be. Do you think we'll get back to the four trillion? No. No. So we're we're in what we call an ample reserves regime and that what that means is that that um the quantity of reserves demand is fluctuates and this means the quantity of reserves can fluctuate without affecting interest rates.
▶ 2:26:28And we think that's a good thing to what that means is there's going to be a lot of liquidity in the banks and in the in the in the financial system. That's a good thing. There wasn't enough liquidity before the global financial crisis. That was one of the problems. We have some shrinking left to do on the balance sheet, but we're not going to get down as far as you asked. Where do you think we'll land? Because my cons let me let me start. I'm sorry. Where do you think we'll land? You know, I can't give you an exact number, but you know, we're going at a pretty modest pace now.
▶ 2:26:56we've slowed down kind of cut in half twice the speed. We think we can go for a good while at this speed and we'll learn as we go. So you think the trajectory so to speak will remain? Yes. And I think the fact that it's quite a gradual trajectory now is going to enable us to find that level that is ample and not scarce. Uh when reserves are scarce you get a lot of volatility and that doesn't that doesn't help. So I think that's a good framework. You know the the ample reserves framework I think serves the country well.
▶ 2:27:25And you're not concerned in terms of the access to capital? I mean, as a business owner, that's what I look at is I got to be able to get capital. And some people are saying, you know, we're really hanging on to our our cash. I I think if you know, I honestly I think you if you if you took the trouble to go back to a much smaller balance sheet, it would have no effect whatsoever on capital ability for companies. You wouldn't do that at all. We're not we're not pulling capital away from from companies. That's not what's happening. it it's just there you're you have a big balance sheet where there's a lot of liquidity.
▶ 2:27:55The result is there's a lot of liquidity. Banks have you know are flush with liquidity uh for the most part and that actually enables lending. It's it wouldn't it probably wouldn't have much of an effect one way or the other if you back to a smaller balance sheet. So you're comfortable with the liquidity you're comfortable with the access to capital. Excuse me. I mean um you know we look at credit availability for smaller businesses and you know right now conditions are a little bit tight. Yeah, it's tough for people in my district.
▶ 2:28:22It it's it's I would say that they're not they're not terribly tight, but we we do see that there's some tightness, but that's that's not really a function of the Fed's size of the Fed's balance sheet. That's just that banks are perhaps a little riskaverse in this uh uncertain environment. I think it all marriage goes together and is kind of intertwined, but I appreciate that. Um I want to just switch gears a little bit.
▶ 2:28:44Are you seeing any signs of financial instability uh building beneath the surface that we may not be uh seeing maybe on top of the surface whether it's in commercial real estate, private credit, regional banking, any I don't know anything you're seeing bes underneath the surface that could derail the growth path that really no I mean you mentioned there there are a lot of of pots that we need to watch to see that they don't boil over CRA you know has been a problem
▶ 2:29:14for 5 years. We're working our way through it. I think we're we're making good progress there. It's not getting worse. It's getting a little better. Um private credit is um you know has its real positive attributes. A lot of it's not funded by deposits. So it's not uh as long as it's not funded by retail or by deposits, it's actually fine for financial stability. But it's a very big and fast growing sector and it hasn't been through a real downturn. So and it's quite diverse. So I think it's it bears close watching.
▶ 2:29:42I mean asset prices are high um but leverage is not particularly high for corporations and households historically. It's not particularly high for banks. Banks are well capitalized. So I think I think overall financial stability conditions are you know are not uh not in a place where we worry a lot. So we're really poised in a pretty good position economically. Gentle ladies time. Absolutely. Thank you Mr. Chair. Absolutely. The chair now recognizes the gentleman from Illinois, Mr.
▶ 2:30:12Casten, for five minutes. Thank you, Mr. Chairman, and Chair Powell. Nice to see you again. Um, we had we had spoken in February about some concerns I had about some of the cuts in some of our economic data reporting agencies. And I think you'd said at the time that you didn't have a concern, but if um you would alert us if there were concerns. Um, you'd mentioned this with Mr. Licardo and I I gather if I'm paraphrasing you I think you said that you're you're not concerned about your access to data right now but I think you said that you don't like the direction of travel.
▶ 2:30:41Um I wonder if you could speak to well first I'm I'm going to work under the assumption that as the chairman of the Fed you probably have more access to economic data than just about anyone in our country. I am more worried about the impact on on smaller businesses that don't have your access to data whether you know someone thinking about hiring decisions looking at regional inflation rates like all the data we get from those resources.
▶ 2:31:07How concerned should we be you know if if an efficient economy depends on at some level on equal access to information. How concerned should we be that our business community with some of these cuts to BLS and elsewhere is not going to be able to allocate capital as efficiently as it otherwise would be in this moment? You know the reality is that that all of the essentially all the data data we use overwhelmingly is public data. The difference isn't that we have more access. The difference is that this is our job and we follow the data very very closely.
▶ 2:31:37But you know the employment reports, the CPI reports, the analysis of that by many economists internal and external. We just spend all of our time on this stuff. But I think large businesses have the exact same Well, but I'm talking about like has announced they're cutting 350 indexes. So that that data is no longer going to be public data. That's a different thing. Okay.
▶ 2:31:59So, if you're asking about that, I again I I I don't want to say and it's it wouldn't be true to say that we can't work we can't do our jobs with the data that we have now. That's just not true. The data overall we get we get the data. It's all these jobs are you're always going to make mistakes. It's it's never going to be certain in in any time.
▶ 2:32:16But um I would say seeing that that that survey sizes are shrinking and we're seeing more volatility for example in the in the labor market uh data lower response rates and things like that that that's not good. You know we should be getting better and better and better. I would add the private sector by the way we use more and more big private data private sector data sets and that is a relatively new thing the last five or 10 years of it doesn't replace the US government data has been the gold standard. Yeah.
▶ 2:32:46And I guess I get concerned because some of those data sets of course you have to pay for and not every business can afford that. Um I I want to on staying on the data point and picking up on what Mr. Heimmes was I I think only a fool would predict they know what's going to happen in the Middle East right now. But I get concerned that we have trying to handicap the Saudis have been very open that they would like to not see the price of oil get above a point where they're going to lose market share much to the dismay of US frackers. US frackers have been wanting to see it go the other direction.
▶ 2:33:16I don't know how to handicap which group is going to have more impact on Trump right now, but I would like to have some smart person out there taking a position on what is happening in oil markets. And the the Energy Information Administration has now announced they're not going to run the international energy outlook anymore.
▶ 2:33:37Should we be concerned about that piece of data as we think about what's happening in global energy markets right now given given all the pressures between various suppliers of where they'd like to see the price go and the wild card that is Iran and the the the Red Sea? You know, I I don't particularly know that that that specific report.
▶ 2:33:58Um, you know, I I I know there are many many many uh entities that do data analysis around uh around energy and oil and and the availability of it and the price of it and all those things. So I I can't speak to that one report. Okay. Well, I mean again just my own experience before coming here, I relied a lot on that and if I was in my past job, I would now basically have to rely on the International Energy Agency which in general was not as robust as the DOE data. Mhm.
▶ 2:34:28Um and so it's a gap and and I guess maybe I'll just close with, you know, I think a lot of this gets tied together with with the Office of Financial Research, um which would presumably be synthesizing a lot of this information for you. Um your predecessors Janet Yellen and Ben Bernani both recently urged the opposition to cuts in Office of Financial Resource that are in the in the the bill that the Republicans are pushing through.
▶ 2:34:53Do you share your predecessors concerns about the importance of that agency to synthesize some of this disperate thing so that you can do your jobs that the American people can do your job or do you share the views of the Republican party that that agency is not necessary? You know, I'm not going to take a position on on on the bill on the reconciliation package on specific issues like that that don't relate to us. I will say generally I'm a big fan and everyone at the Fed is a big fan of of good data collection. Gentleman's time is expired.
▶ 2:35:21The chair now recognizes a gentleman from Montana, Mr. Downing, for five minutes. Thank you, Mr. Chair. Our national debt now exceeds $ 36 trillion. Congressional Republicans have made it our mission to rein in out of control spending from repealing the Green New Scam, enacting common sense Medicaid and SNAP reforms, and rescending wasteful spending. Mr. Mr.
▶ 2:35:44Chairman, you've repeatedly said our national debt is not currently at an unsustainable level, but it is on an unsustainable path. Can you describe what the point of no return looks like when our debt reaches an un unsustainable level? So, there's no way to know exactly what that is. Um, and uh, but ultimately, if the debt is growing substantially faster than the economy, by definition, at some point it will not be sustainable.
▶ 2:36:13So I, you know, it's we're not we don't have oversight responsibility over the fiscal authorities, but I that's that's traditionally what my predecessors have limited themselves to saying, and I'll say it, too. And what effect would that have on the economy? So, you'd see you'd see rates go up. It would be um it would be very challenging to I think if you wait too long to fix the problem, you'll have to fix the problem eventually. If you wait too long, it'll be much more painful. Yes.
▶ 2:36:40I believe the US dollar status as the global reserve currency is essential. It allows the US to borrow at lower costs which stimulates economic growth and increases standards of living. The Trump administration is actively negotiating to ensure we are no longer taken advantage of by our trading partners. At a previous monetary policy task force hearing, all of the witnesses agreed that the recent volatility in the Treasury markets did not permanently damage the dollar's global reserve currency status. Do you agree? I do. Thank you, sir.
▶ 2:37:12Let me turn to oversight of the Federal Reserve. Uh, I certainly believe that had the Federal Reserve responded faster by raising interest rates earlier to combat the inflation crisis of the previous administration that interest rates would not be as high as they are now. I hear frequently that from my constituents that uh they're increasingly getting priced out of the housing market while interest rates remain near record highs despite the rate of inflation coming down. So, Mr. Mr.
▶ 2:37:37Chairman, I appreciate the Fed's increased transparency under your leadership and you've always welcomed congressional oversight into the Fed and I also appreciate uh the comments you've made about the limits of our knowledge uh demanding humility. So, with that in mind, can you point to oversight practices of other governments into their central banks that could be replicated with the Federal Reserve? That's an interesting question. I want to think about that. I'll I'll come see you and we can talk about that.
▶ 2:38:04I think we have we have effective oversight from this committee and from the other committee in the Senate and um I think that's important. Would you be supportive of an outside independent group of analysts or economists that conducts a periodic review of the Fed's economic assessments modeling? So let's before we that's those are ideas I' I'd like to think about and discuss privately before so do you have any other ideas to increase oversight in the Federal Reserve?
▶ 2:38:31I think, you know, like like my predecessors, I've fostered, you know, more and more transparency at the margin and I think that's appropriate. Uh I I think transparency is critical if we are to maintain our democratic legitimacy. Um so I I've tried that, but I I I'll devote some more thought to that question. Well, I look forward to following up and I I thank you for your responses and uh on that, Mr. Chairman, I yield. Gentleman yields back. The chair now recognizes a gentleman from Texas, Mr. Gonzalez for 5 minutes.
▶ 2:39:01Thank you, Mr. Chairman, and uh thank you, Chairman Pal, for being here with us today. Um I I uh I understand uh commenting on some policy issues are outside of your purview, but I have one that I think is heavily impactful on the American economy right now, and I want to underscore the scale and impact of the ICE raids that we're seeing across the country. Pew Research estimates that over 10.5 million undocumented individuals live in the United States.
▶ 2:39:30More than 3.3% of the population today. And according to the Nonpartisan American Immigration Council, removing this workforce could cost the US economy between 1.1 and 1.7 trillion in GDP and billions in tax contributions, including 22.6 6 billion in social security and 5.7 billion in Medicare funds that are increasingly critical as our population continues to age.
▶ 2:39:57These are resources that are paid by these undoc have been here for a long time. Many of them have been here for a very long time. That's why I plan to introduce the Save the American Workforce Act which would establish an employee sponsored temporary work authorization for undocumented immigrants who have been in the country for three years or longer and have never been in any kind of trouble, no criminal liability or nothing else.
▶ 2:40:18Um, additionally, last week I sent a letter to President Trump urging him to halt indiscriminate deportations and issue an executive order that would do exactly what my bill does to protect American businesses that need a workforce. We have something the last I heard, I think we have 7 million open jobs. We have a record low unemployment, which is great, but we have 7 million open jobs that we cannot fill by American workers.
▶ 2:40:42What economic consequences would we face if these individuals were removed from the workforce even further hurting the situation that we're in? Uh could this disrupt even more uh the economy even more severely than what we experienced during the great recession? So, as you might might expect, Mr. Gonzalez, I you know, immigration policy is just not for the Fed to comment on or to let alone make. And so, I'm reluctant to uh to engage with you on that. Okay.
▶ 2:41:13Um well, okay, I want to talk to you something a little differently. We have and this this is a banking issue. Uh banks are making uh you know, billions of dollars of construction loans across the country that are timelined and contractors are not are not able to fulfill their obligation because they don't have a labor force in the middle of the jobs to finish. I mean, I'm hearing stories in Texas at least where uh people are pouring concrete at midnight.
▶ 2:41:41Are y'all having any kind of conversation with the administration on how this could impact the economy and and our GDP? So, we we have very deep connections all over the country through the reserve banks and we hear we hear some of the same stories, but for us, you know, it's we're not the policy makers here. We're not we're not um we don't report this to the administration. We don't, you know, we don't uh dis publicly, you know, have a view on it. It just is what it is. So, yeah.
▶ 2:42:09Um, you know, we're our responsibility, maximum employment, price stability, many, many other factors affect those goals, but we don't we don't make those goals, we don't make the policy in those extraneous areas, which include things like energy, for example, or immigration or fiscal policy or any number of things. We we try to stick to our knitting because that's that's how we remain independent. We're we're living in such uh unconventional times that I would love to have that. It would be great if y'all were having those conversations in in the administration.
▶ 2:42:39But moving on, um the US dollar has also long been the world's dominant reserve currency, but that position uh is facing growing pressure. As of 2024, BRICS nations led by China and including Brazil, Russia, India, and South Africa have stepped up efforts to reduce their reliance on the dollar and in global trade.
▶ 2:43:00China for instance has expanded the use of the yuan in energy transactions and crossber payments while bricks is actively developing alternative payment systems that could erode the dollar's global role. Uh at the same time, inconsistent and unpredictable economic policies from the White House have contributed to a drop in the dollar's value, now at its lowest level in three years.
▶ 2:43:23What risk does a weakening dollar pose to our economy, particularly to US borrowing costs, inflation, financial stability as China and brick nations expand their efforts to challenge the dollar's global dominance? So, you know, by by long uh agreement and and custom and tradition, the the Treasury Department has responsibility for for the dollar and dollar stewardship.
▶ 2:43:47Um I would say we also um you know are involved in payments policy and you know we're very aware we and the other major economy central banks are very aware of other payment developments and you know working on ideas to make sure that that that the payment systems that support the dollar and other uh you know other major currencies of the democracies are well supported by that infrastructure. Thank you and I yield back. Gentleman's time has expired. Uh the chair now recognizes the gentleman from Florida for 5 minutes.
▶ 2:44:18Thank you very much, Mr. Chairman, and thank you, Chairman Pow, for being here today and answering these questions for us. It's very much appreciated. Looking back over the last few years, uh I think the the question a lot of people have been asking me as they really were suffering through the challenges with higher prices across the board. I know they got as high as over 9% inflation in 2022. And there's a lot of discussion about was it the Ukraine, was it transitory, was it postcoid? Uh what was the reason?
▶ 2:44:43If as you look back now uh in those years and this is your field of expertise, what is your if you look back and you're teaching a history class, what do what would you blame the the uh increase in prices on back in that time period? So I'll start with the fact that it was extremely global. So we saw there literally was a point at which not a single country in the world had inflation 2% or below. So it was everywhere.
▶ 2:45:08So you have to look to common factors and I I would say that the the pandemic and the closing of the global economy and then the reopening of it uh in all cases with some support that's that's a big part of the story. Clearly though there's a role in that for fiscal policy. There's a role in that for monetary policy and um I think I like to think all of those factors were were involved and um you know it's but when it happens everywhere in the world you can't you can't look to one thing.
▶ 2:45:36You got to look to something a common factor and I think that common factor is what happened around the pandemic. Sure. Good. And and build on that idea if I mean I know I hate it Monday morning quarterback but if you had to do it over again you had this opportunity as you know the rates stay pretty flat in 2021 as inflation creeped up. What would you do differently today if you had the opportunity to look back and and make some changes? I have perfect hindsight in this. Yes sir. If you had it. Yeah sure.
▶ 2:46:05So I clearly I would have raised rates a little earlier. I honestly don't believe it would have made much difference to the to the outcomes, but we would have looked a lot smarter. Um but uh that's that's something I would have done. The other thing is you mean you know ultimately um we did get all the way back to full to 2% inflation just about without having a big increase in in employment. So uh that's that's that was not at all expected.
▶ 2:46:32So I I don't know how that would have affected my behavior, but somehow things really came out much better than everyone had anticipated was was that it would take, you know, high unemployment to restore inflation, but it didn't. And and the other pressure point that I heard a lot of people talking about is this idea of the tariff issue. Uh that I've heard for months now that the sky is falling, but it seems at this point at least uh that the inflation rate is pretty steady.
▶ 2:46:58And how many months of steadiness do you need before you might look at an even larger rate cut from the 4.33 I think we have today? Yeah. So you're you're right. Um u inflation the the non-tariff parts of inflation that we've been working on for three four years are are behaving really well and that that was our forecast but it's good to see see it coming true.
▶ 2:47:21I would say we have we we've expected that um tariffs take a while to work their way through the distribution chain several months and I would say we would expect to see meaningful effects you know you know kind of June July August and if we don't you know we'll be learning something you know may we have a highly adaptive uh flexible economy and it's certainly a possibility that the that the tariffs that we expect will come through in a much smaller level. We we don't we can't know that until we actually see it.
▶ 2:47:51But I think we'll be learning as we go and and if we see that then that would lead us to want to cut earlier. The other thing that would lead us to want to cut earlier is if we actually did see some weakness in the labor market of a troubling nature and we don't see that. Those are the two things we'll be looking for. And the last question I'd ask is at that same time period where as you put it the global issue of inflation. I get that. But at the same time period there's pretty radical increase in spending in 2021 by the by the federal government. What factor did that play in the inflation level?
▶ 2:48:21Certainly a factor I would say as I mentioned fiscal fiscal policy definitely played a role. I think if if you take a step back from those things what what happened was demand came back so much stronger than we expected. You remember if in late 21 early 22 you you had the pandemic still going on omocron going was it 21? Yeah, 21 to 22 and demand was just it much more much stronger than than people expected.
▶ 2:48:48And by the way, the supply side was much strong slower to recover. So that's the labor force. That's all of the uh snarled up supply chains. The supply side took a long time to recover and demand was much stronger. That that story created the high inflation behind that. Tariffs I mean sorry fiscal policy played a role, the spending did, monetary policy played a role. uh and the pandemic, but you would agree that the government spending did play a significant role in that as well. Yeah, I would say that. Thank you. Thank you, Mr. Chairman.
▶ 2:49:19Chairman yields back. The chair now recognizes gentleman from Illinois, Mr. Foster, who's also ranking member of the financial institutions subcommittee for five minutes. Uh thank you, Mr. Chair. Um you know, following up actually on Rep. Gonzalez's line of questioning. Um, so in addition to your dual mandate, do you believe that uh that preserving the the US dollar uh and the primacy of the US dollar is part of your job description?
▶ 2:49:47I think it's something it's not formally part of our job, but yes, it's something that we care about and and we we certainly wouldn't want to undermine that, but that's really Treasury has the primary role around the dollar. That's that's been the case for some time now. Yeah. I was just wondering how, you know, how you deal with the sort of worldwide drop in investor confidence uh in dollar denominated assets.
▶ 2:50:10You know, frankly, due to a president who kind of disregards conventional economic theory and whose answer to nearly every question seems to be, well, I haven't decided yet or maybe I'll give you an answer in a couple weeks. It it I just maybe I'll just comment it must be challenging. Um now, one of the things I've been very concerned about is in terms of the job market is artificial intelligence and the coming impact there.
▶ 2:50:32We're seeing predictions by the leaders of the leading AI firms that within one to two years a majority of entry-level white collar jobs will be gone and they're very then there are products that are being um released to market that propose to do pretty much exactly that and I anticipate pretty high uptake of those things to essentially eliminate back office operations in in small businesses things like that or intermediatesiz businesses and we're already seeing layoffs in the big tech firms Microsoft had a a
▶ 2:51:02big round of layoffs where um 40% were computer coders and maybe another 20% supervisor of computer coders. And so I was just wondering what what sort of analysis is the Federal Reserve doing about that job shock and how is it going to affect your dual mandate when it lands perhaps as early as the next year or two.
▶ 2:51:23So I I think economists everywhere are doing work analyzing the potential implications of AI for employment and some of the things the very things that you mentioned and we're certainly both consumers and producers of that kind of research you know and I think I think don't think anybody I certainly can't make any positive statements with great com confidence about what will happen but there's certainly a possibility that in at least at the beginning AI will will replace
▶ 2:51:54a lot of of of of jobs rather than just augmenting people's labor over a long run. It looks it the history shows that generally new technology raises productivity and creates new jobs over time, but it can be disruptive in the very short term. And AI, anyone who's been exposed to AI has to be kind of stunned with what it's capable of. And and you think and if you think, oh, this is just the beginning.
▶ 2:52:22there they say that two years from now this this the things you're looking at will be left in left behind by by the continued development. So I think it is a it is certainly everything you would want in a transformational technology and I think that uh unknowable but uh but go certainly to be important effects on the labor market and I hear the same things you're you mentioned from CEOs that they can see a way to significant reductions in employment but I don't think we know that.
▶ 2:52:51Yeah, but the question is, do you have are you developing a playbook uh for this shock? You know, part of your job is to look at tail risk and this is probably not even a real tail risk at this point. You know, a lot of the CEOs think it's more probable than not. You've seen law firms just not hire the same number of junior associates just across the across the economy.
▶ 2:53:11Are you actually developing a playbook in case the shock is real and what you may or may not be able to do with monetary or the the playbook is in really in your hands and in the private sector's hands. We we will be trying to maximize employment and that will be that will be what we do and we'll try at the same time we maintain price stability. Yeah.
▶ 2:53:35So we don't have the tools to you're talking about transitioning people into new into new jobs and new lives and before before AI wipes out those new jobs you're retraining them for. Yeah. It's a so okay well but you know think about it. I urge you to think about it because and what you will do when if that job shock you. Um so last uh week Fed put out a request for information on ways to mitigate check and payment fraud uh despite a decline in the use of checks.
▶ 2:54:03Check fraud is really very prevalent and I was happy to join Chair Hill in a sending you a letter um and and other banking regulators as well as Fininsen urging act um action. is can you summarize what you have in mind doing in response uh to that letter or or what you've learned when you the outreach that resulted from it? So this is on the check fraud thing.
▶ 2:54:26I just know we we just sent we just started a request for information and and I think we're starting a process of gathering a bunch of information really focusing on that issue. Okay. And if you could say what you're actually going to do in response to that. Gentleman's time is expired. Thank you. Yield back. Gentle yields back. I now recognize myself for five minutes. Chair Pal, we've discussed this several times before, but the issue remains, so I continue to raise it.
▶ 2:54:54I sent you a letter several months ago urging you to seek public comment and permanently revisit the SLR and ESLR, particularly given the constraints current calculations places on market participants ability to intermediate in the Treasury market. I'm glad to see that you're meeting tomorrow to discuss the issue and I know you've discussed this with Mr. Flood, but I want to clarify a couple of things.
▶ 2:55:19The last time you testified before the committee, you said you were consider concerned about the level uh levels of liquidity in the treasury market and that one obvious thing to do would be to reduce how binding the SLR on intermediate capacity. Are you considering changes in the SLR and ESLR? And will you consider exempting treasuries and reserves from the SLR and ESLR?
▶ 2:55:46So, I I do think we've, you know, we've effectively raised the um the capital tax on all kinds of intermediation activities and that certainly includes um Treasury market activities. So I've long favored uh leverage ratio reform and you know so we're putting out a document for comment which will seek comments on on uh one particular proposal and and alternatives to that proposal as I mentioned earlier which I think answers my next question which will you look at changes
▶ 2:56:16at the leverage ratios that constrain a bank's ability to participate. Yes, that that's the idea. Um, in your view, would allowing netting mechanisms for derivatives on treasuries encourage participation in the market? And would you consider looking at that with your credential counterparts? This is for derivatives. Um, my my first phone call on that would be to Vice Chair Bowman to ask her what she's planning, but uh I'm certainly open to that conversation. Absolutely.
▶ 2:56:46Let's discuss the framework review. You've said that the review of the consensus statement is complete, but potential changes to communication strategies and tools may continue into the fall. Uh when can we expect the framework review to be complete and will you provide opportunities to receive feedback uh from members, industry, and the public on any changes the board is considering. So we um the framework review there are two parts of it.
▶ 2:57:13There's there's the consensus statement which contains our monetary policy framework and then there's communications on the first the the framework. We've had the meetings that we needed to have to talk about the you know the the um employment mandate and the price stability mandate and what how we might change the the uh the framework. Now it now comes the the you know the discussion between participants on the committee all 19 of us about exactly what language to use in the new framework.
▶ 2:57:40We're just entering that phase between these two meetings and at the July meeting. And hopefully we will be able to announce something near the end of the summer. And I I I expect that that will be and we by the way we've we've talked about we've we've laid this out a little bit in the uh in the minutes as we go. One last question. The MPR notes that the FOMC's policy deviates from the first difference policy rule.
▶ 2:58:06Will you provide a justification for why the FOMC decided against that path against the the first difference rule? Well, the as you as you probably know the uh there are five rules that we talk about there and the the first difference rule is the one that calls for a price hike. The other four say that we're in the right place. So the Taylor rules generally are very supportive uh uh for where we are. It so happens right now.
▶ 2:58:31uh first difference rule is is is a very interesting concept which we can talk about online which has a lot of appeal but it can be a little bit volatile too and right now it's calling for a rate hike the other the other four are calling for us to hold our policy where it is the irony thank you Mr. Chairman I yield back the balance of my time and I turn to the gentleman from Oregon Mr. Binham for five minutes binham for five minutes right thank you Mr. chair.
▶ 2:59:01I want to start off with um just kind of a foundational belief I have. This big beautiful bill is trash and it's actually increasing our costs. So, but thank you for being here today. Um I was just back home and saw firsthand that businesses across the country, across my state are worried about inflation and rising costs. and particularly for our state where we make chips, we um import export agriculture and we have apparel.
▶ 2:59:31So, just want to level set there. My Republican colleagues have actually been focused today on asking you to lower interest rates, but they're seeming to ignore the market chaos that the president has caused. So my first question is it's my understanding that um one of the key responsibilities of the chair of the Federal Reserve is to stabilize prices and fight inflation. Is that right? Yes.
▶ 2:59:55By my account, the president, President Trump has changed or announced a new tariff um or a delay of previously announced tariffs 19 times. And so, has the president's everchanging tariff made it easier or harder to stabilize prices and fight So, I I I by practice never comment on on things the president does or says. Has the administration's policies on tariffs or the administration?
▶ 3:00:27Has the change in policy on tariffs made it easier or harder? So, we don't it's not up to us to judge these these changes. These are things that elected politicians get elected and do and it's just not our job. You know, our job is to provide stable prices and maximum employment to the public and that's what we do. So, we do expect there will be uh an in a price a set of price increases from some of the price increases through will will from tariffs will flow through to the consumer.
▶ 3:00:58We don't know whether that will be persistent or how large it will be, but and so right now we're we're kind of in watch and wait mood until we have a better sense. Is your sense that back to school will be affected, the holiday season would be affected. You mentioned it a little bit earlier on how how you didn't say the exact time frame, but you thought maybe a few months we would start to see changes from We're going to be learning as we see. We'll get a before the July meeting, we'll get a uh inflation report well before that.
▶ 3:01:29And you know, we're going to be looking to see we we expect to start to see meaningful increases through through the goods channel. And if we don't see that, then that'll be telling us something. We'll be learning from that. Um and by the way, we all will also be looking at the labor market if it weakens unexpectedly. We we'll be looking at that, too. We will continue to adapt to the evolving situation as we have been doing. Thank you.
▶ 3:01:53So what market conditions would make it so that the Federal Reserve would be able to lower interest rates which would also lower costs? Yeah. So as I just mentioned I would say if if we were to see that uh inflation is not coming through as our forecast and and other public forecasts uh have suggested that would push us in the direction of being able to cut sooner. Also, if the labor market were to weaken, uh, that would push us in the direction of being able to cut sooner.
▶ 3:02:22I think if the opposite happens, if the labor market remains strong and we do see higher inflation, I think we will still get around to cutting, but it would be later rather than sooner. What do you think American families are expecting from the Federal Reserve? Stable prices and maximum employment. that that is that's what we want to deliver and you know we we want people to to feel so confident of price stability that they never think about inflation.
▶ 3:02:52That's where we were for a very long time and we're we've made a lot of progress back to that place but we're not quite there yet and we're going to we're we're going to finish that job. Is there a plan that the administration has presented on how it plans to lower costs as opposed to providing tax breaks for billionaires? Again, I don't really it's really not up to me to uh discuss the administration's priorities or policies. I'm going to quickly switch gears here.
▶ 3:03:18It seems to me like you're under a lot of pressure from the president to address the national debt. True, false, sorry. Are you under pressure from the president to address the national debt? So, our role is maximum employment and price stability.
▶ 3:03:35fiscal policy is the responsibility of of Congress and so it's not it's not really within our I think that um despite all of the the talk about national debt, the this big beautiful trash bill um continuing to do that will actually raise the national debt. So, um thank you for answering the questions today and continuing to to work to lower cost. Gentle lady's time is expired. Thank you. Thank you.
▶ 3:04:03The chair now recognizes the gentleman from Kentucky, Mr. Bar, who is chairman of the subcommittee on financial institutions for five minutes. Thank you, Mr. Chairman. Uh, and thank you, Chairman Pal, for the generosity of your time. We're at the witching hour, but appreciate your endurance.
▶ 3:04:18Uh and with respect to the my friend's uh the gentle lady's uh line of questioning, um would a recession that would uh potentially result from a massive tax increase, a $4 trillion tax increase, would a recession help the debt and deficit picture? Tax receipts would go down and all that. Yeah. So I I mean I think I think this this sky is falling scenario about the one big beautiful bill we have to put into context.
▶ 3:04:47Uh, and I'm not asking you, Chairman Pal, to comment on this, but this is my editorial response to my colleague. A massive four and a half trillion dollar tax increase that would put us into a recession is not a recipe for fiscal discipline. Chairman Pal, um, let me uh switch gears to tariffs.
▶ 3:05:05Governor Waller argued in a speech earlier this month that tariffs uh might result in a uh in just a one-time price increase as opposed to increasing long-term inflation expectations, especially since this Congress has not pumped massive spending into the economy as Democrats did under President Biden. Um on this issue of a one-time price increase versus inflation expectations, do you generally agree with Governor Waller's analysis?
▶ 3:05:32So, I I do agree that um basically if things are a one-time increase, then you don't respond to them. That's the whole idea is there's a shock to prices. It could be an oil shock, could be a tariff shock. Uh generally speaking, you don't you don't respond if you are highly confident that it will just be a one-time shock. I think this the current situation though is is a complicated one.
▶ 3:05:59And I think my a number of my colleagues and I feel like it's a decision we need to take with some care. And the reason is because, you know, we're not at price stability in 2018 when 2018 and 19 when when the president's tariffs were put into place. Not only did we not raise rates, we cut rates three times that year because the tariffs were so much smaller. These tariffs are many times larger and they do raise kind of more concern. In 2019, we hadn't had high inflation in 30 years.
▶ 3:06:29Now, we're only a few years reduced away from high inflation. So, I think I think we think that uh they may well prove to be a one-time thing, but in the meantime, it's a decision we want to approach with some care. I think we've made a lot of progress towards getting closer to that 2% goal.
▶ 3:06:45Does the Fed take into account the disinflationary fiscal policies like supply side tax cuts, deregulation, and more energy production that could be a counterweight to whatever one-time price increase uh that might materialize as a result of tariffs? So, we we we look at all we look at aggregate inflation, not any particular kind. And I'm very gratified at the performance of services inflation, which has come down now. That was the very sticky inflation. So, I think overall the inflation picture is actually pretty positive.
▶ 3:07:14Uh, Chairman Pal, we're looking forward to this rule making um later this week addressing um Treasury market liquidity. Um, can you can you talk about how um banks are constrained from uh holding US treasuries and other low-risk assets on their bal balance sheet as as a result of these uh restrictive lever leverage ratios? Yes.
▶ 3:07:37when when um banks are bound by the leverage ratio when that's the binding capital constraint then uh that's going to make low sort of lowrisk low return assets um you know something you don't want to hold and so lots of fairly low risk intermediation including treasury market intermediation gets taxed to the point with capital requirements that you that you just see less of it.
▶ 3:08:02So, we've always I've always thought that it would be better if we had a leverage ratio that wasn't it was a backs stop rather than the binding thing. And that's what this proposal is going to do. Well, let me preemptively thank you and vice chair of supervision Bowman for uh working on SLR reform uh to accommodate more um bank holdings of of treasuries um to stabilize our treasury markets.
▶ 3:08:24Uh, finally, I'm pleased to see that the Fed uh join uh its inter agency counterparts and announce that you uh no longer plan to consider reputational risk in your examination process. Senator Scott and I introduced the FERM Act to stop the weaponization of the supervision process uh to to stop the the targeting of of politically unfashionable groups. Our bill requires regulators to focus on the true risks uh as opposed to uh political factors.
▶ 3:08:52What was the Federal Reserve's thought process in implementing this common sense reform? That it's common sense and uh you know I think this is an area where we we learned over the last couple of years that there really was a problem here. The reports were louder and louder and more and more troubling. So we we um you know we just thought let's take this off the table.
▶ 3:09:12It may it may be have been unintentional on the part of banks that just there was so much it was just such a gentleman's time is expired fraud issue that banks turned away people with with they didn't intend to discriminate that's what the banks thank you for helping will announce to the membership we will recognize Mr. Torres and Mr. Louder Milk then adjourned for our 1 p.m. agreed to hard stop time and with that the gentleman from New York Mr. stores is recognized for 5 minutes. Thank you.
▶ 3:09:39Uh chair power, you spoke about elevated uncertainty and declining sentiment in the US economy. Uh do you believe as I do that the economy would be in a better position but for the elevated uncertainty and declining sentiment created by the Trump tariffs? I I don't want to be criticizing policies. I will say uncertainty has Is it fair? It's fair to say that the policy created uncertainty.
▶ 3:10:05It's fair to say uncertainty was very elevated, but it's also fair to say that that u uncertainty uncertainty has actually come down since the peak, if you will, in April. I think uh there's a different feeling out there now than there was two months ago and it is more um it's more constructive feeling on the part of businesses, which you must be feeling too, but it's higher than it otherwise would be in the absence of the liberation day tariffs.
▶ 3:10:30you know, to to what extent was the elevated uncertainty a factor in keeping the Fed from cutting interest rates? So, I I think that that is that's part of it. The truth is um u you know, we were we were cutting rates and we paused in um in January and haven't cut rates since. And really the the reason is that we're we like other forecasters do expect a fairly substantial wave of price increases to come through to the consumer and to and to measured inflation.
▶ 3:10:59We've always said the timing, amount, and persistence of all that is highly uncertain. I think we hadn't expected to see it until now. We now begin to think it is time for us to be seeing that. And if we don't see it, that will matter. If we do see it, that will matter. So, we we've just taken a cautious approach to not moving our policy rate until we have a little more confidence about the size and likely effects of that. Sure. Power. Following the so-called liberation day tariffs in early April, we saw something the US economy had not seen in decades.
▶ 3:11:29a flight not to the US dollar as a safe haven but away from it. And since President Trump's inauguration, the US dollar index has fallen by nearly 10%, marking the worst first half performance for the dollar since 1986. At the same time, Japan, America's largest sovereign creditor, just saw the worst 20-year Japanese government bond auction since the 1980s, raising fears that it could reduce its holdings of US treasuries.
▶ 3:11:58Given these developments, do you believe as I do that the US may be transitioning from a period of dollar dominance to a period of dollar decline? Well, let me say we the Fed does not have responsibility to for the dollar. That's really the Treasury, but I'm asking for your analysis. I wouldn't um I wouldn't I wouldn't make that statement. No, I think it's uh things have been volatile. The markets are digesting things and and I think you know the Treasury market's been fine by many measures.
▶ 3:12:26the dollar is still you feel the safe haven status of the dollars is as strong as it's ever been. I think it's I think the dollar is still the number one safe haven currency and I I don't think it's you know I I would say these nar narratives of decline are are premature and and a bit overdone. I want to ask about the debt. Uh the big beautiful bill would have ugly consequences for our nation's finances, adding more than $2 trillion to the debt if the provisions are temporary and far more if made permanent.
▶ 3:12:56Uh we've accumulated World War level World War II levels of debt, not during world, not during a World War, but during peace time. Uh interest payments on the debt have become the largest item in the federal budget after Social Security, surpassing Medicaid, Medicare, and military defense. To what extent is the US at risk of entering a debt spiral in which rising interest costs lead to ever larger deficits which in turn lead to ever larger interest cost?
▶ 3:13:24Yeah, I I think that um the US federal budget is on an unsustainable path. The debt is not at an unsustainable level right now, but the path is not sustainable. And I think the sooner we deal with that, and by we I mean you uh it the better. Uh the Trump administration has championed the unitary executive theory, the notion that the president has absolute power over all entities that wield executive power.
▶ 3:13:52That theory, if taken to an extreme, would all but abolish the independence of the Federal Reserve. If monetary policy would be became nothing more than an expression of presidential will and whims, what havoc would that wreak on the US I think that um independent central banks have proven over time to be a valuable and and critical institutional practice and I think that is because uh
▶ 3:14:23basically advanced economy democracies around the world have given their central banks a degree of operational independence. They assign them goals. You go do this and you stick to those things. But we'll let you, you know, you may choose the means of achieving those goals. It's called instrument independence but not goal independence. And I I think it's a very important gentleman's time is expired. Very important practice. Gentleman's time is expired. Chair now recognizes our last member of the day, the gentleman from Georgia, Mr. Louder Milk, for five minutes. Well, thank you, Mr. Chairman.
▶ 3:14:53Chairman Pile. It's good to see you again. And uh I'm going to be brief, so maybe we can um get out of here right time. Um, as some of my colleagues know, I chair the bipartisan uh, payments and fintech caucus along with a fellow Georgian on the this committee uh, Representative David Scott. And in the past, you and I have talked about payment related issues like Fed Now.
▶ 3:15:16But today, I'd like to ask you about the failure of Synapse Financial Technologies, a third party service provider that connects banks with non bank FinTech and what it means for the bank and the non bank ecosystem. Last year, a dispute between Synapse Financial Technologies and Involved Bank and Trust revealed a show shortfall in customer savings deposits of 65 to $95 million. There are still thousands of individuals who are not able to access their funds, including some of my constituents.
▶ 3:15:45So, my question is, could you provide an update on what the Federal Reserve is doing to ensure that customers regain access to their funds, and is there anything that the Federal Reserve is considering to help prevent situations such as this going forward? So, I don't have a lot of specifics for you on that. I am assured that we're still very much uh doing everything we can to try to get people their money back and uh and to avoid similar occurrences. Okay. Well, I said I was going to be brief and that was a brief answer. So, with that, I yield back. Mr.
▶ 3:16:14Chair, gentleman yields back. The chair would like to thank Chairman Pal for his testimony today. And without objection, all members will have five legislative days to submit additional written questions for the witness to the chair. Questions will be forwarded to the witness for his response and Chair Powell, please respond no later than January 29, 2025. This hearing is