▶ 0:19:43Chair Scott: Morning. Today the committee welcomes chairman kevin warsh for his first semiannual monetary policy hearing since taking office. I know it has been seven weeks, but it probably feels like a couple of years. We are happy to have you with us and excited about the direction of the fed. Today is about have the fed serves the american people in chairman warsh is working to combat years of mission creep at the fed and restoring their credibility to the general public.
▶ 0:20:13Chair Scott: The decisions the fed makes affects everyday life in south carolina and around the country. Affecting the mortgage payment that a couple is trying to afford and the decisions a small big -- business owner makes about whether they can afford or not and it has an interest rate environment affect, as you know.
▶ 0:20:36Chair Scott: The ranking member and I spent a year working on a housing bill that will actually help us increase housing supply, help us expedite the process of booting a house through reform and create more diversity in housing selection.
▶ 0:20:56Chair Scott: Important issues that will make housing affordability incredibly easier, but it will never get to the main point of interest rates , interest rates are something that you control that we don't control and we want you to follow the fax because that is really important for the long-term durability of the economy. Where I grew up, families don't talk about monetary policy. They don't talk in those terms.
▶ 0:21:20Chair Scott: But they fully understand the principle that when prices rise faster than paychex, it's really hard to make ends meet. That is why affordability must be at the center of the conversation. The federal reserve has a mandate to pursue and promote a strong labor market through maximum employment and stable prices.
▶ 0:21:42Chair Scott: Those are serious responsibilities and I'm glad that you are the man for the job that has taken it seriously, it requires clear thinking, seti leadership, and following the data in a matter of political ramifications, understanding the forces shaping our economy, including the ai impact on jobs, wages, productivity,. Independence is not a slogan, it is a responsibility. The best way for the fed to protect its independence is to stay focused on its mission.
▶ 0:22:13Chair Scott: For too many years of federal reserve drifted into issues outside of its core responsibilities. America pay the price for it. Mission creep makes the fed less accountable and undermines public trust. I am encouraged by the steps that you are taking to reform our central bank.
▶ 0:22:31Chair Scott: It starts with a more disciplined approach to how the fed communicates, moving away from overly detailed predictions about where the economy could be going over the next several months is a helpful step in making sure that the fed can adapt when conditions change. Families are better served when the fed follows the data in front of them.
▶ 0:22:57Chair Scott: Not a fair -- forecast that my change in an incident -- instant. This will help the fed to stay flexible, credible, and focused. The five independent taskforces you set up also send a very important signal. That the fed is spilling to start from its principals and pursue thoughtful reforms in order to deliver on a statutory mandate.
▶ 0:23:23Chair Scott: You and I had a quick conversation before walking in here and I wanted to note that I think that the parking meters are fantastic and that the composition of the working group is really important. One thing we talked about was the balance sheet for the working group and I must concede that as a fan of the abraham link and approach to the team of rivals, seems like you got jeremy sign and the former governor of the indiana central bank.
▶ 0:23:53Chair Scott: They have nicely put competing approaches and philosophies about the balance sheet, but if you are going to be intellectually honest, you need to have a serious debate about the direction to go and, frankly, how to get there. So, I'm really excited about what you are doing there and am looking forward to hearing how that works out for you, the federal reserve, and the american people.
▶ 0:24:18Chair Scott: Unwinding a balance sheet the size that we have today is going to take a deliberate effort that will have to be paced properly so as not to create volatility in the markets. Thank you for taking it seriously. As ai shape -- reshapes the economy, the fed should understand its impact on jobs, productivity, and prices. Using technological change to advance the mandate that guides the approach to regulation.
▶ 0:24:49Chair Scott: The U.S. banking system is sound and resilient but we cannot take that for granted. Preserving the strength requires regulation and supervision that is clear, appropriately tailored, and focused on deal risks. Bank capital is near historically high levels.
▶ 0:25:08Chair Scott: As the fed finalizes at basel three it should pursue better calibrated requirements for resilience preservation without unnecessarily restricting lending. When capital is struck on the sidelines, a family in south carolina may find it difficult to get a mortgage. Small business might find it hard to get a loan. A community bank might spend more time satisfying washington than serving its own customers.
▶ 0:25:35Chair Scott: That is why this committee will continue pressing for regulations that protect the system without cutting off access to credit. I want the fed to be very successful. We need the fed to be successful. Prices become more stable when your job is done well. Markets gain confidence. Wages grow. More families have the opportunity to save, invest, by home, and live their version of the american dream.
▶ 0:26:06Chair Scott: Welcome today. Ranking member, the floor is yours.
▶ 0:26:07Sen. Warren: Welcome back, Mr. warsh. Two months ago you appeared in front of this committee for your nomination hearing. He refused to answer basic factual questions. I assume because you were afraid of controversy -- contradicting president trump. Your answers during the hearing were so troubling that this committee had a party-line vote for fed chair for the first time ever in our history.
▶ 0:26:37Sen. Warren: You were confirmed by the senate in the tightest vote for a fed chair in U.S. history. So, you now face an uphill battle to show that you have the independence needed to run america's central bank and to serve american families and not just president trump and his billionaire friends. President trump's corruption and failed economic agenda is raising costs around the board.
▶ 0:27:07Sen. Warren: Inflation has kept real wages from going for the third consecutive month. In the trump economy, families are falling behind with less to spend every day that goes by. High interest rates are making mortgages, auto loans, and credit cards more expensive. More and more people are falling behind on their bills. 95% of americans believe that the U.S. is suffering and affordability crisis.
▶ 0:27:38Sen. Warren: While the president continues to call affordability a hoax, telling americans that their concerns about the cost-of-living are made up. Lower interest rates would provide some relief to families, but the fed has not lowered interest rates and may be forced to raise rates even more, all because of one man, president trump. Now, the president knows this. So, instead of changing course, he wants to take over the fed.
▶ 0:28:09Sen. Warren: Installing U.S. fed chair was a critical part of his plan. He reportedly told the president exactly what you -- she wanted to hear in his over national office interview and trump confirmed it afterward, saying that worse things you have to lower interest rates.
▶ 0:28:24Sen. Warren: For your part, you will were the only member of the last fed meeting who declined to submit economic projections, projections that are supposed to show how fed decisions under your leadership are likely to affect american consumers and workers. People might look at that and conclude that you are willing to tell the truth about inflation under trump.
▶ 0:28:51Sen. Warren: Trump may have you in his pocket, but he will not stop until he controls the fed and he needs only one more seat to do that, which is why he has had his department of justice like bogus criminal investigations into lisa cook and jerome powell. That is why he tried to fire fed governor cook. His own supreme court recently blocked the firing, at least for now, but trump has vowed to try again to fire governor cook.
▶ 0:29:22Sen. Warren: The fight for control is a fight over interest rates. But it is also about corruption. President trump likes to play king and the fed offers many appealing opportunities for the president to enrich himself while he leases the american people.
▶ 0:29:43Sen. Warren: Starting with crypto, the trump family crypto company is world liberty financial, the centerpiece of the crypto enterprise that led him crank in one point $4 billion in 2025 alone. Now it is currently applying for a bank charter.
▶ 0:30:03Sen. Warren: After it is granted by trump's own bank regulator, world liberty could seek special privileges from the federal reserve to juice its own profits , like a master account that would give trump's own company direct access to the fed's core payment rails. And there's more. If you can control the faith, trunk and threatened to bank access to the bed refuse to do this committee.
▶ 0:30:33Sen. Warren: He could hijack the extraordinary powers of the fed to bail out financial markets, making sure he rewards his friends and punishes his enemies in a crisis. You had better bet that trump will turbocharge the wall street d regulation is already underway , juicing mega-bank profits with ceo bonuses knowing that american taxpayers will be on the hook once again if there is another devastating financial
▶ 0:31:04Sen. Warren: Crash. Congress and the american people will be watching closely whether you serve the public or become yet another instrument of donald trump costs -- donald trump's corruption. Thank you, Mr. chairman.
▶ 0:31:16Chair Scott: Thank you. Chairman, the floor is yours, five minutes.
▶ 0:31:22Mr. Warsh: Thank you very much, Mr. chairman, ranking member, other members of the committee, good morning, it is a privilege to join you. This is my first appearance before the panel as chairman and I'm particularly honored to represent my superb colleagues from across the system.
▶ 0:31:41Mr. Warsh: In submitting the monetary policy report I cannot help but think of along line of central bank chiefs who came before the congress, keeping the federal reserve act, and I cannot help but think of the best of the fed traditions. As a country we just marked our 250th year. When americans count our blessings, we can include an economy predicated on the bill -- brilliance of our constitutional design and system of ordered liberty.
▶ 0:32:09Mr. Warsh: An economy without equal in all that it has done for human flourishing. Some forms of communication, including some the ranking member referenced are discretionary, but not this one, and for good reason. It's a prudent and widely conceived obligation designed to keep the responsible, accountable, and faithful to the mandate that you gave us of full employment price stability.
▶ 0:32:36Mr. Warsh: These obligations are of a piece with the fed's rightful independence in the conduct of monetary policy. Today we are at a hinge point in history and it is up to each of us, myself included, to be the moment. The number one fed objective is to get monetary policy right. That's are clear and constant pain. The star by which we steer by.
▶ 0:33:02Mr. Warsh: If we get policy right, and we will, the inflation surge of the last five years will be a thing of the past. A month ago I chaired my first fomc meeting and my colleagues and I recognized that high inflation has been an undue burden on american households and businesses.
▶ 0:33:24Mr. Warsh: While monthly fluctuations are inevitable, especially in an unsettled world, underlying inflation over longer-term horizons is determined largely by monetary policy. As I said before and will say today, inflation is a choice. The members of our committee have no tolerance for persistently elevated inflation and we share a resolute commitment to restore price stability.
▶ 0:33:51Mr. Warsh: That was our focus when we met one month ago where we decided to hold the target range at the fed funds rate at 3.25%. Naturally, our work at the fed demands a proper reading of economic conditions. As you might have seen in the report, economic activity is expanding at a solid pace with the resilience in the face of recent developments.
▶ 0:34:15Mr. Warsh: Household consumption growth is moderate and manufacturing output has moved up steadily this year. The housing sector, however, strikes a different note, gives a different picture and continues to lag. The most striking feature of our economy right now is business investment. A surge in capital expenditures. Compare that to what we have seen for a long amount of financial engineering and this is a better situation.
▶ 0:34:45Mr. Warsh: The rapid pace of cap acts, which appears to be accelerating, reflects a large part infrastructure acceleration including around ai and the immense demand for software with domestics increasingly present in the first aquatic -- category. And especially elaborate growth rate.
▶ 0:35:14Mr. Warsh: We don't get the extent to which the economy will benefit from the buildout but it seems that what is now called ai investment will soon just be called investment. Even so, new opportunities for the economy introduce new challenges for policymakers we are monitoring the implications for the labor market. On the supply side of the economy, productivity growth has been strong.
▶ 0:35:43Mr. Warsh: I will note that this productivity growth creates gains from ai adoption. America's labor force appears to be broadly stable. Job creation has kept pace with the workforce. The unemployment rate is low and has changed little over the past year, with relatively few layoffs and only slight variants in vacancies with solid growth for nominal wages.
▶ 0:36:10Mr. Warsh: I have been heartened by the welcome I received and by the encouragement of my colleagues. We have a duty to point the institution forward, to take a fresh look at current practices, to make sure that we are serving our objectives. We are going about it systematically. As the chairman referenced, I have appointed a task force in each of five areas central to the conduct of monetary policy. I will just reference them close reversed, fed communications.
▶ 0:36:44Mr. Warsh: Second, our balance sheet policy. Third, existing data use. Fourth, productivity and jobs in the fed inflation framework. Our purpose is to make better decisions around monetary policy, putting the years of high inflation behind us. We are the federal reserve and are as determined as ever to fill our mission. Thank you and I welcome your questions.
▶ 0:37:06Chair Scott: Each of you will have five minutes to ask questions and get answers. I will start that off with the working groups. I think that credibility equals transparency. The names I have seen on your working groups, doug mcmillion, former ceo of omar, mark and reason, of ai, tells me you're serious about getting real-world expertise involved in making the
▶ 0:37:36Chair Scott: Decisions. I want to give a minute of my time to walk through one or two pieces of that, to talk about the importance of having contrast on the committee, on the working groups. From my perspective, it lends itself to having more confidence in the federal reserve and I wanted to give you a minute to talk about one part of it in then move quickly to ai.
▶ 0:37:58Mr. Warsh: Let me be brief. You are highlighting something awfully important. All institutions, including the federal reserve that I am so proud to lead, filled with great people, on occasion we need to bring new ideas to the four.
▶ 0:38:16Mr. Warsh: After 63 months of inflation above fed target, it struck me that any new leader should arrive at this organization and look at these best minds that we could find, there's a lot of great ones at the fed and a lot of great ones that are not even in economics.
▶ 0:38:31Mr. Warsh: I reached out to 15 people I have known and trusted with a diversity of views to see if they would take the most important questions that will be the determinant on monetary policy over the next five years and see if they could sharpen their pencils and do their best work. It is a move towards transparency and new ideas. One example before turning it back to you, over the last couple of days we have gotten data on consumer price index.
▶ 0:39:00Mr. Warsh: Today on the producer price index, any central bank would be happy to have data going in the right direction. My view is that these are all imperfect measures of the state of underlying inflation. So, the task force is going to see if we can do better, have better data from external sources, and even better ideas as to how important organizations like labor and economic statistics could do a better job in an evolving economy.
▶ 0:39:33Chair Scott: Thank you. A few weeks ago we met with Dr. feeling, head of the presidential economic advisors, talking about artificial intelligence and its impact on the economy. Whether it will destroy or create jobs. At the end of the day the inclusion was create more jobs.
▶ 0:39:54Chair Scott: It has the opportunity to change how we do so much of the debate, people making more money because production goes up and you have argued that there is a way to see a reduction in interest rates because of the increase in productivity. One of the things standing in the way of that conversation is happening in south carolina, where data centers are meeting real headwinds.
▶ 0:40:21Chair Scott: New york has basically banned them and we have a moratorium because of issues like electricity o bills, water use, aesthetics. Getting to the future we are talking about and frankly building -- meeting china the ai race might come down to something as important as electricity bills and water usage, preventing us from having a serious conversation about productivity aims. Thoughts?
▶ 0:40:50Mr. Warsh: I can't think of a more consequential change to the U.S. economy in my adult lifetime than the search in investment and potential around ai. It's a part of the reason my task force is focused on the effective this general-purpose technology on both parts of the fed mandate. Ensuring stable prices and on full employment.
▶ 0:41:21Mr. Warsh: You gave us both parts of that. There's no legislative orphans at the fed. I would say it's a huge opportunity that is not without challenge. I think that the united states is extremely well-positioned to be at the cutting edge and extract more productivity, which should be good for U.S. companies and workers, then any other country in the world, any other country would exchange positions with us in a moment.
▶ 0:41:50Mr. Warsh: Second, I want to make it clear that in the near term, I think that this investment is probably quicker for jobs as we are building out the infrastructure. Over the long term, my best guess is that this will improve american productivity and improve real wages and help us on full employment, but between short-term and long-term there can be a disruptive effect that we are attuned to.
▶ 0:42:17Mr. Warsh: It's a part of the reason I wanted to shed light on this from outside.
▶ 0:42:22Chair Scott: My time is up but I am submitting a question from the record indexing repertory thresholds. Our institutions may need to see some recalibration on the thresholds that we have. Ranking member warren?
▶ 0:42:43Sen. Warren: So, the federal reserve has long been plagued by a culture of corruption and coziness with wall street. Over the last five years, at least six senior fed officials have been implicated in serious ethics scandals related to personal stock trading and self-dealing. Instead of trying to repair the broken culture, I'm concerned that you seem to be embracing it.
▶ 0:43:11Sen. Warren: At the time of your nomination, you own more than 100 million dollars in shares in private investment vehicles called juggernaut funds and ths dfs llc . You refused to disclose the underlying assets to the senate and to the public. Now you say that you have sold the shares. In other words, someone wrote you a check for more than $100 million. Days before you entered office.
▶ 0:43:42Sen. Warren: Chair welch, who wrote the check?
▶ 0:43:44Mr. Warsh: This is a discussion you and I had in the public square or seven weeks ago and I'm thrilled to tell you that I fully honor the obligations I had under the office I had of government ethics. There is continued disclosure I'm happy to make.
▶ 0:44:01Sen. Warren: I asked a very specific question, who gave you 100 million dollars right before you were sworn in? Was it a billionaire with business with the fed? Was it stanley miller, who has made billions betting on what the fed does? Or was it a different billionaire? Who gave you the money? >> I will fully comply with the office of government ethics.
▶ 0:44:29Sen. Warren: That's not an answer.
▶ 0:44:30Mr. Warsh: It is an answer.
▶ 0:44:32Sen. Warren: $100 million that you got just before you were sworn in and you won't tell the american people where it came from. Another incident, the fed has a blackout in which the fed officials are prohibited from discussing the issues with outsiders to reinforce public confidence in the transparence -- transparency of the monetary policy process.
▶ 0:45:03Sen. Warren: No one gets special insight information from the fed, in other words. Shortly after your first fomc meeting as chair, right in the middle of the blackout, the fed vice chair for supervision was reportedly the featured guest at a secret dinner hosted by bank of america for their hedge fund and wall street clients.
▶ 0:45:25Sen. Warren: At this closed-door dinner, she reportedly spoke about both monetary policy topics and regulatory policy. Now, I have called on the inspector general to review her conduct, but you are the guy in charge. As chair, you set the tone on culture. Did vice chair bowman provide any nonpublic information to the attendees at that secret dinner?
▶ 0:45:53Sen. Warren: Or discuss any regulatory policy matters subject to open comments?
▶ 0:45:59Mr. Warsh: I agree with one premise of your question, I do set the culture.
▶ 0:46:04Sen. Warren: Good.
▶ 0:46:06Mr. Warsh: After my first week at the fed I set letters to the 21,000 people at the fed.
▶ 0:46:12Sen. Warren: I appreciate that, but we have limited time. Can you answer the question about the vice chair inter-secret meeting?
▶ 0:46:21Mr. Warsh: I'm happy to to the extent that I can share it with you. The vice chair has been an excellent colleague in my first seven weeks. I'm aware of the letter that you sent to the inspector general. Out of an enormous respect for him, his investigation, I'm going to leave it to him without micromanaging that. I'm interested in the judgment he comes to.
▶ 0:46:49Sen. Warren: Did you make your own investigation? Have you asked her?
▶ 0:46:55Mr. Warsh: I agree with the suggestion that the inspector general is the one in charge.
▶ 0:47:05Sen. Warren: You're the guy in charge, did you ask her about the secret meeting that took place?
▶ 0:47:11Sen. Warren: Did you ask her?
▶ 0:47:13Mr. Warsh: I can answer a simple question, I don't -- wasn't at the meeting.
▶ 0:47:19Sen. Warren: I know. Did you ask about it? Did you care enough to ask? How can you be chair without asking your own vice chair whether or not she violated the blackout, violated the law?
▶ 0:47:32Mr. Warsh: They could be inappropriate for me to prejudge facts.
▶ 0:47:37Sen. Warren: How can you prejudge them if you don't ask?
▶ 0:47:42Mr. Warsh: I don't know how to prejudge if I wasn't in the attendance of a meeting.
▶ 0:47:46Sen. Warren: Did you ask?
▶ 0:47:49Mr. Warsh: She's been an excellent colleague.
▶ 0:47:52Sen. Warren: Did you ask? I gotta say, taking the same time you did, the tone that you are setting is one that seems to invite corruption and that is going to be a real problem.
▶ 0:48:06Mr. Warsh: We have had seven weeks and have set a tone of performance, affect -- accountability and integrity.
▶ 0:48:16Chair Scott: Senator has the floor.
▶ 0:48:22Senator: Welcome to your first meeting, Mr. warsh.
▶ 0:48:25Mr. Warsh: Thank you.
▶ 0:48:29Senator: I've got that I te that I tt around basel three, but I think you been harassed. Can I give you a minute to respond in a straightforward manner to some of this stuff? Anybody give you $100 million?
▶ 0:48:49Mr. Warsh: No one did any such thing.
▶ 0:48:53Sen. Rounds: Is it possible you had assets that were sold based upon an agreement that you had became the nominee for the chairmanship?
▶ 0:49:04Mr. Warsh: I had earned assets over a long amount of time that went over and above ethics and have sold or were in the process of selling, nearly completely sold everything I had earned and roll those into the equivalent of cash and t-bills.
▶ 0:49:24Sen. Rounds: Basically away from investments based on the market and back to, to treasuries?
▶ 0:49:35Mr. Warsh: Exactly right. I thought that that was the prudent thing to do in terms of setting the culture at the top. In my first seven weeks, senator, we have done our very best in the fed tradition to get the culture right, the strategy right coming in policy right.
▶ 0:49:56Mr. Warsh: All of that is to the left of the decimal point and it may not be of much interest to those trading on wall street but I think that the decisions you make to the right of the decimal point can be better so that we can do a better job of fulfilling the mandate you gave us.
▶ 0:50:10Sen. Rounds: The ranking member had asked a question with regards to another member on the committee, nikki bowman. You indicated that if there was an accusation being made as to an inappropriate meeting, if the inspector general was doing it, you would be hands off on it. Seems to me that's pretty appropriate. If you had gotten involved in it, the accusation from some members on this committee would be that you were trying to influence it.
▶ 0:50:40Sen. Rounds: Can you talk about the logic? Am I on the right track regarding the reasoning you have for allowing the inspector general to do the job they were asked to do in the first place by members on this committee?
▶ 0:50:52Mr. Warsh: You are exactly on the right track. More broadly, I will say that my fellow governors, reserve bank presidents received to me incredibly warmly. I admit that I show up with a lot of ideas for reform and monetary policy and supervision regulation payments. I've only been there for a short while, seven weeks. Instead of an institution acting inert, I found my colleagues are really open-minded to change.
▶ 0:51:21Mr. Warsh: I have found that we are going to have a good family fight. I'm not imposing ideas. We are going to try to be better at our jobs, fulfill our mission , be accountable, be responsible, and do it all with the utmost integrity. That's my intention. We are early into this. I don't want to prejudge. We've made a lot of progress in a short amount of time that I'm proud of.
▶ 0:51:47Sen. Rounds: I think that working groups will give a good opportunity for a fresh look at what's going on. As I shared with you earlier it's not a matter of being vindictive or angry with previous chairs were members, it's a matter of making things better for the american people and that is what we should be talking about today. In my minute that I have left, let's talk a bit about basel three in particular.
▶ 0:52:15Sen. Rounds: You and the vice chairman with respect to financial regulators, you've done a good job around the reef proposal issue this mark. The 2023 proposal would have increased common equity capital requirements for categories one and two banks fight 19%. Failing to strike a balance between maintaining resilience in the banking system in doing so without hampering lending. This is a critical item.
▶ 0:52:45Sen. Rounds: Next to what artificial intelligence is going to do in terms of productivity, I think it's under the biggest issues out there. Are there any other categories of feedback you are weighing on? Anything along that line? Is there going to be a go live date anytime this year, and a idea when you might be able to talk about when this thing could go public for us?
▶ 0:53:13Mr. Warsh: Thank you for the question about supervision regulation. I have shown up with a lot of ideas for monetary policy, supervision, and regulation. Some 20 years ago there was a debate about what the basel three process should be, but we should get to the bottom of that 20 years later with a set of reforms that makes the financial systems and banks save her, and more competitive with that
▶ 0:53:44Mr. Warsh: Competition that provides better and more agile credit to the real economy. The basel endgame is not america's. I'm having to work with international regulators to try to find common views, but we will do the right thing for the U.S. economy and I'm out for public comment. I will be very interested in them.
▶ 0:54:07Chair Scott: Let me just say that this is already off to a good start. We are sticking with five minutes. Thank you. Senator reed, floor is yours.
▶ 0:54:21Senator Reed: Thank you. In terms of putting it cap on this discussion, when will you disclose your assets?
▶ 0:54:32Mr. Warsh: There are periodic requirements under ethics laws that I will fully comply with. I think the next is at some point next quarter.
▶ 0:54:41Sen. Reed: And you will fully disclose who you sold your assets to?
▶ 0:54:46Mr. Warsh: I will fully comply with the law.
▶ 0:54:50Sen. Reed: Thank you. Ai is backing everything we do, particularly banking. As you are aware, interagency government approved congress, treasury, energy, etc., has authorized the major banks, the eight major banks use mythos to evaluate their security.
▶ 0:55:15Sen. Reed: Would you agree that it is important for all financial institutions to have access to these kinds of tools so that they could analyze their operations for cyber vulnerabilities?
▶ 0:55:28Chair Scott: The broad financial system has new dangers with these new technologies, but I wouldn't want to isolate just mythos. Other language models have changed things even in the last month, but as the new models find their way more broadly, the banking system in the federal reserve needs to do everything can to patch the vulnerabilities we have.
▶ 0:55:54Sen. Reed: What are you doing to make sure that these midsize and smaller banking institutions have access to whatever ai tools are appropriate?
▶ 0:56:04Mr. Warsh: I share the sentiment. We are not the deciders as to who has access, but I haven't been shy in sharing my views with authorities across the government about that vulnerability and I have been asking for access not just for the federal reserve, but for other institutions with a whole range of these new artificial intelligence models so that they can protect themselves.
▶ 0:56:32Mr. Warsh: If you had told me what worries you over the course of the next several months, I want to make sure we are as protected as we can be from foreign actors that want to do us harm.
▶ 0:56:43Sen. Reed: Let me change the focus was stay with ai for a moment. Recently governor waller and john williamson warned that ai investments might be increasing inflation. Many economists have made similar warnings. Our ai investments currently driving inflation?
▶ 0:57:03Mr. Warsh: This is one of the good family fights. My own view on it might be nuanced from the way you just described it. The supply shock of ai has an effect on demand and supply. It's on demand of brushwork quickly. We see it in the capital investments I referenced in the prices of chips that are going up.
▶ 0:57:32Mr. Warsh: We are inferring with the effects will happen on the supply side of the economy. I don't view a one-time change in prices as necessarily being inflationary. I think that there is a supply response and in that way it's different from a foreign conflict and what it might do, will it increase measured prices , I expect so.
▶ 0:58:03Mr. Warsh: Whether that is inflationary or not, that's up to the fed and we will have something to say about that.
▶ 0:58:10Sen. Reed: Our economy is becoming more and more productive but household pay is not rising relative to that productivity. We are seeing less benefit from productivity gains. What's driving the trend? >> great question. I don't have a perfect answer on it. The part that the fed can do a lot about is the real part.
▶ 0:58:42Sen. Reed: If inflation were lower, real take-home pay would be higher. Your other questions are what are we going to see out of the productivity for myths terms of search wages? Wages happened up at a reasonable pace but it is likely ask productivity moves up more, wages should go up more and in that time, understanding when that happens is a puzzle that we will continue to work on.
▶ 0:59:10Sen. Reed: Will ai eliminate jobs on a catastrophic level?
▶ 0:59:18Mr. Warsh: Over the long term it's a job creator. But will it be distracted and will some people have their jobs disrupted because of these technologies? I can often bash offer no guarantee or comfort.
▶ 0:59:39Senator Britt: Chair, thank you. Appreciate the opportunity to have a conversation so early in your tenure and this year is one of the most encouraging theme and in alabama and in many places, safe companies expand and communities can drop from
▶ 1:00:10Senator Britt: The investment. Service signs that are important for the future as they help us determine if america is the mystic who -- competitive economy in the world. When you look at the economy, what data tells you that investments are laying the groundwork for stronger long-term growth and greater american competitiveness?
▶ 1:00:33Mr. Warsh: That's a great question and thank you for highlighting the capital investment. This is deceived for the next group of job creation and productivity. To be honest over the last dozen or so years, have been waiting for a surge in business investment. Academically I know this is leading to a surge in prices. I don't want to sound dismissive of that, that israel.
▶ 1:01:05Mr. Warsh: But the most successful companies in the world investing in property equipment in doing a share buyback, I'm encouraged by it. The trend is our friend here and this investment is contributing massively to the gdp we have seen over the last 12 months. My colleagues know that I'm not big for forward guidance, but I would guess that the trend continues. What gives me optimism about it?
▶ 1:01:31Mr. Warsh: When the private sector employees this amount of capital, they must see something shining at the end of the rainbow. They must see a good return on investment. That's why they are taking this capital and putting it to work. I tend to think that private investment has a multiplier much higher than one. I will let you and others judge if that's true of government spending.
▶ 1:01:51Sen. Reed: I'm going to switch -- senator britt: I'm going to switch gears, I know we are on a tight tame -- timeframe. I would like to get you to kind of dig into this. Some banks are already approaching and crossing into new tailoring category -- categories, making staffing and compliance and long-term decisions based on thresholds that have not been updated since 2019.
▶ 1:02:19Sen. Reed: At the same time, the federal reserve continues to rely on those categories and other regulatory frameworks. How are you thinking about updating these tailoring frameworks when it comes to what banks can expect to see from proposals in the future?
▶ 1:02:34Mr. Warsh: It's a great question that I take seriously. To be candid with you, monetary policy has distracted me a bit in the first several weeks, but the federal reserve chairman is supposed to be the chairman of monetary policy and payments with supervision and.
▶ 1:02:55Mr. Warsh: I can tell you this, vice chairman bowman has been working on these initiatives and briefed me about them and broadly I will step back to say that modernizing and streamlining so that the rule that apply to the systemically important financial institutions are not one-size-fits-all for every other. The secret to the american economy banks and providers of credit who knows smaller markets bigger.
▶ 1:03:24Mr. Warsh: I would rather have that system over most of our peers, who have half of a dozen institutions backed by the government. I think that reform is coming to supervision regulation. I have my own ideas that might be as dramatic as I already shared here and the sooner we can get to the bottom of it, the better.
▶ 1:03:44Mr. Warsh: If I can say one more thing, the reforms over the last 15 years coming out of don frank, the first republic example, they worked perfectly. My predecessors had very little choice but to do another overall bailout and we don't want that to happen again. We are going to tailor the rules in the capital so they serve the best interests of the U.S. economy, which I described as a system that is safe, sound, and competitive.
▶ 1:04:14Sen. Britt: Given what you said, doubling down on reviewing the framework and looking at how important tailoring is and the need for regulatory certainty, thank you for that. In my last remaining seconds, thank you for your commitment in this first seven weeks, almost two months. You said it earlier, but to performance, a accountability, and integrity. Appreciate what you're doing and look forward to continuing to work with you.
▶ 1:04:43Mr. Warsh: Thank you.
▶ 1:04:44Chair Scott: Senator warner?
▶ 1:04:50Senator Warner: Thank you. Seven weeks in, you've got a hell of a job. Inflation, still too high. Chaotic wars in the middle east. I'm going to come to an ai question, but as I said to you yesterday, I didn't vote for you, but we will find a lot of common ground to work together. I've been appreciative of your comments about inflation and fed independence. There are many common areas where we can work together.
▶ 1:05:17Senator Warner: One of the things that most impressed me in our first meeting was your recognition that the biggest issue you're are going to face is ai. My sense is that I think it is going to have long-term, I agree with you, job creation. Very short-term, I think you might see an upsurge in energy production. Years two through 5, 2 through six, I think there could be massive economic disruption towards new college graduates.
▶ 1:05:47Senator Warner: It's a policymaker job but if this is going to have a potential effect, and I hope I'm wrong, but I would bet with you that three years out we can see 30% college graduate unemployment. We can see it now. In terms of urging your actions but helping assorted out.
▶ 1:06:03Mr. Warsh: First of all, I appreciate it. I promise --
▶ 1:06:09Sen. Warnock: Don't say nice things about me, we've got you
▶ 1:06:13On : 00.
▶ 1:06:15Mr. Warsh: All right, let me just say that I appreciate you have given up on me. I haven't given up on you or your colleagues. I'm the independent head of the central bank, no matter how people voted, I serve all of you.
▶ 1:06:29Sen. Warnock: This doesn't count against my time. [laughter]
▶ 1:06:32Mr. Warsh: Ai, let me get to the core of your question. I am more confident that there will be a surge in output because the U.S. is at the cutting-edge of ai than any certainty about the effect on the labor market in the next few years. The U.S. will be a winner. That's my informed judgment. This is a time filled with both challenges and risks.
▶ 1:07:00Mr. Warsh: We take both parts of the dual mandate seriously. Do I believe that productivity improvements over time will be structurally diss inflationary? I do. Everything technology touches ultimately gets cheaper. I think your background would be consistent with that. The effect on the labor markets? That's a fair question. I would frame it to you on college graduates. If you are a new college graduate, ai is probably native to you.
▶ 1:07:29Mr. Warsh: You have been playing with it effectively since her high school years and I feel like you likely have the skills and intuitions the same way that people of my generation were younger were native to the internet. If you have already been in the workforce for a while and are resistant to change, that's where the encouragement needs to be to think about how these skills can make you more productive. These are fair questions without easy answers.
▶ 1:07:57Sen. Warnock: We have to work together on it, because if we hit the bump and I think it's going to come, we have to collaborate. I agree, mythos is already yesterday's news. These models are coming up so quickly with such security risks.
▶ 1:08:14Sen. Warnock: I think it is incumbent because of the risks to our financial system that at some point you are going to be -- and I'm asking you now, personally I believe we need some level of mandatory testing before release because of the potentially draconian dramatic effects. Now, how long, who is on the panel, that's critical. What do you think about the pretesting release regime going for more than just a voluntary willingness of a company going forward?
▶ 1:08:44Mr. Warsh: Two things. First, these models and capabilities are growing exponentially. I would say the technology is hyper moore's law. Not long ago those in my position thought that this was a time of secular stagnation where all the good stuff had been invented and that seems in now. We are moving fast. What can we do?
▶ 1:09:08Mr. Warsh: I don't have a current structure as to who has access, but I do have a bully pulpit and I'm not afraid to share my views with the treasury secretary and others. The cutting edge is moving very quickly. He institutions are vulnerable. The sooner they can mitigate those vulnerabilities, the better.
▶ 1:09:28Sen. Warnock: I hope you would be willing to advocate moving beyond voluntary regimes. Downside risk, 12 seconds, can you quickly address the role of the federal reserve banks and your vision?
▶ 1:09:43Mr. Warsh: Very quickly, I will say that we should be good stewards of taxpayer money, consolidating functions where we can. My mental model as I mentioned to you yesterday is 12 centers of excellence. I have over 12 problems on my plate and of each bank had expertise on something that matters within our remit, I would encourage them to develop
▶ 1:10:07The Chair Scott: Advantage.
▶ 1:10:07Chair Scott: Senator ricketts?
▶ 1:10:11Senator Ricketts: Chairman warsh, thank you for being here and congratulations on your first semiannual report. Got some good news this week, inflation was down. That's progress. Progress under this administration new leadership at the fed. In the biden administration we had reckless spending that left nebraska families to foot the bill.
▶ 1:10:35Senator Ricketts: 2019 the federal deficit was roughly $900 billion and in 2024 it was 1.9 trillion and we saw inflation go up 20%, stressing nebraska families at the grocery store. Cleaning up this mess is going to take discipline and reform. Chairman warsh, in our meeting we discussed how to implement some reforms, such as process improvement. Six sigma and the opportunity there.
▶ 1:11:06Senator Ricketts: You promised to have a reform oriented federal reserve and were willing to make a break from the mistakes of the past. I commend you for that and want to work with you get through. One of the most important places to start is with the fed balance sheet, an issue I have consistently raised with other fed governors. The fed expanded its balance sheet dramatically in pandemic. Since 2022 the fed shrink it down to 6.5 trillion.
▶ 1:11:34Senator Ricketts: I am glad to see the vet was making progress over the last few years, but the balance sheet is still not down to pre-covid levels. It is actually rising again and stands at six trillion today. Chairman, do you see the balance sheet increasing again as a trend in the right direction or the wrong direction?
▶ 1:11:55Mr. Warsh: Senator, thank you for the question. I've been focused on the balance sheet since my last day of the fed some 15 years ago into the present. I don't want to prejudge the conclusions of the balance sheet task force, or as the chairman said, where I put together a team of rivals to fiddle with it, evaluated, come up with their own judgments, but I will give you my predilections.
▶ 1:12:22Mr. Warsh: Monetary policy is currently being made through two material instruments. Interest rates and the balance sheet. In fact, we grew the balance sheet and created quantitative easing when I served last time because we had cut rates to zero. Expanding and had the intent of helping markets clear, but it was also another tool of monetary policy.
▶ 1:12:47Sen. Ricketts: Wasn't that supposed to be temporary?
▶ 1:12:51Mr. Warsh: That was our entry principle, that we would get out of that business. For a range of reasons, we have not. My general view is that as we think about inflation just scan the conduct of monetary policy writ large, we have two instruments we should be thinking about. The balance sheet is one of them.
▶ 1:13:11Mr. Warsh: I will make another point, monetary policy needs to be architected, designed by the policymakers around the fomc. The plumbing, the operations, how we do that is conducted by the new york fed. I want the architecture to drive the plumbing, not the plumbing to drive the architecture.
▶ 1:13:34Mr. Warsh: We will make decisions with respect to the balance sheet and I'm open-minded to changes that we make, which will be well discussed and shared and by deliberate. The financial markets who have seen the balance sheet grow effectively for a generation, they will have plenty of time to adjust if we make changes.
▶ 1:13:53Sen. Ricketts: I know you said you only wanted to make one comment, but I'm going to push for more. What do you believe is the smolen's balance sheet the fed could operate on?
▶ 1:14:04Mr. Warsh: My predilection, inclination, is interest rates should be the driver and the balance sheet should be as small as practical to conduct operations. The balance sheet can expand when there's a crisis and it can also expand if an institution needs liquidity. It's a part of the reason we created a discount window.
▶ 1:14:28Mr. Warsh: A permanently large balance sheet with a duration of assets larger than the duration at treasuries, for example, that are held in the broader public markets, that sure seems a little more like fiscali woulo a little more like fiscali woule a little more like fiscali woula leaner, meaner balance sheet but it is a discussion for my colleagues and I've got three real pros help us.
▶ 1:14:55Sen. Ricketts: I do have a question I will follow up with for the record on scams because this is something that banking industries told me they are increasingly seen, people deposits a lot of money.
▶ 1:15:09Mr. Warsh: We are opposed to scams but I'm happy to follow-up. [laughter]
▶ 1:15:14Chair Scott: Good to hear, good to hear. >> let me turn to the headline inflation numbers that came out yesterday at 3.5% above the fed 2% target. Prices are too high for families and we need to get them down. I think we can agree on that.
▶ 1:15:40Chair Scott: I your press conference a few weeks ago, said hyperinflation in part, "reflects supply shocks that have driven price increases in certain sectors, including energy." in other words, reason we are seeing prices go up is the supply of products and services has dropped in some areas the economy, right?
▶ 1:16:00Mr. Warsh: Yes.
▶ 1:16:04Sen. Van Hollen: I think it is important public understand the causes of some of these supply shocks. You would agree, would you not, the war in iran has caused supply shock in the energy markets?
▶ 1:16:15Mr. Warsh: Military conflict have caused the price of oil to be higher than it otherwise would.
▶ 1:16:22Sen. Van Hollen: And americans are paying the burden of that as we go. We have also seen supply shocks in other areas. Last year your colleague austin goolsby said "a tariff is like a negative supply shock." we have seen plenty of tariffs, honestly, the supreme court decision bring those down over time, the impact of it. But the negative supply shocks have been real and can be traced to the trump administration agenda.
▶ 1:16:53Sen. Van Hollen: So when you say supply shocks are part of the reason prices are going up, you would acknowledge they are the result of decisions that have been made by the president, like going to war with iran?
▶ 1:17:06Mr. Warsh: What I would say is particular price shocks are over things we don't have control over but I don't want to say we don't have control over inflation in the medium term. That is our job. Screw arm affects prices. Oil prices, prices are affected. I know that has an effect on people's household budgets.
▶ 1:17:28Sen. Van Hollen: And I think we have seen the price of energy go up billions and billions of dollars and the american people are simply paying for that at the pump and other places and their pocketbooks. As you know, her predecessor -- your predecessor was harassed and prorated by the president of united states on social media with respect to interest rates, at least so far you seem to have escaped that fate.
▶ 1:17:57Sen. Van Hollen: But I do think it is important we have an understanding of whether or not the president is trying to influence fed conduct. I know you were asked recently at your last press conference about any medications with the president. I think her response was, I don't have anything for you. Was that a yes or no with respect to whether you have had communications with president trump?
▶ 1:18:23Mr. Warsh: Senator, I don't have anything for you. I will say this, though, I do it with the treasury secretary weekly. I talked to him often. I will make my own decision.
▶ 1:18:35Sen. Van Hollen: I want to understand the answer. Have you or have you not had communications with president trump since you took this position?
▶ 1:18:43Mr. Warsh: I just don't want to be in the business of sharing discussions that the president and I have. I will tell you what I've said repeatedly and said to the treasury secretary, the chosen independent got to do an independent drop and that is what I plan on doing. I would like to think over the last seven weeks, the decisions we have made and things we have done, it is not just words, is actions to demonstrate that.
▶ 1:19:07Sen. Van Hollen: Mr. chairman, I think it is important I take from your answers you have had communications and do not want to disclose the content. We commit to do what your predecessor did, which is to release your appointment schedule and conversations with the president?
▶ 1:19:21Mr. Warsh: I don't know the past practice was. I will be in full compliance with the law as I understand it, there is an ongoing foia request on my calendar and I will share it consistent with the law.
▶ 1:19:34Sen. Van Hollen: I think this was -- this was not in response to any legal requirement forced by foia, it was a question of transparency. I do think given the president's past record of trying to influence fed behavior via social media with respect to your predecessor, if he is trying influence fed behavior through private conversations with you, I think that needs to be something the public is aware of.
▶ 1:20:03Sen. Van Hollen: I'm asking you whether you will commit to disclosing when you have conversations with the president of the united states.
▶ 1:20:09Mr. Warsh: I can offer you this assurance, the president has not -- before I took this office, before I raised my right hand, he has not tried to influence the conduct of monetary policy. And if you try to come out continue to keep my head down and do the job. I don't have a long record, but I have a seven week record and for that a 25 year record. I think that should count for something.
▶ 1:20:34Chair Scott: Senator kennedy, the floor is yours.
▶ 1:20:39Sen. Kennedy: Senator van hollen is my body so this is not meant for him but I always get a kick out of my democratic friends talking about transparency. Toward the end, god bless him, you could make a thanksgiving turkey in the time it took president biden to walk across the stage.
▶ 1:21:08Sen. Kennedy: They kept it quiet until they couldn't. I'm sorry he was in that condition, but this transparency stuff cuts both ways. What is wrong with you talking to the president of the united states?
▶ 1:21:24Mr. Warsh: Senator, I have a wide lens. An interested and hearing all points of view. I'm interested in what is happening in the world.
▶ 1:21:36Sen. Kennedy: But is there anything wrong with that? Do you do it, do you have to go out and look for the last phone booth in washington and put a bag over your head and sneak and call him or return his calls? Is there anything wrong with that? Mr. warsh: I don't feel comfortable receiving a call from the chairman of this committee or the president of united states.
▶ 1:21:56Sen. Kennedy: Do you think ben bernanke spoke to the president of united states? How about alan greenspan?
▶ 1:22:03Mr. Warsh: When I was a young staffer in the white house, remember being honored by him coming to the white house and meeting with the president and the president's advisers quite frequently.
▶ 1:22:13Sen. Kennedy: I think what would give me concern and I think the basis for my colleagues concern is that you just do whatever president says. But you're not going to do that, are you?
▶ 1:22:26Mr. Warsh: I am going to call it the best I see it. There president never asked me to do anything inappropriate. If he did, I would not do it. I followed the law into my best to follow the remit you gave us.
▶ 1:22:39Sen. Kennedy: In the last year or so, recent past I will say, the fed cut rates three times because they're worried about the labor market. Is that fair?
▶ 1:22:47Mr. Warsh: That is my sense --
▶ 1:22:51Sen. Kennedy: And it worked, correct?
▶ 1:22:52Mr. Warsh: That is a longer discussion.
▶ 1:22:57Sen. Kennedy: Is the labor market in a mess today?
▶ 1:22:58Mr. Warsh: It is in good shape.
▶ 1:23:01Sen. Kennedy: I don't have much time. I love you like a taco but do not filibuster on me. So it worked. Now we have inflation. What caused it?
▶ 1:23:18Mr. Warsh: In 20 seconds, inflation is caused when a one-time change in prices brought --
▶ 1:23:27Sen. Kennedy: I know it inflation is. Tell me what caused it.
▶ 1:23:29Mr. Warsh: Monetary policy, sir.
▶ 1:23:32Sen. Kennedy: I would say what is causing it is ai, the conflict with iran, and probably the residual effect of the fact some imports have become more expensive. Ok? And I think any fair-minded person would conclude that.
▶ 1:23:57Sen. Kennedy: There was a lot of economists that said, oh, the impact of inflation on the rise it imports would be a one-shot deal. I don't know, I think it is probably having residual effect. Is it temporary or permanent? The inflation?
▶ 1:24:14Mr. Warsh: It is not going to be permanent under my watch.
▶ 1:24:19Sen. Kennedy: What are you going to do about it?
▶ 1:24:20Mr. Warsh: Three things. One, for those people in markets that think the fed was comfortable the higher level of inflation, we are doing our best to disabuse --
▶ 1:24:31Sen. Kennedy: You're going to talk about it. What is the second thing?
▶ 1:24:33Mr. Warsh: We will take ownership and so we have the power to do it.
▶ 1:24:37Sen. Kennedy: What is the third thing you're going to do?
▶ 1:24:39Mr. Warsh: Look at our tools in the changing economy, both balance sheet and interest rate, and see if we need to adjust policy to take it head on.
▶ 1:24:49Sen. Kennedy: Going to look at your tools, the third thing. I'm not asking you what action the fed will take, that would be improper. I would not do that and you would not tell me anyway. Specifically, like you're talking to a 10th grader, what are your options? Leave it alone, right? Leave rates alone is one option. Raise rates.
▶ 1:25:21Sen. Kennedy: Cut rates.
▶ 1:25:23Mr. Warsh: Three options. Nonexclusive list of options.
▶ 1:25:30Sen. Kennedy: A lot of it depends on if it is temporary or permanent. How do you decide if it is temporary or permanent?
▶ 1:25:36Mr. Warsh: You use five task forces to get to the big and hard questions instead of trying to paper it over with policies that have not been proven successful.
▶ 1:25:47Chair Scott: Senator cortez masto.
▶ 1:25:51Sen. Cortez Masto: Chairman warsh, thank you for meeting with me. You talked about the taskforces. What is the timeline for getting reports from the taskforces?
▶ 1:25:59Mr. Warsh: I'm not a very patient person. People have said to do all this good work, you will need years. I get them six months.
▶ 1:26:09Sen. Cortez Masto: And that will be made public?
▶ 1:26:11Mr. Warsh: The details, even much of the deliberations, I what to do that in the public square because we all own these decisions at the end of the day. Ultimately, decisions will be made by by fomc colleagues. I think they will start to get briefings on some of the early reports from the task force, early indications, hopefully as early as september with my expectation hope I year in we will hear their conclusions and decide what to do with it.
▶ 1:26:39Sen. Cortez Masto: For clarification, in january 2025, he recalled the inflation rate was about 3%?
▶ 1:26:45Mr. Warsh: I'll will have to take your word for the precise number. I know it was well above target.
▶ 1:26:52Sen. Cortez Masto: It was about 3% and that is when joe biden left office. The current inflation rate right now is about 3.5%?
▶ 1:26:58Mr. Warsh: There are various measures. I'm confident telling you it has been above target for 63 months. By some measures, other measures it is not. I don't to suggest I'm happy with any of those measures. I am not.
▶ 1:27:14Sen. Cortez Masto: I appreciate it. Let me talk a little about an area that is important for me and I think many states that deal with hospitality tourism industry. Unfortunately under this administration, we have seen significant declines in the number of international visitors to the U.S.
▶ 1:27:33Sen. Cortez Masto: Current situation has led to our travel trade deficit in this country going from a $51 billion surplus in 2019 to a $72 billion deficit today. How does the federal reserve governor's the specific impact of higher unemployment, lower wages, and reduced economic activities in communities with large tourism economies like las vegas?
▶ 1:28:00Mr. Warsh: We are consumers of this information. We are keenly interested in the good side of the economy, the services side of the economy. My view, which is not universally shared economics profession, is there is no limit to what this economy can grow. Productivity-led growth can move higher and that does not tell me it is inflationary. But we care about the services part of the economy, and we are trying to take that into account. We try to make decisions about the dual mandate.
▶ 1:28:31Sen. Cortez Masto: I appreciate that because your dual mandate is maintained stable prices and full employment. Let me tell you what is happening in the hospitality industry because of the policies of this administration. You talk about full employment, it is not happening. What I'm hearing from people in my state is that it is not necessarily full employment with good wages, and livable wages, they are patching together multiple low-wage jobs because they are taking down from full employment to part-time employment.
▶ 1:29:01Sen. Cortez Masto: Do you consider that in your analysis, going from full-time to part-time in many individuals having several part-time jobs? How do you calculate that your analysis?
▶ 1:29:10Mr. Warsh: You heard my opening statement the clear judgment of my colleagues andy which is a labor market broadly looks imbalanced but I don't want to make that sound like it is easy for hard-working americans in your state and other places. There is a lot of dynamism happening in the economy, structural change.
▶ 1:29:33Mr. Warsh: During periods of transition, it is often true the labor markets in aggregate look better than people feel in different parts and during disruption they try to re-create a job they had before to the gig economy and other means. We take it into account, overall, I would say the labor market part of our mandate looks pretty good. The price stability part of our mandate looks less good.
▶ 1:29:59Sen. Cortez Masto: I am concerned because not just las vegas, but many tourism-based industries and hospitality, what we are seeing is lower full employment. This is a conversation I've had with previous chairs as well. I would hope you are considering that created it is a large sector of employment across the country. I know you made a statement that rise in prices is not necessarily inflationary, correct? At what point do you consider to be inflationary? As our timeline?
▶ 1:30:30Mr. Warsh: When an increase in prices in particular category like oil or like milk or eggs from it when we see that broaden out and affected generalized price level, that is something we could do something about. That is the way I think of inflation. When prices go up, I know it hits her constituents every day. I'm not trying to sound dismissive forget I also don't know what to say there is much we could do about cattle prices are no prices today.
▶ 1:30:57Mr. Warsh: There's a lot we can do to make sure the entire grocery aisle does not have higher prices. And that is what we are committed to doing.
▶ 1:31:02Chair Scott: Senator hagerty.
▶ 1:31:05Sen. Hagerty: On july 19, almost a year ago today, signed my legislation genius let act into law. Vital to ensure U.S. dollar dominance exists here. I look forward to seeing the federal reserve this matter. I want to make that point clear. It is important and needs to be done. I want to turn to our broader concern. It has to do with the independence of monetary policy.
▶ 1:31:36Sen. Hagerty: I want to emphasize something I think is important. A special insulation that the fed receives with regard to monetary policy, I think as far as I am concerned, it should not extend to every other function. What the fed does. I think it should be limited to monetary policy. For example, about bank regulations and supervision. That is entirely distinct monetary policy.
▶ 1:32:00Sen. Hagerty: Regulation requires normative policy judgments, risk, thanking system come all these considerations need to roll into it. You think about what is happened in recent years, regulation is stray far afield. You think about what has happened with respect to climate policy. The vessel three proposal. These decisions are not the same. Setting interest rates were managing the fed's got sheets.
▶ 1:32:28Sen. Hagerty: I think our forms of regulatory power. The supreme court has clarified the fdic is subject to ordinary principles with comparable regulatory functions that the fed should not be held to a different standard in my view simply because they sit within the central bank. My question is, do you agree the federal reserve's independent should be narrowly tied to its monetary --
▶ 1:32:52Mr. Warsh: Thank you for the question. Like you said, independence is at its peak in the conduct of monetary policy. I believe that when I showed up at the fed in 2006. I believe my confirmation hearing seven or eight weeks ago. I believe it now.
▶ 1:33:09Mr. Warsh: The conduct of bank and revelatory policy on things like the genius act, my general view is we should be working with our bank regulators, the other bank regulators, fdic, to see if we can't put out our roles together. I don't think we want any kind of regulatory arbitrage where firms are trying to gain who has the lightest regulation and race there. I don't think there's anything wrong with us working together with other bank regulators to try to figure out what is the best policy.
▶ 1:33:38Mr. Warsh: That is some shorter colleagues at the fed that are able to think hard about these issues. I think those discussion should happen and do happen.
▶ 1:33:46Sen. Hagerty: I do not disagree with that. But there's something deeper I'm concerned about, Mr. chairman. Say future congress decides to invent some sort of revelatory function inside the fed. Seeking to insulate it from our supervision, or oversight. In some way that could become a backdoor that I don't think any of us wants to see.
▶ 1:34:10Sen. Hagerty: What I'm trying to make clear is beyond monetary policy, I will ask the question, do you think the special insulation applies to other regulatory and supervisory type functions?
▶ 1:34:21Mr. Warsh: I spent eight weeks as a summer -- summer associate at a law firms are probably not the best position to opine on the supreme court. It senator warren could do a better job than I. I recall it the most recent opinion, a footnote from a majority that says we are not suggesting if other things went to the federal reserve it would get any insulation beyond that, I am on shaky ground to try to opine on with the supreme court opinion needs.
▶ 1:34:51Sen. Hagerty: I was out looking for your legal opinion but I think it is common sense. There's a real distinction here and I appreciate that. I want to turn to another important matter and that is the monetary policy report that you work with. The most recent report added a new aggregate to the measurement. I wanted to ask you to explain why this is useful and why it has been added.
▶ 1:35:16Mr. Warsh: That was an easter egg we hid in there to see if anyone read these monetary policy reports. I'm encouraged you did. There are -- there is almost a page talking about m2 monetary aggregates. That was done with the purpose. I do not show up here as a monitorist, I do not show up as a the secret to inflation is if we only knew m2, everything would be swell.
▶ 1:35:46Mr. Warsh: Monetary aggregates had been taken out of the police report probably about a decade ago, maybe a bit longer. My view is a modern central bankers should have a mosaic of information and should not be allergic to any data that happens to be inconsistent with dogma that he or she might have been taught in exon 1. I have this old-fashioned view that monetary policy has something to do with money.
▶ 1:36:11Mr. Warsh: I remember an old professor of mine that said, who was a proper keynesian economist he said, I don't understand how to think about inflation in place like zimbabwe without talking about money. So I think money matters. What we witnessed when we looked at some of the monitor aggregates is they are not perfect. We don't measure money very well. We don't measure the velocity of money very well.
▶ 1:36:35Mr. Warsh: But it is a pretty good crosscheck and had we seen the surge in paid attention to the search inflation, 21, 22, we might've seen this sooner.
▶ 1:36:43Chair Scott: Senator smith.
▶ 1:36:46Sen. Smith: Thank you. Chair warsh, welcome to the committee. You may know minnesota hubert humphrey who once held the seat I now occupy for minnesota led the charge in congress to include maximum employment as part of the fed's dual mandate.
▶ 1:37:07Sen. Smith: We can probably agree keeping these two goals of maximum employment and stable prices within the confines of the monetary policy power that the fed wields, that just makes sense. Because it is a strategy that delivers stable prices, a strategy that delivers stable prices while working people can't find jobs or can't afford their lives. That is not a healthy economy. I'm expecting you to agree with that.
▶ 1:37:34Mr. Warsh: I do.
▶ 1:37:37Sen. Smith: I was interested in the taskforces you established last month to advise you on reform and modernization. I want to ask you got one in particular. You created a task force looking at productivity and jobs. That is really good. This task force should be able to get at the power of the fed's dual mandate and ask also some of the big question that everyone is asking about, the impact of ai on wages and people's income and employment.
▶ 1:38:08Sen. Smith: Let me ask about this particular task force on productivity and jobs. As I understand it, it is led by three people -- a venture capitalist, investor who has made liens from ai and is a major trump donor. Another tech executive recently laid off thousands of people. And then an academic economist my alma mater stanford university who is currently on leave to do research at anthropic. I want to ask about this.
▶ 1:38:38Sen. Smith: Is there anyone on the task force who has experience in the labor market or somebody who can bring the perspective of an employer rather than an investor to the questions that are going to be asked and answered by this task force?
▶ 1:38:53Mr. Warsh: If I could say two things, one is those three people you referenced are three of the smartest people I know.
▶ 1:39:03Sen. Smith: I am not disputing that. I am wondering how you intend to bring into this work the perspective of people who are working people, the perspective of labor and not just investors?
▶ 1:39:15Mr. Warsh: I think it is a fair question. I have 18 colleagues were going to join me and consume the deliberations they have in the report. And we are the ones that have the dual mandate. As I said your colleague, there is no disfavored part of our mandate. We are focused on full employment. That is my commitment to you.
▶ 1:39:35Mr. Warsh: We have not outsourced this to three people, have outsourced a bunch of thinking about this massive technology shock will only note one other thing, chad jones, the professor you mentioned, his academic work, he is an academic, I will admit that.
▶ 1:39:51Sen. Smith: I'm just trying to figure out --
▶ 1:39:52Mr. Warsh: His academic work has been very focus on what is the effect of the labor markets and these technology shocks, both good and bad. I think that history can bring to bear the work of the task force.
▶ 1:40:04Sen. Smith: Can you understand why a task force that is led by people in large part who are likely to get richer by ai might not be the most credible people to folks on the ground who are doing the work who are worried about what impact this ai is going to have on their jobs?
▶ 1:40:25Sen. Smith: The concern of course is the productivity that is expected to be delivered by ai if that actually happens, but the benefits of that productivity are going to accrue to capital and not to labor. And it seems to me the credibility of this task force rests on hearing the perspective of working folks in their deliberations.
▶ 1:40:47Mr. Warsh: I would expect before they come to their conclusions, they are going to hear from folks that will be affected. They are going to hear from employers that are getting struck with this technology shock and have disruption in the labor force. But I don't want to suggest you in any of these taskforces that we have 19 people of all different backgrounds. What I want to tell you is if you think they have a credibility deficit, I don't.
▶ 1:41:16Mr. Warsh: I think they are incredibly talented. We will make sure to take both parts of our dual mandate in consideration of the output.
▶ 1:41:21Sen. Smith: I think the issue, sir, when there are the big guys sitting at the table, is there anyone sitting at the table who is bringing the perspective of working people to those really important questions? There are labor leaders, labor economists, folks whose expertise is in issues around wage stagnation and how that impacts working people. I would ask you to consider bringing that perspective, not to be heard on the side, but to be actually at the table with the big guys.
▶ 1:41:51Sen. Smith: I think that is a credibility issue could address easily. Thank you.
▶ 1:41:55Chair Scott: Senator tillis.
▶ 1:41:59Sen. Tillis: Good morning. I think you're doing a great job today. I appreciate your composure. Mr. warsh, a quick question on just immigration. Some people are probably discussing how we had almost zero immigration in the last quarter. We are starting to look a little bit like china, japan, european countries in terms of our replacement rate.
▶ 1:42:29Sen. Tillis: In terms of natural replacement rate. If that immigration were to remain near zero for an extended period, how would that change your estimates on gdp, the neutral interest rate, and the amount non-inflationary dog wrote the economy can sustain? In some ways, I think it touches on senator cortez masto's question about jobs unfilled. Just curious.
▶ 1:42:55Mr. Warsh: Thank you. You sure did not toss out a softball. The way I think about it is immigration policy is set by you in the administration.
▶ 1:43:06Sen. Tillis: What I'm trying to do is communicate to the american people we can make the mistake of western europe, japan, other industrialized nations, or we can fix this population growth problem. If we don't, these are policies, how does that make your job more difficult if we were to sustain the current trajectory?
▶ 1:43:26Mr. Warsh: The way those decisions affect says is it affects potential gdp. The biggest, hardest decision we make is what can this economy produce, how fast can we grow? Potential gdp is a function of two things, how many hours are we working -- people in this country working --
▶ 1:43:48Sen. Tillis: Just in a word because I would ask other questions.
▶ 1:43:50Mr. Warsh: Worker hours are --
▶ 1:43:55Doing Sen. Tillis: Would you be thrilled to know we can guarantee zero net growth for the next decade because that would make your job easier?
▶ 1:44:00Mr. Warsh: We are going to take the number of hours the american people and your policies produce and we are going to do -- my
▶ 1:44:07Sen. Tillis: We've got a problem. You can fix it. We are trying to make your job easier, having this on the agenda from is not going to make your job easier. I understand the position you have to take but I want to point to something people are high-fiving and talking about and net zero immigration growth as if it is a good thing. It is only good if you want to repeat the mistakes of western europe, japan, china, and other nations that did not get a replacement rate right.
▶ 1:44:33Sen. Tillis: Bringing in great people that may have been born in colombia and aspire to become a senator, for example, those sorts of things. Did not get it right every time, no. Mr. warsh, I told you also, just for the american people, do you have a magic wand we can walk in and convince seven people at the ortho and see to vote the way you want them to -- at the fomc to vote the way you want them to?
▶ 1:45:02Mr. Warsh: I do not have such a wand.
▶ 1:45:06Sen. Tillis: You have to gain consensus to make an interest rate move, monetary policy move?
▶ 1:45:09Mr. Warsh: Yes, and consensus-led organization.
▶ 1:45:14Sen. Tillis: Made
▶ 1:45:18Sen. Tillis: M comments made, for example, governor waller, he is not guaranteeing that we are going to be able to lower interest rates anytime soon based on data-driven decisions? I think the speech in york?
▶ 1:45:31Mr. Warsh: I would not want to dwell on any one of their views.
▶ 1:45:35Sen. Tillis: What I'm trying to expand to people who think the president can give you a call from you make a decision, it happens, that never happens. Would not have under powell or you or anybody who is responsible chairman. I just want to make that point. The last thing, if you could tell me, I know you don't want to get -- I think senator britt asked you questions.
▶ 1:45:56Sen. Tillis: I love the fact -- I would like to see the project charter for the task forces if you had that, people are managing this, milestones, any sort of dashboard you have, well put together accident taskforces assembled for six month project. I would like to track it. Not necessarily for the record, but if you could commit to having a meeting with the people running it, I would like to see that, let the mechanics play out over the next six months.
▶ 1:46:25Sen. Tillis: Lastly, if you can, I believe silicon valley bank is a classic example of why the fed needs to have its independence on monetary policy, I believe a U.S. senator and a minimally should be able to go into a skiff and understand why banks like silicon valley bank had multiple matters requiring contingent and then requiring immediate attention well before they fail.
▶ 1:46:55Sen. Tillis: Nobody knew except some examiner and likely people in san francisco fed. That has got to change. I don't see any rational basis for that independence. Thank you, Mr. chair.
▶ 1:47:10Chair Scott: The chair recognizes Mr. warnock.
▶ 1:47:19Sen. Warnock: Thank you very much, madam chair. The american economy is heavily leveraged on the success of artificial intelligence. This is an issue that I've you're interested in engaging and talking to folks in the industry and folks outside of the industry, various stakeholders according to a bloomberg analysis, ai spend climbed to about 8% of the U.S.
▶ 1:47:51Sen. Warnock: Gross domestic product. Chair walls, have long been bullish on ai. However come up to now, despite investors betting big on none of the major ai models meaningfully profitable, what are the consequences to our economy that none of these companies have ever been come profitable?
▶ 1:48:13Mr. Warsh: So if they were to disappoint investors, I think the capital markets would drive for them and some of that capital investment would be curtailed.
▶ 1:48:24Sen. Warnock: I guess that is one way of putting it. I guess I'm getting at were ordinary folks are. The markets, behind the markets are real people. We have retirement savings who are trying to make their present as well as the future work, retirement accounts are increasingly tied to ai. And so there is human issue.
▶ 1:48:56Sen. Warnock: Driven by massive increases in the stock prices of chip and ai companies. You might talk about the current markets. Let's imagine if we are in an ai bubble. What would happen to our economy , more specifically, an american's retirement savings if the bubble popped?
▶ 1:49:20Mr. Warsh: It is a fair question. I take it seriously. I'm not in the business of providing a wall street newsletter, but I will say broadly to your question about the effects on the economy, booms and busts do not help the real economy and they don't make the central banks job easier. What the central bank is trying to achieve is price stability, full employment, financial stability.
▶ 1:49:48Mr. Warsh: The question of these ai companies certainly the surge in their investment in the surge and evaluations is notable. I also note one other thing, over the course of the last couple of months, we have seen the market cap, public companies and private companies, under some pressure. We do seem to see a broadening out. Why is that? Because earnings, for the last several quarters more broadly, moving up.
▶ 1:50:18Mr. Warsh: I don't to suggest that should give us into complacency. But what the fed is looking for is economic strength to broaden and the inflation we talked about earlier to become more narrow.
▶ 1:50:30Sen. Warnock: I would be worried about a massive economic slowdown. The impact of wall street on main street. I would be worried about job losses. Stock prices tumbled would mean americans could not retire as planned. I don't to see taxpayers holding the bag should this ai bubble pop. I'm not against ai. Ai is not going anywhere.
▶ 1:51:00Sen. Warnock: It has promise and peril. I just want us to be thinking critically about this from all angles. Earlier this month, announced a new task force to assess the effect of ai on productivity and jobs. The three individuals you chose for the task force our tech executives who have directly worked for or with ai labs, all three of them. Yes or no, will the fed put anyone on this task force with an alternative viewpoint on ai?
▶ 1:51:33Sen. Warnock: For example, anyone who represents the workers whose lives may be obtained by increased adoption of ai tools and technology?
▶ 1:51:40Mr. Warsh: Fair question. As I mentioned to your colleague a few months ago, what I would say is one of the people on the task force is an academic. I don't to suggest the academic is representing --
▶ 1:51:55Sen. Warner: If you don't want to say the academic is being academic.
▶ 1:51:57Mr. Warsh: I don't want to suggest that. This is done a faculty lounge discussion. Academics work has spent a lot of time talking about prior technology shocks and the displacement that it has on labor. The assurance I can give you is that these three people on that task force, like the other task forces, they are not the deciders. The 19 of us around the fomc with background and interest, we are going to decide what we think of their conclusion.
▶ 1:52:25Sen. Warnock: As a decision-maker, I always went various viewpoints. I've nothing against an academic expertise. That is important. Too often it is ignored. Here's my problem. Americans are worried about what ai --
▶ 1:52:43Chair: Your time is up.
▶ 1:52:47Sen. Warnock: I'm wrapping up. I would like to broaden --
▶ 1:52:51Chair: Senator lummis.
▶ 1:52:55Sen. Lummis: Thank you, Mr. chairman. I've a couple of questions about bank supervision before we go to monetary policy. The first one is vice chair bowman has ordered an independent review of the supervision of silken bank and signature banks. I think that is a really good thing. I applied her and support her efforts. -- I applaud her and support her efforts.
▶ 1:53:24Sen. Lummis: Have you enjoyed it your staff, -- have you instructed your staff including attorneys at the legal division to cooperate with this independent review?
▶ 1:53:32Mr. Warsh: Thank you. This call for a review of what happened around silicon valley bank receipt of my time at the fed, but I'm certainly aware of the ongoing investigation. My general rule is that we should be cooperative to investigations and try to get to the bottom of the facts averred revelatory and supervisory issues.
▶ 1:53:57Sen. Lummis: There are rumors there may have been destruction of records by some of the staff at the division of bank supervision. Of course, that is a crime.
▶ 1:54:15Sen. Lummis: If records relating to the supervisor of these banks were intentionally deleted by staff before you were at the fed, before you ever become chairman, will you order your staff to assist in recovery of these records and cooperate with law enforcement?
▶ 1:54:31Mr. Warsh: So I made a bold statement to one of your colleagues before that I was opposed to scams. I can make a bold statement I am the poster criminal activity. I've no reason to believe there is any criminal activity. But I think we want to get to the bottom of an investigation. If there is an ongoing investigation, investigators generally want access to things, there is no reason why they should not have access.
▶ 1:54:54Sen. Lummis: Thank you. I want to turn to a proposed rule that is being considered and ask for your thoughts on the proposed rule. It has to do with federal reserve board's payment accounts , skinny master account, is kind of a term used.
▶ 1:55:16Sen. Lummis: My staff has told me if a doctor submits statements to an insurance company, they have two choices. They can pay 5% in bank fees or weight 90-120 days for paper check.
▶ 1:55:38Sen. Lummis: It seems to me the federal reserve is really on to something by trying to join other countries that restrict access to payment system to consumer facing banks. We are the only major country in the world that restricts access to the payment system to the consumer facing banks.
▶ 1:56:07Sen. Lummis: I think you on the right track expand the opportunities to serve consumers. I am curious about what your thoughts are about the proposal, how it is going, when you expect the rule to be finalized?
▶ 1:56:22Mr. Warsh: As I understand it, this skinnier master account proposal is out for comment. It was sent out before I arrived, but I'm keenly interested in what the comments are. My mental model is that the critical infrastructure, the rails the fed runs, should be available to those that are applicable, that can comply with our rules and regulations.
▶ 1:56:48Mr. Warsh: If I were to draw a hard distinction, this is a public good and it is a public good that should be used by intermediaries. I want the public good to be used by consumers, by people that are on the front lines. But a financial institutions, new and old, what to comply with our regulations and take advantage of this public good, my general predilection is to encourage it.
▶ 1:57:11Sen. Lummis: I think that is admirable and important. So it is out for comment now. You anticipate finalizing sometime this year?
▶ 1:57:21Mr. Warsh: I owe you a better answer on the timeline and are pledged to give it to you.
▶ 1:57:27Sen. Lummis: Thank you. I share a concern that was expressed by my colleague Mr. hagerty that monetary policy should enjoy the committee not having to be as transparent about its process. I agree with senator hagerty also that the bank supervision component should not enjoy that same level of non-scrutiny.
▶ 1:58:00Sen. Lummis: I think we need to scrutinize bank supervision. I am concerned that area was sort of hidden from public view for too long. And so I want to echo what Mr. hagerty said. Thank you, Mr. chair.
▶ 1:58:15Chair: Senator kim.
▶ 1:58:19Sen. Kim: I want to build on something that senator warnock was going into about ai and I wanted to ask you, I have seen some public reporting that there was a report produced by treasury staff for sec. Bessent, federal reserve, other financial regulators that outlines the risks associated with the ai boom. Are you familiar with this report?
▶ 1:58:43Mr. Warsh: I can't say that I have read that report, but it is certainly discussion the secretary and I have had.
▶ 1:58:52Sen. Kim: Is not something we can follow up on, get a sense of where the status of this report is?
▶ 1:58:56Mr. Warsh: I would be happy to engage in a report and share with you my views.
▶ 1:59:01Sen. Kim: Regardless of the report itself, from what I understand, it is raising concerns that much of our financial system right now rests upon ai beating expectations for productivity gains, profitability, as well as raising concerns about the concentration in small number of firms that are heavily reliant on private market financing, specifically, invested in davison -- data centers.
▶ 1:59:32Sen. Kim: You agree with these underlying economic risks or do you believe that analysis is overstating the risks?
▶ 1:59:39Mr. Warsh: I think this is the most important change in our economy in my adult lifetime. I think it has plenty of opportunities and also plenty of risks, and I take both of them seriously.
▶ 1:59:51Sen. Kim: It is something I'm trying to grapple with, too. I hope we can work on this together because I do think when we are looking at that future, trying to think to the data, trying to think through what data is going to allow us to understand how exposed we are, what the concerns are -- I guess I would ask you, as you are looking at the data, how would uss our economy, the state of our economy, if you were to isolate out -- which I know is driving so much of our growth
▶ 2:00:22Sen. Kim: Right now, how is the rest of our economy doing?
▶ 2:00:23Mr. Warsh: It is if your question. We can start to do a little bit of that. I mentioned in my opening statement the importance of capital expenditures to aggregate gdp. A good share of that boom is broadly in and around infrastructure artificial intelligence. Not exclusively but it is part of that real story here.
▶ 2:00:46Mr. Warsh: If I were to fast for 12 months, whether these ai models continue to grow in their efficacy on some exponential curve or not, most of this capex is going into things like data centers, new sources of energy. Let us say there was a discipline on the returns in what ai could do read many of these investments have alternative uses.
▶ 2:01:09Mr. Warsh: But if the question is really how much productivity do we expect to ultimately get from ai, the answer is, I don't know but I am optimistic that over a longer time horizon, it will be quite good for the united states and good for both parts of the dual mandate. Lower prices and stronger labor force.
▶ 2:01:29Sen. Kim: I hope we can work on this together and try to get a clear understanding of just how much risk there is. Look, I'm glad to hear about this task force you're putting together about the productivity side. I will just say, the concern amongst young people in particular is very potent and real. We have to come up with an answer to them to help them feel reassured right now.
▶ 2:01:56Sen. Kim: I get it, they are, she said, more native in the technology. But that does not necessarily help them in the companies themselves are saying, we don't need to hire as many junior associates or more entry-level side of things. No matter how much native fluency they have were understanding skills, the businesses are saying, we don't need as many people at the younger, lower end.
▶ 2:02:27Sen. Kim: As you are dealing with this task force, I hope it is something that can interact with this committee. I hope you have a chance to be able to talk to some of them and hear from them in that capacity. We need to make sure we are speaking to humans about this and not just getting caught up in this. I wanted to flag that for you.
▶ 2:02:45Sen. Kim: One less thing I wanted to touch base on is -- one last thing I wanted to touch base on, senator reed mentioned concerns about whatever we want to call it, using ai to shore up our vulnerabilities. A number of us have been talking to some of the financial sector on the critical infrastructure. I wanted to ask you, does the fed have all it needs to be able to shore up our vulnerabilities, patch of any vulnerabilities?
▶ 2:03:13Sen. Kim: Has that been a process you feel confidence in so far?
▶ 2:03:17Mr. Warsh: I am working on it and I look forward to working with you as well.
▶ 2:03:22Chair Scott: Senator moreno.
▶ 2:03:25Sen. Moreno: Thank you for being here. It is such a pleasure to have you here compared to your predecessor. I can't explain you in words the feelings I had when your predecessor testified versus the killings of having you here. I appreciate the hard work. Quick questions, you obviously have a whole regulatory structure on banks. What has happened to deposits in american banks since last august? Have they gone up, stayed the same, gone down?
▶ 2:03:55Mr. Warsh: Generally speaking, deposits held in banks is moving positively over that period.
▶ 2:04:04Sen. Moreno: And you watch that.
▶ 2:04:06Mr. Warsh: I worry about it but also use it as a helpful input when average deposit balances are up, sometimes that could be for good or bad reasons. My sense of the underlying growth is more good than bad.
▶ 2:04:19Sen. Moreno: But the bankers were deposits to go up. I find it interesting as a data point because we have talked about where we've had testimony anecdotally from the bank ceos paying stablecoins were going to drop deposits in banks. I want to point out for the bank from the exact opposite has happen. As I say, that was a bunch of blankety blank arguments.
▶ 2:04:50Sen. Moreno: Let's talk about full employment for a second. If we have incentives that we put in place legislatively for americans not to work, does that run counter to our objective for full employment?
▶ 2:05:01Mr. Warsh: It does not make the fed's life any easier.
▶ 2:05:08Sen. Moreno: If we incentivize someone participating and being productive in the workforce, that is not good. Things like for example we did the working families tax cuts last year, which is put in place we have to verify twice a year whether you are working, volunteering, or studying would be a positive demotivator for networking, meaning it encourages working?
▶ 2:05:30Mr. Warsh: I can't opine on the policies you make but for the applications of the fed, we are in the business of assessing potential growth rate of the more hours worked and more productive those hours are, stronger the economy --
▶ 2:05:43Sen. Moreno: If you had tens of millions of people entering the country illegally, it makes your challenge of full implement were difficult also, correct?
▶ 2:05:52Mr. Warsh: I'm going to steer clear from immigration policy and leave it for you and the administration.
▶ 2:05:59Sen. Moreno: Just pretend they are naturally grown humans on the soil of america. If you have dramatically more humans in the united states looking for work, by definition, makes full implement more difficult, correct?
▶ 2:06:11Mr. Warsh: If those people are employed and are working and productive, that is a good thing.
▶ 2:06:18Sen. Moreno: If they're not employed.
▶ 2:06:19Mr. Warsh: That can be a challenge to one if not both parts of our mandate. If you thought the data center investment was driving inflation, what is the tool you could use to combat that?
▶ 2:06:37Mr. Warsh: I think investment in data centers and in ai generally do affect the demand side of the economy. We can see it and we can see prices move up. Like some of these other shocks it also affects the supply Sen.
▶ 2:06:54Moreno: I'm saying if you thought you had to do something about it, would you be -- you don't have a lot of tools. I think some of my colleagues think you do have a magic wand. Ultimately, you have to raise interest rates. The ideal would be you are going to make it more expensive to borrow money to build these things. Ultimately, that is basically the till you have, just roughly speaking?
▶ 2:07:13Mr. Warsh: We have powerful tools to do with what we deemed to be inflation above target.
▶ 2:07:20Sen. Moreno: So you would raise interest rates. Does it make any sense for us to be thinking inflation is being caused by data center investment? And the answer would be to look to the federal raise interest rates when in reality you have government providing tax subsidies, which is lowering the cost and thus encouraging more rational investment? Doesn't it make more sense to say, let's not do any tax subsidies?
▶ 2:07:47Sen. Moreno: We can do that here at the federal level because a lot of these subsidies are coming from cities, counties, and states. I believe I think we should think about providing 100% federal tax on these subsidies so that if a company wants to take subsidies from some state, taxing at the federal level 100% would discourage it. It is insanity for us to use taxpayer dollars to subsidize multibillion-dollar companies. Either way, -- would you agree that seems to be reasonable? Mr.
▶ 2:08:19Warsh: Fiscal policy is your decision. I will let you fight that went out.
▶ 2:08:22Chair Scott: Early. Thank you. Senator alsobrooks.
▶ 2:08:29Sen. Alsobrooks: Thank you for this hearing. Chairman warsh, it is good to see you. Before we talk about the economy, to briefly return to your confirmation hearing where under questioning from senator gallego and myself you said the president never "generally or specifically instructed you to lower interest rates." your testimony at the time did contradict according to a book with the wall street journal" of senator gallego and I sent you a letter on april 26 clarifying
▶ 2:09:02Sen. Alsobrooks: Your testimony. We have not yet received a response. As we stated in her letter, president trump told "the wall street journal" he things you have to lower dashes quote was, you can check your lower interest rates. And your sworn testimony, this committee you said the president never really were specifically instructed you on interest rates. I wonder whether you will commit to responding to our letter?
▶ 2:09:26Mr. Warsh: I stand by every word I said at my confirmation hearing. And now I have a seven-week track record subsequent to that, and you can judge not just my words but my actions. I'm happy to continue the discussion with you about this topic if you think it is fruitful. I will say I have spent seven weeks doing a lot of hard business of reform, but I'm happy to continue to engage.
▶ 2:09:52Sen. Alsobrooks: And you will respond to the letter we sent to you?
▶ 2:09:54Mr. Warsh: I am happy to find the letter. I think it came to me before I was confirmed to the fed. I am happy to find it and work with you and your colleagues and answer any questions you have.
▶ 2:10:07Sen. Alsobrooks: Thank you. Christopher waller recently announced the framework to radically transform the fed systems of 12 regional reserve banks and congress deliberate leak created a centralized system of 12 regional banks to ensure regional economies and communities represented when the fed makes consequential decisions. At the federal reserve bank of richmond, which serves maryland, employs over 100 of my constituents at the bank's baltimore branch.
▶ 2:10:37Sen. Alsobrooks: I share our ranking members concerned that these changes are being pursued without consideration of congress. Do you agree regional presidents and board directors are responsible for day-to-day operations under the federal reserve act and not federal reserve board in washington?
▶ 2:10:51Mr. Warsh: I love the structure of the board of governors, the reserve banks. I love the humphrey hawkins testimony. I'm obligated to give it to you. As a federal reserve act makes clear as you know is the reserve bank's run operations and their budgets are reviewed and approved by the board of governors.
▶ 2:11:15Mr. Warsh: With respect more broadly to the proposal you suggested, I think we need to try to do two things at the same time. Be good stewards of taxpayer money and continue to drive efficiencies throughout the system. At the same time, respect the independence of the reserve banks so they can show up in washington, fomc meeting, and feel as though they have the resources at their disposal to argue the point of view.
▶ 2:11:41Mr. Warsh: My addition to what has already been said publicly is my view is that of reserve banks should be 12 centers of excellence. If there is some savings that were necessarily driving through consolidation of overlapping functions, they said at the same time be able to build out capabilities and solve any of a number of problems of economic policy that are inside of our remit, encourage the 12 reserve banks to think about what they could do to have a center of excellence.
▶ 2:12:09Mr. Warsh: Sup alsobrooks see your answer is, yes, do agree that the regional president's are responsible for day-to-day under that act?
▶ 2:12:18Mr. Warsh: Under the board of governors of the statute.
▶ 2:12:23Sen. Alsobrooks: You suggested artificial intelligence generate productivity gains. That will reduce inflation and help lower interest rates. I'm optimistic as well about the promise of ai but we need to be really clear ride I think in considering the whole economy and the impact. The fed has two mandates, low inflation and maximum employment. If spoken often about ai's impactor prices and inflation but inflation is still high.
▶ 2:12:51Sen. Alsobrooks: It is important that joyce's cash addresses the fed should consider who benefits from ai. Some economic models for ai, economic impacts? Net return for cupholders but stagnant wages and job losses for workers. As it relates to ai, what specifically is the fed doing preparing for your maximum employment mandate?
▶ 2:13:18Mr. Warsh: I endorse both parts of the dual mandate and I don't want to suggest productivity and the ai wave only impacts one part of it. We have no legislative orphans. I think you have packed in the labor markets is real and something we are thinking -- affect the labor markets is real and something we are thinking about in the short-term and long-term.
▶ 2:13:39Chair Scott: Sen. bennet:'s -- senator bates.
▶ 2:13:45Sen. Banks: It is great to have you come back. Understand we do this on a committee twice a year and I'm looking forward to continued dialogues with you in before this committee for many years to come. You are very familiar with my state indiana we talked about indiana a great deal. There is no state in america that has a stronger manufacturing base then indiana.
▶ 2:14:10Sen. Banks: Any factoring jobs are the biggest share of our workforce in our state and accounts for about a quarter of our state's economy. Policymakers for decades have turned a blind eye as foreign countries erode our manufacturing base and rely on artificially cheap labor. Under president trump, we have renewed focus on fighting back and protecting america's manufacturing edge.
▶ 2:14:40Sen. Banks: In addition to president trump's tariffs, you're helping american companies compete against foreign competition by investing in new technologies that help american workers make better quality goods more efficiently than countries that rely on cheap labor. Mr. chairman, business investment in the U.S. is surging right now, fixed investment grew at a rate of 10.1% in the first quarter of 2026.
▶ 2:15:07Sen. Banks: Can you talk more about that and about how rising investment in new technologies like ai and robotics can strengthen america's competitive position against the rest of the world, especially when it comes to manufacturing?
▶ 2:15:19Mr. Warsh: Thank you, senator banks. The capex search is remarkable. Capex investment boom the country has not seen in more than a generation. It is the seed corn for productivity and gdp improvement over the next decade.
▶ 2:15:39Mr. Warsh: The way these waves typically go historically, which doesn't mean it has to happened this time, is a search in capex with some lag leads to stronger economic potential, stronger growth, higher wages and more productivity. This search is different. It has happen faster. It is probably going to be bigger, and it is accelerating in real time. The effect on the fed's mandate is something we are taking seriously.
▶ 2:16:07Mr. Warsh: I would far rather have capital expenditure boom then have large corporate profits go back into share buybacks and dividends from investing here is a good thing. All things being equal, it will have fruits for the american economy.
▶ 2:16:22Sen. Banks: Later this year, bank regulators are expected to finalize new rules covering capital and stress testing. The fed's new rules are rolled away from the endgame proposed just proposal the bdien regulars tried to push through that would hit families with a hidden tax on every mortgage and small business loan. The transition still has to be handled well. These capital rules touch every part of the banks planning.
▶ 2:16:53Sen. Banks: Implementing the new rules with clear and organized desk with a clear and organized, it is critical. Will you commit to these new roles across all major bank regulators or community banks, special, can rely on clear guidance to follow?
▶ 2:17:07Mr. Warsh: I think clarity is really important. These rules as you know are out for comment. I'm keenly interested in the comments as they come in. I think it is a very good thing if the bank regulators can speak with one voice, but what we saw going in the 2008 financial crisis was a lot of regulatory arbitrage where institutions were choosing a regulator that best serve their needs. I would love to have one standard and am committed to work with the other regulars -- regulators to see if we can achieve it.
▶ 2:17:37Mr. Warsh: I will make one other point, you referenced the stress test. Stress tests were an idea we came up with one dark evening and the 2008 financial crisis rid they have been used from that year until this year. Open-minded reforms around the stress test. They are not merely a compliance exercise. They help reveal regulator institutions what really would have been under a series of stresses.
▶ 2:18:02Sen. Banks: When you were here during the confirmation hearing, we talked about the china threat, something you focused on for years. I know you're only two months into the job as chairman, but any updates on how you can assess the threat china poses is the world's reserve?
▶ 2:18:19Mr. Warsh: They are pacing power. They are the ai -- the fight over ai is one of a proxy fight between these two economies that are striving for significance and influence over the next decade. I think we are on their front end of those technologies but I don't want to sound complacent about it. Like with all technologies, they can be used by friends were adversaries.
▶ 2:18:45Mr. Warsh: If there is a subject upon which I've been focused related to this my first seven weeks, is making sure the institutions we regulate and the fed itself is aware of our vulnerabilities. I still think we have some work to do on that.
▶ 2:18:58Sen. Banks: . Thank you.
▶ 2:18:59Chair Scott: Senator blunt rochester.
▶ 2:19:07Sen. Blunt Rochester: . I will tell you I have been in and out of the room because I have four committees happening at the exact same time and so going back and forth and I know a lot of the things I wanted to talk about, questions I wanted to ask, some have already been asked so I may not be used the whole time. When we talked before about your confirmation hearing, I raised questions about primarily three things.
▶ 2:19:37Sen. Blunt Rochester: One was the independence of the federal reserve. You have spoken a lot about that today in the hearing. I talked about transparency around reforms and what does regime change mean. How does this connect with our regional federal reserve boards.
▶ 2:19:59Sen. Blunt Rochester: And I also shared with you just my real deep concerns about the impact of ai as well as the opportunities for ai. And the changing landscape, particularly when we talk about that mandate of full employment, maximum employment.
▶ 2:20:22Sen. Blunt Rochester: And lastly, I would also say really important to me, and I shared that with you as well, is that the focus primarily a lot of times what is talked about is the wall street side and not the main street side. And so how main street has equal footing to wall street.
▶ 2:20:42Sen. Blunt Rochester: A lot of the questions that have -- one of the things you shared in your testimony was about the taskforces you have established, which I think is a really good idea and I think the choices of things that you're focused on from communication, you know, to ai and influence -- all of those things are really important. I think some of my other colleagues may have asked questions.
▶ 2:21:11Sen. Blunt Rochester: On the ai one in particular, I hope that there will be the inclusion of other voices beyond economic experts and tech individuals. But actually, families, businesses, people that are actually both consuming and impacted by ai.
▶ 2:21:33Sen. Blunt Rochester: If you could talk a little bit more about the makeup of that one in particular and how you will include people both in the task force and how you will include main street in your ongoing work at the fed. Because before we had the fed -- I heard positive from both folks on the federal reserve side as well as the community side.
▶ 2:21:59Sen. Blunt Rochester: Could you talk about the inclusion of main street on the task forces and an ongoing in your work how will you include main street?
▶ 2:22:09Mr. Warsh: First, on the taskforces, we have 50 people across five taskforces. I think there is a breath of use -- breadths of views. They're not decision-makers. You're talking to one of the ultimate decision makers. I believe like you do in the reserve banks. They bring views from their communities, their businesses, and they and we are going to be the deciders about what to do.
▶ 2:22:41Mr. Warsh: I don't want to think I have outsourced to these taskforces other than coming up new ideas.
▶ 2:22:48Sen. Rochester: My question is more related to the makeup. One of the concerns I have come even on technology, we have seen incredible advances where voices and -- were not included of other folks. Therefore, we had technology that mistakenly took a judge and thought he was a criminal based on that input of county technology -- I'm talking about the input in the taskforces as well as your ongoing input.
▶ 2:23:17Sen. Rochester: I don't know if you continue or will continue -- with fed lessons were anything. But how will you get feedback from community organizations, small businesses, consumers?
▶ 2:23:30Mr. Warsh: I don't mean to give you an excuse, I have been here seven weeks. We have been pushing for reforms. But you have my commitment, a focus on your my chairmanship at the fed is what is happening in the real economy. By the way, there are plenty of people on wall street who are upset with me already that I'm somehow not feeding them all the information they got before and if they only had my dot, everything would be swell. My message to them is, play the ball, and don't play the fed.
▶ 2:24:01Mr. Warsh: I mean, figure out what is happening in the real economy. Respond to data in the real economy rather than somehow suggest we are going to be focused on wall street. If you have my commitment to focus on main street because it matters mostly to our dual mandate.
▶ 2:24:15Sen. Blunt Rochester: I will follow up with questions for the record. Also particularly on the date piece as well. I yield back.
▶ 2:24:24Chair Scott: For sinners who wish to submit questions for the record, please do so by wednesday, july 22. The chairman will have 45 days from that day to submit your responses for the record. This has been a great hearing. So far, so good. We look forward to even more time that we can spend together.
▶ 2:24:49Chair Scott: Frankly, I believe the american people will have their trust restored under your leadership as it relates to the federal reserve. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap.org]