▶ 0:15:55>>>> call this hearing to order. Good morning and thank you all for being here. Thank you chair powell for joining us today. I want to take a second and thank you for following through on your commitment to remove reputational risk from banking examination. This is a necessary first step towards ending the litigation and is certainly a step in my opinion in the right direction. It is not enough to change the policy on paper.
▶ 0:16:25We must implement it in practice. I was a little surprised when we were talking on monday that you didn't bring up in that conversation since it happened a few minutes later. Good to see nonetheless. The fed plays an essential role in the stability of our financial system. With that rule comes responsibility. To remain independent from political pressures and be transparent. Many americans have lost confidence the federal reserve.
▶ 0:16:57American families have endured persistent inflation, rising interest rates and a tightening in their wallets. A college student trying to cover tuition in food -- and food finds everything cost so much more. A senior citizen trying to downsize is watching mortgage rates skyrocket and asked incomes all behind.
▶ 0:17:25During this time of hardship we spent billions on lavish renovation. We are talking rooftop terraces, custom elevators, vip dining rooms, white marble finishes, and even a private art collection. All of this costing $2.5 billion. A 32% increase from the original price tag at the time when the fed hasn't turned a profit since 2022.
▶ 0:17:55We can all agree with updating infrastructure there is a legitimate need. When senior citizens could barely afford countertops it sends the wrong message to spend public money on luxury upgrade that feel more like they belong in the palace of versailles. The fed's role as an independent a political institution is being questioned.
▶ 0:18:22The central bank joined the global organization under the leadership of president biden only to exit it as soon as president trump took office. That is not neutrality. The supervision of the fed at times is unduly burdensome. The fed must right size the framework to eliminate unnecessary burden. Especially community banks.
▶ 0:18:51I'm encouraged the fed is taking important first steps and I look forward to see what comes today on revisions of supplementary leverage ratio standard. More work needs to be done to ensure capital rules don't shut off access to credit. That's why want to underscore the importance of empowering the newly confirmed vice chair of supervision.
▶ 0:19:18Governor bill weld -- has been invoiced for transparency, accountability. I expect her to lead and I expect the U.S. chairman to afford her the same stature as her predecessor I look forward to hearing from you and your testimony. You are recognized.
▶ 0:19:41Sen. Warren: When he ran for president donald trump repeatedly promised to lower costs on day one. Since trump became president families have been more financially stressed than ever. Consumer sentiment has plummeted. Household debt and delinquencies climb. Since january worries over layoffs have climbed.
▶ 0:20:12Sen. Warren: Businesses victim small have been paralyzed by uncertainty and they have hit the brakes on investments and hiring. The cause of these problems has been the chaos caused by one person, president trump. Chaotic trade policies, massive cuts to health care coverage to fund tax giveaways to the wealthy. It will unleash fraudsters and conmen on the middle class.
▶ 0:20:44Sen. Warren: Trump continues to play his lose-lose game of red light, green light on tariffs. When this administration slaps tariffs on everything from food, clothing, electronics, working families pay the price. This is bad for the middle class and main street.
▶ 0:21:06Sen. Warren: They mean higher prices on essentials for consumers and small businesses while large corporations and the wealthy find ways to shield themselves from the impact. Second, tax cuts for the wealthy. The one big beautiful deal that is getting jammed through congress represents one of the largest transfers and wealth from working people to millionaires and billionaires in american history.
▶ 0:21:42Sen. Warren: They are paying for it by kicking 16 million people off health care coverage, cutting food assistance for children and raising student loan payments for millions of borrowers just after doing quincy's have skyrocketed. In addition to raising cost and taking money out of their pockets, this bill will choke economic growth. This is economic warfare against the american people.
▶ 0:22:16Sen. Warren: Even when they throw 16 million people off health care, republicans still campaign for the lavish tax giveaways. Instead of saying they should pay a little more in taxes they put the cost of those tax cuts on the nation credit card, the national debt.
▶ 0:22:38Sen. Warren: The republicans plan to run up the national debt by another 4.2 trillion dollars and expect our children and grandchildren to pay for it. Finally, deregulation. This administration is systematically dismantling safeguards they put in place after the 2008 financial crash to prevent wall street from creating another process -- crisis.
▶ 0:23:07Sen. Warren: Two weeks ago the fed board decided to lift wells fargo's asset cap. They couldn't even wait until they managed to make it one whole year without being in a major financial scandal. In just the past six months they have been caught cheating its customers, investors, and its workers, the trifecta.
▶ 0:23:34Sen. Warren: For the fed to give them a gold star and tell them it is ok is an outrageous giveaway to one of wall street's most derelict banks. Today you will leave this hearing and go directly to a meeting where the fed is expected to vote to lower capital requirement for j.p. Morgan, goldman sachs, any of the other too big to fail banks.
▶ 0:24:07Sen. Warren: At a time when the economic data is flashing red, these shortsighted changes will increase the likelihood that these megabanks tank the economy and come back here and begged congress for bailout. To sum up trump's economic agenda, it is chaos for the middle class and even more profits for the power.
▶ 0:24:32Sen. Warren: American families will face higher cost and new risks to their health care and bank account. Unemployment will go up and our economic growth will slow. That is not just me saying this. It is what the latest economic projections indicate. I hope my colleagues will wake up to the chaos around us. It falls to congress to stop the trade war and kill this bigot, ugly bill.
▶ 0:25:03Sen. Warren: Chair powell, it falls to you and the fed board not to pile additional risk onto trump's existing chaos by dismantling safeguards that protect american families from another wall street meltdown.
▶ 0:25:16Chair Scott: Today we will hear from the chair of the federal reserve, jerome powell. Thank you for your testimony today.
▶ 0:25:25Chair Powell: Thank you. I have free she had the opportunity to present the semiannual monetary policy report. The federal reserve remains dedicated to stable prices for the benefit of the american people. The economy is in a solid position. Unemployment rate remains low in the labor market is at or near maximum employment.
▶ 0:25:56Chair Powell: Inflation has come down a great deal but is on a 2% longer run object. I will review the current economic system. It suggests the economy remains solid.
▶ 0:26:16Chair Powell: Gdp was reported to have edged down in the first quarter reflecting swings that were driven by businesses bringing in imports ahead of potential tariffs. Climate domestic final purchases were pbfb which excludes net exports and government spending growing at a solid 2.5% rate.
▶ 0:26:43Chair Powell: Growth of consumer spending moderated while investment in equipment and intangibles rebounded from weakness in the fourth quarter. Surveys of household and businesses report a decline in sentiment over recent month and elevated uncertainty about the economic outlook. It remains to be seen how these developments might impact future spending.
▶ 0:27:06Chair Powell: In the labor market, conditions have remained solid, payroll job gains averaged 124,000 per month. The unemployment rate remains low. It has stayed in a narrow range for the past year. Wage growth has continued to moderate.
▶ 0:27:27Chair Powell: Overall, a wide set of indicators suggests conditions are broadly imbalanced, it inconsistent with maximum employment. The labor market is not a source of significant pressures. Strong labor market conditions have helped narrow long-standing disparities in employment and earnings across demographic groups.
▶ 0:27:52Chair Powell: Inflation has eased significantly from its highs but remains somewhat elevated with the 2% longer run goal. Estimates based on consumer price index indicate the total pce in prices rose 2.3% and excluding the core prices rose 2.6%.
▶ 0:28:17Chair Powell: Near-term measures have moved up over recent months as reflected in market and survey-based measures. Responding to businesses and professional forecasters .2 tariffs as a driving factor. Most measures remain consistent with our 2% inflation goal.
▶ 0:28:40Chair Powell: Our monetary policy acts as our dual mandate to promote maximum employment and stable prices for the american people. With the labor market at or near maximum employment, the federal open market committee has maintained the target range at 4.25-4 .5%.
▶ 0:29:03Chair Powell: We have continued to reduce our holdings on mortgage-backed securities and beginning in april further slowed the pace of this decline to facilitate the smooth transition to ample reserve balances. We will continue to monitor the monetary policy and the balance of risk. Policy changes continue to evolve and affect on the economy remain uncertain. It will depend on the ultimate level.
▶ 0:29:34Chair Powell: Expectations of that level reached a peak and declined. Increases in tariffs this year are likely to weigh on economic activity. The flat -- effects could be on the coastline. It is also possible they could be more persistent.
▶ 0:29:58Chair Powell: Avoiding that outcome will depend on how long it takes for them to pass prices and ultimately on keeping longer-term inflation expectations tempered. To prevent the one-time increase from becoming an ongoing inflation problem.
▶ 0:30:18Chair Powell: As we meet that obligation we will balance our maximum employment and price stability mandates and we cannot achieve the long periods of labor market conditions that benefit all americans. For the time being we are well-positioned to learn more before considering any adjustments to our policy rate. We understand our actions affect communities across the country.
▶ 0:30:46Chair Powell: Everything we do is in service to our public mission. We will do everything we can to achieve our maximum employment from price stability goals.
▶ 0:30:55Chair Scott: I will be keeping us to a pretty strict five minutes as we have a lot of senators who want and deserve time with the chair. >> I'm just curious, a couple of items of housekeeping major.
▶ 0:31:24Chair Scott: With regard to wells fargo, was that asset cap and removing it, that was a unanimous vote by all seven fed governors? I really appreciated the chairman bringing up the fact that you have identified reputational risks and have addressed it.
▶ 0:31:50Chair Scott: Those important with the actions . As you know past fed materials embedded reputational risk within the component of the rating system without clear metrics or probability.
▶ 0:32:09Chair Scott: That kind of ambiguity could distract from the core mission monitoring capital liquidity now that the fed is moving towards a more objective and disciplined approach, how would you make sure this change is fully implemented at the examiner level and what other regulatory updates could we expect?
▶ 0:32:33Chair Powell: Vice chair for supervision brings an unusual background, she is a former supervisor. She speaks that language and relates to their work. If anybody could have an effective relationship with them and work successfully it would be the vice chair, I'm confident about that. As we think about the things going on in the pipeline I would point to a few things.
▶ 0:33:08Chair Powell: We look at the rating system. We are going to be putting out for, supplemental leverage ratio this afternoon. We are looking at a merger policy, stress test are a big thing.
▶ 0:33:30Sen. Rounds: The payment of interest on the reserves has become a central pillar of the fed's post crisis monetary policy framework since the transition away from the pre-2008 scarcity model when reserves were tightly managed with the federal funds rate.
▶ 0:33:53Sen. Rounds: The fed has relied on ample reserves regime using administered rates like interest on reserves to maintain control or the short-term rates. As of february, 2025, nearly 19% of the $18 trillion in assets were effectively loans to the federal reserve. How feasible would it be for the fed to return to a scarcity based framework where reserves earned little or no interest?
▶ 0:34:25Sen. Rounds: What would be the impact that would have on the fed's ability to unwind its balance sheet?
▶ 0:34:32Chair Powell: We are at an ample reserve framework right now. That is a result of the crisis and the desire to have lots of liquidity and large liquidity requirements for our largest banks. That is a good thing and enables banks to lend through stress and that kind of. If you wanted to go back to a scarce reserve it would be a long and bumpy and volatile road.
▶ 0:35:01Chair Powell: I wouldn't recommend we undertake that. It would not save any money. That is not the case. It would also not make credit more available. I would say having a lot of liquidity in the system and make sure banks would be able to continue to lend. Unwinding it is a policy choice that could be executed but it would take years to execute and would be challenging and quite volatile.
▶ 0:35:35Sen. Rounds: I have about 35 seconds left I wanted to take to one item. I think it's important, I know you did mention it. Would you talk a little bit about what is going on with the building? When you have that type of overrun, it's appropriate to explain exactly what is going on. Would you explain what is going on with the value of that building?
▶ 0:35:59Chair Powell: I'd be glad to if I could have that time. Thank you for the letter we received late yesterday. We will provide a much more detailed response. We do take seriously our responsibility as stewards of responsibility. No one in office wants to do a major renovation of a historic building during their term in office. This is a great example why.
▶ 0:36:32Chair Powell: Two historic buildings that needed work. When I was the administrative governor before I came chair I understood how badly the building needed a serious renovation, never had. We took it on. I would also say the media reports you accurately quoted are misleading and inaccurate in many respects.
▶ 0:37:00Chair Powell: There is no vpi dining room, there is no new marble. We will have to use new marble where some of the old marble broke. There are no special elevators. There are no new water features. There are no beehives and no roof terrace gardens. All of the sort of inflammatory things are either not in the current plan or just inaccurate.
▶ 0:37:33Chair Powell: The cap -- the cost overruns are what they are.
▶ 0:37:37Chair Scott: We are well over the five minute mark. I'm happy to give you time to talk about that.
▶ 0:37:47Sen. Warren: Thank you. The fed released its updated economic projections last week. I appreciate your summary. The fed's outlook on inflation, the labor market, gdp growth have all gotten worse. Compared to your economic projections the latest numbers show the fed is projecting higher and nation from 2.5% in december 2 3.1%.
▶ 0:38:21Sen. Warren: Lower economic growth from 2.1% projected just six months ago to 1.4 percent you are projecting. What has changed in the last six month that has caused the fed to forecast substantially higher inflation, higher unemployment and a lower economic growth then you did in december?
▶ 0:38:48Chair Powell: Some of it is taking signal from data reports we have seen. Some of it is working in the short-term effect of tariffs. We have no view of the longer-term effect. It is not our job. Our forecast are generally very similar to what outside forecast are.
▶ 0:39:11Sen. Warren: I understand. I'm using you as the gold standard. You mention tariffs as one of the things that has changed, donald trump has become president and the economy is headed down. Not only does the fed data show slower growth and higher prices, it sees slower growth and higher prices over the next two years as well.
▶ 0:39:39Sen. Warren: The fed sees no long-term boost or drop in inflation. No upside to trump's chaotic tara floor or other economic policies. Let's talk about what is under the hood of the fed's economic forecast. I know a lot of different factors influence the trajectory of interest rates. Is one of those factors how weekly the federal debt grows relative to the growth economy?
▶ 0:40:08Chair Powell: Not directly. We don't use that to set monetary policy.
▶ 0:40:16Sen. Warren: You are not watching the ratio between the federal debt and growth in the economy? I think I have quotes from you saying last year we don't need to pay the debt down, we just need the economy to grow faster than the debt. Were you saying something different now?
▶ 0:40:36Chair Powell: When asked and pressed almost always say the same thing, which is we are on an unsustainable path. We do not look at federal financial policy and deficit as something that affects our month-to-month monetary decisions.
▶ 0:41:00Sen. Warren: I'm trying to get the overall projection on what happened in the economy. I think you have made the point that if we spend on things like childcare that could boost labor participation and gdp, that might be a time when offset the debt you incurred to do that. If there aren't investments like that and we are simply running up the debt, what is the impact of increasing the national debt?
▶ 0:41:33Sen. Warren: I understand that you don't comment on fiscal policy but it does affect your job of keeping inflation under control and maximizing employment. If certain policies would drive up the national debt and increase the debt ratio over time, could that make it more likely we see inflation all else being equal?
▶ 0:41:58Chair Powell: Sure. Fiscal policy could add to inflation. That is really not something we comment on.
▶ 0:42:08Sen. Warren: I understand but appreciate your acknowledgment of the math. The joint committee on taxation project the one big beautiful bill would increase federal deficits by $4.2 trillion. According to analysis by the budget office, the bill raises the debt to gdp by 24 percentage points.
▶ 0:42:35Sen. Warren: It slows economic growth, increases inflation and reduces real wages. To of trump signature policies will increase costs for american families. When america borrows money it should be for investments that americans need like investments in childcare or health care that would boost economic growth and lower cost.
▶ 0:43:01Sen. Warren: America should not take away health care from millions of people who need it and then borrow trillions of dollars so I handful of billionaires could get even richer. Thank you. >> banks are facing a record number of regulation.
▶ 0:43:24Sen. Warren: Bank capital requirements should also be appropriately calibrated so banks are not worse to put capital on the sidelines. I was pleased to see the fed is looking to reform this ratio. It is supposed to act as a backstop to risk-based requirements but too often the requirement for U.S. banks.
▶ 0:43:52Sen. Warren: Would you agree that adjusting it would free up capital for banks to invest more in treasury markets that would be beneficial to families and businesses across the country?
▶ 0:44:02Chair Powell: I would agree, yes.
▶ 0:44:06Chair Scott: Do you agree with the vice chair acknowledging that regulators tend to review individual elements of the capital framework without considering whether proposed changes are sensible in the aggregate which all components were effectively? Do you agree with her assessment and how are you looking at the capital framework to ensure the fed is not doing this?
▶ 0:44:33Chair Powell: We are looking at basically the two big pieces now . I am confident we will move on both of those in the relatively near future. From the leverage ratio was always supposed to be the backstop. We want this to be the requirement. That is how these pieces work together.
▶ 0:45:04Chair Scott: I hope the reintroduction if you are thinking about the bones, we talked about this on monday. We have heard the comment that capital requirement has been going up every year. As you look at basel three coming back, what do you forecast?
▶ 0:45:31Chair Powell: We very much look forward to working with our colleague on it and I would agree we are going to take a fresh start. The projection is well above basel minimums. The ways in which it was goldplated as we said rather than the requirements which were significantly exceeded.
▶ 0:46:00Chair Scott: Giving us an opportunity to go back to the spending of the fed for the construction. You said the items that were listed are not happening.
▶ 0:46:14Chair Scott: I would say the national capital planning website, anyone could take a look at it, they are not just listening or looking at the new york post, not just the wall street journal but page 129 of the final plans reflected a rooftop garden tariffs -- terrace. Page 129 was where we found the ornate water features.
▶ 0:46:42Chair Scott: They dropped board members off on page 37, the white marble. I would welcome your staff coming in to walk my staff through what is happening there. Also at the capital planning commission's website. We would welcome that opportunity.
▶ 0:47:10Chair Powell: Some of those are just flatly misleading. It's the same elevator that has been there since the building was built. Some of those are no longer in the plans. The plans have continued to evolve.
▶ 0:47:27Chair Scott: Having the conversation with you we assume your response to be to refute some of the things that were happening. Since the article came out, have the plans changed since april as a result of the media attention? I would say having a clear understanding of what is going to be would be helpful for us.
▶ 0:47:53Chair Scott: I will note that having confidence is incredibly important and I will give you the opportunity to send your team over so we can have that conversation, that would be helpful.
▶ 0:48:10Chair Powell: None of those things were really the cost drivers. The real thing is what were the cost drivers that saw the spending increase? We look forward to the conversation.
▶ 0:48:23Chair Scott: I would just suggest that when I hear that things are completely inaccurate and I hear the different frameworks of the conversation. I could be wrong without question.
▶ 0:48:54Chair Scott: That is different. I don't want to be misled.
▶ 0:49:00Sen. Reed: Thank you chairman powell. Many times you've been asked about the status of fed independence, interest rate policy, etc. Over the last year we have seen judicial pressure on the federal reserve's independence.
▶ 0:49:30Sen. Reed: The case that dramatically eliminated the difference to agencies decision-making also extended the invitations on the procedure act. There is a strong sense you're about to overturn humphrey's executive case which would eliminate the independent of all agencies. What is your judgment on the cumulative effect with the ability to do its job?
▶ 0:50:00Chair Powell: The net effect of all of this will be to make courts substantially less deferential. That is just the new world we live in. We will respect the law as it is.
▶ 0:50:19Sen. Reed: There is increasing pressure on the independence from the white house. Do you believe if the humphrey's objective is decided in a way that gives the white house more power it will be invoked against the federal reserve?
▶ 0:50:42Chair Powell: I would rather not speculate if I may.
▶ 0:50:47Sen. Reed: That is quite all right. The U.S. dollar, I remember when the phrase was solid as a dollar. That phrase is getting less use these days. Bloomberg reported last week that foreign companies are demanding not to be paid in U.S. dollars but in the euros or chinese currency. What benefits does a strong dollar have?
▶ 0:51:17Sen. Reed: How will we suffer if the dollar is no longer considered to be the currency of world record?
▶ 0:51:24Chair Powell: There are enormous benefits to having the dollar be the most important reserve currency in the world. They remain such. Our rule of law at democratic institutions. Our open capital markets, all of those things remain intact. Being the reserve currency doesn't last forever.
▶ 0:51:53Chair Powell: I suspect we will be the reserve currency for a time to come.
▶ 0:51:59Sen. Reed: You are seeing indications that confidence in our currency is eroding in some places.
▶ 0:52:12Chair Powell: I wouldn't say that. This is a very fundamental foundational aspect all is the role of the dollar. Market suggesting information that is sometimes challenging. I would be very reluctant to come to any conclusions this quickly.
▶ 0:52:36Sen. Reed: I would suggest you keep your eye on it. One of the things you have made very clear is lower rates of mobility are two of our biggest challenge.
▶ 0:52:54Sen. Reed: You have indicated in terms of dealing with more legislative issues, I would concur that I was disheartened by a report from the budget office that they recently passed a reconciliation bill that will take $1600 per year from the lowest income americans and give approximately
▶ 0:53:26Sen. Reed: $12,000 to the wealthiest americans. That seems to be contradictory to a society committed to raising the income and opportunities and increasing upward mobility. You think that is a fair estimate?
▶ 0:53:41Chair Powell: I don't know and I would be reluctant to comment on the reconciliation bill.
▶ 0:53:49Sen. Reed: Your wisdom has preserved you and I hope it continues to do so. Two or three years ago everyone around here was addicting or guessing how deep the recession would be.
▶ 0:54:08Sen. Reed: Because of your leadership at the fed and other policies we have avoided a recession until recently we have been growing faster than every other economy and you deserve credit for that.
▶ 0:54:22Chair Powell: Thank you.
▶ 0:54:24Chair Scott: Just to reiterate my opening, that chair powell has a hard out today. Be my guest to keep us at five minutes.
▶ 0:54:37Sen. Kennedy: Thank you Mr. chairman. Mr. chairman, did I understand you say that the reconciliation bill is the most extraordinary legislation you have ever seen? Did I hear that correctly?
▶ 0:54:54Chair Powell: There may have been some lost in translation.
▶ 0:55:04Sen. Kennedy: Tell me what the bond market is telling you.
▶ 0:55:07Chair Powell: It is fine now. It is reacting to economic news. There is adequate liquidity. Rates have come down pretty significantly from where they were a couple of months ago. I think inflation expectations have come down a bit from april. The market is functioning well.
▶ 0:55:30Sen. Kennedy: Explain why we have scenes weakness in the dollar?
▶ 0:55:38Chair Powell: That's a great question. The treasury department is responsible for the role of the dollar. I don't know. I would go back to the thought that markets have been digesting an unusually challenging set of circumstances and have reacted the way they have react. The dollar has stabilized now.
▶ 0:56:10Chair Powell: There are plenty of people still writing that the dollar is overvalued. I wouldn't really have an opinion on exactly why it is what it is.
▶ 0:56:28Sen. Kennedy: Clearly there is a lot of geopolitical risk that people would be flocking to the dollar and it would be stronger.
▶ 0:56:35Chair Powell: You have seen some of that in the last few days. I don't really have an official view on that. There are multiple possible explanations. One of which is people feel the dollar is highly valued. We will see.
▶ 0:56:57Sen. Kennedy: I want to talk for a few minutes about tariffs and inflation, what does history tell us about tariffs and the impact on inflation?
▶ 0:57:14Chair Powell: We have been through a long period in which tariffs were going down, it has been a process of lowering tariffs globally. There isn't a lot of modern learning on that. People look at the incidents during the president's first term, they were 1/6 the size of what people are estimating now.
▶ 0:57:40Chair Powell: They do find some effects on inflation, in 2019 when they were put into place the economy was slowing. Inflation was running at 1.5%. One of the reasons it is so challenging is there wasn't a modern precedent. We have to be humble about our estimates and we are open to the possibility that transmission will be less than we.
▶ 0:58:08Chair Powell: Which is why we are in a position to take our time and make a smart decision.
▶ 0:58:16Sen. Kennedy: The size of the tariffs makes a diff.
▶ 0:58:19Chair Powell: It does. We don't have a view on the merits at all.
▶ 0:58:30Sen. Kennedy: Will it also matter, let's assume there is upward price pressure, would it matter how much businesses decide to pass on versus just eat? Does that make sense?
▶ 0:58:48Chair Powell: That is what matters. The question is who will pay for the tariffs. It gets passed along through the distribution chain. The ultimate question is how much it up in inflation? It is very hard to predict that in advance. We are watching to see what shows up.
▶ 0:59:13Sen. Kennedy: If the presidents trade negotiators pursued reciprocity, which I define as both sides reducing in a quid pro quo reducing tariffs and trade barriers as much as possible. Ideally in a perfect world we would end up with two sides with zero tariffs and zero trade barriers. Would that be inflationary?
▶ 0:59:42Chair Powell: Not at all.
▶ 0:59:48Sen. Kennedy: Thank you. I appreciate your endorsement of the reconciliation bill.
▶ 0:59:55Sen. Warner: I didn't interpret his comments that same way. I want to echo senator reed thank you on doing the job. At the end of the day I think tariffs are a tax. Starting next quarter, I think the reciprocity argument would be a nice goal.
▶ 1:00:26Sen. Warner: I hope we could explain to the australians who we have a free-trade agreement with. Who we have a trade surplus with , who I'm hoping we will able -- be able to build those joint submarine.
▶ 1:00:47Sen. Warner: Let me get to, I have been very concerned about some of the trump administration's mismanagement of the federal workforce. I could tell you from the internal world -- intel world cuts are having dramatic affect. I want to mention something that doesn't get a lot of attention, the bureau of labor statistics.
▶ 1:01:17Sen. Warner: U.S. data, which has always been independent has been viewed as the gold standard across the globe. The data often as the guidepost, bls helps with information across cost-of-living, policymaking for you guys. It is used to adjust payments on $2 trillion in treasury bonds. Data shouldn't be degraded.
▶ 1:01:57Sen. Warner: Cut back the staffing at bls that they have had to significantly cut back on the collection of critical price inflation. Normally bls staff will estimate about 10%. Now with those cutbacks they have to estimate close to 30%. That means falter your data.
▶ 1:02:29Sen. Warner: How can we grapple with this and what is the undermining on the staffing shortages bls needs that you need to do your job?
▶ 1:02:38Chair Powell: I would not want anyone to think the data had deteriorated to a point where it is difficult for us to understand the economy as well as we could understand it, which is not perfectly. The direction that is concerning, the U.S. has been a leader globally in investing in how to measure the output of the modern economy, something we have lead the world in for a long time.
▶ 1:03:08Chair Powell: It really helps not just policymakers but businesses we have. You are making decisions based on that economy. I think it is a -- something we should continue to invest in. I don't like to see any deterioration with the public data that has been the gold standard. The bureau of labor statistics have been the bedrock that people do look to as solid data.
▶ 1:03:41Sen. Warner: These people that collect this input, they are experts, they are not fungible where you fire one and hire another. You just looked at the fact if you have to, do your estimates move it from about 10%, that is not good for the market. Let me move to one other topic. Stress tests, really important.
▶ 1:04:11Sen. Warner: Those of us involved with dodd frank, really important. There has been concern that the stress test process was so opaque that while the regulators may, sometimes the bank is being regulated didn't understand the criteria. I know you are looking at how we could bring more transparency to the process, what kind of changes do you think they make?
▶ 1:04:46Chair Powell: Later this year we will fully disclose the models. If you are going to charge people taxes you have to have the transparency about what that is. We have to show how the calculations were made. We have a proposal out to smooth the results of the test from year-to-year. This is something we expect to have important progress later this year.
▶ 1:05:18Sen. Ricketts: Thank you. As we are talking about tariffs earlier, the senator talked about australia. I will point out that australia, we bought about $28 billion worth of australian beef. They have bought exactly zero dollars of hours. That is one of the things I hope come out of the trade agreement.
▶ 1:05:45Sen. Ricketts: We have a trade surplus but we would like to sell more beef to them. One quick question following up on senator kennedy's line of questioning, if a tariff was put in place and prices went up, wouldn't that be a one time event? After that it would be baked in, it is just a one time thing.
▶ 1:06:09Chair Powell: It might well be a one time event. That is a law of nature. We were more sure of that back in 2018 because we had 40 years of low-inflation coming off of a global inflation episode, it is a question that we will approach carefully.
▶ 1:06:38Sen. Ricketts: How could that be inflationary in the second year?
▶ 1:06:41Chair Powell: It could be a process of many years. If it comes in quickly and is over and done, very likely it is a one time thing. It doesn't raise inflation, he raises prices. If you have multiple shocks or if they are very large, that kind of thing.
▶ 1:07:05Chair Powell: You have to be conscious of the current situation, which is people haven't seen 2% flat inflation for some years now. I'm not saying -- we are not reacting at all to this, it is a risk we feel like as people we are supposed to keep stable prices, we need to manage that risk too. We are not deciding what to do yet.
▶ 1:07:33Sen. Ricketts: Would that imply that taxes could be inflationary as well?
▶ 1:07:39Chair Powell: No.
▶ 1:07:42Sen. Ricketts: What's the difference between attacks and a terror?
▶ 1:07:45Chair Powell: I wouldn't disagree with that but that is not the language I would use. One time could be the base case. Where the process could go on for a long time, it is something you want to approach carefully. That is our job. If we make a mistake, people will pay for a long time. We are approaching the question carefully.
▶ 1:08:17Chair Powell: The majority of my committee said they expect to cut rates between now and the end of the year. It's not that we are taking a strong view that it will be another one time cost increase, we will take a careful approach to that question.
▶ 1:08:34Sen. Ricketts: Communist china is the single greatest threat to america's national security. In 2022 the senate homeland security committee released a report about chinese operatives trying to infiltrate the federal reserve system.
▶ 1:09:02Sen. Ricketts: They used to target federal reserve officials with the former senior advisor arrested on charges that he conspired to steal federal reserve trade secrets to invade communist china's interests. This details potential ramifications, the kind of data and trade secrets they shared allowed communist china to infiltrate the U.S. market and gain advanced knowledge to changes in the federal funds rate.
▶ 1:09:32Sen. Ricketts: It could be an advantage when selling or buying U.S. bonds and securities, has the federal reserve made changes to strengthen its internal counterintelligence?
▶ 1:09:44Chair Powell: That is an incident. We take it very seriously. We have quite elaborate and serious and strict provisions around staff accessing information protections for confidential information. We have background checks, many of those things. We are certainly very sorry to see something like this having taken place.
▶ 1:10:17Chair Powell: We are certainly looking at the protections we have in place.
▶ 1:10:20Sen. Ricketts: I have another question, I know the chairman said you have a hard out, I will yield back my time.
▶ 1:10:29Sen. Van Hollen: Thank you. Good to see you. I want to start buying knowledge and the continued uptake of the fed. I know I had the development of that system with you and many hearings over many years. We are now about two years after launch.
▶ 1:10:52Sen. Van Hollen: I want to work with you and your colleague to encourage expanded adoption with the capability and capacity so customers have real-time access to their money. I ask that we work on that together, do you agree?
▶ 1:11:08Chair Powell: I do.
▶ 1:11:12Sen. Van Hollen: I thought you might. I want to ask you about the student loan situation in the country. You have talked about how this could be a drag on the economy when it gets to be very high in terms of balances that cannot be paid. Student loan balances grew by $16 billion to reach 1.6 $3 trillion in the first quarter of this year.
▶ 1:11:44Sen. Van Hollen: The data shows enough to -- uptake. The age of delinquent borrowers, the department of education restarted debt collection activities last month and starting in july 2 million borrowers could see their wages being garnished.
▶ 1:12:06Sen. Van Hollen: Here in the senate, president trump and republican senators are working to pass this piece of legislation it would make it harder for borrowers to make this debt with financial health.
▶ 1:12:34Sen. Van Hollen: Student loan debt could negatively impact borrowers abilities to participate in our economy and they could weigh down on the economy overall. Is that still your deal?
▶ 1:12:48Chair Powell: Yes it is.
▶ 1:12:53Sen. Van Hollen: Could you share your assessment on how this problem seems to be growing at this point in time and what would happen if we allow all of these borrowers to default?
▶ 1:13:08Chair Powell: I try hard not to comment. I broke that rule many years ago in this case. You could make all kinds of investments and you could charge if you can't pay back the loan, one exception we make his student loans. I asked why that is natural -- national policy. That we do not forgive.
▶ 1:13:39Chair Powell: It seems like something for congress to consider. Ultimately it is not a big macro economic thing.
▶ 1:13:49Sen. Van Hollen: I appreciate you breaking your own rule be or. I could not agree with you more about the anomaly in the ability to discharge a debt into bankruptcy. The idea that student loans are the one category of debt that we don't allow to be discharged is confounding. Unfortunately so far it has been a sign of the power of some of the companies involved in that area.
▶ 1:14:19Sen. Van Hollen: I just came from another committee where I'm the ranking member. I apologize if you talked about tariff situation. I know this was obviously a factor that you all had to consider about changes in the interest rates. Obviously there's a lot of uncertainty. We have lots of small businesses that rely on tariffs.
▶ 1:14:49Sen. Van Hollen: You know increasing tariffs is like increasing taxes across the board. Could you speak to the uncertainty component of all of this and how this could you speak to the uncertainty component and how that is weighing on decisions?
▶ 1:15:04Chair Powell: Surveys show widely that people are uncertain about the economy and the pointer tariffs. I will say, though, that peaked in april and has come down a little bit. If you talk to businesses -- I talked to an unusually large number of business people in the last couple of months, and the feeling is a little better than it was. They are getting on with it and feeling -- I would take surveys are still showing depressed sentiment, but it is moved up from where it was.
▶ 1:15:33Sen. Van Hollen: I would say, Mr. chairman, that may be the case at this moment, but we could wake up at any morning and see another tweet and that could change dramatically. I appreciate your efforts to try to do what you can to meet your dual objectives of the fed.
▶ 1:15:54Chair Scott: Senator lummis.
▶ 1:15:56Sen. Lummis: Thank you, Mr. chairman, chairman powell, for being here today. What always vexes me and has for the last four and a half years about the federal reserve is the bank supervision function as opposed to the monetary policy function. I'm going to focus on banking supervision.
▶ 1:16:19Sen. Lummis: First of all, I do want to thank you and vice chair mickey bowman for ensuring reputation risk has been removed from the bank supervision process. It was very arbitrarily used by those who were supervising. On january 27, 2023. I would call at the high watermark for checkpoint 2.0.
▶ 1:16:50Sen. Lummis: The federal reserve board in coordination with president biden's white house executed a coordinated attack to isolate the digital asset industry from the banking system. And while the fed has taken steps to adopt a more balanced approach to digital asset, which I appreciate, the legacy of january 7, -- 27, 2023, remains with us today. I would like you to look at this quote.
▶ 1:17:19Sen. Lummis: " issuing tokens on open, public, and/or decentralized networks or similar systems is highly likely to be inconsistent with safe and sound banking practices." my first question is do you recognize this quote?
▶ 1:17:36Chair Powell: Yes. Not super clearly, but yes, I do.
▶ 1:17:42Sen. Lummis: Because it is from the federal reserve board's policy statement on section 913 of the federal reserve act, which is formally adopted by the board on january 27, 2023. Now, chairman powell, I want to show you another statement. I'm sorry if we can't see it clearly, I will read it to you. It is from the g.e.n.I.U.S.
▶ 1:18:06Sen. Lummis: Act, which passed the senate by a vote of 68-30 last week, and it takes the opposite position to the board's position on disturbing stable quites on an open -- stablecoins on an open, public distributed ledger.
▶ 1:18:29Sen. Lummis: What has changed about the risk of stablecoins since the board adopted its policy in 2023, and now that congress has weighed in , at least the senate has weighed in and set the -- sent the g.e.n.I.U.S. act to the house, does the board plan to withdraw the policy statement on section 913?
▶ 1:18:51Chair Powell: So I think what has changed is if you go back, that is a couple years ago, that was the period of high-profile failures and fraud and that kind of thing. What has happened is I think the industry is maturing, our understanding of it is improving, and in a sense it is becoming much more mainstream. All of us are revisiting the things that were done during that era.
▶ 1:19:19Chair Powell: I think the current view is that it is appropriate -- it has always been appropriate for banks to choose their customers and to be able to undertake activities as long as they are safe and sound. In terms of -- I have to get back to you on 913. I think it's a broader thing that has nothing to do with crypto, but that was a piece of it.
▶ 1:19:46Chair Powell: We are looking at and withdrawing many of our pieces of crypto guidance from that era, as you know.
▶ 1:19:50Sen. Lummis: And I appreciate that. I hope that by withdrawing the guidance that you are also instructing and admonishing your base supervisors to -- when there are efforts to regulate banks that provide too much discretion to bank regulators to
▶ 1:20:23Sen. Lummis: Pick winners and losers from among the customer lists, the loan portfolios of banks, it's antithetical to the american system of banking. And I do think there was that kind of discretion unleashed on banks, and it had a negative impact, a real chilling impact on banks as they selected and
▶ 1:20:54Sen. Lummis: Banked certain industries, and then debanked other industries and people during the last four years. So taking the guidance documents and policy statements out is important.
▶ 1:21:14Sen. Lummis: But also, guiding the people that there are changes now and that they can no longer use their own subjective biases towards dei and esg and other things in supervising the banks is also a critical component of bank regulation.
▶ 1:21:41Chair Powell: I agree completely, and as you know, vice chair bowman is a former bank supervisor so she is very well-placed to make that happen.
▶ 1:21:53Sen. Lummis: And I realize that she as vice chair is directly involved in bank supervision. I hope you will use your road to punctuate the importance of the changes within the bank supervision function at the fed.
▶ 1:22:13Chair Scott: We are going to have to move on. Senator smith.
▶ 1:22:17Sen. Smith: Thank you, Mr. jeff rosen go -- thank you, Mr. chair. Thank you. Good still morning, and welcome to the committee. You warned about the trajectory of our national debt. Speaking at a new york times event, you said the U.S. federal budget is on an unsustainable path. The debt is not only had an unsustainable level, but the path is unsustainable and we know we have to change that. Would you still agree that is true?
▶ 1:22:47Chair Powell: Yes, that is the one thing I would always say in my predecessors say, and that is the only thing we say about exactly, and I agree with that. At a time when americans are struggling how to afford their lives, to add to the deficit as the big beautiful bill doesn't strike me as unsustainable.
▶ 1:23:09Chair Powell: I'm not asking you to moderate between republican and democratic policy differences on the big beautiful bill, but would you agree that the big beautiful bill adds to the deficit based on the data you have seen?
▶ 1:23:18Chair Powell: I'm just not going to comment on the reconciliation.
▶ 1:23:22Sen. Smith: Ok, well, I will point out to my colleagues that the cbo says it adds to the deficit, the joint committee on taxation says it adds to the deficit, the yale budget lab says it adds to the deficit, the committee for a responsible federal budget says it adds to the deficit, the penn wharton budget models as it adds to the deficit, and even some of my republican colleagues, senator johnson, senator paul, says it adds to the budget.
▶ 1:23:53Sen. Smith: Senator johnson says it is wrong and immoral. I appreciate that you won't comment on any of this, but let me ask you an economic question. Can you talk a bit about what impact a rising deficit has on our goal of lowering costs for americans, especially in the trump tariff environment that we are in right now?
▶ 1:24:11Chair Powell: I'm sorry?
▶ 1:24:13Sen. Smith: What impact does a rising deficit have on our goal of lowering costs for americans, particularly when we are in this trump tariff environment, the unpredictability of that?
▶ 1:24:24Chair Powell: I think it is likely that markets are pricing longer-term treasury securities, there is something baked into that in the market's thinking about interest rates and what is the appropriate interest rate. But it is hard to unpack that with any precision.
▶ 1:24:39Sen. Smith: These are factors that have lots of interplay between one another.
▶ 1:24:43Chair Powell: Yes.
▶ 1:24:44Sen. Smith: Chair powell, could you comment briefly about the potential risks of stagflation, where we have slower growth and higher inflation? I know this is something that the fed guards against. Could you comment a bit about the risks of that and when it means for regular americans trying to afford their lives?
▶ 1:25:03Chair Powell: We are not seeing that now.
▶ 1:25:05Sen. Smith: Yeah?
▶ 1:25:06Chair Powell: It is not the base case of what we are going to see. But that is a difficult thing because a stagnant economy wants more stimulus, but an economy with high inflation once less stimulus. It was the central bank and a hard place. We have warned of it, but it is honestly not something we are facing, that we expect to face. But it's something we are monitoring.
▶ 1:25:30Sen. Smith: Thank you. I want to follow up on a question I asked you the last time you were before the committee. I asked about the impact of severe weather events, otherwise known as climate change, on home insurance costs.
▶ 1:25:46Sen. Smith: You testify -- I think you said if you fast-forward over 10 or 15 years there will be regions of the country where you cannot get a mortgage because of the impact of the challenges of insurance companies just not being able to provide that this february when I ask you that question, home insurance rates continue to decline.
▶ 1:26:11Sen. Smith: A recent analysis about climate risk from 1st street found that financial burdens from severe weather are driving up household costs and triggering increased mortgage default. It about 8% now, but they predict that by 2035, 30% of all foreclosure losses will be related to climate impacts, which is pretty stunning. I realize this is a complicated issue because insurance is regulate it primarily at the state level.
▶ 1:26:41Sen. Smith: There are exceptions, flood insurance and terrorism insurance are exceptions. But I wonder if you would comment on this. I'm thinking a lot about what impact this has on housing costs, which is a big component of inflation and a place where housing costs are rising higher than the general inflation rate right now.
▶ 1:27:02Chair Powell: Many things are driving up housing costs.
▶ 1:27:05Sen. Smith: Yes, that's true.
▶ 1:27:07Chair Powell: It is of course mortgage rates, but also zoning costs and things like this where properties near the water, particularly -- for example, we spent time down in florida. Property insurance just gets more and more extensive, to the--expensive, to the point where it almost makes sense to self-insure. Big losses, companies are putting that in their models and they are judging by the need to charge to make a return. If they cannot get that, they will leave the state.
▶ 1:27:38Chair Powell: That seems to be what is happening.
▶ 1:27:39Sen. Smith: I know I'm out of time, Mr. jeff rosen thank time, Mr. jeff rosen th -- Mr. chair. Thank you.
▶ 1:27:45Chair Scott: You always polite.
▶ 1:27:49Sen. Smith: That is why they call me the velvet hammer, sir. [laughter]
▶ 1:27:53Chair Scott: I didn't say you weren't harsh as well. You are just nice when you do it. Remind me not to give tina a compliment. [laughter] >> I just want to make sure I understand this quickly -- control inflation and maximize employment.
▶ 1:28:14Chair Powell: Yes.
▶ 1:28:16Sen. Moreno: Maximize employment. Do you care if every american makes minimum wage or livable wage? Does that factor into your thought process? We have full employment, but most americans earn substandard wages. Does that change your calculus?
▶ 1:28:35Chair Powell: Does it change my what?
▶ 1:28:37Sen. Moreno: Calculus. Full employment is full of women. Everyone has a job -- full employment is full employment. Everyone has a job, but they're making minimum wage. Does it matter to the federal reserve?
▶ 1:28:51Chair Powell: It would matter to the country a lot.
▶ 1:28:53Sen. Moreno: Does it matter to the federal reserve?
▶ 1:28:56Chair Powell: We don't have the tools to affect that.
▶ 1:28:59Sen. Moreno: That is different for us. Let the record show that real wages are up this year. So we have done that, not the federal reserve. Second piece of it is to talk about inflation --
▶ 1:29:12Chair Powell: We have helped to control inflation.
▶ 1:29:14Sen. Moreno: We are going to jump right into the inflation conversation. There is different kinds of inflation. There is different causes. There is not witnesses to inflation, there is key actors to inflation, would you agree?
▶ 1:29:26Chair Powell: Sure.
▶ 1:29:28Sen. Moreno: Let's talk about the to do, during this let's talk about the actors. Did you comment during the covid lockdown, shutting down the entire economy? It's on and off -- covid wasn't that. We just shut down the economy. Any comments on that?
▶ 1:29:46Chair Powell: Of course not.
▶ 1:29:48Sen. Moreno: Vaccine mandates, something my democrat colleagues love. If you don't get the vaccine, you are a terrible person, you can't go to work. Joe biden was overruled by the supreme court because he said if you work at a company with more than 100 employees and you don't get vaccinated, the company has the ability to fire you, fire you, unless you prove you are negative on covid. That is a supply chain shock, would you agree?
▶ 1:30:16Sen. Moreno: If I'm running an assembly line and I have to put my people six feet apart and now I have people quitting or not coming to work, that is a supply chain shock, wouldn't you agree?
▶ 1:30:24Chair Powell: I mean, it's a medical thing --
▶ 1:30:27Sen. Moreno: I'm not asking you to make a medical decision, and asking you to make a fed decision --
▶ 1:30:33Chair Powell: Way outside anything I become --
▶ 1:30:35Sen. Moreno: It affects inflation --
▶ 1:30:38Chair Powell: You didn't --
▶ 1:30:39Sen. Moreno: Are you saying that supply chain trucks don't affect inflation?
▶ 1:30:43Chair Powell: They do, but they didn't --
▶ 1:30:46Sen. Moreno: The export of liquid natural gas, which will cause the commodity price to go up, without supply shock -- wouldn't that supply shock also was envisioned? --cause inflation?
▶ 1:30:58Chair Powell: Potentially good.
▶ 1:31:00Sen. Moreno: The ranking member loves to talk about billionaire corporations! Who pays corporate taxes? Is it some obscure wizard of oz character behind the curtain? Who pays taxes?
▶ 1:31:15Chair Powell: Ultimately shareholders and customers.
▶ 1:31:18Sen. Moreno: I will redo the line on taxes. It is not possible to know in advance precisely how the costs will be shared for taxes. But it is highly likely that consumers will pay a meaningful share. Meaning if the ranking member has hurt way-- her way, let's tax corporations at 100%. Nobody would want to start a company, but that aside, that cost would be added to consumer products, correct?
▶ 1:31:47Chair Powell: A tax or a tariff, what are you talking about?
▶ 1:31:52Sen. Moreno: The income tax for american corporations goes up, they will share the tax burden with consumers, true or false?
▶ 1:31:59Chair Powell: Ultimately.
▶ 1:32:00Sen. Moreno: So then taxes do raise inflation.
▶ 1:32:04Chair Powell: That's just not true --
▶ 1:32:06Sen. Moreno: The chairman is going to beat me up and 56 seconds. You sent me a very nice letter which I appreciate saying the federal reserve place normal and commenting on trade policy.-- play no role in commenting on trade policy. So you don't comment on supply shut, you don't comment on tax policy, which affects inflation -- you just said we should forgive student debt.
▶ 1:32:35Sen. Moreno: Why is it that a person who goes to harvard and gets a gender studies major and pays an obscene amount of money because professors are grossly overpaid there, is that better than a working-class ohioan who cannot afford a car because prices have gone up? Why don't we forgive that person's car loan instead of the student loan? You don't comment on that, you comment on tariffs.
▶ 1:32:57Chair Powell: Not on tariffs at all, actually, only inflation. I'm commenting on the wisdom of tariffs.
▶ 1:33:04Sen. Moreno: Germans over there -- I'm going to show you a chart. This is car prices since this year. Our prices are down.-- car prices are down. Inflation in america is down. We got elected by millions of voters, you got elected by one person who doesn't want you to be in that job. You are costing this government $400 billion a year by refusing to lower interest rates.
▶ 1:33:33Sen. Moreno: Nobody in this chamber has that kind of power to have a $400 billion impact on this economy, the deficit. I think you should consider whether you are looking at this from a fiscal lens or political lesn because you just like paris.
▶ 1:33:49Chair Scott: Senator --because you just don't like tariffs.
▶ 1:33:53Chair Scott: Senator warnock is next.
▶ 1:33:57Sen. Warnock: The national debt exceeds 36 trillion dollars. Last year we paid nearly $1 trillion in interest on the debt alone, more than the federal government spent on educating and feeding her children. Chair powell, how does the fed consider rising national debt levels during discussions about adjusting interest rates?
▶ 1:34:21Chair Powell: We really don't. We take fiscal policy as completely exogenous, and we look at the data coming in, but we are never going to take into account budget deficits and things like that.
▶ 1:34:33Sen. Warnock: Here is my concern. Maybe congress should be thinking about it. The world is losing faith in america's ability to repay our debt. We have seen a selloff in the bond market. United states dollar has lost more than 10% of its value against the euro and pound, and is down against every single major currency in the world. Back, moody's downgrade -- back in may, moody's downgraded the U.S.
▶ 1:35:03Sen. Warnock: Credit rating because of sinking confidence in lawmakers' willingness to address this issue. Historically high debt pushes up interest rates, slowing economic growth and setting up a dangerous debt cycle where interest rates and debt to did you just continue to rise. --interest rates and debt continue to rise.
▶ 1:35:28Sen. Warnock: How does it affect -- spur investment in hiring and slower economic times?
▶ 1:35:36Chair Powell: I'm happy to say that today those things do not affect our ability to do our job. The concern really is if we don't do something, there will come a time at which it will be a problem. Not for us, but for the country. But at this time he does not interfere in any way without ability --
▶ 1:35:54Sen. Warnock: That is a realist to concern in the future.
▶ 1:35:57Chair Powell: In the future.
▶ 1:35:58Sen. Warnock: Given increasing debt. It is something I'm concerned about, and maybe because it is in the future, maybe that is what folks you have power -- folks who have power aren't as concerned about it as congress should be. I'm concerned about it as the father of a six-year-old and an eight-year-old.
▶ 1:36:20Sen. Warnock: I'm concerned that my republican colleagues are planning to ram forward a bill that according to the congressional will increase the deficit -- the congressional budget office will increase the deficit by $4.2 trillion. I want us to think about that. We are taking food out of the mouths of hungry children for this bill could cut as many as 60 million americans - 16 million americans off of health care.
▶ 1:36:47Sen. Warnock: When we think about medicaid, 71% of medicaid recipients in georgia our children. We are taking health care and then saying to these children that you will have to deal with these trillions of dollars in debt one day. $4.2 trillion. Senate republicans are trying to use a budget gimmick to claim the bill only costs a fraction of that, sadly not counting things they don't want to count. They don't like the math, they just changed the formula.
▶ 1:37:17Sen. Warnock: The markets investing in our country don't care about these budget tricks, and I don't think my six-year-old and eight-year-old -- they know the truth and they will react based on the truth that the big ugly bill will put the united states on a disastrous fiscal path and be catastrophic for the economy. Even worse, the big ugly bill is cutting people off of health care and giving tax cuts to the wealthy.
▶ 1:37:47Sen. Warnock: This is an interesting moment for me, someone who didn't know I would end up in politics, who just paid attention to politics over the years. They are creating -- they are getting ready to create a whole lot of pain for people. The question is for what purpose? To give billionaires a tax-cut. We ought to prioritize extending tax cuts for the working class. We shouldn't be cutting their health care.
▶ 1:38:17Sen. Warnock: We got to save the country trillions of dollars by not giving more tax breaks to the richest americans. If we try to work together, we can save our economy from this disaster and still protect working families from a tax hike. I believe in tax cuts. I believe working-class americans are to receive them. We ought not to be burdening children with this debt. With that, I yield.
▶ 1:38:47Sen. Warnock: The chairman should take note that the baptist preacher is done with three seconds left.
▶ 1:38:53Chair Scott: And the people said amen. [laughter] senator hagerty.
▶ 1:38:58Sen. Hagerty: Thank you, chairman scott, ranking member foreign, for holding this meeting -- ranking member warren, for holding this hearing. I want to talk about inflationary and deflationary trends in our economy. I understand you are acutely sensitive to the inflationary risks of our administration's trade policy. I note it is not the fed's responsibility to steer or offset the policy in any way.
▶ 1:39:29Sen. Hagerty: I look at that and look at your perspective, but I also look at many of the other developments in our country that I think present the opposite risk, which is a disinflation risk. L meetet -- let me dig into this event. We are witnessing artificial intelligence adoption at breakneck speed that will bring about productivity gains in nearly every aspect of our country. We are about to pass a tax bill.
▶ 1:39:54Sen. Hagerty: That tax bill is going to encourage capital expenditures and long-overdue upgrades for manufacturing capacity, again, increasing productivity. If you think about the concerted effort being undertaken by the federal government right now to reduce waste and blurted, unproductive -- bloated, unproductive government payrolls, all of this points to disinflation every productivity gains.
▶ 1:40:22Sen. Hagerty: Given the competing sources of uncertainty, it feels like the fed is far more focused on tariffs and the inflationary impact of tariffs than on the deflationary impact of the points I just mentioned. If uncertainty around tariffs is the primary reason that impacts your thoughts, how do you bring into account the inflationar -- these disinflationary trends?
▶ 1:40:51Chair Powell: We look at the overall picture. Service inflation has been coming down, small increases in disinflation. I will mention a factor you didn't mention on your list, regulated, which could regulated -- regulation, which could overtime be disinflationary. It is the broader sweep of economies that matter for inflation.
▶ 1:41:20Chair Powell: I get asked about tariffs a lot, and that is one where all forecasters are expecting a significant increase between now and the end of this year. We don't know how big it is going to be, where it is going to come. It is something we are waiting to see more information on so we can make a better decision on interest rates. That's all it is fulsom I ge -- that is all that is.
▶ 1:41:42Sen. Hagerty: I understand not knowing the trade talks and what will ensue. It seems there is a bias towards viewing this as more inflationary and not deflationary. If ambassador greer's successful alleviating that uncertainty can what would that do to your perspective on rates? Without these you to think more aggressively about lowering rates -- wouldn't that lead you to think more aggressively about lowering rates?
▶ 1:42:12Chair Powell: Yes, potentially it would. Getting that settled -- I think that is the path we are on.
▶ 1:42:18Sen. Hagerty: I think that is welcome news. I think the markets would welcome that as well, because I do believe we are on the path, as you would say, of having significant resolutions to trade uncertainty. We have lived in an unbalanced world for use with the united states have had the lowest tariff barriers in the world and other countries have taken advantage of it. James and karen's team, scott bessent -- jameson greer and his team, scott bessent and his team, everyone is making a concerted effort on that.
▶ 1:42:48Sen. Hagerty: The other thing that touches close to home, legislation this committee passed and we just passed in the senate that has to do with the g.e.n.I.U.S. act, which just passed last week. It provides the urgent need for a regulatory framework for stablecoins and request that they are backed 121 by cash in U.S. treasuries. The total value of outstanding stablecoin stablecoins is increased from approximately $4 billion to $2 billion today.
▶ 1:43:16Sen. Hagerty: One market participant has been teaching that if a framework like the g.e.n.I.U.S. act is adopted, total issuance of stablecoins could reach nearly $4 trillion by the end of the decade. I wanted to get your perspective, Mr. chairman. What impact would this new source of demand for bills have on the yield curve and what impact would it have on short-term rates?
▶ 1:43:37Chair Powell: More demand is going to have a tendency to drive down rates. I don't really have a sense of how big that effect would be, of course. Let me just say that we are making progress -- it is great that we are making progress toward a stablecoin framework.
▶ 1:43:54Sen. Hagerty: Couldn't agree with you more. It is positive for the economy, positive for costs of borrowing as a nation. Mr. chairman, thank you very much.
▶ 1:44:04Chair Scott: Senator cortez masto.
▶ 1:44:07Sen. Cortez Masto: Thank you, Mr. chairman. Chairman help, good to see you Mr. chairman powell -- chairman powell, great to see you. Did deterioration, I'm concerned about that as well. The trumpet administration has ended studies that leaders rely on.
▶ 1:44:29Sen. Cortez Masto: Are there specific research projects that the bureau of labor statistics provided that they no longer do provide, that federal reserve researchers cannot replicate on their own or through other sources?
▶ 1:44:42Chair Powell: I'm not aware of any.
▶ 1:44:46Sen. Cortez Masto: Ok.
▶ 1:44:47Chair Powell: Doesn't mean they don't exist. The regular data they supplied, they cut back on that survey.
▶ 1:44:54Sen. Cortez Masto: I hope as we move forward and not just in today's hearing, but if there is some other data or you are relying on data you are not getting and there is another source for that data, please share that with the committee. Thank you. During the biden administration, the federal housing finance agency and the federal reserve worked together access to the discount window for banks. What is the status of that collaboration with the fhfa?
▶ 1:45:23Chair Powell: I can't speak to the fhfa. I can speak to the fact that we are really looking carefully at modernizing the discount window --
▶ 1:45:34Sen. Cortez Masto: But we are not there yet?
▶ 1:45:36Chair Powell: No, this is a project that will take some time. The discount window needs to be updated and refreshed from a technological standpoint so people can access it readily and that kind of thing. It is still a little bit behind the age in that respect.
▶ 1:45:52Sen. Cortez Masto: Do you have a timeframe you're looking at?
▶ 1:45:55Chair Powell: I will get back to you. It is something we're working on.
▶ 1:45:59Sen. Cortez Masto: Is there a funding impediment?
▶ 1:46:03Chair Powell: No. I will come back to that.
▶ 1:46:06Sen. Cortez Masto: Thank you yeah-- thank you. In march the federal reserve announced you intend to repeal the reinvestment act proposed rule. I prefer the proposed rule as it would better address the needs of states like nevada that don't have headquarters of large banks.
▶ 1:46:31Sen. Cortez Masto: How will you ensure that the new cra guidance improves access to financial services, to loans, investments, in underserved rur al and tribal communities?
▶ 1:46:42Chair Powell: In march we announce that we are putting out for comment a proposal to withdraw the proposed guidance, which had been the subject of litigation, and in the meantime we are going back to the old cra rules. I think that is where we will be. I don't have anything more in terms of what we might change with respect to those old rules.
▶ 1:47:05Sen. Cortez Masto: So the default are the old rules --
▶ 1:47:09Chair Powell: Cra as it existed before this proposal, which actually never took effect that's helpful. Community banks benefited from high losses during the pandemic. Since then the net for community banks as fallen fulsome challenges do you seek community banks, if any --what challenges do you see for community banks, if any?
▶ 1:47:38Chair Powell: Community banks are critical. They know what is way that the big banks cannot possibly. They are a critical part of our infrastructure. I think they have been under pressure because, frankly, fixed costs of regulation have gone up. The number of banks has gone down steadily and that is not something we are trying to foster, but ittrend over the la.
▶ 1:48:06Chair Powell: We try not to add to what is a secular trend.
▶ 1:48:10Sen. Cortez Masto: Thank you. Thank you for being here. Appreciate it.
▶ 1:48:15Chair Powell: Thanks.
▶ 1:48:16Sen. Cortez Masto: Ms. chairwoman, I yi8eld my time.
▶ 1:48:22Sen. Warren: [laughter] who is up next? Senator britt.
▶ 1:48:29Sen. Britt: Thank you, madame vice chair chair powell, inc. You for being here today. I want to echo the comments of senator cortez masto when it comes to community banks. Community banks, financial institutions that serve everyday americans in main streets across the great state of alabama and our country are so critically important to people being able to achieve the american dream. I know we have talked about this the last few times you have been in front of us.
▶ 1:48:59Sen. Britt: We talked about the rewrite of basel iii, long-term debt, a ton of things, and my concern that no one was looking at the cumulative impact of those things and the trickle-down effect. I want to get a commitment from you that as you are reviewing rulemaking across the board, that you will consider and make sure to make the perspective of its smallest U.S.
▶ 1:49:18Sen. Britt: Banks and nonfinancial industries like the ag sector who do not have a seat at the table in previous administrations, but give them a seat at the table and make sure you are thinking about the impact on those individuals.
▶ 1:49:32Chair Powell: I'm happy to make that commitment.
▶ 1:49:35Sen. Britt: Thank you so much, chair powell. I want to talk about an issue that has been brought up briefly today by another colleague of mine. That is about childcare. When we look at the childcare crisis in this country, we know that our economy loses $122 billion a year because of affordability and accessibility, reliability, if you will, of childcare.
▶ 1:50:00Sen. Britt: It is that anyone who has a child between ages zero and five spends 22% of their income on childcare. We have done the studies and looked at the numbers, and 59% of state -- stay-at-home and/or part-time working parents would like to reenter the workforce, but affordability and accessibility is an impediment to do that.
▶ 1:50:22Sen. Britt: As we're looking to build back america and create opportunity and bring those things into fruition, would you agree that taking a look and being able to address -- not asking you to comment on any specific proposal, but addressing shortfalls related to accessibility and affordability of childcare would have a positive long-term impact on the economy?
▶ 1:50:43Chair Powell: I think there is quite a bit of research showing exactly that, and we saw it during the pandemic, as I think you know and have pointed out. It's not an issue we play a role on, but clearly it would -- childcare would contribute to participation in the labor force by many.
▶ 1:51:03Sen. Britt: Absolutely, and as alabama looks at our labor participation rate, 5% lower than the national average, we look for ways to get people reengaged in the workforce and know that addressing his head on will help us achieve that. Thank you so much, chair powell. I look forward to continuing to get that done. There has been some angst vocalized about the reconciliation bill and the president's trade policies.
▶ 1:51:29Sen. Britt: From my perspective, much of that skepticism is unfair and premature. Market resiliency and you market resiliency and y recent economic data continues to reflect confidence in the U.S. economy. A look at the recent treasury auction, which was notably successful and saw stronger-than-expected demands for 30-year bonds and stable, even slightly declining yields. To me, this demonstrates that investors view the U.S.
▶ 1:51:55Sen. Britt: Debt as an attractive asset regardless of the ongoing policy discussions and debates and forging a pathway forward. Those fundamentals of the economy actually remain quite strong. Chair powell, would you agree that the components of our economy remain quite strong? How does the fed consider this type of strong auction performance in the context of your market expectations and monetary policy discussions?
▶ 1:52:22Chair Powell: As you point out, the treasury market is working fine just now. Liquidity is adequate, bond prices are responding to economic events. Bond market is in good shape. In terms of the strength of the economy, I would strongly agree, the labor market is in a solid place, economy is growing, inflation is a pretty good place, much closer to 2%. It is a very solid economy.
▶ 1:52:52Chair Powell: We are watching the labor market very closely, as we always do. Couple of things in particular. One is a low hiring rate, which goes with a low layoff rate. If we see layoffs, we would see unemployment go quickly. The labor market has remained solid, and I agree with your overall characterization for
▶ 1:53:15Sen. Britt: Thank you. Appreciate you being here today.
▶ 1:53:18Chair Scott: Senator kim.
▶ 1:53:20Sen. Kim: Thank you, chair manchin. Thank you for coming -- chair man. Thank you for coming before us today. You are having to assess the data before you. I am thinking about this because we have the federal open market committee, fomc five-year review you were talking about tariffs and the uncertainty of the moment.
▶ 1:53:46Sen. Kim: How do you balance assessing between more the backwards-looking data that you are able to look at more tangibly, but also addressing forward-looking models to understand where things are headed?
▶ 1:54:00Chair Powell: That is the challenge that all forecasters have. Monetary policy needs to be forward-looking. At the same time, we need to be humble about how hard it is to forecast, particularly in times of high uncertainty, which I would include now, you want to look at the real data and not be too brave about what your forecast might be.
▶ 1:54:30Sen. Kim: You are saying in times of greater uncertainty, in some ways that makes you more interested in the backwards-looking data to guide you?
▶ 1:54:39Chair Powell: I would almost flip it -- yes, but I would almost flip it and say at a time like that you don't want to be giving forward guidance and acting as though you have a lot of certainty about the path forward. It makes sense to move more slowly in much situations where there is more uncertainty. There is a situations where it would not make sense to move slowly. But in most cases you want to move more slowly.
▶ 1:55:03Sen. Kim: That's interesting. I talked to some of my constituents back home. This is one conversations I always have that has always stuck with me where a woman was telling me there is so much uncertainty in the world and certainly in her life -- as she says, it is hard for her to breathe sometimes, she feels this weight upon her chest. I thought about a lot because I'm trying to think what we can do to alleviate that concern, alleviate that anxiety for people. But you can see it.
▶ 1:55:32Sen. Kim: Whether it is about what is unfolding in the middle east, fragility of what comes next, when I look at this reconciliation bill before us in the senate, I do worry not just about the deficit, as some of my colleagues mentioned, but the potential of significant job loss we are seeing, whether in the health care industry, whether in the energy industries, and certainly my comes to tariffs, trying to think through what comes next in terms of whether deals are struck and at what levels.
▶ 1:56:01Sen. Kim: Were taking into account that might issue baselevel, or are you looking at the global instability in terms of different crazies out there? Is that -- different crises out there? I know you are not going to go to the policy per se, but the potential for significant job disruption, is that something you are looking into as you forecast?
▶ 1:56:24Chair Powell: Yes. You know, we obviously pay great attention to global events in an effort to understand what is going on the economy globally, because that does matter for our economy. We pay close attention to all of those things and track them. Ultimately, though, we are looking at the U.S. economy and what are the fundamental drivers here, and then making a judgment based on all of that.
▶ 1:56:50Chair Powell: And mainly -- this is a big economy and we are geographically separated from most of the other big economies of the world, so we have a smaller external sector that most of the european -- all the european economies, for example. We are really looking at the U.S. and what is happening here.
▶ 1:57:07Sen. Kim: I wanted to ask you, because central banks and other countries including bank of england and european central bank, they have begun modeling the potential macroeconomic effects of artificial intelligence, they are thinking about how they can use ai to be able to do some of the forecasting to think through what comes next. I wanted to get a sense of what the federal reserve is thinking in terms of similar work in the ai space.
▶ 1:57:33Chair Powell: We have lots of people doing work on ai and more than that, monitoring research everywhere in the world. Speaking of uncertainty, it's very clear that it has the potential to make really dramatic changes in our economy, in the workplace, the jobs of workers, the way companies work, all of those things.
▶ 1:57:58Chair Powell: Honestly there is tremendous uncertainty about the timing of that and what the ultimate consequences will be and what the medium-term consequences will be.
▶ 1:58:04Sen. Kim: I wonder if the fed is evaluating ai credit models and how that could the gently given disparity in credit access or violate fair lending standards. Is that something you have looked into at this point?
▶ 1:58:18Chair Powell: Yes, absolutely.
▶ 1:58:20Sen. Kim: Is this something that the fed is looking to affirm standards?
▶ 1:58:24Chair Powell: This is something we have done research -- before generative ai came along, machine learning and technology generally. It's something we are very well aware of, and we do work with people to make sure that doesn't happen.
▶ 1:58:40Sen. Kim: Thank you. I yield back.
▶ 1:58:43Chair Scott: Thank you. Senator banks.
▶ 1:58:48Sen. Thanks: Thank--
▶ 1:58:50Sen. Banks: Chair powell, can you tell us how our interface compared to other countries around the world?
▶ 1:58:58Chair Powell: At the higher end.
▶ 1:59:01Sen. Banks: How does that reflected the united states?
▶ 1:59:05Chair Powell: The U.S. economy has outperformed and been stronger than others. I don't want to pick on any other nations, but many other nations have had a much lower growth, now have lower inflation, and -- whereas the U.S. economy has been the outstanding performer and remains that to this day. That in place higher -- that implies higher rates.
▶ 1:59:30Sen. Banks: So it is higher than most of first class countries. Can you talk about historically where we have matched up with other countries?
▶ 1:59:39Chair Powell: Let's just go back to when the pandemic hit, for example. We were at -- we had very low rates but they were by far the highest in the developed world because the U.S. economy is the strongest. The european union had a negative rates. Bank of england was 75 basis points. We were 2.4%, meaningfully higher. Our growth was higher. Their growth was lower. Their inflation was lower.
▶ 2:00:09Chair Powell: Our inflation was fine, probably about the same. We have generally had a little bit higher rates than those countries because they have slower growth, older populations, lower productivity, those kinds of things. We have the strongest economy in the world.
▶ 2:00:27Sen. Banks: Have interest rates in those countries global economy as well?
▶ 2:00:32Chair Powell: All of those countries handed their rates go up quite a bit -- had their rates go up quite a bit during the global pandemic inflation. As you know, many of them have been cutting their rates, and we have been, too, and at some point will resume that. We are 100 basis points lower than we were. If you take the eu and the bank of england, they have cut a little more than that.
▶ 2:00:55Sen. Banks: How recently?
▶ 2:00:57Chair Powell: Recently. You probably read this, but they are either at or close to the end of their cutting cycles.
▶ 2:01:06Sen. Banks: I know there has been a lot of talk today about deficits and the national debt. How much does tax policy affected the economy in the U.S.?
▶ 2:01:19Chair Powell: I mean, it has big effects over time. It is not something that drives what we do. I think tax policy plays over the long run as usual in incentivizing investment, which helps growth and things like that. Over the long run it is more important than monetary policy.
▶ 2:01:41Sen. Banks: Would a $4 trillion tax increase on middle class american's affect the economy?
▶ 2:01:48Chair Powell: Here we are getting into the bill.
▶ 2:01:51Sen. Banks: I understand. I'm asking how that would affect the economy.
▶ 2:01:56Chair Powell: I'm trying to not make any direct comments on the bill today, if you will forgive me. I take your point.
▶ 2:02:03Sen. Banks: Ok. I am trying to make a point, but there has got to be data that you sit on somewhere that would suggest that large tax increases would affect the economy, would stall economic growth in the U.S.
▶ 2:02:18Chair Powell: You could certainly get that out of a model if you wanted to. But again, I'm inevitably going to be commenting on the bill if I answer that question.
▶ 2:02:31Sen. Banks: A lot of talk today about inflation. You have already agreed that inflation is down from where it was a yuriko, and steadily declining?
▶ 2:02:41Chair Powell: I more than agree to it, I am very pleased by it.
▶ 2:02:46Sen. Banks: All of the so-called experts tell us tersely to inflation --tariffs lead inflation. You seem to have said already that inflation is if not under control, getting under control.
▶ 2:03:04Chair Powell: Inflation is in a good place. We have a forecast, and so does every other brand name forecaster in the country, teresa leger hours, that there will be someone -- very similar to ours, that will there will be some inflation from tariffs coming. It is reasonable to expect that someone has to pay and this is hundreds of billions of dollars of paris we are taking -- hundreds of billions of dollars of tariffs we are taking in.
▶ 2:03:35Chair Powell: Some of that will fall onto consumers. We are wanting to see more data --
▶ 2:03:38Sen. Banks: One final question about data. Trade deficits with china, canada,, mexico and the eu have dropped recently. What does the data tell us about that? How it would affect inflation?
▶ 2:03:54Chair Powell: How it would affect inflation? I don't know that it has implications for inflation, but it affects the tariffs. You have seen chinese imports come down quite a bit.
▶ 2:04:05Sen. Banks: Thank you. I yield back.
▶ 2:04:07Chair Scott: Senator blunt rochester.
▶ 2:04:11Sen. Blunt Rochester: Thank you, chairman and ranking member warren. Inflation has come down meaningfully from its peak and there are signs of moderation in the economy. Prices for rent and other essential services remain high, and the outlook is still uncertain. Wage growth remains strong, but productivity trends are mixed.
▶ 2:04:35Sen. Blunt Rochester: Demand for places to live his high, but borrowing costs are making it harder for builders to keep up, adding to the affordability pressures. At the same time, while I know this is not something you would say, but at the same time, while our republican colleagues are pushing for tax cuts for the wealthiest americans that would extend the deficit, the administration's traded immigration policies are also
▶ 2:05:06Sen. Blunt Rochester: Introducing uncertainty that may not yet be fully reflected in the economy. For families that I represent, the cost-of-living remains painfully high. Premature easing could have unintended consequences that undo progress we've made. Later this year the fed will update its monetary policy framework to respond to today's inflationary environment.
▶ 2:05:29Sen. Blunt Rochester: After years of supply shocks, housing inflation, physical volatility, I hope you will remain strengthened that the fed's ability to navigate and more uncertain economy. As you undertake this update, can you talk about how you are adapting the framework to these realities while preserving the fed's commitment to full employment?
▶ 2:05:52Chair Powell: I'd be glad to. We made changes in the year 2020 to our framework, and those were meant to take on the special issues that the bank faces during the era of extremely low interest rates, were rates were never far from zero. We barely got away from zero when we had to cut back to zero.
▶ 2:06:15Chair Powell: The feeling was very much that if we had any kind of a shock, we would be back at 04 years on en- -- zero for years on end, and that is not a good thing because economy can become stagnant. The interest is back to normal levels. Our policy rate not feel like it is particularly restrictive. In other words, rates have moved way back up. That means that the changes we made in 2020 are less relevant.
▶ 2:06:45Chair Powell: They're not completely irrelevant. We are making modifications, which we will be discussing inside of our committee between now and next meeting and in the next meeting that will return to forecast more to what it was before the 2020 cycle.
▶ 2:06:59Sen. Blunt Rochester: I know we had a chance to talk in the past about my focus on jobs and the economy and labor. And I want to follow up on senator kim's questioning where the focus on the changing technology landscape and with artificial intelligence, generative ai, and just its impact on the economy in the labor market. How would you describe ai's impact on the economy so far, and how is the fed measuring?
▶ 2:07:29Chair Powell: The effects of ai are probably not great at this time. Generative ai. The question is how big will they be and how quickly will not happen.-- will that happen. Anyone who has been exposed to what ai is capable of has to be pretty stunned by what it is capable of. And this is even the early days.
▶ 2:07:54Chair Powell: What experts tell us is that in two years these things you are doing, that will be nothing compared to what we can do in two years. I've taken has enormous capabilities to -- I think it has enormous capabilities to make really significant changes in the economy and the labor force, and it can either augment's people productivity -- augment people's productivity or replace people, or you can do both.
▶ 2:08:18Sen. Blunt Rochester: You preempt in my question. I saw a recent article and a ceo of an ai company could wipe out have of entry-level jobs and spike unemployment to 10 or 20%, I think he said in a year or two. Do you think this is a reasonable perspective?
▶ 2:08:42Sen. Blunt Rochester: How would ai-driven productivity gains or worker displaced an effect how the fed defines full appointment --full employment?
▶ 2:08:52Chair Powell: I don't know whether that -- I'm not a person to say how quickly it will happen. What happens with technology is it seems to take a long time to be lamented. There is what it is capable di take a long time -- it takes a long time to be implemented. There is what it is capable of. What happened with ai -- will it happen with ai? It probably will.
▶ 2:09:19Chair Powell: In terms of maximum employment, the fed doesn't really have the tools to address the social issues and labor market issues. We don't have those tools. We just have interest rates. We will always be able to don's the labor market so supply and demand are in balance. Things like what ai does and other things, we have to take them as they come.
▶ 2:09:39Sen. Blunt Rochester: Thank you, I yield back.
▶ 2:09:43Chair Scott: Yes, ma'am. Senator tillis.
▶ 2:09:48Sen. Tillis: Since ai came up, we need to welcome it, exploit it, and benefit from it. I had my staff go back and look at the congressional hearings on times of the industrial revolution and other instances where we have had these threats of displacement, and we have out ok for us.
▶ 2:10:08Sen. Tillis: The key is that this is a global competition, and other countries are going to implement it, it is going to drive down our cost and will make us less competitive if we don't need the challenge and become the innovator. The transition is very important to note. I want to talk about slr for a minute. You indicated the balance sheet is going to continue to shrink.
▶ 2:10:32Sen. Tillis: We will not get pre-covid levels, somewhere around $4 trillion. You expect to hold higher levels of central banks -- higher levels of central bank reserves that may have in previous years. Do you agree with that?
▶ 2:10:50Chair Powell: I don't think we will get back to where we were, but still shaking.
▶ 2:10:54Sen. Tillis: Is it fair to say the sro should be updated to reflect the evolving preference?
▶ 2:11:02Chair Powell: Yes.
▶ 2:11:03Sen. Tillis: You know, chair powell, I've never really liked defendant now, so it is probably--- fed now, so it is probably not a friendly question. Spent 540 $59 to implement it now and expected to spend more in 2025. The total price tag is a billion dollars. As you know, the money control act requires the fed to cover all the direct and indirect costs actually incurred.
▶ 2:11:34Sen. Tillis: Can you give me an idea of when we will see a fee structure that will generate and pay for this implementation, including the expected ongoing operational costs?
▶ 2:11:45Chair Powell: You are right, that is our obligation under the law to have it be self funding. We have a period during which that is supposed to happen. Uptake is steady but not rapid.
▶ 2:11:59Sen. Tillis: Is it your expectation that the fee structure is going to be achievable?
▶ 2:12:03Chair Powell: It is probably still achievable. I'm not 100% clear that we are going to achieve it very soon.
▶ 2:12:11Sen. Tillis: That's what I'm concerned -- and I wonder if that pricing is there given private-sector options, if you will ever be able to get there. Just an editorial comment. One thing I did want to mention, I'm excited to see some of my colleagues on the other side of the dais concerned about the debt.
▶ 2:12:33Sen. Tillis: Last, checked -- last time I checked, during the four years president biden was in office we had the american rescue plan that cost us $2 trillion, the inflation reduction act that cost $1 trillion, and the pact act -- I was one of nine republicans who didn't vote for it -- also cost us a trillion dollars.
▶ 2:12:56Sen. Tillis: I'm excited to see my colleagues on the other side of the one to get serious about spending within our means there's on the other son of the aisle want to get serious about spending within our means. My staff wanted to ask about -- sorry, I want to get my notes right. I wanted to go -- I don't have it before me, but what is the current status on wells fargo's capital requirements?
▶ 2:13:29Chair Powell: I think you mean on the growth cap? We voted unanimously to remove that. They did satisfy the requirements we had in place.
▶ 2:13:41Sen. Tillis: And you think your fact-based decision, you stand by it?
▶ 2:13:48Chair Powell: I do.
▶ 2:13:49Sen. Tillis: Very good. Does walmart -- I have other questions I will submit for the record, chair -- walmart updated therefore guidance and the reason they did that is there was uncertainty around trade. I would suggest for my colleagues -- I don't know if you can respond to this when you can respond to this whor no t. I won't ask attacks question -- a tax question, though I really want to.
▶ 2:14:18Sen. Tillis: I know with the response, you are a good dancer. If there is going to be a correlation to increasing prices, walmart having made the decision to withdraw their guidance is probably the best testament that they know they may have to deal with costs and inflationary uncertainties. Would you characterize that as a likely reason they withdrew their guidance?
▶ 2:14:41Chair Powell: It might be I saw that they had to I didn't get a chance to see why --
▶ 2:14:48Sen. Tillis: If you tease through the language it seems that the other input costs would go up and they need to manage their margins. We just need to be realistic that if you have a major household name withdrawing guidance because of uncertainty, they have a lot of experts that probably are suggesting there may be some inflationary risks. We haven't realized it yet, but we have to keep our eyes open and not look past it so we can manage it when it comes to pass.
▶ 2:15:18Sen. Tillis: The last thing that I want to mention is you can't respond to this, but I will tell you, if the democrats succeed in preventing us from avoiding the biggest tax hike in the history of this country, it is going to cost great -- cause great damage to the people who can least afford it. You don't get to respond to this --
▶ 2:15:44Chair Scott: Senator alsobrooks is next.
▶ 2:15:47Sen. Tillis: Sorry, I didn't realize she was here. But we need to understand that you will have something to fix if we fail to continue tax cuts.
▶ 2:15:57Chair Scott: Thank you, senator. Senator alsobrooks.
▶ 2:16:03Sen. Alsobrooks: First to chair scott and ranking member warren, thank you for hosting today's hearing. We thank you, chair powell, for your tremendous service to our country. I very much enjoyed the meeting we had this year and look forward to working with you. Many of my colleagues today have readily discussed concerns regarding how tariffs are affecting consumers and businesses.
▶ 2:16:27Sen. Alsobrooks: I would like to highlight specific business in maryland that encapsulates the harm that I believe this administration is inflicting. But also the resilience of a proud maryland small business. It is a successful pet brand, founded by barton o'brien, a marine veteran who served three combat tours overseas. Mr. o'brien has calculated that if he were to make his product in the united states, he would have to raise his prices 400% just to break even.
▶ 2:17:00Sen. Alsobrooks: The tariffs he believes are burdensome tax that could put companies like is out of business. But the damage doesn't sum there. It is sold in thousands of other brick-and-mortar stores around the country, locally owned small businesses who similarly have to raise prices or lose sales to pay the presidents tax. President trump started talking about tariffs during the campaign. He hmr. O'brien stockpiled inventory.
▶ 2:17:32Sen. Alsobrooks: But what is he to do if the tariffs are in place next year? Mr. o'brien has calculated he will not have to just raise prices, you will have to cut his staff to stay in business. Chair powell, there are 34 million small businesses in america, one for every 10 people. If small businesses like this have to lay off staff or go out of business altogether, what will that do to unemployment in this country, and what effect will that have on the broader economy?
▶ 2:18:01Chair Powell: I mean, just mechanically, I don't want to comment on particular tariff policies, but sure, if companies go out of business, that will hurt employment and activity.
▶ 2:18:14Sen. Alsobrooks: And what we will see is so many small businesses, what we are facing now is that every prospect, we are going to have so many -- we believe the inflation caused by these tariffs will really have a very negative impact. If this is the case, what would this mean for american workers?
▶ 2:18:37Chair Powell: The other thing is the tariffs are still in motion. It is premature to say where they are going to land. We are withholding judgment until we see where we are. We have not made a decision to do anything. The situation involves day by day -- the situation involves day by day, month by month.
▶ 2:18:59Sen. Alsobrooks: In our meeting and your most recent monetary policy report, you spoke of the long-term challenge of housing supply not meeting demand. I look at this issue the same way I did as county executive where I fought hard to leverage private- and public-sector dollars to bring more housing to communities that needed it. Marilyn has a shortfall of 100,000 -- maryland has a shortfall of 100,000 homes.
▶ 2:19:30Sen. Alsobrooks: Studies estimate that over the $200 billion invested annually in housing in recent years, only a fraction supports affordable homes for working-class families. Would you speak to the needs to better incentivize private investments into affordable housing construction? I'm working with private sector and nonprofit stakeholders on legislation and wanted to know if you could comment on that.
▶ 2:19:51Chair Powell: I would say this, interest rates are slightly restrictive at this point, modestly restrictive. That is weighing on economic activity in the housing market sector. But you are really talking about a different role, not one that the fed can really address, and that is we have a longer run housing shortage. Many other advanced economies have this, too. It's not our tool -- our tools will really work to affect that. It is elected people.
▶ 2:20:22Chair Powell: You saw this as county executive,'s things the legislature can do that can really address that, not us. It's not about interest rates .
▶ 2:20:33Sen. Alsobrooks: All right. I understand one other issue, the fed is evaluating the leverage ratio rules regarding the amount of capital required to be held by banks to withstand unforeseen risk. I'm hoping you can provide some insight as to what potential changes this framework are meant to achieve. On the other hand, I understand that access to capital is paramount, particularly for communities I represent. I understand concerns that a change in these requirements could affect the resilience of the banking sector.
▶ 2:21:05Sen. Alsobrooks: I know you cannot speak to the specifics of the coming proposal. Would you share some insights into what problem the proposed rulemaking is meant to solve, and are you concerned that it could lead to a deterioration in resilience of the banking sector?
▶ 2:21:19Chair Powell: I would be glad to. The idea behind it is we want risk-based capital to be the binding capital requirement, because we want the binding capital requirement, banks to be sensitive -- if the leverage ratio is not risk-sensitive, it treats every asset is equally risky. If that is binding, that interferes with banks' incentives to manage risks and discourages banks from taking on relatively low-risk activity.
▶ 2:21:50Chair Powell: We always at the fed want risk-based capital to be the binding one and the leverage ratio to be the backstop. This proposal that we have that will w we will be meeting on in a couple of hours puts out for comment a proposal to restore the backstop characteristics of the leverage ratio. We think it should make for -- it will not in any way diminish the safety and soundness of the financial system and it will allow for banks to undertake the work-risk.
▶ 2:22:20Sen. Alsobrooks: Thank you so much. Thank you, Mr. check. --cahair.
▶ 2:22:27Chair Scott: Yes, ma'am. For senators who wish to submit questions, there's a dupe a week from today-- are due a week from today. Thank you for being here. This committee is adjourned. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap.org]