▶ 0:15:53Chair Crapo: Good morning. This committee will come to order. Chair powell, thank you for being with us today. I appreciate you having a chat with us. The federal reserve serves a critical role in the function of our government and the global economy. You have the ability to influence markets and directly impact the financial future of hundreds of millions of americans.
▶ 0:16:21Chair Crapo: That is why the federal reserve is supposed to be an independent institution free from politics but in recent reality the fed has been susceptible to political pressure. Take the fed's involvement in the network for greening the financial system, a group dedicated to green financing and climate change, which the fed joint in december 2020 as president biden was about to assume office.
▶ 0:16:47Chair Crapo: Just last month the fed announced it had pulled out the organization as president trump was getting ready to be sworn in. To the american people this is flip-flopping in the committee wind. Too much focus on climate change instead of supervision is consequential and in march we saw the failure of silicon valley bank.
▶ 0:17:15Chair Crapo: Svb arts largest bank failure and the largest since the financial crisis but not a single regulator was held to account. The fbi see filed a lawsuit against bank executives which accused svb of egregious mismanagement and I agree.
▶ 0:17:35Chair Crapo: How is it that no supervisor has faced any consequences with 30 mra's and mria's that no longer had timely action at svb. Our the people who are supposed to be our cops on the beat not faced any recourse for such egregious failures? I simply do not understand.
▶ 0:18:02Chair Crapo: We must all address the fact that over the last four years the biden administration and bidenomics have devastated our working families ability to support themselves. During joe biden's time in office prices rose by 20%. Energy prices 34% transportation costs 31%. Groceries 22%. That is not all.
▶ 0:18:32Chair Crapo: Thanks to bidenomics, two thirds of americans have less than $1000 in their savings accounts. There is good news. Things are going to get better. During his first term president trump kept his promises to the american people. In the first three years of his presidency president trump built the most inclusive economy ever.
▶ 0:18:58Chair Crapo: 7 million jobs created in two thirds went to women, african-americans, and hispanics. It is time to once again make america's economy work for the folks working paycheck-to-paycheck. Joe biden broke our economy and donald trump will fix it. For too long, bank regulators have followed a black box regulatory framework with little to no recourse.
▶ 0:19:27Chair Crapo: If dic recently released -- the fdic recently released documents that confirmed the biden operation choque .2 .0 was real despite assurances -- his operation choque point 2.0 would end. We are seeing an unfair playing field that results in disastrous consequences for legal businesses and law-abiding citizens.
▶ 0:19:57Chair Crapo: On the one hand, if you are in the private sector and you do your job poorly, you face consequences. Reprimands, suspensions, or even being fired. If you are within the walls of the federal government such as a bank regulator, you will face no consequences for your actions, even if you pressure a bank to cut off services to digital asset firms, political figures come in conservative aligned
▶ 0:20:28Chair Crapo: Businesses and individuals. To me that goes against the principles of fairness and market access. Over the last two years, as the ranking member of this committee, I have consistently argued that basil three will raise costs and limit credit access for hard-working americans.
▶ 0:20:48Chair Crapo: While I am glad this proposal was not finalized, the uncertainty surrounding basil three forced banks to put capital on the sidelines, living -- limiting access to bank capital. As chairman I work to rectify the issues of the biden administration. I look forward to hearing from you on the federal reserve's future and the plans you have for rightsizing the financial regulatory framework significantly around basel iii.
▶ 0:21:25Chair Crapo: To create jobs in america we need to make sure there is capital and liquidity in the market and we also want all americans, even those growing up in poverty like I did to know they can access the capital necessary to start new businesses, grow existing businesses, buy a home, and pursue their american dream. I look forward to your comments and testimony.
▶ 0:21:50Chair Crapo: I will say I believe weaponizing it a paid -- weaponizing a position like the fed for liberal positions is not calling balls and strikes as a fair referee and I hope we are getting ray to clean that slate and start afresh and focus on a healthy economy. Ranking member warren.
▶ 0:22:12Sen. Warren: Thank you Mr. chairman. Chair powell, it is no secret you and I disagree on the need for strong bank regulation, on monetary policy, and on the fed stock trading scandals. We have sharp differences but I believe you're a principal public servant who cares about this country. We are at an unprecedented moment.
▶ 0:22:37Sen. Warren: Our financial systems are facing huge risks from the economic chaos of president trump and his copresident elon musk. From on off-again tariffs to on-again off-again layoffs for tens of thousands of government workers to on-again off-again cuts in domestic grain purchases to on-again off-again support for medical research.
▶ 0:23:04Sen. Warren: Now copresident musk and his omb director have frozen all work at the consumer financial protection bureau. There are now zero cops overseeing the $18 trillion consumer lending market, zero cops. Investigations into illegal foreclosures and auto repossessions are canceled. Exams of giant credit card issuers to weed out unlawful junk fees, canceled.
▶ 0:23:37Sen. Warren: Probes of the illegal debt collection practices, canceled. Rules to save people billions of dollars, canceled. If elon musk and his omb director succeed in killing the cfpb it is like putting a sign on every checking account, every credit card, every mortgage application, and every car loan, cops have been fired, let the scams begin.
▶ 0:24:08Sen. Warren: Elon musk and his doge crew are rooting for the treasury's most important financial systems. The financial plumbing that ensures billions of payments go through from social security checks to grants for community health centers. No one has verified how they got this access or what they are doing with it. No one has checked whether americans financial data has been copied or sold for the personal profit of elon musk.
▶ 0:24:39Sen. Warren: Instead, we have had a series of misleading and conflicting statements by treasury secretary bessent. After receiving public blowback it appears that secretary bessent is now time to throw the federal reserve under the bus. Sec. Bessent claims doge cannot meddle with the treasury payment systems because the fed is in control. I'm not sure whether sec.
▶ 0:25:07Sen. Warren: Bessent doesn't understand how the system works or if he is just trying to shift the blame to you. I know he is wrong. The fed simply executes the transactions that treasury instructs. If elon and his hackers initiate instructions to choke off payments to their enemies or if they issue instructions to shut down payment for teachers aids for kids with special needs, the fed may have no way of knowing
▶ 0:25:37Sen. Warren: The instructions were manipulated and the fed may have no legal method to override them. Chair powell, the next 18 months may define your legacy and the country's trust in the fed as an institution. I expect you will work with democrats and republicans in congress if doge's next move is to try to commandeer the fed's payment system.
▶ 0:26:06Sen. Warren: I also expect you will not join the conspiracy to shutter the cfb cfpb. You can see if the cfpb's funding requests have been manipulated. I understand some extremists have a different view about what the law ought to be. Under the log right now impoundment is illegal.
▶ 0:26:32Sen. Warren: Do not make the federal reserve an accomplice to this illegal act and forever sully the reputation of the fed. Keep the cfpb funded as the law requires. We are in the middle of a crisis as elon musk tries to take over our government. Let's also talk for a minute about your day-to-day job, meeting the fed's dual mandate of promoting maximum employment and stable prices.
▶ 0:26:59Sen. Warren: It is now clear the fed acted too late and let inflation get too high and then responded by keeping rates too high for too long. These policies have made the big drivers of inflation like housing cost even worse and they put americans jobs at risk they gate or difficult for them to -- making it more difficult for them to afford a home and for small businesses to finance their operations.
▶ 0:27:27Sen. Warren: I urge you to move more rapidly to bring down interest rates, beginning with a meaningful rate cut next month. You have proven you can move quickly when it is politically expedient. After president trump was elected, within the space of a few weeks you scrubbed seemingly all mention of diversity and inclusion from the website, withdrew from an international central-bank group that shares information on climate related
▶ 0:27:58Sen. Warren: Risks to the financial system, you instituted a hiring freeze that will limit the number of cops on the wall street beat and you announced plans to got big banks -- announced plans to gut big bank stress tests. I can see the immediate political appeal of your strategy but ultimately it will fail. You will lose good people. Climate catastrophes will continue to mount. The increasing vulnerability of big banks will threaten our entire economy.
▶ 0:28:32Sen. Warren: Donald trump may be happier with you right now, but wading deeper into politics to please him over the long run will burn the reputation in the independence of the fed and put our entire economy at risk. I urge you, don't fall into these traps. Thank you, Mr. chairman.
▶ 0:28:52Chair Scott: Today we will hear from the chair of the federal reserve jerome powell on his semiannual monetary policy report to congress. Thank you for your testimony and you are now recognized.
▶ 0:29:04Chair Powell: Chairman scott, ranking member warren, I appreciate the opportunity to present the federal reserve semiannual monetary policy report. The federal reserve remains focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the american people. The economy is strong and has made sing of your progress toward our goals over the past two years. Labor market conditions have cooled from their formerly overheated state and remain solid.
▶ 0:29:37Chair Powell: Inflation has moved closer to our 2% goal, though it remains somewhat elevated. We are attentive to the risks on both sides of our mandate. I will review the current economic situation before turning to monetary policy. Recent indicators suggest economic activity has continued to expand at a solid pace.
▶ 0:30:00Chair Powell: Gdp rose 2.5% in 2024 bolstered by a resilient consumer spending. Investment in equipment and intangibles appears to have declined in the fourth quarter but was solid for the year overall. The following weakness in the middle of last year, activity in the housing sector appears to have stabilized. Labor market conditions appear to have stabilized.
▶ 0:30:28Chair Powell: Payroll job gains averaged 189,000 a-month over the past four months. The unemployment rate has been steady since the middle of last year and at 4% in january remains low. Nominal wage growth has eased over the past year and the jobs to workers cap has narrowed. Overall, a wide set of indicators suggest conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures.
▶ 0:31:00Chair Powell: 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 over the past two years but remained somewhat elevated relative to our 2% longer term goal.
▶ 0:31:20Chair Powell: Pce prices rose 2.6% over the 12 months ending in december and excluding the bile tile food and energy cap -- and excluding the volatile categories core prices rose. Energy prices remain well anchored as indicated in a variety of surveys from households and forecasters as well as measures from financial markets. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices.
▶ 0:31:52Chair Powell: Since last september the fomc lowered the policy rate by a full percent point from its peak, having maintained at 5.25 to 5.5% for 20 months. That recalibration was appropriate in light of the progress of inflation and the pulling of the labor market. We have continued to reduce our securities holdings.
▶ 0:32:17Chair Powell: With our policy stance now significantly less restrictive than it had been in the economy remaining strong, we do not need to be in a hurry to adjust our policy stance. We know reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment.
▶ 0:32:46Chair Powell: In considering the extent and timing of additional adjustments to the target range for the federal funds rate from the fomc will assess the incoming data at the balance of risks. As the economy evolves we will adjust our policy stance in the manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not move sustainably towards 2%, we can maintain policy restraint for longer.
▶ 0:33:13Chair Powell: If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. We are attentive to the risks on both sides of our dual mandate and policy is well-positioned to deal with risks and uncertainties we face.
▶ 0:33:31Chair Powell: This year we are conducting the second periodic review of our monetary policy strategy tools and communications, the framework used to pursue our congressionally mandated assigned goals of maximum employment and stable prices. The focus is on the fomc statement on longer run monetary strategy which articulates the committee approach to monetary policy and on the committee's policy communication tools.
▶ 0:33:58Chair Powell: The committee's 2% inflation goal will be retained and will not be the focus of the review. Our review will include outreach and public events involving a wide range of parties, including fit listens events around the country they research conference in may. Will take on board lessons of the past five years and adapt our approach where appropriate to best serve the american people to whom we are accountable. We tend to wrap up the review by late summer.
▶ 0:34:29Chair Powell: Let me conclude by emphasizing the fed will do everything we can to achieve our dual mandate goals that congress has set for monetary policy. We remain committed to supporting maximum employment, bringing inflation to our 2% goal, and keep in longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all americans. We understand our actions affect communities across the country. Everything we do is in service to our public mission.
▶ 0:35:00Chair Powell: Thank you and I look forward to your questions.
▶ 0:35:01Chair Scott: Thank you. Your words and your actions have a global impact and you have the opportunity and responsibility of leading this country in the right direction economically and I thank you for your commitment to having a conversation about how you do that well. You and I had a conversation yesterday.
▶ 0:35:24Chair Scott: Michael is to make sure the american people have more upper -- michael is to make sure the american -- my goal is to make sure the american people have more opportunities to succeed and not fewer. You said the fed is not against innovation and banks of the opportunities to serve crypto customers as long as they understand and manage the risks. You've admitted the threshold has been higher for banks engaging in crypto activities.
▶ 0:35:49Chair Scott: Last week we held a hearing on the banking and we heard federal banking agencies use reputational risk as a tool to encourage the did bianca -- the d banking of certain legal industries and law-abiding citizens for political reasons and not tied to safety and soundness. Debanking is a top priority for this committee and what I believe is a bipartisan issue.
▶ 0:36:12Chair Scott: Will you commit to working with this committee to end debanking, including working with the new vice chair of supervision to revise the federal reserve supervision manuals to remove reputational risk as a tool to weigh in on political topics?
▶ 0:36:28Chair Powell: I am happy to make that commitment.
▶ 0:36:31Chair Scott: Thank you. Accountability is very important. I would like to think accountability is a priority for everyone, especially the fed given that failures in fed supervision can result in the loss of billions of dollars. Following the failure of the silicon valley bank which was in part due to the failure of regulatory who identified egregious mismanagement of interest rates we have yet to see any regulators be held accountable.
▶ 0:37:02Chair Scott: That was the point of my frustration is a guy who spent a lot of time in the private sector. 15 years running three businesses. Accountability is a necessary part of making the entire organization healthier and perform its job as well as possible. I am encouraged the fdic has begun the process of holding svb executives accountable.
▶ 0:37:30Chair Scott: No fit employee has been fired, put on probation, put on a performance improvement plan, all of which would be expected in the private sector for employee failure. Explain to me why fed employees are held to a different standard than everyone else and what are you planning to do to take accountability for fed failures in supervision?
▶ 0:37:50Chair Powell: We have done quite a lot in response to the events associated with silicon valley bank. In terms of specific accountability, what we found this was not a case of malfeasance so much as it was a case of people were carrying out a specific playbook that failed to cause us to act in time.
▶ 0:38:20Chair Powell: It was not fair to the employees to say you violated our practices in some way. That was not what happened. What happened was a lot of focus on process and on governance and controls and not enough focus on basic bread and butter banking, credit risk and liquidity risk, interest rate risks. As we discussed yesterday we took a substantial steps to avoid further spread of those issues and that was successful.
▶ 0:38:50Chair Powell: I understand your point on accountability.
▶ 0:38:53Chair Scott: This is one of the areas where you see the approach to looking at safety and soundness and the number of mra's that went documented but no action was taken. This leads me to the conclusion individual employees and supervisors should have been held accountable for that. I will move on. In the past you've supported tailoring regulations to assure banks of different sizes thrive and to preserve our diverse banking system.
▶ 0:39:24Chair Scott: Will you commit to working with me as chairman to ensure financial regulations do not impose more burden that is necessary. This after number of conversations with community banks and regionally banks that have continued to stress the cost of the regulatory framework around them is not just harsh, is oppressive. Larger banks suggest the cost per employee for the regulatory framework is $10,000 per employee. I think we can do better and I would love to hear your thoughts on that.
▶ 0:39:52Chair Powell: I will commit to working with you on that. We try to avoid excessive burden. It is fair to take a fresh look at debanking. We all see in your hearing and on the house side we hear a lot of people talking about that. It is time to take a fresh look. We do not intentionally do these things but sometimes regulation leads things to happen and we need to be working on that.
▶ 0:40:19Chair Scott: I appreciate on that. I will turn it over to the ranking member. After having a number of conversations with ceos with banks around the country, one of the things was clear to me is the regulatory occ and other regulatory agencies set specifically to debank certain industries. That is the point I am making an one we have to solve.
▶ 0:40:50Chair Scott: It is legal in america to do business and we should do our parts to make sure they are banked.
▶ 0:40:54Sen. Warren: Over the weekend copresident musk and acting director vought effectively shut down cfpb. No more cop on the beat looking out for your grandma whose bank account has just been taken over by a scammer. No more cop on the beat looking out for people getting ripped off by giant credit card companies that are charging illegal junk fees.
▶ 0:41:25Sen. Warren: It also means the cfpb is no longer doing one of its most important jobs, examining big banks to root out the illegal conduct before it happens or stop it before more people get hurt. Chair powell, if the cfpb is not on the job right now then who is administering j.p. Morgan or wells fargo's consumer compliance exams to ensure they are following the law?
▶ 0:41:54Chair Powell: I believe -- and you would know -- that dodd frank moved all authority for examinations in the consumer space to the cfpb. We still have some jurisdiction.
▶ 0:42:10Sen. Warren: The answer to my question. If the cfpb is not there examining these banks to make sure they are following the laws and not cheating consumers, who is doing that job?
▶ 0:42:24Chair Powell: There is no other figure they'll -- there is no other federal regulator.
▶ 0:42:30Sen. Warren: No one. Thanks to copresident elon musk wall street banks no longer have to show the bank examiners they are not illegally opening accounts. Like happened with wells fargo. Or charging illegal junk fees like bank of america did. Cfpb has jurisdiction only on banks that have more than $10 billion in assets. What is happening in thousands of community banks all around the country?
▶ 0:43:02Sen. Warren: Those that have less than $10 billion in assets? Chair powell, as you know, the fed oversees consumer compliance first date member banks that have less than $10 billion in assets. Has the fed suspended consumer compliance exams for those smaller banks or is the fed still on the job to make sure those smaller banks are following consumer financial loss?
▶ 0:43:30Chair Powell: Still on the job, business as usual.
▶ 0:43:34Sen. Warren: By forcing the cfpb not to do its job, president trump, elon musk, the author of project 2025 russ vought are giving wall street banks and unlimited get out of jail free card so they can cheat working families, even while community banks continue to pray -- continue to play by the rules.
▶ 0:44:01Sen. Warren: For any americans who have money deposited at j.p. Morgan or wells fargo or any other of the giant banks, they should now know that there is no one on the job to make sure those banks are not scamming you. Only the smaller banks now have a cop on the beat to make sure they are not cheating consumers.
▶ 0:44:25Sen. Warren: If I had my money and one of those giant banks I might think about going to a smaller bank where the protection at least right now is a lot better. At the same time the cfpb is under attack, the fed is buckling to pressure from wall street to a race other safeguards for the two big to fail banks. -- for the too big to fail banks.
▶ 0:44:51Sen. Warren: Under the first trump administration the fed weakened the big bank stress test including by giving the big banks some of the answers to the test in advance. I called you out on it but you promised right here in this committee that you would not give those banks the whole answer key. I will quote you back.
▶ 0:45:10Sen. Warren: You said "complete knowledge of the models could lead to a model monoculture in which all firms have similar internal stress testing models which could increase the correlation of risk in the system and miss key idiosyncratic risks faced by the firms." I agreed with you. Several weeks ago the fed announced it has plans to do exactly that. Hand all of the answers over to the giant banks.
▶ 0:45:38Sen. Warren: Chair powell, why is the fed about to propose a rule that directly contradicts your own testimony and in your own words would render the stress tests toothless?
▶ 0:45:51Chair Powell: In essence because the ground has shifted substantially in administrative law. We want the stress tests to remain resilient to that. We are making changes to accomplish that.
▶ 0:46:04Sen. Warren: The changes are changes you have identified earlier as making those tests toothless. The big banks will choose shareholder payouts and leave this economy more vulnerable to a crash. The fed is knuckling under too lobbyist. We know how this ends. People will suffer. Wall street will get bailed out. I urge you to serve main street instead of wall street. Don't weaken these rules.
▶ 0:46:34Chair Scott: Thank you. Senator rounds.
▶ 0:46:39Sen. Tester: -- Sen. rounds: I have a series of questions. I would like to give you opportunity if you would like. The suggestion the ranking member has made is the big banks can now scam individuals right now. Any change in the laws regarding how they are supposed to be treating the divisional consumers or anything along that line?
▶ 0:47:04Chair Powell: I am not aware of any law changes.
▶ 0:47:10Sen. Rounds: Changes and any rules they have to follow? Do they still have regulators watching all of their businesses just as they did before?
▶ 0:47:17Chair Powell: They have all of the regulators except for the cfpb if the cfpb were not carrying that out.
▶ 0:47:25Sen. Rounds: Anything else you would like to add? As we continue to prioritize the stability and resilience of our financial system the ongoing basel iii rulemaking process has remained front and center in shaping a regulatory framework. I was rather outspoken with my opposition to the original proposal and further work was stalled at the end of the last year.
▶ 0:47:52Sen. Rounds: My question for you today is could you provide an update on the federal reserve's progress in finalizing the basel iii and game rulemaking process?
▶ 0:48:03Chair Powell: We remain committed to completing basel iii and game. We think it is good for U.S. banks and our economy that there be a global standard beneath which foreign banks cannot fall. That was one of the big ideas behind the basel three committee approach. Where it sits now as we await leadership arriving at the occ and the fdic's.
▶ 0:48:29Chair Powell: When that happens we will sit down with them and work our way through to basel iii end game proposal and I think we can do this quickly. One that is consistent with the basel requirements and consistent with what other large jurisdictions are doing. I am optimistic we can do that quickly.
▶ 0:48:48Sen. Rounds: We always wanted our banks to be competitive with european banks. The original proposal in front of you was estimated to increase our banks capital by 19%, which I think may very well have created a potential disadvantage within the U.S. institutions versus our european counterparts. With any new proposal, what is your thoughts?
▶ 0:49:15Sen. Rounds: Would you make a commitment this would be a neutral approach with regard to capital?
▶ 0:49:18Chair Powell: The main commitment is we will work together with new leadership at the other banking agencies to do something. I have said many times this committee I think the level of capital and the largest banks is about right. It will shake out somewhere in that area.
▶ 0:49:38Sen. Rounds: Our expectation would be the markets would expect it would be neutral with regard to capital.
▶ 0:49:44Chair Powell: In that range but I want to defer to our new colleagues and get their views as well. That is a good starting place.
▶ 0:49:51Sen. Rounds: Thank you. The federal reserve's partnership with U.S. treasury plays a central role in supporting our nations payment infrastructure which processes a vast range of daily transactions from federal benefit disbursements to debt obligations.
▶ 0:50:09Sen. Rounds: Could you outline the federal reserve's role I supporting and managing the treasury's payment systems, including how the fed works to keep the system secure, efficient, and capable of handling the governments high of daily transactions?
▶ 0:50:24Chair Powell: It is a complicated set of arrangements and I will try to summarize quickly. Effectively congress authorizes spending and the agencies carry out those spending orders in the way they do that is they send in order to pay the recipient to the treasury department. Upstream before it gets to the fed all of those decisions are made about is this an appropriate order, is this payee on the don't pay list.
▶ 0:50:54Chair Powell: Once all of that is set it comes to the fed and by that I mean four of the reserve banks and we take the money out of the treasury general account and we make the payment. We make no judgment whatsoever. Those are all made upstream from us. We are the physical agent of the treasury.
▶ 0:51:14Sen. Rounds: Is the system safe today?
▶ 0:51:17Chair Powell: I believe it is and we are very strongly committed to the integrity of the resilience at all of those things of this system. People who depend on this in a big way, we are committed to that.
▶ 0:51:31Sen. Rounds: The failure of silicon valley bank the chairman brought this up. I am curious. I recognize a lot of banks looked at this and it cost the other banks a lot of money to pick up the costs involved in the losses. Nobody has been fired. You did indicate it was a failure of the playbook. Has the playbook been revised or can we expect it will be revised?
▶ 0:51:57Chair Powell: In a lot of ways it has been revised. One thing that did not happen was supervisors to not follow through aggressively enough on things they had said. If they had done that that could well have been enough to stop it. A lot of it was not focusing enough directly on what was a very large amount of interest rate risk, large portfolio and long-term securities matched up with an unstable funding base.
▶ 0:52:28Chair Powell: Somehow people wrote about that. We do not expect bank runs outside of a crisis in this country. That is what that was. It was a bank run. Everyone learned a lot from that and is determined to do better.
▶ 0:52:44Sen. Rounds: Thank you, Mr. chairman. I think this is an area where a lot more questions are out there yet. I don't think it was the playbook that was the problem. Discussion about how the playbook was revised would be relevant in the future.
▶ 0:53:01Chair Scott: Senator cortez masto?
▶ 0:53:06Sen. Cortez Masto: Chairman powell, thank you and thank you for the conversations between these hearings as well. Let me focus on a couple things of concern. You touched on this a little bit and this is important to clarify. There was a change in the law when cfpb was created. Cfpb examines the banks and enforces the law where is the fed only supervises those banks. Is that correct?
▶ 0:53:36Sen. Cortez Masto: How would you determine that relationship?
▶ 0:53:37Chair Powell: Dodd frank took a lot of the consumer compliance jurisdiction away from the other banking agencies and gave it to a newly created agency, the cfpb. We retained a residual amount of that which was banks under $10 billion in assets. The cfpb took all of that went dodd frank came into being.
▶ 0:54:03Sen. Cortez Masto: As it was created, the federal reserve collaborated with the consumer bureau on supervising those large banks, correct?
▶ 0:54:11Chair Powell: We still retain supervision over all of the holding companies and the fed member banks.
▶ 0:54:18Sen. Cortez Masto: Does the federal reserve enforce consumer protection laws for things like money transmitters?
▶ 0:54:27Chair Powell: For fed member banks.
▶ 0:54:30Sen. Cortez Masto: That would be cfpb. So we are talking about collaborating with the cfpb for financial technology firms, what with the federal reserve now do that if -- hypothetical as the cfpb no longer exists -- what will be the fed's role with respect to technology firms?
▶ 0:54:52Chair Powell: We don't have jurisdiction. We have jurisdiction over banks and some financial market utilities.
▶ 0:54:58Sen. Cortez Masto: There are a number of nevadans who filed consumer reports with the cfpb. The fed does not receive those reports. And you have no role when it comes to consumer protection like the cfpb does, correct?
▶ 0:55:15Chair Powell: Unless you are a fed member bank that has $10 billion or less in assets.
▶ 0:55:22Sen. Cortez Masto: If the hypothetical is true and what we are hearing that the cfpb is being shut down, there is a gap in what we are hearing in enforcement, perjured clear when it comes to consumer protection. Would you say that is -- particularly when it comes to consumer protection. Would you say that is true?
▶ 0:55:40Chair Powell: Yes, for all banks we are not supervising.
▶ 0:55:44Sen. Cortez Masto: This concern when we are looking to streamline government. There is a lot of float, we need to streamline it, we need to address to regulations. There is a strategic way to do it but there is not this burned down the house that will harm people across the country including people in my state who are looking for enforcement around consumer protection laws. That is what you're hearing from any of us on our side of the aisle.
▶ 0:56:11Chair Powell: Let me very briefly add that we have some residual enforcement authorities but what we do not have his examination authority even for the banks at the cfpb.
▶ 0:56:21Sen. Cortez Masto: Let me ask you this. We talked about this over the phone and I understand it may be difficult to answer. The federal reserve board members have been clear that future interest rate cuts are unlikely to happen despite the strong economy there are folks in my home or in my state that are waiting to buy a home.
▶ 0:56:49Sen. Cortez Masto: We know that is still an issue, the high prices right now for affordability. You had the interest rates to it and it is a problem. Do you think it is likely interest rates will remain above 6% this year or can you address that?
▶ 0:57:04Chair Powell: For the economy is strong, growing 2.5% last year. The labor market is solid, unemployment at 4%, quite a low level. Inflation was 2.6% for the year. We are in a good place with this economy. We want to make more progress on inflation and our policy rate is in a good place and we not see any reason to be in a hurry to reduce it further.
▶ 0:57:32Chair Powell: As it relates to housing, it is true that its mortgage rates remain high but that is not directly related to the fed rate. It is related more to long-term bond rates, perfectly the 10 year treasury and three year treasury. -- particularly the 10 year treasury and the 30 year treasury. They may remain high. Once we lower rates and rates return to a lower level mortgage rates will come down.
▶ 0:58:12Sen. Cortez Masto: I don'tsen.
▶ 0:58:13Cortez Masto: Even when it does happen we will still have a housing shortage in many places. Thank you again for being here.
▶ 0:58:16Chair Scott: Next is senator kennedy.
▶ 0:58:21Sen. Kennedy: My friend the ranking member said you are knuckling under to the big bank lobbyists. Is that true?
▶ 0:58:30Chair Powell: No.
▶ 0:58:34Sen. Kennedy: It seems to me that the big picture should not go unnoticed. Do you recall a year or two ago when inflation was raging, I think it's peak was about 9%.
▶ 0:59:02Sen. Kennedy: Many economists and other experts -- based in part on history -- said you were going to have to provoke high unemployment and put our country into a recession in order to get inflation down. You recall that?
▶ 0:59:26Chair Powell: Very well.
▶ 0:59:29Sen. Kennedy: Are we in a recession question mark
▶ 0:59:34Chair Powell: We are not.
▶ 0:59:37Sen. Kennedy: Would you as an american trade places right now with germany in terms of the economy?
▶ 0:59:43Chair Powell: I sure wouldn't.
▶ 0:59:46Sen. Kennedy: How about china.
▶ 0:59:48Chair Powell: No.
▶ 0:59:50Sen. Kennedy: How about france?
▶ 0:59:53Chair Powell: No thanks.
▶ 0:59:57Sen. Kennedy: Things are not perfect. Inflation is still sticky and loan rates are too high which I want to talk about in a second. The fact is, knock on wood, we have experienced a soft landing, having weight?
▶ 1:00:19Chair Powell: Not for me to say.
▶ 1:00:23Sen. Kennedy: Have we experienced a hard landing? Are we in a recession?
▶ 1:00:28Chair Powell: We are not.
▶ 1:00:30Sen. Kennedy: I call that a soft landing. It seems to me that you and some of the ladies and gentlemen who are your colleagues at the federal reserve behind you deserve credit for that.
▶ 1:00:44Chair Powell: Thank you.
▶ 1:00:48Sen. Kennedy: I don't know why you don't take the credit. Everybody else in washington, D.C. does. I am not saying things are perfect. I never imagined our landing could be this soft. Not perfect. I wanted to thank you and your colleagues for that.
▶ 1:01:17Sen. Kennedy: You sure did not getting help from congress and our president on the fiscal side. I do not expect you to comment on that. You and the federal reserve into a large extent control short rates, can't you? Through the open market committee. You cannot control long rates though, can you?
▶ 1:01:44Chair Powell: No.
▶ 1:01:46Sen. Kennedy: Why is that?
▶ 1:01:49Chair Powell: A lot of things go into long rates and one is the expected future short rate of fed policy, but many other things go in. Expectations of inflation in the longer run, the sort of risks around the economy and around the budget deficit going to something called the term premium, which is the part we cannot explain, where we do these decompositions.
▶ 1:02:14Chair Powell: It is set by supply and demand in the bond market at the long end and we are not particularly -- we have some influence but mostly not.
▶ 1:02:23Sen. Kennedy: Many americans are looking at short rates in looking at the fed's behavior and how you reduced inflation but they don't see the long rates going down. Obviously that affects mortgage rates. I would encourage you in your colleagues to spend some time explaining to the american people why that is. Final question.
▶ 1:02:54Sen. Kennedy: If you went home tonight and your spouse said I got a call today from our bank and they are debanking us. They are worried about the reputational risk because they do not like our politics. Would you think that fair?
▶ 1:03:25Chair Powell: I sure wouldn't. I too am troubled by the reports and want to understand better why this is happening. One theory is banks are very risk-averse around money laundering and that is because we are so tough on them and any red flag is enough. It may be this whole thing with reputation risk needs to be thought about.
▶ 1:03:56Chair Powell: It is coming out of our one manual that we use, the manual we have been using for account access for master accounts, we will take that out. I think this needs a fresh look and it is time for that.
▶ 1:04:13Sen. Kennedy: I have asked our chairman and he has agreed to invite some of the ceos of some of the banks that have been debanking people. The ceos. Not their lawyers, not their pr consultants. Not their priests.
▶ 1:04:32Chair Scott: Not there lobbyists.
▶ 1:04:34Sen. Kennedy: The ceos to come out and talk about this and find out what the hell has been going on.
▶ 1:04:42Chair Scott: Thank you senator kennedy. Senator reed?
▶ 1:04:49Sen. Reed: I think your monetary policy combined with the biden fiscal policy has made a tremendous difference. We have avoided a recession. I would like to remind people how far we have come. In 2020 the gdp decreased 2.2%. The unemployment rate finished the year at 6.7%.
▶ 1:05:12Sen. Reed: By 2024 gross domestic product grew 2.5%, young formant rate was 4.1%, labor force -- the unemployment rate was 4.1%, labor force participation rate went up. There is a composition of your work together with the fiscal policy of the biden administration. One of the issues before us is the issue of tariffs.
▶ 1:05:38Sen. Reed: In july 2010 testimony you stated "countries that have remained open to trade who have not erected barriers including tariffs have grown faster." do you still believe that?
▶ 1:05:49Chair Powell: I would stand by that.
▶ 1:05:52Sen. Reed: President trump's tariffs on china, canada, and mexico will raise costs on families. Many economists project about $1200 per year in households stop an increase in inflation by 1%. Economic growth depression increase of the average car price by $2700. Is that a wise policy?
▶ 1:06:21Chair Powell: I will say this. I think the standard case for free trade and all that still makes sense. It did not work that well when we have one very large country that does not play by the rules. In any case it is not the fed's job to make or comment on terra policy. That is for elected -- on tariff policy. That is for elected people.
▶ 1:06:53Chair Powell: Ours is to try to react to it in a thoughtful way and make monetary policy so we can achieve our mandate.
▶ 1:06:58Sen. Reed: Just this weekend the president remove the board of the kennedy center and made himself chairman. What would you do have the president tried to remove a member of the federal reserve board?
▶ 1:07:08Chair Powell: It is pretty clearly not allowed under the law.
▶ 1:07:14Sen. Reed: Thank you. We have communicated back and forth about risk transfer as a potential danger to the banking system. Could you give us some insight on how we can improve financial stability by regulating these transactions more appropriately?
▶ 1:07:36Chair Powell: What we have been doing for some time is looking at them on a case-by-case basis if they do transfer risk successfully that is ok. It is a good thing if a bank wants to transfer risk off its balance sheet and away way it gets compensated for. What you want to make sure is the risk is transferred.
▶ 1:08:04Chair Powell: That was a problem during the global financial crisis, things that appeared to but did not accomplish risk. We've been looking at the transactions on an ongoing basis.
▶ 1:08:17Sen. Reed: What happens is the transaction becomes complicated by synthetic risk transfers as was the case with sthetic derivatives. Thank you for your attention to that. We have talked about housing. We are in a housing shortage. Two of the mainstays of our housing market are fannie mae and freddie mac. Helping to support homeownership.
▶ 1:08:44Sen. Reed: Does the federal guarantee backing fannie and freddie help make rates more affordable and homeownership accessible?
▶ 1:08:52Chair Powell: I imagine it does hold down mortgage rates.
▶ 1:08:56Sen. Reed: How important is the 30 year mortgage to ensure families can afford a home?
▶ 1:09:02Chair Powell: In our housing market with 30 year mortgage is very important.
▶ 1:09:07Sen. Reed: I have heard some discussions about eliminating fannie mae and freddie mac, which would be detrimental to the housing market.
▶ 1:09:16Chair Powell: That is really a question for you. Putting them back in the -- putting housing finance back in the private sector has some appeal over the longer run but I leave that with you.
▶ 1:09:29Sen. Reed: Thank you Mr. chairman very much.
▶ 1:09:32Chair Scott: Thank you. Senator ricketts.
▶ 1:09:37Sen. Ricketts: Thank you, Mr. chairman come in ranking member for holding this important hearing and thank you chairman powell for being here today to talk about our economy and all the things going on. I want to address something the ranking member started talking off about which was characterizing the cfpb as being the cop on the beat.
▶ 1:09:59Sen. Ricketts: I can tell you as having been a governor and having a department of banking that reported to me that if any consumer would contact us and bring complaint about a bank, even a big bank like j.p. Morgan, we would investigate, as could the occ and fdic. To characterize the nobody is out there looking out for consumers is inaccurate and we ought not to try to scare consumers right now that somehow this is the case.
▶ 1:10:29Sen. Ricketts: If you do have an issue, if you're a consumer, please reach out your state department of banking because those folks are going to look out for you. I can tell you that because I used to have one of those department of banking's. They did a fantastic job looking out for the consumers. One of the things that is also impacted consumers is inflation. Prices under biden inflation was 20%.
▶ 1:10:56Sen. Ricketts: An average household is paying $13,000 more today than they were for the same standard of living they had before joe biden got elected. We see grocery prices are up 22%. Rent is up 23%. Nebraskans are economically worse off today than they were four years ago and I expect that is one of the reasons we saw this change in administration. They thought that was not something they wanted to continue to pursue. They did not want the same policies being followed.
▶ 1:11:25Sen. Ricketts: We have to end the reckless federal spending, writing in inflation, and be responsible about how we make decisions to grow the economy. One of those areas I am concerned about is the expansion of the fed balance sheet. The fed balance sheet at the end of 2019 was about $4.1 trillion. By may 2020 the fed expanded that to $7 trillion and by 2022 the fed balance sheet hit an all-time record.
▶ 1:11:55Sen. Ricketts: Inflation p debt 9.1% that your come a high we had not seen since 1981 -- inflation p at 9.1 first -- inflation peaked at 9.1% that year, a number we have not seen since 1981. One of my concerns is that is one of your tools to guard against a downturn in the economy or some sort of shock. You obviously used to during the pandemic.
▶ 1:12:24Sen. Ricketts: Long-term, will the federal reserve continue to this course of unwinding the balance sheet?
▶ 1:12:28Chair Powell: What we said is we intend to slow and stop the decline when reserve balances are somewhat above the level we judge consistently with ample reserves. The most recent data and the feel of the markets is definitely reserves are still abundant. They are about the level they were at when runoff started. It is an ongoing thing and we are not yet where we are headed.
▶ 1:12:58Sen. Ricketts: I know there'll be a lot of factors like what happens to the economy, but if things were going to go a long way, you've already said the economy is doing well, inflation is higher than we wanted to be a 2.6% but unemployment is 4%. I think you used the word stable quite a bit. If these conditions would remain stable would you have a range you can give us where the balance sheet might be if we were talking again in january 2026?
▶ 1:13:26Chair Powell: We will be looking at conditions and reserve markets and trying to stop a little bit above what we consider ample. We think we are meaningfully above that now. We cannot put a number on it because you cannot directly know the demand for reserves other than by observing behavior in the market and putting a little bit of a buffer on it. I cannot give you an exact number but for now it is ongoing.
▶ 1:14:03Sen. Ricketts: Will kind of conditions would have to happen for us to go back to quantitative easing.
▶ 1:14:07Chair Powell: That is a tool that we use when we cannot cut interest rates anymore. Nothing like the current day. It is a different test for quantitative tightening but we would use qe only in a situation where rates are at zero Sen.
▶ 1:14:28Ricketts: If things remain stable, you will continue the quantitative tightening. Cannot give us a range, is that what I hear you saying? I encourage you to keep doing that because it is important to be able to make sure for the next issue that we may face. >> senator warner.
▶ 1:14:51Sen. Warner: Good to see you. One of the things we talked about in the past is that while our regulatory framework should always promote financial innovation, that innovation cannot come at the expense of things like anti-money laundering, consumer protection and financial stability.
▶ 1:15:19Sen. Warner: I continue to worry that many of these hearings where we keep seeing this regulatory creep outside of the boundaries of traditional financial regulation. We are starting to see some scraps where a few of us would design it this way but it is one of the reasons why I am looking forward to working with chair scott and senator lummis on a
▶ 1:15:49Sen. Warner: Framework looking at stable coins in particular within the regulatory parameter. My friend bill hagerty just introduced a bill in this area. I am looking at trying to make sure we get those guardrails put in place and how it touches the fed is terribly important to me. I know we have talked in the past about the idea of same activity, same regulation in the nonbank sector.
▶ 1:16:20Sen. Warner: We would like to wax briefly on this idea of stable coins and how we think about them in the sense of are they singular to activities or should they have their own structure.
▶ 1:16:36Chair Powell: We support the effort to create a regulatory framework around stable coins. They may have a great future with businesses but we cannot know that now. It is important for the development of stable coins in a safe and sound manner that protects consumers that there be a regulatory framework. We see these bills and we were in contract in trying to at our technical thoughts on how to do this. We think it is constructive.
▶ 1:17:08Sen. Warner: You have a lot of expertise in this section. People have lots of opinions on everything in crypto from over the top to the other end of the spectrum. I will rely on your expertise as we work through some framework for stable coins. There are earlier questions on c fpb. I think the record is good. It is given $20 to consumers.
▶ 1:17:40Sen. Warner: The last time we had the previous, we were talking about $55 million to virginians. I want to mention this more for my colleagues. We did a town hall last night. Lots of things happening in virginia. Normally we would get 6000 folks on a tele town hall. We had 60,000 last night.
▶ 1:18:11Sen. Warner: I have not seen anything like that in my time here on the hill. A huge amount of concern about what the doge boys are doing, whether privacy is protected. I had one lady say in light of what was happening at cfpb and whether there is a direct connection, she is saying that the deposits at her bank are safe.
▶ 1:18:39Sen. Warner: We try to give her assurance but I said, I will be talking to the chairman of the federal reserve tomorrow. With this dim munition shuttering at the cfpb, can I tell mary from virginia that her bank account is safe?
▶ 1:18:59Chair Powell: I think bank accounts across the economy are safe. We still have the insurance at the fdic and the banking system is well-capitalized.
▶ 1:19:10Sen. Warner: Again, I think the concern being raised was the definition of consumer protections that gave her concerns about whether that is safe. The last thing I want to recognize is there have been reports in the media about the thinness in the treasury markets, the number of additional bonding that we will have to do particularly with so many of these unpaid tax cuts.
▶ 1:19:41Sen. Warner: One of the things that was really striking was that yesterday the president mentioned how he was examining treasury debt payments for possible fraud and suggested that the debt might not be as high as possible. We all understand the full faith of the U.S. is based upon their reputation.
▶ 1:20:00Sen. Warner: If this president were to suddenly say I am wiping off x amount of debt because I do not believe we owe it, what kind of effect with that have on the stability of the dollar and the yields and stability of our economy?
▶ 1:20:12Chair Powell: It would not surprise you that I will defer to you on that question.
▶ 1:20:17Sen. Warner: From the fed standpoint, the president of the united states says we will not pay our treasury debt. You will have no view at all?
▶ 1:20:27Chair Powell: I will not comment on what the president says.
▶ 1:20:32Sen. Warner: I would like to see us at some point get a stronger answer on that because in light of the president's willingness to shut down agencies willy-nilly, there is the ability to curtail payment of debt that I think would have devastating consequences.
▶ 1:20:50Chair Scott: Senator britt.
▶ 1:20:53Sen. Britt: Thank you. There have been conversations -- referencing elon musk and the work of doge. It is important to remember that president trump ran on this. We will look for regional spending across our government. $36 trillion in debt, that is not only fiscally irresponsible, it is also morally irresponsible. The difference between this administration and the last is that president trump is the final arbiters.
▶ 1:21:24Sen. Britt: It is interesting that none of you had anything to say over the last four years and it is clear that our commander-in-chief was not in command. If we will use the term copresident, the let's say copresident jake sullivan, co. President joe biden. It seems that some of the biggest decisions were made during the president's afternoon nap time. We need to be more audience -- honest about what is occurring.
▶ 1:21:51Sen. Britt: Chair powell, I want to discuss monetary policy issues but I want to highlight a few supervisory items. Unfortunately we started 2023 with several bank failures in which the fed itself admits its supervisors work "too slow to act." the question was asked earlier who was fired and who was not. There is real merit to having a countability that we have not seen.
▶ 1:22:21Sen. Britt: In the aftermath of those failures, the fed was not slow to act when it came torequiremes to act when it came torequiremet to act when it came torequiremee to act when it came torequiremet the U.S. banks at a global disadvantage and hurt consumers in my state. The way I look at this is the world came up with a gold standard. Then vice chair bar said hold my beer. Unfortunately, that hurts alabamians.
▶ 1:22:51Sen. Britt: In addition to that we have community reinvestment act and stress testing frameworks that were basically adopted in secret. Or as we discussed last week the reputational risks and the arbitrary nature of that and those standards that were used to push political agendas. None of this is acceptable and we have to look at how to promote greater accountability and transparency into the supervisory function.
▶ 1:23:19Sen. Britt: Shifting gears, as of january 30, the federal reserve had a mark to market loss on its balance sheet of roughly $221 billion. The fed has posted losses since september of 2022. Meanwhile we have seen transfers to the cfpb totaling $2 billion since september of 2022.
▶ 1:23:43Sen. Britt: Just to clarify, chair powell, these money transfers are requested by the cfpb director each quarter and then directly deposited by the fed. Is that how that works?
▶ 1:23:57Chair Powell: The director of the cfpb requests money and under the law we send that money, yes.
▶ 1:24:08Sen. Britt: . Frank prevents the fed from amending those requests?
▶ 1:24:13Chair Powell: That is requests -- that is correct.
▶ 1:24:20Chair Powell: There is a ceiling on that, but that is correct.
▶ 1:24:25Sen. Britt: How many times has the cfpb funding request been denied by the fed?
▶ 1:24:30Chair Powell: We don't have the authority to deny it under the law. Zero.
▶ 1:24:34Sen. Britt: That's what I thought. I would like to applaud the current administration and acting director vote for inserting some account ability back into the agency by pausing 's quarterly blank checks. There has been a lot of conversation around the bureau over the last few days. I want to focus on the $2 billion the cfpb received from september 22 up to the last receipt on january 2, 2025.
▶ 1:25:06Sen. Britt: Congress specified that the fund shall fund the cfpb through the combined earnings of the federal reserve system. As I mentioned, the fed has no current earnings. It has a balance sheet of -$200 billion. Instead of the recent audit statement saying the fed is funding the cfpb through assessments on its reserve banks , Mr.
▶ 1:25:29Sen. Britt: Chair, there are only two statutes that authorize the fed to make assessments and neither permit the cfpb to fund transfers. What authority did the federal reserve have two assess the reserve banks in this matter over the last two years?
▶ 1:25:46Chair Powell: We looked at that question carefully and it is very clear on the law that we are required to make those payments.
▶ 1:25:55Sen. Britt: Thank you.
▶ 1:25:57Chair Scott: Senator van hollen.
▶ 1:26:03Sen. Van Hollen: Thank you. I would point out that candidate trump did not run on empty mentioned -- on implementing project 2025. When he was asked on the campaign trail, he said I don't know anything about that. Who are those people?
▶ 1:26:21Sen. Van Hollen: Yet he early on installed a key architect of project 2025 as the head of the office of management and budget which is the command and control center for the budget overseeing all federal agencies. That is what elon musk is doing. He is implementing project 2025, the same project 2025 that candidate trump said he knew nothing about. He said that because he knew it was unpopular.
▶ 1:26:50Sen. Van Hollen: He knew it would be unpopular to take the financial cuts off of the beat. I would like to talk about what is happening at cfpb, the consumer financial protection bureau. That is the cup on the beat -- the cop on the beat to go after fraudsters who cheat americans after their hard earned money. They have returned billions to our constituents, to the consumers who have been victims of these scams.
▶ 1:27:19Sen. Van Hollen: In doing so they have earned some powerful enemies who want to shut them down. Elon musk is doing their dirty work on behalf of those fraudsters. There is something especially twisted about the richest man in the world shutting down an agency that helps victims of scanners -- scammers and fraudsters return, recover a little bit of their hard-earned money.
▶ 1:27:49Sen. Van Hollen: I find it especially interesting that the new self-declared head of the cfpb russ vought told employees not to come into the office and to stop work. Here is what he wrote, "ploys shall not come into the office." and "stand down from performing in a work task." an interesting situation. Federal employees continue to get paid but the trump administration tells him to stop doing their work.
▶ 1:28:18Sen. Van Hollen: That apparently is what the trump administration thinks is a good deal for the american taxpayer. To pay employees to not do their job. Mr. chairman, I have a simple question for you. Is that a practice that you pursue at the fed, to pay your employees but tell them not to come to work? Have you done that?
▶ 1:28:37Chair Powell: No.
▶ 1:28:40Sen. Van Hollen: That would not be very efficient, would it?
▶ 1:28:43Chair Powell: No.
▶ 1:28:45Sen. Van Hollen: And yet, that is what the so-called doge boys are doing. In addition nine to that, they are rummaging through the sensitive information of americans at the department of treasury. It seems to me that the trump administration and elon musk are focused on everything except what donald trump said he would focus on during the campaign which was to bring prices down.
▶ 1:29:18Sen. Van Hollen: When you look at the price of eggs these days, I noticed that waffle house just instituted a new $.50 per egg surcharge due to the nationwide rise in the cost of eggs. They said that would be the new surcharge and other restaurants are following suit. Have you seen that?
▶ 1:29:38Chair Powell: Yes.
▶ 1:29:40Sen. Van Hollen: At the same time, the trump administration has restricted federal agencies from providing the public with information about the bird flu, the avian flu, which is part of the cost of egg increases. What we are really facing here is an administration that campaigned on bringing down prices and is not doing that.
▶ 1:30:09Sen. Van Hollen: Did not campaign on project 2025 and that is what they are doing. When it comes to prices, the president is also talking about significant increases in terrorists -- tariffs. They are talking about passing a bill that would add trillions to the super wealthy. They are talking about playing around with the baseline.
▶ 1:30:39Sen. Van Hollen: My question is simple. All things being equal, big increases in tariffs and increasing the deficit and debt put upward pressure on inflation? Isn't that simple math?
▶ 1:30:52Chair Powell: It remains to be seen what tariff policies and implement it. It would be unwise to speculate when we don't know. We see proposals but it is hard to say what is going to happen.
▶ 1:31:06Sen. Van Hollen: Last time the trump administration was in office, the fed took actions because they were concerned about the impact of increasing tariffs. Isn't that the case?
▶ 1:31:18Chair Powell: We wound up cutting rates in 2019 but it really was because growth slowed and confidence was weak and the global economy was weak. The net effect, that's what we look at. It is not just tariffs. It is tariffs, immigration, fiscal policy and regulatory policy. Those will go into the mix and we will make sense of it and do what is right.
▶ 1:31:43Sen. Van Hollen: If you could get back to the question of increasing the deficit by trillions of dollars and what impact you believe that has on inflation and prices. Thank you.
▶ 1:31:54Chair Scott: Senator lummis.
▶ 1:31:57Sen. Lummis: Thank you and thanks chair powell for being with us today. You are aware of what direction my questions will take. They will be focused on banking supervision function of the fed.
▶ 1:32:17Sen. Lummis: When you and I were toddlers, in 1956, the chairman of the fed at the time, william chesney martin , said that the federal reserve board is an agency of the congress. Ben bernanke said something similar in 2013 when he told janet yellen that "congress is our boss. You agree with that statement?
▶ 1:32:44Chair Powell: Yes. The way I always say it is our accountability runs through the legislative branch, not the executive branch as it does in many other forms of government.
▶ 1:32:59Sen. Lummis: Thank you for that. I would not have guessed that was going to be your response. The way that the fed has behaved for the last four years and its relationship with the U.S. congress is to thumb its nose at congress.
▶ 1:33:24Sen. Lummis: Your staff has repeatedly stymied information requests from this committee, notably made by myself, the chairman, the ranking member, senator tillis, former senator pat toomey and others. In my experience, the fed is a black hole. It consumes information but it never releases it.
▶ 1:33:48Sen. Lummis: Your fellow governors have personally misled me on at least two occasions with respect to wyoming and digital assets. The recent former court filings former senators pat toomey accused your staff of lying to him while providing technical assistance on legislation that passed in the national defense authorization act in 2022.
▶ 1:34:16Sen. Lummis: I have behind me a statement by the fed's general counsel, one of the staff that is sitting behind you today who said, "the fed generally resists legislative prescriptions." to me, that is thumbing his nose at congress, the very people that you and I just agreed you are responsible to and the
▶ 1:34:48Sen. Lummis: People depend on. This is why the american people think there is a deep state. This is why they think they think there are faceless bureaucrats making policy to hurt the very people of this country. Just look at the mess the fed made of silicon valley bank.
▶ 1:35:18Sen. Lummis: I contend that there is a lack of understanding that is deliberate on the part of the fed with respect to digital asset policy. The constitution says congress is your boss. But somehow your staff have not gotten that message.
▶ 1:35:40Sen. Lummis: Chair powell, do you commit on behalf of yourself and the federal reserve staff to comply fully with all document demands issued by this committee in a timely manner?
▶ 1:35:55Chair Powell: Sure.
▶ 1:35:58Sen. Lummis: Will you instruct your staff to be complete in their responses and not to obstruct the oversight functions of this committee?
▶ 1:36:07Chair Powell: We always work with the committee to be responsive to your requests. Sometimes they are beyond our capacity to respond and we work with committee staff to do that but we are always responsive to committee requests.
▶ 1:36:24Sen. Lummis: I will look forward to engaging with you when you feel that our requests are outside of the scope of the oversight that we have over the fed. Do you commit to disciplining or removing any staff that are found to have engaged in de-banking activity, furthering operation chokepoint 2.0 or other misconduct?
▶ 1:36:49Chair Powell: I cannot make an open-ended commitment to remove anybody that I can tell you -- but I can tell you that I am struck and my colleagues are struck by the growing number of cases of what appears to be de-banking. We are determined to take a fresh look at that. The thing that you showed during the the banking hearing -- the de-banking hearing, we are now taking that out of the manual.
▶ 1:37:18Sen. Lummis: Thank you. My time is up.
▶ 1:37:21Chair Scott: Senator smith.
▶ 1:37:25Sen. Smith: Thank you Mr. chair and ranking member and thank you chair powell for being with us today. Appreciate your presence here. I would like to start with the issue of the rising cost of home, something I know is of great interest to many of my colleagues on this committee. I know Mr. chair that you care a lot about homeownership and making home ownership available to folks. My colleague senator lummis as well, many of the folks on my side of the aisle as well.
▶ 1:37:56Sen. Smith: This is something that we can agree on that the rising cost of homeownership is a big challenge for our constituents, for americans. One of the big pressures is the rising cost of home insurance. In minnesota, seniors are struggling to manage nearly 40% increase in home insurance rates. We have seen this over the last seven years or so.
▶ 1:38:21Sen. Smith: I know chair powell, that you told this committee in the past that the rising cost of insurance for your home has been a source of inflation as we have been trying to manage inflation. I don't know anyone who does not see this crisis arising insurance rates is being caused by extreme weather events, massive flooding in southeastern united states. We have seen flooding in minnesota.
▶ 1:38:48Sen. Smith: We have seen fires in california. These are climate related events. That is not a political position. That is just a fact. We have banks that are requir ing that a homeowner provide insurance as a predicate for getting a mortgage.
▶ 1:39:08Sen. Smith: There is a big question about what will happen when insurance gets unaffordable or in some parts of the country not available and what impact that would have on the mortgage markets and on the value of american homes. Just last week a new analysis from 1st street showed that overall the value of U.S. real street -- U.S. real estate could be reduced by $1.2 trillion over the next 30 years due to climate risks.
▶ 1:39:38Sen. Smith: That is the risk of not being able to afford home insurance because of these extreme weather events. The prospect of trillions of dollars of property becoming uninsurable is clearly a recipe for market instability in the rental and the mortgage markets.
▶ 1:39:56Sen. Smith: My question is even these trends how do you think the fed and we should be thinking about the challenges that these events are going to impose to insurance markets and the overall financial stability of the economy? I am not asking you to comment on climate change because I understand my colleagues on the others out of the ioc that as a political question. It is more of what you see as risks to the financial stability.
▶ 1:40:25Chair Powell: We do not supervise insurance companies. We are seeing the same thing. Both banks and insurance companies are pulling out of areas, coastal areas where there are a lot of fires. What that will mean is that if you fast-forward 10 to 15 years, there will be regions of the country where you cannot get a mortgage. There will be no atm's. Banks will not have branches. That is a possibility coming down the road.
▶ 1:40:53Chair Powell: It is not that the banks will stay there and keep making loans in the face of evidence of disasters or that insurance companies will break policies. They can cancel the policies every year. I think the risk is that they will not be there and people will not be able to get them. That is the issue.
▶ 1:41:11Sen. Smith: It seems to me that that would be a massive source of instability in our economy overall if you were to see that kind of dramatic decline in home ownership, home values, not to mention the disruption that would occur if people could not be in their homes anymore.
▶ 1:41:32Chair Powell: If that happens, it will fall on home owners and residents but it will also fall on state and local governments, which is what you see happening now where they are stepping in in states where insurance is going away. Private insurance, states are stepping in because they want those areas to remain prosperous. I don't know if it is a financial instability issue but we will have significant economic consequences.
▶ 1:41:57Sen. Smith: To try to figure out how to provide re-insurance is an example and in the places where commercial insurance is not available would be a massive impact on state budgets to follow your chain of thinking. I have heard some of my colleagues on both sides of the aisle talk about the challenges overall with flood insurance as an example and the massive expense that would have for us as well. I raised this because I think this is an important issue.
▶ 1:42:25Sen. Smith: I think it has a fundamental impact on the overall health of our economy as we look not even down the road but where we are right now. I am out of time. We have talked quite frequently about my keen interest in the community reinvestment act. I will follow-up with a question on that for the record.
▶ 1:42:44Chair Scott: Thank you. Senator hagerty.
▶ 1:42:49Sen. Hagerty: Thank you, chair scott. Chair powell, good to see you here today. Welcome. I want to talk about markets and inflation. Less than six months ago you expressed serious concerns about labor market weakness. Since then the fomc has begun its easing cycle and cut its target rate by 100 basis points as you mentioned in your opening remarks.
▶ 1:43:15Sen. Hagerty: At the january meeting the fomc has telegraphed that it felt the labor market and inflation have reached a point where you are comfortable maintaining the target range. My question is the recent market data including last week strong jobs report indicate that the economy is on firm ground. Swaps markets have began to price in qr codes this year. I want to talk broadly about these market conditions. Do you see evidence of a higher neutral rate emerging at this point?
▶ 1:43:43Chair Powell: Yes. There was a lot of reason to be concerned about downside risk in the labor market toward the middle of this year. Really that concerned has diminished significantly. The labor market is really strong. The evidence is, my own view is that the neutral rate will have risen meaningfully, very hard to be precise about it, from where it was, clearly very low before the pandemic. Extraordinarily low.
▶ 1:44:14Chair Powell: Historically so. It has moved up and many of my colleagues feel that way too.
▶ 1:44:17Sen. Hagerty: It seems that way. I would like to talk to what seems to be a very popular topic and that is the cfpb. In your response earlier you confirmed that when the cfpb said quarterly funding requests, the fed cannot exercise any discretion over what the funds are used for. Is that correct?
▶ 1:44:39Chair Powell: As long as it complies with the law.
▶ 1:44:41Sen. Hagerty: It strikes me that the fed is not in a position to hold the cfpb accountable for what it does or how it spends its money. Congress has not been allowed to hold them accountable for what it does or how it spends its money. It looks like no one has been able to hold the cfpb accountable at all.
▶ 1:45:03Sen. Hagerty: Now I hear complaints coming from every corner, particularly from the other side, about the excessive delegation of authority to a republican cfpb director when this entity was intentionally created to be wholly unresponsive to elective officials. Before I close, I would like to come to a point on climate.
▶ 1:45:30Sen. Hagerty: The fed's forees into climate activism and the recent retrenchment we have seen. It is one thing for the fed to disassociate from its past climate actions but to claim that it has divorced itself from partisan climate policies, the fed needs to do more than issue statements. It needs to end its climate policies. The fed's independence from politics is a headline topic at the moment.
▶ 1:45:56Sen. Hagerty: While much attention has been given to potential external pressures on the fed, it is also critical we scrutinize how the fed's own regulation and supervision might be utilized to politicize the institution. When the central bank strays from its mandate by embracing partisan climate policies, the fed in itself in political scrutiny. I want to urge the fed to refocus on its statutory mandates.
▶ 1:46:25Sen. Hagerty: I know it is a commitment that both you and I share. Thank you for being with us today.
▶ 1:46:31Chair Scott: Senator warnock.
▶ 1:46:34Sen. Warnock: Thank you very much chair scott. Welcome again, chair powell. I want to echo the words of ranking member warren and so many of my colleagues today on doge and project 2025's legal attack on the bureau. The bureau was not created to be dismantled.
▶ 1:46:59Sen. Warnock: Since its inception the cfpb has been the only federal agency solely dedicated to protecting americans wallets and pocketbooks from scammers and predatory companies and financial services cfpb. The cfpb reduced costs for americans, returning more than $21 billion to americans who had been cheated since its inception.
▶ 1:47:25Sen. Warnock: I wanted to focus on that as folks are talking about chasing after fraud and abuse. The cfpb has returned more than $21 billion to americans. This account -- attack on the cfpb will increase costs for americans and give the green light to fraudsters and predatory actors seeking to cheat hard-working americans.
▶ 1:47:52Sen. Warnock: Chairman powell, thousands of georgians have written into my office. They are alarmed by an unelected billionaire and his dangerous attempts to access americans private data and the treasury department systems that control $6 trillion in annual payments to the millions of american citizens including social security, medicare and tax refunds.
▶ 1:48:17Sen. Warnock: Is elon musk or members of his team to your knowledge attempting to access the fed's protected data and systems?
▶ 1:48:28Chair Powell: I do not believe so.
▶ 1:48:32Sen. Warnock: Will you commit to report to this committee, majority and minority immediately should you become aware of any such attempt by elon musk or doge to pierce the fed's independence or access its protected systems?
▶ 1:48:47Chair Powell: . Yes.
▶ 1:48:49Sen. Warnock: Thank you for the commitment. The latest monetary policy report states that the tight labor market has allowed employment and earnings gaps between black and hispanic americans and white americans to narrow. I was glad to see that many of the long-standing disparities in employment and wages by sex, race, ethnicity and education have narrowed under the biden administration.
▶ 1:49:20Sen. Warnock: Some gaps have reached historical lows, specifically the employment gap for black workers and white workers is near its lowest point in almost 50 years. That is the economy that the trump administration is inheriting, a historic low at almost 50 years. Chair powell, as you work to promote maximum employment, what steps will the fed take to ensure these equity gains are permanent?
▶ 1:49:49Chair Powell: The best thing we can do, it is both of our mandates. As you well know high inflation hits people at the low end of the income spectrum first and most. In addition to that we know that the benefits of a strong labor market over time can be really visible and important in those communities as well. We pursue our mandate.
▶ 1:50:16Chair Powell: We keep our heads down and it works out that that is the single best thing we can do to foster closing all caps.
▶ 1:50:22Sen. Warnock: You pursue your mandate. You want to make sure it is working. Would you agree that we still need good equity data to continue to narrow and close those gaps by race and gender?
▶ 1:50:35Chair Powell: We will always be in favor of good data at the fed. We do have quite a bit of that data on our website.
▶ 1:50:42Sen. Warnock: If we don't have equity data, it would be difficult to know?
▶ 1:50:46Chair Powell: Yes.
▶ 1:50:47Sen. Warnock: I'm glad you still believe in the value of good equity data for economic policymaking. It is better to fly with the data than to fly blind. I am not sure what is so controversial about the data.
▶ 1:51:04Sen. Warnock: While I was disappointed to hear that the federal reserve which is independent from the white house scrubbed a diversity and inclusion section from its website after president trump executive order while also scrubbing data on the racial, ethnic and gender makeup of the researchers, I hope you will continue to ensure that the public has good data on how our economy is working or not working for historically marginalized americans.
▶ 1:51:32Sen. Warnock: I also hope you will reconsider your decisions around the whitewashing of the fed's website. As we think about the value of protecting data on the black-white wealth gap or employment gap, it is important to understand what policymakers can learn from this data. Historically from what you have seen in the data, what types of economic events have caused the black-white wealth gap or employment gap to widen?
▶ 1:51:58Chair Powell: High inflation, downturns. Generally just take the black unemployment rate. It moves at twice the speed of the white unemployment rate. When it goes up, it goes up faster. When it comes down, it comes down faster. At the end of the day, there has always been a gap. We want to run a strong labor market. We target overall labor market conditions for maximum employment.
▶ 1:52:28Chair Powell: One of the benefits of that is that the gap comes down.
▶ 1:52:31Sen. Warnock: Thank you so much. Fully the regular eating our financial regulators like the cfpb -- fully de-regulating our five chance show -- financial regulators like the cfpb, this two proportionately impacts black and hispanic workers and there are consequences to eliminating financial regulations that keep us safe. Working people are the ones who suffer.
▶ 1:53:00Sen. Warnock: I look forward to continuing to work with you to close these gaps.
▶ 1:53:02Chair Scott: Senator bates. Simple bates thank you for presenting a report to the committee today. -- step -- stsen. Bates: the fed has power over american's ability to work and earn a living. Especially industries like manufacturing which depend on big investments.
▶ 1:53:29Chair Scott: Chair powell, the data on manufacturing is still holding up nationally but it does not look very good in the chicago region which includes most of my state in indiana. The beige book says manufacturing jobs are declining and fewer people are buying manufactured products. It says that steel demand is at a low level. Auto production has slowed and maternity orders are down.
▶ 1:53:54Chair Scott: What does that say about the rest of the country when manufacturing in the heartland slows, does that signal trouble for industries in other parts of the country?
▶ 1:54:03Chair Powell: It can. It does not always but it certainly can. We watch the manufacturing sector. It is very important. Manufacturing jobs tend to be high productivity jobs. They are very important in our economy. I would say over the last couple of years manufacturing was pretty weak during years in which we had high gdp overall. Manufacturing is a smaller proportion of the economy than it used to be. It is still extremely important.
▶ 1:54:31Sen. Bates: Senator reed ask you why free trade does not work on one of the giant players does not abide by the rules. The china shock is proof of that. The fed has a mandate to maximize employment. How do you account for the whole industry that has repeatedly suffocated by unfair competition?
▶ 1:54:50Chair Powell: We do not do trade policy. We are not responsible. We don't comment on those who do trade policy. We do not really have a role in focusing specifically on that. That is really left to those who have responsibility over trade.
▶ 1:55:07Sen. Bates: Do you agree a healthy manufacturing economy is important to an healthy overall U.S. economy?
▶ 1:55:12Chair Powell: I do.
▶ 1:55:14Sen. Bates: I hope you had the opportunity to read robert lighthizer's essay in the new york times. He explains why a big trade imbalance between any two countries is harmful to citizens in both of those countries. How does the fed take the trade deficit in account in your decision-making at all?
▶ 1:55:29Chair Powell: We really do not. We are aware but it is not something that directly affects our mandate goals.
▶ 1:55:35Sen. Bates: Not at all?
▶ 1:55:37Chair Powell: No. I did read his book by the way.
▶ 1:55:40Sen. Bates: It is a good book. Fair enough. It is no secret that the most of it -- the most conventional economists hate tariffs. I want to know that the gains manufacturing jobs during president trump's first term in indiana, even though the conventional wisdom is that tariffs will produce jobs, do you commit to following the data?
▶ 1:56:04Chair Powell: Very much so. As we did in 2018 and 2019.
▶ 1:56:09Sen. Bates: My staff reviewed the research paper on tariffs in preparation for this hearing. I want to point out one of them called the employment consequences of U.S. trade wars. I would like to enter this paper for the record. It found that the timing of tariffs are very important. China's retaliation of president trump's tariffs did hurt U.S. jobs. If the U.S.
▶ 1:56:35Sen. Bates: Had imposed tariffs much earlier in the 90's and early 2000, it would have almost completely a limited job losses due to the china shock -- it would have almost completely eliminated job losses due to the china shock. Will you commit to looking at this paper?
▶ 1:56:53Chair Powell: We certainly will.
▶ 1:56:55Sen. Bates: Families are struggling to afford homes. In just five years the price of a typical home in indiana has gone up more than 60%. More than three quarters of american families cannot afford an average home in their neighborhood. How do the for decisions about monetary policy affect the ability of regular families to buy a home?
▶ 1:57:15Chair Powell: Most of what will have driven that increase will be about local regulation, as you know. It is also about wages going up and costs of materials and things like that going up and land costs and all of that going up a lot. The channel through which we affect housing is interest rates. Right now interest rates are still pretty high. Mortgage rates are really not set at the fed.
▶ 1:57:48Chair Powell: It is a key of a key of longer run things. We are clearly having an effect on the housing market. That will unwind as we normalize policy. We will still be faced with high insurance costs and high material costs and later shortages -- and labor shortages.
▶ 1:58:05Sen. Bates: My time has expired.
▶ 1:58:08Chair Scott: Senator gallego. >> thank you. The housing costs are of particular concern to my constituents in arizona. I wish wages would increase to match but they do not. The fixed mortgage rate has been above 6%.
▶ 1:58:37Chair Scott: With very few cuts anticipated, the cost of materials and the demand that we will see in terms of rebuilding from california and labor shortages, what do you think needs to happen to make housing more affordable in arizona and the united states in general?
▶ 1:58:55Chair Powell: Housing policy and things to help housing supply are really in your wheelhouse, not ours. I think the housing markets around the country are still suffering from the effects of the pandemic. When that is all the way through and short-term rates are down to normal, whatever the new normal level is, housing costs will still be high.
▶ 1:59:22Chair Powell: It will still be expensive to build housing in many parts of the country where lots of the urban areas, the obvious places to build housing has happened. It is a long term. There is a short-term problem which will go away in the coming years but there is a longer-term problem with housing availability. That is going to be something that is not within our authority to affect.
▶ 1:59:44Sen. Gallego: One of the things I have seen in arizona is because we have people that are locked into mortgages at 2.9%, 2.8%. In order for them to move to the new house, they will have to essentially go and try to get a bigger house but the mortgage payment will be through the roof. While I know the fed does not set the mortgage rate, one of the biggest drivers of inflation especially in places like arizona is housing costs.
▶ 2:00:14Sen. Gallego: One of the biggest decisions that you make on whether or not to move rates is inflation which is driven by housing costs. We are in this vicious circle in arizona when it comes to interest rates. I don't know what the answer to that is. But at least for there to be some understanding on that because the reason we are not breaking out of the cycle is because the problem feeds itself over and over again.
▶ 2:00:37Chair Powell: That is exactly what is going on. It is not obvious that lower rates would lead to lower housing inflation because that would increase housing demand. It would all lock people's low mortgages -- it would unlock low mortgages but that includes a buyer and a seller.
▶ 2:00:58Sen. Gallego: My supposition especially in places like arizona which is really growing fast is that by increasing supply with lower rates, you end up having more of a competitive market so people will start moving and bring down the overall cost. I've also heard from businesses in arizona the concern about the threat of economic stability in tariffs that are imposed on our key U.S. trade partners.
▶ 2:01:27Sen. Gallego: How should we expect prices to move for basic items like tomatoes, peppers, cars if we place a 25% tariff on mexico next month as the president has threatened?
▶ 2:01:36Chair Powell: We do not do tariff policy or commentary on tariff policy. Generally when someone has to pay the tariff, it can be the exporter, the importer, a middleman. Somebody does. In some cases, it does not reach the consumer much. In some cases, it does. It depends on facts we have not seen yet.
▶ 2:02:03Sen. Gallego: That contributes to the population -- calculations on inflation overall?
▶ 2:02:08Chair Powell: It can. It is hard to predict. There is a question of how persistent that would be and how large it would be.
▶ 2:02:16Sen. Gallego: I understand you are not here to specifically comment on trade policy. Overall, is it your opinion that high tariffs can lead to higher costs which would end up being seen in terms of your calculation to help you set the rates?
▶ 2:02:37Chair Powell: That is a possible outcome. It will depend on specific facts about what is being tariffs about what is being tariffed for how long.
▶ 2:02:46Sen. Gallego: I yield back.
▶ 2:02:47Chair Scott: Senator mccormick.
▶ 2:02:51Sen. Mccormick: Good to see you. In the past five years alone, the national debt has exploded. Federal spending and the debt have increased by more than 50%. Debt held by the public for true debt obligation has more than tripled during the past 15 years, reaching more than $20 trillion. U.S. national debt is over 120% of gdp.
▶ 2:03:19Sen. Mccormick: Runaway spending contributed to an aggressive tax known as inflation. In the past five years the cost of living has skyrocketed for working-class pennsylvanians especially as we discussed when we visited one relying on fixed incomes. Unfortunately that compounded impact of inflation if not been offset by a rise in wages for many pennsylvanians.
▶ 2:03:43Sen. Mccormick: I have heard from countless pennsylvanians who have had to counter dollars at the gas pump, cancel family trips and tighten their belt at the dinner table because of inflation. While we discuss these issues, let's not lose sight of the very real human cost of the decisions made by people sitting in this room. Given that cost, I would like to ask you about the national debt and the cost of financing it. We spend more to service the debt annually than we do on national defense.
▶ 2:04:10Sen. Mccormick: How concerned are you about the accelerating pace of government borrowing and at the borrowing cost which will affect families in the form of higher mortgage rates? .
▶ 2:04:24Chair Powell: We don't comment on fiscal policy other than to say as my predecessors have said that the U.S. federal budget is on an unsustainable path. It's not that the level of spending is unsustainable. The path is unsustainable. Ultimately the level of the debt will be. There is no time like the present to start working on this. The longer we wait, the more painful it will be.
▶ 2:04:51Chair Powell: It is something we will have to do in the long run and the short run is better than the long run.
▶ 2:04:56Sen. Mccormick: As a practical matter, how do you factor that into your policy in king and decisions?
▶ 2:05:01Chair Powell: We don't. We are here to achieve maximum appointment and price stability. It is up to congress to deal with fiscal issues. We leave that to you.
▶ 2:05:12Sen. Mccormick: Just as a more practical question, I think it falls clearly, because of that national debt, because of the supply of U.S. treasuries needed to finance the debt to skyrocket. That is at the same time the fed is shrinking its holdings of treasury through quantitative tightening.
▶ 2:05:38Sen. Mccormick: Could you give us insight into the impact that this is having on the treasury market as investors must absorb that supply? I am interested in how the biggest holders of U.S. treasuries, how their behavior is changing as debt increases.
▶ 2:05:54Chair Powell: This is a real treasury question. From our standpoint I can say that there are lots of buyers for treasuries. Treasury buyers are going to be factoring in their assessments of the supply that is coming. That may be part of the reason why the term premium has increased as you know over the course of this year. Although we know the rates have been going up and down. They are almost back to where they were before the election.
▶ 2:06:22Sen. Mccormick: I know the fed has been moving forward with conner prince of to the stress testing -- moving forward with comprehensive changes to the stress testing. Can you discuss how you think of reducing the volatility and increasing transparency on the stress test?
▶ 2:06:38Chair Powell: On transparency we will release the models, clean them up will publish the models. Put them out for comment. In terms of volatility, we will also release the stress test scenarios before we implement them. In terms of volatility, what we said we would do is average the changes. The problem is the stress capital buffer could be moving up and down just because of volatility in the results.
▶ 2:07:10Chair Powell: It seems like a good idea to smooth that out over a couple of years. We are putting all of this up for comment. Ultimately we will reflect those comments in the final decisions we make.
▶ 2:07:19Sen. Mccormick: Thank you.
▶ 2:07:22Chair Scott: Thank you. Senator blunt rochester. Sen. blunt rochester. Thank you for meeting with me last week. We discussed the real impact on fed policies on all of our lives.
▶ 2:07:44Chair Scott: I also got a chance to share with you the concerns of the ian's food -- delaware ian's food -- delawarrians who have been frightened by the impact on peoples financial and personal data and information when doge has access to this information.
▶ 2:08:14Chair Scott: I am hearing from my constituents about the potential shuttering of the consumer financial protection bureau as senator warnock mentioned. Cfpb has returned over $21 billion to millions of consumers and that is a real impact.
▶ 2:08:30Chair Scott: I want to also highlight that it was your leadership and the fed working with congress and the biden administration to really help answer that question that you were asked about if you had the choice to switch countries with france and germany and others, that you said no. You would rather be here. That is a testament to all of us.
▶ 2:08:55Chair Scott: We came together during a tough economic time at the end -- during a pandemic. It limited the recession and job losses. Since covid we have seen robust job growth. We have also grappled with inflation that drove prices up for so many goods. I have worked to address one part of this phenomenon, our supply chain disruptions.
▶ 2:09:22Chair Scott: I recently joined senator cantwell and senator blackburn to reintroduce the bipartisan promoting brazilian supply chains act to address supply chain vulnerability. While we see indications that inflation might be slowing, too many of our constituents are still facing high prices and economic uncertainty. We need to do everything to address this anxiety and the reality is that americans are facing. There seems to be a disconnect.
▶ 2:09:49Chair Scott: While the economy is doing well here, on the ground people are not really feeling that. Can you talk about from your perspective what is driving this disconnect between traditional economic indicators such as gdp growth and the stock market performance and the tangible benefits for families?
▶ 2:10:13Chair Powell: I'd be glad to. It is clear that the overall aggregate numbers are just very good for the economy. 4% unemployment, inflation down to 2.6% last year, these are good numbers. What people are feeling is the result of several years of inflation particularly for people in the low and moderate income category.
▶ 2:10:39Chair Powell: If you look at the earnings releases and press conferences that they do, companies like the dollar stores and things like that, they deal a lot with moderate income people. They are telling that those consumers are feeling really strapped. We understand that and try to keep that in mind even though we acknowledge that the overall data is good, we see what people are feeling and that is inflation.
▶ 2:11:07Chair Powell: It is a reminder of how much people hate inflation and how bad inflation is for people. It furthers our result to get inflation back to 2%.
▶ 2:11:16Sen. Blunt Rochester: Thank you. One of the big areas I focus on, you have heard many of us talk about the housing crisis that we have in this country. I know a few others have asked questions previously to me about this but I would love to follow up afterward with specifically what you think are the short-term and long-term things that we can do to really address the housing supply and affordability crisis.
▶ 2:11:48Sen. Blunt Rochester: I have legislation that looks at things like reducing regulatory barriers, zoning reform. These things that we know we can in partnership with local governments make a significant difference. If I could, I would love to follow up with you, even cutting redtape, those kinds of things we can do long-term and short-term. I did want to mention one last thing in the 20 seconds I have. The fed listens to the activities you do. Can you talk about that?
▶ 2:12:18Sen. Blunt Rochester: A lot of times people don't feel they have a place in these conversations. Can you talk about what the fed does with the fed listens?
▶ 2:12:26Chair Powell: We did this as part of a review five years ago and we do it on an ongoing basis. We break out from the usual people we talked to which is a diverse group and try to deal directly with people who are experiencing the economy and our policies. It is quite eye-opening to listen to people talk about it. We had one person in the chicago conference five years ago who said the expansion which was then nine years old is just reaching my community.
▶ 2:12:57Chair Powell: He talked for some minutes about how companies were going into present and finding people who were not going to get out for a year or two and training them. You could hear a pin drop. It was very telling stuff. I think we learned from all of that. We will keep doing it.
▶ 2:13:13Sen. Blunt Rochester: I will end by saying there is a famous quote, "we may have came over on different ships but we are on the same boat now." we need to get it together.
▶ 2:13:25Chair Scott: Senator moreno.
▶ 2:13:35Sen. Murroreno: I just want to ask you a general question. When you increase the money supply by 40% over a short period of time, will that drive inflation?
▶ 2:13:45Chair Powell: It could. When there is a sharp increase, that is something that might cause inflation. >> just to be clear for the people watching, that happened because of public policy, correct?
▶ 2:14:10Chair Powell: There was not a civilian led effort to increase government spending outside of the elected leaders chosen to make those decisions?
▶ 2:14:19Chair Powell: That was part of it. There are a lot of causes of inflation that we saw. It is fiscal policy, monetary policy, closing and reopening the economy, it just generated a bunch of confusing signals and a lot of inflation for everyone in the world where the people did a lot of fiscal policy or not. There were many factors. That is one of them.
▶ 2:14:43Sen. Moreno: It was not the citizens of the country making those decisions. Those were elected leaders choosing to close the economy. Businesses did not decide when to close. They did not decide to not be able to go to work. Those were decisions made by policymakers, correct?
▶ 2:14:59Chair Powell: Yes.
▶ 2:15:00Sen. Moreno: So it is disingenuous to hear my colleagues talk about how they care so much about inflation when in reality they cause it. I don't want to continue that. I asked you a question out of curiosity. At what point did you think the department of the treasury was going to run out of ink? Does that concern you that maybe it was possible that they were printing so much money that the treasury would have to find alternate suppliers?
▶ 2:15:27Chair Powell: It did not occur to me but that's a good question.
▶ 2:15:30Sen. Moreno: Along those lines, something that concerns me a lot is the idea that we would even look like china in any way. May I have your commitment as long as you are the chairman of the federal reserve that we will never have a central bank digital currency?
▶ 2:15:48Chair Powell: Yes.
▶ 2:15:50Sen. Moreno: Thank you for that. That is extremely important. It makes me happy to hear you say that. Shifting gears to something that matters to me and entrepreneurs around the country's why cant I wire someone money at 6:00 p.m. Eastern time? Can we get to a 24/7 scenario where wires are cleared every day, all day? I think that would be very helpful to businesses all over the country.
▶ 2:16:16Chair Powell: That is coming. It is just coming slowly. We have that the fed now. We provide that service between two banks. Others want to provide it too. It is time for that to happen.
▶ 2:16:32Sen. Moreno: I don't want to put you on the spot but to put you on the spot, fed now is very familiar with it, it is a little bit late. Can we get a commitment to do that this year so that by the end of this calendar year, businesses can transact 24/7 to settle payments?
▶ 2:16:51Chair Powell: I think they can do that now. I believe they can do it now on fed now. They can do it on the rtp system as well. I think it is available. Let me follow up with you.
▶ 2:17:04Sen. Moreno: That would be great. One other piece of the puzzle is what do you think the fed can do to fight international terror groups? Hamas, hezbollah, iran, funded by places like qatar? Are we doing enough to keep them outside of the banking system?
▶ 2:17:31Sen. Moreno: At the end of the day terrorism is ultimately funded by these bad actors. I met with the hostage families this morning. It was heart to hear stories about kids that are my kids age being held for almost 500 days. Qataris are complete we complicit in all of this. What advice would you have that we can do to make certain that we bring these terror groups to their knees?
▶ 2:17:57Chair Powell: We do enforce money laundering laws very strictly. It is a tough question. It is a huge focus in international meetings. You are right. It is hard to nail it down if it is happening overseas. We can do what we can do with our banks.
▶ 2:18:22Chair Powell: We don't want to make it so costly that they de-bank people because they are so worried about violating money laundering laws. That is some of what is happening according to the banks is that they are so afraid that there might be money laundering that they just cut people off at the first flag will be perfectly legal businesses are being torn out because of being caught during -- doing money laundering. It is a really hard project.
▶ 2:18:53Sen. Moreno: Thank you.
▶ 2:18:55Chair Scott: Thank you. Senator kim.
▶ 2:19:01Sen. Kim: I wanted to make sure my colleagues had a chance to run to their meetings. I have enjoyed listening to the chairman and to be able to hear some of your particulars. I did a telephone town hall last night. I'm glad to hear some of my other colleagues did as well. There is a lot of anxiety by the american people trying to understand what is happening and interpreting what is happening on the news.
▶ 2:19:27Sen. Kim: I just want to ask you how you would explain the importance of independence when it comes to the federal reserve.
▶ 2:19:37Chair Powell: I think the point is that we will make better policy, keep inflation lower if we just focus on doing our job and stay out of politics, stay out of elections. Don't try to favor or hurt any political party, any political figure. Just focus on the data. If we start putting up political filters, we will be less effective at our already quite difficult job.
▶ 2:20:06Chair Powell: I think that is broadly understood. I think there is broad support up here in both political parties and on both sides of the hill. I think there is a decent degree of support for continued independence. That is not to say we should not be accountable. We should be very transparent about what we do. We should be explaining what we do and why to our oversight body which is this committee and the same committee on the house side.
▶ 2:20:36Sen. Kim: Making decisions about stability and growth but not thinking about it in terms of the context of an election cycle, is that right?
▶ 2:20:47Chair Powell: Exactly.
▶ 2:20:50Sen. Kim: There has been a lot of attention to the role of public servants within government. Understanding what roles they play, how many to have. I just want to ask if you could speak to the role of the federal reserve employees, their qualifications and their importance to the mission of being able to engage. How important are they to the work you are trying to do toward stability and growth?
▶ 2:21:17Chair Powell: I am very proud to be associated with the people of the federal reserve. I will give you an example. When the pandemic hit and out of the blue economies all over the world are shutting down. The U.S. treasury market is stopping to function. Companies cannot rule their commercial paper. Economists are writing about a depression.
▶ 2:21:41Chair Powell: People at the fed who went through the global financial crisis 10 years before stepped forward and said we know what to do. Here is what we do with the treasury market. Here's what we do with money market funds. Here's what we do with the companies who cannot get any financing. The markets were closed and companies were having maturing debt that they had to rollover. The people who knew what to do in that emergency were working at the federal reserve and other places.
▶ 2:22:11Chair Powell: I will tell you, it was impressive. If you could have seen the way people reacted and how hard they work and how much they know and how well it worked, our work during the acute phase of the crisis was very successful. It is entirely due to the knowledge base that resides with career people at the fed .
▶ 2:22:37Sen. Kim: Would you say that the fed is overstaffed?
▶ 2:22:40Chair Powell: Overworked may be but not overstaffed. It is a place where people work.
▶ 2:22:47Sen. Kim: A lot of this conversation about staffing numbers at different departments and agencies is going back to his sense of the taxpayer dollar in terms of accountability. What I want to ask you is the fed paid for by taxpayer dollars?
▶ 2:23:03Chair Powell: We are self funding through our large balance sheet.
▶ 2:23:08Sen. Kim: When it comes to staffing at the federal reserve, not coming from taxpayers?
▶ 2:23:13Chair Powell: We give away all of our profits back to treasury and those profits would be higher if we did not pay for them through the fed. In fairness, it is ultimately paid for by the taxpayer but in that sense, we are self-funded.
▶ 2:23:31Sen. Kim: One last question. You talk about the different actors involved when it comes to levying tariffs in terms of paying the exporter, the importer, the consumer. You set the middleman could be part of that. I want to ask you do you know any way in which to 100% guarantee that the consumers will not have to pay higher costs when it comes to tariffs?
▶ 2:23:51Chair Powell: Not really. It is not going to be easy to identify with any accuracy exactly where costs do fall. It will be hard to guarantee. We will just have to see.
▶ 2:24:06Sen. Kim: I yield back.
▶ 2:24:09Chair Scott: Senator warren?
▶ 2:24:14Sen. Warren: I want to make a point about law enforcement. If you keep the laws the same on the books but you fire the cops, you will have a lot more crime. That is law enforcement 101. The problem we have right now is the law on the books about consumer protection has not changed. But the cops have been told to stand down.
▶ 2:24:41Sen. Warren: I appreciate that we have state ag's who stand in and partner with the cfpb. But there is no one else for the giant banks who actually does what is called two examination, the supervision. And that is so important. Remember the wells fargo scandal where wells fargo was illegally opening fake accounts in people's names? You find that through bank examination. Not because the person who got cheated could figure it out.
▶ 2:25:10Sen. Warren: Bank of america gets hauled in because bank examiners discovered they were charging people illegally on junk fees. Nobody finds that but the people who are down in the banks during the bank examination on behalf of the consumers. But we tried a patchwork of law enforcement for consumers before 2008. We had those laws scattered among several different agencies and we saw how it ended.
▶ 2:25:40Sen. Warren: It ended with millions losing their homes. Millions of people losing their jobs. Millions losing their savings. The cfpb is our law enforcement agency to make sure that the giant banks follow the rules on consumer protection. And for me right now, I would be really worried about doing business with a giant bank when there is no cop on the beat.
▶ 2:26:06Chair Scott: Thank you, senator. I will recognize myself or one question. It will be relevant to your job, I promise. Thank you for your patience and for being here. There were some questions and I know senator rollins asked about this.
▶ 2:26:32Chair Scott: Treasury secretary bessette said the banking system is a well-capitalized and perhaps over capitalized. Given that assessment, could you discuss the necessity that a new basel iii proposal and how updated regulation would impact the ability of regional banks to compete with the big wall street banks and what consideration should be taken into account should we have a competitive banking system?
▶ 2:27:04Chair Scott: This concern comes and goes. For those of us with regional banks and community banks and credit unions, a competitive system is really important. If you can answer that and I will wrap up.
▶ 2:27:18Chair Powell: We are eager to get together with new colleagues from the fdic and new leadership to try basel iii basel iii to finish -- to try to finish basel iii. Our banks are well-capitalized. It was not supposed to be an exercise in raising capital in U.S. banks. Mario draghi said that. I think that is about right.
▶ 2:27:48Chair Powell: We have some work to do but we will get there very quickly. In terms of regionals, they do not face the surcharges. They do not face the burden that the large banks face on resolution planning. We need those banks to be healthy and profitable because we need them to compete with teh g sibs.
▶ 2:28:22Chair Powell: We don't want them getting a bigger share of the economy. That is where a lot of pressure, we have seen in the number of community banks declining for 30 years. This is not something, we don't want to be the cause of that if it is happening by natural causes or because of evolving technology, that is one thing. But we do not want to be an advert overtly causing that to happen.
▶ 2:28:41Chair Cramer: If you look at a basel iii exercise, can you think of anything that ensures that competitive diverse banking system is maintained rather than a consolidation whether it is fewer community banks and more regional banks or fewer regional banks and more wall street banks?
▶ 2:29:01Chair Powell: You think twice before you impose the kinds of things that we impose on the largest banks. You want to be careful not to just think we should do exactly the same thing. What tends to happen is for smaller banks it raises the fixed cost of banking and it makes the harder to start new banks and it makes it harder for any but the largest to be successful. That is not what we want. We want a lot of competition.
▶ 2:29:31Chair Powell: These regionals, it is important that they be, that they thrive.
▶ 2:29:34Chair Cramer: I agree. Thank you for that. Thank you for staying with us for today. I am glad we could get you first. As we wrap up, for senators who wish to submit questions for the record, those questions are due one week from today, tuesday, february 18. Chair powell you have 45 days to submit your response to questions for the record. Thank you. The committee stands adjourned.