Fed Chair Jerome Powell Testimony on Economic Recovery Transcript February 23

Chairman Brown: (02:18)
This hearing is in the virtual format, as we have done in the past. For those joining remotely, a few reminders. Once you start speaking, there’ll be a slight delay before you are displayed on the screen. To minimize background noise, please click the mute button until it’s your turn to speak or to ask questions. You should all have one box on your screens labeled clock that will show you how much time is remaining. For all senators, the five-minute clock still applies for your questions. At 30 seconds remaining, you’ll hear a bell ring to remind you that your time is almost expired. It will ring again when your time has expired. If there’s a technology issue, Cameron and Charlie who are very at this will fix it, but we’ll move to the next senator until any technology issue is resolved. To simplify the speaking order process, Senator Toomey and I have agreed to go by seniority for this hearing, as we have in the past.

At this committee’s first hearing, we heard from our witnesses the challenges and struggles Americans have faced over the past year. Anyone who’s been doing their jobs has heard these stories. Frontline workers, like transit workers whom we heard from last week, go to work every day worried they’ll get the virus on the job and bring it home to their families. Mayors and county commissioners, community leaders wonder how long they can hold on without starting layoffs. Renters see their bills pile up, watching their balance bank balances dwindle lower and lower, wondering if this will be the month that an eviction notice is posted on their door. Today, more than 4 million people are out of a job. That number keeps climbing. We are still fighting the battle against the coronavirus. Nearly 500,000 of our fellow Americans have died from COVID-19. We know we’re facing two crises, a public health crisis and an economic crisis.

We have to be clear about that. We can’t solve one without solving the other. We know getting our economy back to full strength requires a massive wartime-level mobilization to get all Americans vaccinated. We also know that vaccines alone will not put most workers and their families back to where they were a year ago. We want people back to work. We want kids back in school. We want to see main streets thriving and humming with life again. That requires real federal leadership on a level we’ve not seen in this country since World War II. As Bill Spriggs alluded to in testifying before this committee, before D-Day, General Eisenhower didn’t call President Roosevelt and ask, “Can we afford to storm the beaches at Normandy? Do we have the money in our accounts?” Most people that I talk to in Ohio and around the country are not worried about doing too much in the battle against this virus, they’re worried about doing too little.

They want to do whatever it takes. 85% of Americans still need a vaccine. Our frontline workers still need PPE. Small businesses still need assistance to keep their doors open. States and cities and towns still need resources and support to open schools safely and keep buses running and libraries open and firefighters on the job. Experts agree, the best thing we can do for the country right now is to get resources out the door as quickly as possible to tackle these interconnected problems. Former Fed chair, now our treasury secretary, Janet Yellen said if we don’t do more, we risk a permanent, her words, scarring of the economy and to the future. Economists from across the political spectrum, include many who have testified before this committee, tell us that without strong fiscal support, our economy could spiral even further out of control and take even longer years to recover.

Our witness today, Federal Reserve Board Chair Jerome Powell, has express some of those same concerns. Just a few weeks ago, after we passed the COVID-19 relief bill in December, Chair Powell said that quote, “Support from fiscal policy will help households and businesses weather the downturn as well as limit lasting damage to the economy that could otherwise impede the recovery.” Chair Powell has talked to all of us about the risk of falling short of a complete recovery, the damage it will do to people’s lives and to the productive capacity of this economy. Those were his words, “productive capacity of this economy.” President Biden understands this moment. He’s risen to meet it with his bold American Rescue package. It’s a plan to both rescue the economy and save American lives. Workers and their families need to see their government work for them now, and this rescue plan must be the beginning of our work to deliver the results that empower people and make their lives better.

We need to rethink how our economy operates when a hard day’s work doesn’t pay the bills for tens and tens of millions of workers, and even middle-class families don’t feel stable. Something in the system’s broken. We know that. Workers’ wages have been stagnant for decades. CEO pay has soared. Corporations get huge tax breaks. Instead of investing in their employees and the communities they serve, management too often rewards itself and its shareholders through stock buybacks and dividends. The wealth and income gaps for women and for Black and Brown workers are getting worse, not better. Many families still had not recovered from the great recession when the pandemic hit. This didn’t happen by accident. It’s the result of choices made by corporations and their loyal allies in Washington. They spent years rolling back consumer protections in our financial system, cutting corporate tax rates, using Wall Street to measure the economy instead of the condition of workers. And the same people that have been advocating for these rollbacks, pushing this stock market-centered view of the economy are the same people who say we should not go big on a rescue plan.

They say there’s no need for the government to help people, that the market should decide who wins and who loses. We all know the market doesn’t work when the game is rigged. Corporations have been lining their own pockets, have done so with plenty of government help and intervention. We know that for them, short-term profits are more important too often than their workers. That’s why we have to stop letting them run things. Look what’s happened in Texas, where a deregulated energy grid failed, leaving millions without power in frigid winter temperatures. People are literally freezing to death in their own homes in the United States of America. Without any rules, energy companies can charge consumers sky-high prices. They even use automatic debits, taking thousands of dollars directly out of people’s bank accounts. We know climate change causes severe weather patterns across this country.

We know more investment in public infrastructure, not less. We need more, not less. We can’t let corporate greed continue to stand in the way. Our nation’s central bank plays a critical role in all of this. The Federal Reserve can ensure the biggest banks use their capital to invest in their workers and lend in their communities, instead of ginning up stock prices with buybacks and dividends. The Fed can make sure the response to economic and financial crises doesn’t just help Wall Street, it helps everyone. It can require that financial institutions take into account the serious risks posed by climate crisis. It can help ensure that everyone in this country has a bank account and access to their own hard-earned money. It can start to undo the systemic racism in the financial system, from Black codes, to Jim Crow, to redlining, to locking in discriminatory practices during the last administration. It can make workers the central focus of our economy.

Chair Powell, you said just a few weeks ago, quote, “The benefits of investing in our nation’s workforce are immense. Steady employment provides more than a regular paycheck. It bestows a sense of purpose and improves mental health, increases lifespans, benefits workers and their families,” unquote from the Chair. What that boils down to is the dignity of work. It means hard work should pay off no matter who you are, no matter what kind of work you do, whether you punch a clock or work for tips, or work on a salary, or taking care of aging parents. It means we need to start measuring success of our community by the success of the people who make our economy work. Chair Powell, thank you. I look forward to your testimony. Senator Toomey.

Senator Toomey: (10:41)
Thank you, Mr. Chairman, and thank you, Chairman Powell. Welcome back to the Banking Committee. I look forward to your testimony. About a year ago, the US economy was entering an unprecedented economic contraction as a result of the shutdowns that followed the spread of COVID-19. We all remember credit market seizing up. Second quarter GDP last year fell by over 30%. Unemployment rate reached about 15% in April, the highest that had been since the 1930s. The economy was in very desperate straits to say the least. Thankfully, the worries about a long, drawn out depression appear to have been unfounded. In response to the economic collapse, Congress and the Fed took very, very bold, unprecedented, and decisive action. The Fed quickly lowered interest rates, launched a quantitative easing program on unprecedented scale, and helped facilitate market functioning through a variety of emergency programs that were funded through congressional legislation, and we in Congress passed over $4 trillion in relief over five overwhelmingly bipartisan bills.

Fortunately, today we are in nothing like the situation we were in last spring. Today, the unemployment rate is now 6.3%, about where it was in July of 2014. 18 States have unemployment rates below 5%. The average household in America is in a better financial position today than it was in before the pandemic. Personal savings rates are up by over $1.6 trillion. Consumer credit is down by over $100 billion. There’s no question there are some subsets of our economy and our society that have been hit much harder than others, but in the aggregate, the fact is Americans have more disposable income now than they had before the crisis. And yet, Congress is in deliberations to spend another $1.9 trillion with universal payments to people who’ve never had as much income as they do, to entities such as state and local governments, which in the aggregate have taken in more revenue in 2020 than they did ever before.

We are well past the point where our economy is collapsing. And in fact, our economy is growing very powerfully. The last thing we need is a massive multi-trillion dollar universal spending bill, and we should recognize that all of this spending comes at a cost. It all gets funded with government debt, which is either monetized, which has its own dangers, or it’s a burden that gets passed on to future generations that have to service that debt. In 2020, debt held by the public reached 100% of our total economic output, and CBO projects that over the next 10 years, net interest costs will amount to $4.5 trillion, and that’s without another $1.9 trillion bill. There’s also a real danger that we have overheating in places that lead to unwanted inflation, and I think the data is increasingly pointing in that direction. Keep in mind, we have $11 trillion in personal savings deposits.

The country is in an accelerating reopening as the number of COVID cases is declining very, very rapidly on a daily basis. The economy is poised for very substantial growth in the near term, and yet the Fed continues to purchase $120 billion of securities per month, maintain short-term interest rates at basically zero, and Congress is considering, as I said, another enormous bill. And another matter I want to make the point that I do think it’s very important for the Fed to continue focused on the mandate it has and not to seek to broaden that mandate. As noble as the goals might be, issues such as climate change and racial inequality are simply not the purview of our central bank. So during this hearing, I look forward to hearing about your views, Mr. Chairman, on the economy, on monetary policy, and the state of our markets. And with that, I yield.

Thank you, Senator Toomey. Today, we’ll hear from Federal Reserve Chair Jerome Powell the Fed’s monetary policy and the state of the US economy. It’s nearly one year since the coronavirus pandemic first wreaked havoc in our country. We know the Federal Reserve plays a key role in making sure that our economy recovers for all Americans. Chair Powell, thank you for your service. Thank you for being in front of our committee today and for your testimony. Proceed.

Jerome Powell: (15:27)
Thank you, and good morning, Chairman Brown, Ranking Member Toomey, and other members of the committee. I’m pleased to present the Federal Reserve’s semi-annual monetary policy report. At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us, maximum employment and price stability. Since the beginning of the pandemic, we’ve taken forceful actions to provide support and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to households, businesses, and communities. Today, I will review the current economic situation before turning to monetary policy.

The path of the economy continues to depend significantly on the course of the virus and the measures undertaken to control its spread. The resurgence in COVID-19 cases, hospitalizations, and deaths in recent months is causing great hardship for millions of Americans and is weighing on economic activity and job creation. Following a sharp rebound in economic activity last summer, momentum slowed substantially, with the weakness concentrated in the sectors most adversely affected by the resurgence of the virus. In recent weeks, the number of new cases in hospitalizations has been falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year.

However, the economic recovery remains uneven and far from complete, and the path ahead is highly uncertain. Household spending on services remains low, especially in sectors that typically require people to gather closely, including leisure and hospitality. In contrast, household spending on goods picked up encouragingly in January after moderating late last year. The housing sector has more than fully recovered from the downturn, while business, investment, and manufacturing production have also picked up. The overall recovery and economic activity since last spring is due in part to unprecedented fiscal and monetary actions, which have provided essential support to many households, businesses, and communities. As with overall economic activity, the pace of improvement in the labor market has slowed. Over the three months ending in January, employment rose at an average monthly rate of only 29,000. Continued progress in many industries has been tempered by significant losses in industries such as leisure and hospitality, where the resurgence in the virus and increased social distancing have weighed further on activity.

The unemployment rate remained elevated at 6.3% in January, and participation in the labor market is notably below pre-pandemic levels. Although there has been much progress in the labor markets since the spring, millions of Americans remain out of work. As discussed in the February monetary policy report, the economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden has been hardest hit. In particular, the high level of joblessness has been especially severe for lower-wage workers and for African Americans, Hispanics, and other minority groups. The economic dislocation has upended many lives and created great uncertainty about the future. The pandemic has also left a significant imprint on inflation. Following large declines in the spring, consumer prices partially rebounded over the rest of last year. However, for some of the sectors that have been most adversely affected by the pandemic, prices remain particularly soft.

Overall, on a 12-month basis, inflation remains below our 2% longer-run objective. While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year. In particular, ongoing progress in vaccinations should help speed the return to normal activities. In the meantime, we should continue to follow the advice of health experts to observe social distancing measures and wear masks. I’ll turn now to monetary policy. In the second half of the year, the Federal Open Market Committee completed our first ever public review of our monetary policy strategy tools and communication practices. We undertook this review because the US economy has changed in ways that matter for monetary policy. The review’s purpose was to identify improvements to our policy framework that could enhance our ability to achieve our maximum employment and price stability objectives. The review involved extensive outreach to a broad range of people and groups, including through a series of Fed Listens events.

As described in the February monetary policy report, in August, the committee unanimously adopted its revised statement on longer-run goals and monetary policy strategy. A revised statement shares many features with its predecessor. For example, we have not changed our 2% longer-run inflation. However, we did make some key changes. Regarding our employment goal, we emphasized that maximum employment is a broad and inclusive goal. This change reflects our appreciation for the benefits of a strong labor market, particularly for low and moderate-income communities. In addition, we state that our policy decisions will be informed by our assessments of shortfalls of employment from its maximum level, rather than by deviations from its maximum level. This change means that we will not tighten monetary policy solely in response to a strong labor market. Regarding our price stability goal, we state that we will seek to achieve inflation that averages 2% over time. This means that following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.

With this change, we aim to keep longer-term inflation expectations well anchored at our 2% goal. Well-anchored inflation expectations enhance our ability to meet both our employment and inflation goals, particularly in the current low-interest rate environment in which our main policy tool is likely to be more frequently constrained by the lower bound. We’ve implemented our new framework by forcefully deploying our policy tools. As noted in our January policy statement, we expect that it will be appropriate to maintain the current accommodative target range of the federal funds rate until labor market conditions have reached levels consistent with the committee’s assessment of maximum employment, and inflation has risen to 2% and is on track to moderately exceed 2% for some time. In addition, we will continue to increase our holdings of treasury securities and agency mortgage-backed securities, at least at their current pace, until substantial further progress has been made toward our goals.

These purchases and the associated increase in the Federal Reserve’s balance sheet have materially eased financial conditions and are providing substantial support to the economy. The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved. We will continue to clearly communicate our assessment of progress toward our goals well in advance of any change in the pace of purchases. Since the onset of the pandemic, the Federal Reserve has been taking actions to more directly support the flow of credit in the economy, deploying our emergency lending powers to an unprecedented extent, enabled in large part by financial backing and support from Congress and the treasury.

Although the CARES Act facilities are no longer open to new activity, other facilities are in place. We understand that our actions affect households, businesses, and communities across the country. Everything we do is in service to our public mission. We’re committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible. Thank you. I’m happy to take your questions.

Thank you, Chair Powell. First, just a yes or no question. Do you agree the most important thing we can do for the economy right now is get people vaccinated?

I would say yes, that is the single best policy to return the economy to its potential growth.

Thank you. Researchers in Minneapolis say the pandemic is forcing mothers and young children out of the workforce. Some three million women have been forced out of the paid labor market in the past year. Every day, families face impossible choices between their paychecks and caring for their children. The Biden Rescue Plan, as you know, provides the funding we need to get Americans vaccinated, and as you suggest is the right policy. And that will help kids go back to school, to help working moms back to work, get back to work safely. What can the Fed do to make sure women, especially those with young children, can return to the workforce so that we don’t end up with an even bigger lasting gender gap in the labor market?

So the tools that can really address specific groups, for example, women who’ve perhaps temporarily dropped out of the labor force, those are really fiscal policy tools. Obviously, those are not tools that we have, and I today will stay away from fiscal policy and really talk about what we can do. And I think the main thing that we can do is continue to support the economy, give it the support that it needs. We’re still 10 million jobs below the level of payroll jobs before the crisis. There’s still a long way to go to full recovery, and we intend to keep our policy supportive of that recovery.

Thank you for acknowledging in your opening statement and your comments to many of us, and your public comments, frankly, about how much we need to do to fight racism and increase diversity. Yet we know historically, the Fed’s monetary policy has benefited wealthy savers and homeowners. Decades of discrimination in the financial system we talked about earlier, from redlining to the subprime mortgage crisis, specifically targeted Black, Brown, and other vulnerable communities. It’s clear the Fed’s policy and failure to regulate predatory actions in the banking sector have contributed to the racial wealth in common home ownership gaps. You’ve said that the Fed’s tools can’t address the underlying causes of racial injustice or income and wealth inequality in our economy. I think you give up a little too easily when you say that. So how can the Fed use its supervision authority to enforce anti-discrimination laws and fight racial injustice and income inequality?

We do have responsibilities and authorities for fair lending, for example, under a number of statutes, and we take those responsibilities very seriously and I think carry them out robustly. And that is an important part of our mandate. And so that is something that we could do, and I think we do aggressively. In addition, through our community consumer affairs division and through the Federal Reserve banks, we don’t spend public resources, but we try to attract [inaudible 00:26:34] resources around, for example, initiatives that will address economic issues of low and moderate-income communities and racial minorities.

I think we could do more, but we will discuss that later. Chair Powell, in the middle of the pandemic, bank regulators have loosened capital requirements at the biggest banks. In one of its changes for the capital rules, the Fed stated the rule was meant, and I quote, “to allow banking organizations to expand their balance sheets as appropriate, to continue to serve as financial intermediaries rather than to allow banking organizations to increase capital distributions,” unquote. In other words, the Fed reduced capital standards so banks would lend more, not so they would pay dividends. But as you know, it’s not what’s happening. The biggest banks have gotten larger. They’ve gotten more profitable, but they haven’t increased lending. Dividends, however, have remained steady. My question is, Chair, will you promise to the committee that you will not extend any exemptions for capital requirements for banks and bank holding companies that have continued to pay dividends rather than invest in the real economy?

So we’re talking here really about the temporary measures we took with respect to that supplemental leverage ratio, and those expire at the end of March. We have not decided what to do there yet, and we’re actually looking into that right now. I’m not going to commit to connecting that decision to the payment of dividends as a separate matter. As you know, we intervene to require the banks to limit their dividend growth to zero and also to limit their share buybacks, and the result of what you see now is a banking system that has higher capital than it did going into the pandemic, and particularly for the largest banks, and one where the banks have taken very large reserves against losses and so have proven themselves pretty resilient.

Perhaps, but we also understand that they have not been supporting the real economy as to the degree that we hope they would, and we will continue that conversation. And I will send a written question to you on climate that we wanted to talk about. Senator Toomey.

Thank you, Mr. Chairman. Just on this topic, let me just say I certainly hope that to the extent that banks have adequate capital for the circumstances that they face at any point in time, any capital beyond that should absolutely be available to be returned to the people who own those banks in the form of dividends or stock buybacks, or whatever mechanism is suitable. And anything to the contrary is a terrible constraint on our economy and on economic freedom. I also want to just observe briefly… And I’m not asking for a comment on this Chairman Powell, but if I could summarize and characterize your opening comments about the economy, I think it’s fair to say that we have many areas, sectors of our economy that are performing extremely well, housing in the good sector I think you referred to. And then we have very concentrated problems in certain relatively narrow sectors like hospitality and travel and entertainment, which are extremely depressed because of the circumstances. I think that clearly makes a very strong case that if there were to be-

I think that clearly makes a very strong case that if there were to be further fiscal policy, it should address where the problem is and not where the problem is not. But to address monetary policy for a moment or so, I think the Fed’s current forecast for growth for this year is over 4%. I think the consensus is well over 5%, with some thinking it could be considerably higher than that. The unemployment rate is now at 6.3, which is about where it was in 2014 when we were not contemplating multi-trillion dollar bills, and I don’t think we were buying $120 billion worth of securities per month.

My concern is that the last two recessions were, I think, caused by asset bubbles that burst. In 2001 it was the stock market, in 2008 it was the mortgage credit market. In both cases, in my view, monetary policy contributed a great deal to the formation of those bubbles. The Dallas Fed President, Robert Kaplan recently acknowledged that there’s a link between the record amount of liquidity being pushed into the system and these unprecedented asset valuations that we’re seeing in a whole range of assets, be it GameStop or Bitcoin or real estate commodities. Across the board we’re seeing quite elevated asset prices and signs of emerging inflation. So I guess my question is, do you believe that there is a link between the liquidity that the Fed has been providing and some of these unprecedented asset prices?

So there’s certainly a link. I would say though, that if you look at what the market is looking at, what markets are looking at, it’s a reopening economy with vaccination, it’s fiscal stimulus, it’s highly accommodated monetary policy, it’s savings accumulated on people’s balance sheets. It’s the expectations of much higher corporate profits, which matters a lot for the equity markets. So there are many factors that are contributing to what’s happening in markets right now. monetary policy, I would certainly agree as one of them.

Yeah. I would just suggest that… Right, I agree all of those things are happening. All of those indicators of growth and increasingly indicators of rising inflation. As you know, the TIPS ten-year break even on inflation is now over 2% up from 6/10ths of 1%. My point is that at some point we’ve got too much liquidity going into the system. The economy is recovering very, very well, problems are isolated and should be addressed narrowly. And I hope that $120 billion a month of bond buying doesn’t become a permanent situation. One of the things I’m concerned about, I wonder if you could comment on the risks that we would have an increase in inflation and increase in bond deals that would correspond to that, but without being back at full employment, what would that imply, which I think is a very plausible scenario for later this year, what does that imply for the bond buying program?

Well, so what we said about the bond buying program is that it will continue at the current pace, at least at the current pace until we make substantial further progress toward our goals. And we’ve also said that as we monitor that progress, we’ll communicate well in advance of any actual [inaudible 00:33:30] purchases. And so that’s what it will take for us to begin to moderate the level of purchases, it’s substantial, further progress toward our goals. Which we haven’t really been making for the last three months, but expectations are that that will pick up as the pandemic subsides.

Well, thank you, Mr. Chairman. I would just suggest that there are a lot of warning signs that have not been worrisome in the past but now are certainly blinking yellow. With that, I will yield.

Thank you. Senator Menendez.

Senator Menendez: (34:05)
Thank you, Mr. Chairman. Chairman Powell, at the end of this pandemic, we need to ensure that we have a more equal society. Unfortunately, we’re not on a path to an equal recovery. As of January the Black unemployment rate is 9.2%, the Hispanic unemployment rate is 8.6% compared to 5.7% for white workers. According to the New York Fed, over the course of the pandemic the Black labor force exit rate has increased dramatically while the white labor force exit rate has returned to pre-pandemic levels. Doesn’t this mean that the Black unemployment rate is likely misleadingly low compared to the white rate?

Well, as you pointed out, this pandemic was particularly bad for these long standing disparities that we have in our economy. The job losses were heavily concentrated in public facing service sector jobs, those tend to be more skewed towards lower paid, and many in many cases minorities and women, and so that’s really where where the big pockets of unemployment were made. And you’re right, so the burden really has fallen more in the low and moderate income communities than it would typically be the case [inaudible 00:35:31], it’s always the case to some extent. This particular event though, is very somehow precisely aimed at those people, and we’re well aware of that.

Well, I appreciate that acknowledgement. We know from the Bureau of Labor statistics over the course of 2020, the labor force participation rate for Black men and women fell nearly twice as much as it did for white men and women. So you agree that minority families are bearing the brunt of the damage caused by the pandemic?

Yes, along with others at the lower end of the income spectrum, the bottom quartile.

Would you agree then that addressing this disproportionate damage needs to be a central priority in relief efforts?

I would’ve thought so.

Yeah, so would I. Now, as part of the Federal Reserve’s mission to ensure maximum employment, what’s the Federal Reserve’s plan for maximizing employment for low-income and minority workers?

So we look, when we say that maximum employment is a broad and inclusive goal, that means we look not just at the headline numbers, we also look at different groups and we try to take all of that into account in making our assessments. So we will take into account the headline numbers, but also those for other groups as we think about reaching maximum employment.

Well, I hope that in your mission, that the Federal Reserve looks at this because Federal Reserve studies show that while high-income jobs mostly recovered to pre-pandemic levels, unemployment among low wage workers remains 14% below pre-pandemic levels. And this is in spite of the fact that almost half of all low wage workers are essential workers, the people who actually let us stay home when we were told stay home to avoid the spread of the pandemic and to be infected, but they were risking their lives in the jobs that they did. And so I believe we have the tools to try to make this an equitable recovery. So would you commit to working with Congress and the Treasury to help low wage workers and minority workers be able to recover just as strongly as others?

We will do that. I will say though, that monetary policy as a tool is famously a broad… It’s a broadly effective tool, it doesn’t enable us to target particular groups, it lifts the entire economy. But we’re going to be mindful though, of the disparities that exist as we make our decisions.

Then finally, as a February 1st, an estimated 13 million adults were not caught up on their rent, another 10 million adults were not caught up on their mortgage payments, our country is very clearly in the midst of a housing crisis. What would be the effect on the housing market and our overall economy if Congress doesn’t provide additional resources to help families struggling to pay their rent and mortgages?

Well, if it were to get to the point at which people were evicted, and you’re talking about people’s lives being disrupted in ways that are sometimes quite hard to recover from, both for renters and owners, so it is important. And the single best thing we can do about that, of course, is to keep monetary policy accommodative to do what we can to speed the recovery so that it will be robust and complete as soon as possible.

Well, millions of people losing their homes would not only affect rateable bases and the most single aspect of wealth, so I hope you’ll keep your eye on that. Thank you, Mr. Chairman.

Thank you.

Senator Shelby.

Senator Shelby: (39:33)
Good morning. Chairman Powell, thank you for your service of a number of years. And how you, I believe, have done an outstanding job as Chairman of the Federal Reserve. I would like to associate myself this morning with a lot of the questions that have been asked already by Senator Toomey of the concern of inflation, the concern of the balance sheet, of where’s the economy going when we get over this COVID, which we all hope and pray will be sooner than later. And I liked to add to that, Mr. Chairman, what’s your view of the world economy tying into ours? Because it’s an important factor as we go forward, assuming in the next, say six months that we get a handle around COVID in the country and Europe, for example, does the same thing.

So, I’ll take those one at a time. On inflation, let me say that we do expect that as the… A couple of things, first as the very low readings of last March and April drop out of the 12th month calculation as we move forward this year, we expect readings on inflation to move up, that’s called base effects. That’ll be a temporary effect and it won’t really signal anything. More importantly, though, with all the factors we’ve been discussing, you could see spending pickup pretty substantially in the second half of the year. And that would be a good thing of course, but it could also put upward pressure on prices. And I would just say that essentially it doesn’t seem likely that that would result in very large increases or that they would be persistent.

We’ve all been living in a world for a quarter of a century and work where all of the pressures were disinflationary, pushing downward on inflation. We’ve averaged less than 2% inflation for more than the last 25 years. Inflation dynamics do change over time, but they don’t change on a dime, and so we don’t really see how a burst of fiscal support or spending, that doesn’t last for many years would actually change those inflation dynamics. I will also say forecasters need to be humble and have a great deal to be humble about frankly, so if it does turn out that the unwanted inflation pressures arise and they’re persistent, then we have the tools to deal with that and we will.

So on the balance sheet, we’re at a stage where with 10 million people, payroll employment is 10 million below where it was before the pandemic. We’re a long way from maximum employment. The balance sheets going to continue to provide the support that we think the economy needs. Over time the growth of it will slow, but that decision is the one that we, we talked about earlier, where asset purchases will continue until we make significant, further progress toward our goals.

You ask about the US economy in a world economy, I do think, and many forecasters agree that once we get this pandemic under control, we could be getting through this work much more quickly than we had feared, and that would be terrific. But it’s not done yet, the job is not done. That’s the thing I keep coming back to is we’ve got to finish the job with the pandemic, get it under control so that the US economy could really reopen. Other countries around the world have the same set of issues, but there is… People will get vaccinated and we can get the disease under control properly, the second half of this year and thereafter the economy could be very good and it could be good elsewhere in the world as well.

Has the fact that the savings rate has gone up tremendously in America, does that bode well in the future, as far as perhaps economic activity?

A lot of that just is that people have not been able to spend, they haven’t been able to travel and go to restaurants and that, so it’s forced savings in a way, so they’ll spend some of that going forward. You’re really thinking, I think, about the fact that the US needs more savings so that it’ll have more investment and more productivity. It would be nice if we had a higher savings rate, and it would be also nice if we didn’t have a lot of dis-savings at the federal level. A lot of it is that these budget deficits require a lot of assets. Not that we need… That’s something we need to turn to again, but I think this is not the time to be thinking about that, but that time will certainly come.

Thank you, sir.

Thank you. Thank you, Senator.

Thank you Senator Shelby. Senator Tester.

Senator Tester: (44:26)
Yeah, thank you, Mr. Chairman. And I want to start by thanking Chairman Powell. I very much appreciate your frankness, and I very much appreciate your fight to keep the Fed independent. I know that’s been difficult over the past number of years, but you’ve stepped up. I certainly don’t want a bunch of politicians to determine monetary policy, and so I’m glad you’re at the helm. I also think that we’re going to have a debate over this $1.9 trillion package in front of you on probably every damn committee that I’m on and a bunch of others.

Some of that is, well, all of it is necessary, but I do want to talk to you, because everybody makes points that, and I go, “Yeah, that’s a good point.” And it’s true the housing market in place like Montana is hotter than hot, is quite frankly booming. And there’s another problem that we’re going to… I want to talk to you a little bit about the housing thing, but there are other industries and there are folks out there who quite frankly, don’t have the job they used to have and may never get that job back. And there are business people out there that are up against it, some of those businesses will go broke and never reopened, others will.

I just kind of want to get your perspective on if you were not the head of the Fed, but in the United States Senate, where would you pay most of your attention to? Because I agree, the money we spend needs to be focused where it’ll do the most good, there’s no doubt about that. Where is your focus? Where would your focus be? Would it be unemployment? Would it be hospitality businesses or would it be something more global than that?

It’s an interesting question, maybe the grass is always greener. So our work really relates to managing the business cycle in a way, but what I always think I would focus on is more what we call the supply side, which is really investing in things that increase the potential growth rate of the United States economy over time and make that prosperity as broadly spread as possible. So let me be more specific, it amounts to investing in people and that means education, it means training, it means all those things, and that enables those people to take part fully in our great economy. And I really do think in a global economy, people who are able to use and benefit from technology, there’s no limit on the amount of those people who can be working in the United States, because it’s such a global economy.

I also think it’s important for businesses as well, that they have a climate where they can trust that inflation is going to be under control, and that business conditions are going to be good and that they can invest, and I think the federal government investing in basic science over time has produced a lot of productivity enhancing things. But we’re generally Senator, I think focusing on things that will make a longer run difference to our economy is what I would do.

Okay, I appreciate that. Now, I want to go to housing, because I talk about Montana, but I think this is true all over. We don’t have enough affordable housing. We don’t have enough workforce housing. I think that short term and longterm, by the way, this is going to be a drag on the economy. Do you see the Fed playing any role, or do you think they could have a role in increasing the amount of affordable housing that’s out there? And if you do think the Fed plays a role, what would that role be?

I don’t really think we do. When it comes to a set of policies like that, that’s targeting the fiscal power of the Federal government to what is seen as a worthy cause, it’s not really something we can do. We can combat housing discrimination and things like that in lending, but I don’t think we are in a position of being able to allocate credit to worthy beneficiaries, that’s really fiscal policy.

Okay. Getting back to the pandemic, you’ve implemented a lot of monetary tools during this crisis, in your opinion, have they been sufficient? And if they have… Yeah, that’s the first question, have they been sufficient?

I think they have. I think the difference really this time is that fiscal policy has really come to the table, it’s making a difference.

Okay. Moving forward, have you looked at any changes to the monetary policy, the monetary [inaudible 00:49:10] tools that you’ve used moving forward?

Not yet. I mean, we’re looking into that. Right now our focus is on providing the economy to support it’s needs. [inaudible 00:49:21] turning to an evaluation of everything that happened in the crisis and answering that question.

Okay. Thank you, Mr. Chairman. Thank you, Chairman Powell.

Thank you, Senator.

Thank you, Senator Tester. Senator Scott.

Senator Scott: (49:36)
Thank you Chairman Brown, and thank you Chair Powell for being here with us this morning. It’s certainly an important time for us to engage in the conversation about the future of employment in our nation, and one of the core responsibilities of the Fed of course has to do with that employment.

There seems to be so few issues right now Chairman Powell that actually unites the left and the right. I’m always stunned in Washington when we find something that unites both sides and frankly, the minimum wage issue is an issue that has united both Republicans and Democrats on opposing having the $15 minimum wage as a part of the COVID-19 relief package. It’s good to see my friends on the left coming to the conclusion that, in the middle of a pandemic, that according to the Congressional Budget Office that a $15 minimum wage would shutter another 1.4 million jobs, their earlier estimate when as high as 3.7 million jobs in the middle of a pandemic that is eliminated 10.7 million jobs. This seems to be common sense from my perspective, from the perspective of Democrats and the Congressional Budget Office. My question for you, sir, is has the Fed economists conducted research on the potential impacts of raising the minimum wage to $15 an hour?

I don’t know that we’ve looked at that question in, particular. We have great labor economists who’ve done a lot of work on that broad area

Yes, sir. Are there conclusions similar to the conclusions of the Congressional Budget Office, as it relates to the negative impact of raising the minimum wage during the pandemic?

Let me say, as I must, that this is a classic issue that the Fed never takes a position on, and I’m not going to take a position on it here today. It’s fiscal policy. Most of the research still says that there is some trade off between job loss and those whose wages go up, but actually the sort of unanimity of that finding of 30 or 40 years ago is no longer in place, there’s a much more nuanced understanding of it. But in any case, it’s just an issue where we don’t play a role or express a view, but I can share with you the research that we’ve done, I’d be happy to do that.

That would be [crosstalk 00:52:00]. That would be very important, especially as you think of the Fed’s responsibility as it relates to providing a sustainable economy that includes keeping unemployment as low as possible. The fact that the Fed isn’t taking a position on an increase of the minimum wage that is obviously, according to the Congressional Budget Office, is going to eliminate the minimum of 1.4 million jobs, I think is an important engagement from the Fed on that issue.

I’ll ask you a different question as it relates to the COVID relief package of $1.9 trillion. It seems to me that over the last fiscal year we spent right around $6.5 trillion addressing the pandemic. My question for you is, as we see another $1.9 trillion on top of the 6.5 that we’ve already spent, what is the impact on the issue of rising inflation in excess of the Fed’s longer run objective of 2%.

So, of course, as I said at the beginning, I’m not going to comment today on the proposal that you mentioned, the fiscal package that you mentioned at all. It’s not our role. I will say on inflation, there perhaps once was a strong connection between budget deficits and inflation, there really hasn’t been lately. That doesn’t mean it won’t return, but again, my expectation will be that inflation will probably be a bit volatile over the next year or so due a significant amount to particular things to do with the pandemic. For example, we’ll see a slight increase in inflation in a few months because of the base effects that I mentioned. We’ll also see, perhaps, we don’t know this, but we may see upward pressure on prices as the economy fully reopens, it’s a good problem to have.

I don’t think that those effects should either be large or persistent. And the real reason for that is that we’ve had decades of well anchored inflation expectations, meaning that we had a very volatile economy for the last 15 years, and inflation has just kind of done what it was going to do, it didn’t go up.

Thank you, [crosstalk 00:54:17]. Thank you very much, sir. I appreciate the fact that you’re unwilling and unable to answer the questions as it relates to the minimum wage, and certainly you don’t want to get into the politics of the $1.9 trillion package. I don’t blame you, if I were you I wouldn’t want to get into the politics of it at all, frankly, and I certainly understand your reticence to do so. I’ll use my few seconds here to simply say that the Congressional Budget Office, some Democrats, all Republicans, all agree that the raising the minimum wage is a way to destroy jobs in an economy that is looking forward to a fragile recovery. Thank you, Chair Brown.

Thank you Senator Scott. Senator Warner.

Senator Warner: (54:58)
Thank you Mr. Chairman, and thank you for holding this hearing. Chair Powell, it’s great to see you again. Thank you for the good work you’re doing. I think in response to [inaudible 00:55:10] Senator Tester’s questions, when you were talking about the kind of investments we ought to be making that are long-term, particular those who we’re thinking about infrastructure. One of the areas, and understanding what my friend Senator Scott just said and your answer that you don’t want to weigh in on the president’s most recent plan, I would like you to [inaudible 00:55:32] a comment whether you believe that broadband investments fall into that category of kind of long-term structural change we need? I would argue over the last 11 months, we’ve seen that broadband is a necessity. I think it is absolutely COVID related. I hope that the current package can be changed to actually include a sizable investment in broadband.

As good as our four packages, bi-partisan packages have been to date, the broadband investment has been meager or non-existent. Experts like Tom Wheeler and Blair Levin have said somewhere in the 40 to $50 billion range, we can get about 97% coverage along with better affordability. So I guess I’m asking, would you agree that immediate efforts to close the broadband gap, not only represent longterm investments, but also have some direct relationship to the current healthcare crisis?

So as you and I have discussed on a number of occasions, I would agree that broadband is kind of a classic 21st century infrastructure, and one of those things that can support growth. But I of course can’t go anywhere near… I don’t want to go anywhere near a question of what should be included in the package, if that’s okay?

What about the question though, from a macro economic standpoint, broadband and trying to close the digital divide, if we’re going to have a fulsome recovery across all socioeconomic groups, could you speak to the question of the necessity for broadband to be ubiquitous if we’re going to have that kind of robust recovery? And comments about whether broadband is, at this point, a nice to have or an economic necessity, whether it’s tele-work, tele-health or tele-education?

No, so again, as you and I have discussed on a number of occasions, I would agree that it’s a classic piece of infrastructure for the modern economy, for the service economy, for the technologically advanced economy, and having it as broadly available as possible it could be a significant benefit economically.

If not broadly available, are we going to be able to see the kind of broad-based recovery that I think we’re all looking for?

Well, I think we have a bunch of issues to deal with that relate to these persistent disparities that we see to do with education and training and all those things, but that would certainly be one of those things.

Senator Scott, in his previous line of questioning, raised the inflation issues. And I know we’ve seen about a 41 basis point increase on some of our ten-year benchmarks, it’s still relatively small. I tend to agree, I think we do need to make a sizeable investment right now, I’m not sure… The inflation risks, I agree with you, are not as high as they potentially might be. Could you just briefly give some of the tools you’ve got available as Federal Reserve Chair, if you started to see inflation rise at a level that you didn’t feel comfortable with?

Well, those are the classic tools that we have. And again, I really do not expect that we’ll be in a situation where inflation rises to troubling levels. At this point, the Federal Open Market Committee is seeking inflation running moderately above 2% for some time. So the real question is, as we go through this are we going to find ourselves in a situation where inflation expectations are de-anchored and inflation is moving up and is persistent? And I think we’re all very acquainted with the history of how we got into that situation in the 1970s, we did that in the 1960s and we have no intention of repeating that. So central banks and the Fed the learned the centrality of keeping inflation under control, and we know how to do that. And that’s just by not allowing…

Jerome Powell: (01:00:03)
We know how to do that, and that’s just by, by not allowing me to economy to just ignore constraints over time. But I think this is not a problem for this time, as near as I can figure, and if it does turn out to be, then we do have the tools we need.

Senator Warner: (01:00:17)
We’re down to my last 20 seconds. And let me just … You want to make some general comments. I mean, I would argue that the pandemic was the first major real-world stress test we’ve had on our fiscal system since 2009. How do you think, overall, that the system has responded and recognizing, Mr. Chairman, that’d be my last question, so obviously you may want to take that one from the record, but if you want to make some general comments quickly.

You meant financial system, I think. Right?

Right. Yes, sir.

Well, I think the large financial institutions that are at the heart of our financial system proved resilient. They did, and they’d been able to keep lending, and their capital levels have actually gone up during this period. As I mentioned, their liquidity levels are at highs, so I think that the work that we did over the course of the last decade and then some has held up pretty well so far, and I expect it will continue to.

Thank you, Mr. Chairman. Thank you, Chairman Powell.

Chairman Brown: (01:01:17)
Thank you, Senator Warner. Senator Rounds of South Dakota.

Senator Rounds: (01:01:21)
Thank you, Mr. Chairman. Chairman Powell, first of all, it’s good to see you again, and appreciate your service to our country as well. Thanks for being with us today. I’d first like to ask about the SLR exclusion, which is set to expire on March 31st. My colleagues have mentioned it earlier, but did not really get into the heart of the matter. The temporary patch allowed banks to exclude OFA safe assets, US treasuries, and deposits at the Fed out from their balance sheets. This was important in preserving bank liquidity during last spring’s flight to cash and was a common sense move since the Fed can’t go bankrupt and the treasury has never failed to meet its obligations. We all agree that the economy is still in need of fiscal and monetary support. The chairman himself said that banks should be doing more to help their workers and our broader society, but they can’t do that when we’re tying their hands with excessive and challenging capital requirements.

It would appear Congress is going to create even more bottlenecks in our financial plumbing by flooding the economy with about $1.9 trillion in new money that banks will have to hold capital against as soon as the treasury starts writing the checks. My question is would you agree that it makes sense to seriously consider extending the SLR exclusion, given the other measures the Fed and Congress are taking to facilitate our economy’s recovery?

So I do think that the SLR exclusion, I know it expires at the end of March, and we actually haven’t made a decision on what to do. It’s something we’re in the middle of thinking about right now. And so I’m just going to have to say that we’ll be making a decision in announcing pretty soon here.

I think the reason for my question is that I think last time around and in the past, we’ve had challenges with banks that have come in and said, “Look, we’ve got folks that want to bring their assets in. They’ve got to have a place to put it. It is liquid. It’s what we’re going to have.” Most certainly that has impacted our ability and the reason for the SLR in the first place, and it just seems to reason that, as you talk about it and as you continue to discuss it, I hope that we really do keep an open mind, and I presume you are keeping an open mind on the need for that as this amount apparently will be put into the economy in very short order. And so I simply bring it up by saying I think there’s a lot of us that think that that’s going to be an important part of the discussion to have.

Well, let me lead into another question with you, sir. We’ve been monitoring the increase in treasury yields from about nine-tenths of 1% at the start of 2021 to approximately 1.37% when the market closed yesterday. I understand that this reflects a view of an improving economy, but also comes with increased borrowing costs, increased inflation, and potentially a move by the Fed to increase interest rates down the line. How do you view the increase in treasury yields in the broader context of our economy at this point?

So first, we look at a broad range of natural conditions. That’s one. It’s an important one, but really we’re looking at the whole range of financial conditions. And it’s very important to ask why are rates moving up? And so if you look at why they’re moving up, it’s to do with expectations of a return to more normal levels, more mandate consistent levels of inflation, higher growth, an opening economy. In a way it’s a statement of confidence on the part of markets that we will have a robust and ultimately complete recovery. So those are the reasons that are behind that, I would say.

Great. Well, thanks. Look, we follow the markets. We follow on a regular basis, whether the markets are moving up, they’re moving down and so forth, and I think in anticipation of what your thoughts were going to be today, I think the market was rather volatile. I’m just curious, when you walk into an opportunity like this where you’re sharing your thoughts, I know that you want to be very careful in terms of the message that you send, and I think you do a very good job of being very careful in the way that you send the message, but let me just ask. In your opinion, when you prepare for this type of a discussion, knowing the markets are literally watching everything you say, what’s the message that you’d like to send? Are you talking we’re going to have stability. It’s going to be steady as she goes. We don’t see changes coming up with regard to the availability of capital. We don’t see changes that are going to impact inflation. What’s the message that you really want to stand as you share with us today and you’re expected to be in front of our committees?

So I guess I’ll say a couple of things. First, the starting point is that we’re 10 million jobs below where we were in February of 2020. 10 million payroll jobs, so there’s a long way to go, and many of those jobs are concentrated in the lower end of the income spectrum. As I mentioned, many parts of the economy have recovered, but in the bottom quartile, the unemployment rate is probably an excess of 20%, we think. So there’s a long way to go. Monetary policy is accommodative, and it needs to continue to be accommodative. We’ve put forward guidance out, both on our asset purchases and our rates. We think that that forward guidance is appropriate, and you can expect us to move patiently over time as we see better data coming in. Right now, we’ve had three months of 29,000 jobs a month. It’s not very much progress. We expect that such progress, which we had earlier last year. We had very fast progress. We expect that that’ll begin to return in coming months, and expect us to move carefully and patiently and with a lot of advanced warning.

Thank you, Mr. Chairman. Thank you, Mr. Chairman. I apologize for going over on my time.

Thank you, Senator Rounds. Senator Warren of Massachusetts.

Senator Warren: (01:07:35)
Thank you, Mr. Chairman. So our economy is suffering through a K-shaped recovery, where the wealthy are doing better and better while working people are doing worse and worse. Chair Powell, you’ve been pretty vocal about inequality over the past few years. You’ve noted, I think I’ve got a quote here from you that it’s been a growing issue in our country and in our economy for four decades. You’ve talked a lot about how inequality undermines opportunity and mobility, and you’ve described it as something that holds our economy back. So I take it from these comments that you believe that inequality weighs our economy down and stunts economic growth. Is that a fair statement?

Yes, it is.

Good, and I agree with you on this, and the Fed’s own data spell out the problem. I think you were just talking about it. The top 1% of families last year received 20% of all the income in this country, and you think that’s not good for our economic growth overall? Is that fair?

Well, I would say that the stagnation of incomes in the lower income area and also the low mobility that we’ve seen. Those to me are the two most important things that I focus on when I talk about inequality. Stagnation of incomes and low mobility.

Right, but we’re talking about her income inequality, how much people earn each year to be able to pay the rent and to be able to put food on the table. But inequality also shows up in wealth, which is what families build over time, money in the bank, home, stock. Wealth inequality is even more extreme in our nation than income inequality. While the top 1% of families, this tiny slice, got 20% of all the income earned in the US last year, the top 1% held 33% of the total wealth in this nation. And now, this pandemic is making inequality worse. Unemployment, as you just noted, is now at about 20% for the bottom quartile in this country, meaning that there are a lot of folks out there who are making choices about keeping the heat on or putting food on the table.

Meanwhile, the wealth of America’s 660 billionaires increased by $1.1 trillion over this past year. Inequality is felt in another way. It’s felt in how people pay taxes. The 99% in America pay on average about 7.2% of their total wealth and taxes in a given year, but the top one tenth of 1% pay only about 3.2%. That’s less than half as much. Chair Powell, does it increase inequality when the wealthiest Americans pay total taxes at less than half the rate of nearly all other American family?

You’re getting farther and farther from the kinds of inequality that we focus on, and frankly, the ones that we can do anything about with our tools. We can’t affect wealth inequality, and certainly in the short term. We can affect indirectly income inequality by doing what we can to support job creation at the lower end of the market. So I leave to you those are really fiscal policy issues that I wouldn’t … I can’t relate those to our mandate. That’s all.

I appreciate that you’re trying to move sideways on this, but you have pointed out that inequality is a problem in our country, that it holds back mobility that holds back opportunity, and I’m simply pointing out that inequality is felt not just in income. It’s also felt in wealth even more so, and that our tax structure makes that inequality worse over time. Extreme wealth inequality undermines our economy, as you have said. It undermines justice. It undermines our democracy, and our tax code focuses almost entirely on income and lets most of the wealth that the ultra-rich families have accumulated just slip right on through, and that just seems to me not right. It’s time for a wealth tax in America, a two-cent tax on fortunes worth more than $50 million. If your fortune’s over a billion, pay a few more cents. This wealth tax will let us address the inequality that you have been very worried about as Chair of the Federal Reserve. It’s how we have a chance to level the playing field and build an economy that works for everyone. So thank you for being here, Mr. Chairman, and thank you, Chairman Brown.

Thank you, Senator Warren. Senator Tillis of North Carolina. If not, Senator Kennedy of Louisiana.

Senator Kennedy: (01:12:52)
Yes, sir. Can you hear me, Mr. Chairman?

I can, Senator. You have two Mr. Chairmans here.

Yes, sir. Mr. Chairman, the witness, what was our fourth quarter GDP growth?

I’m reluctant to guess, but it was in … I want to say 4%.

Right. That’s what, that’s what my numbers show too. What are you at you and your economists estimating that our GDP growth will be for 2021?

So we’ll be updating our forecasting. The last forecast the staff did was in January. My guess is that the data have been a little more positive, but it’ll be a good number. We’d be in the range of that you see in the public forecast.

How about 6%?

Could be. Could be in that range. In the range of 6-7%.

Okay. At what point in 2021 will the level of GDP equal pre-pandemic levels?

Sometime during the year. It depends on the growth rate. Could be second half of the year.

How about the end of January or the end of February, rather?

I don’t know that. Are you asking the question … The pre-pandemic level or the pre-pandemic trend?

The pre-pandemic level. If you froze the GDP, the economy in February a year ago, at what point would we be back to where we were up February a year ago?

In the first half of the year.

Yeah. I mean, I see a lot of economists saying at the end of February. Do you disagree with that?

I can’t be that specific. I was answering question about the pre-crisis trend, which is what we’re trying to get back to.

Well, here’s what I’m getting at. You have strongly encouraged Congress to pass another coronavirus bill, $2 trillion. And I guess tell me, if you could in just a couple of sentences, why you think we need to do that if we’re looking at 6% GDP growth this year, and as soon as the end of this month, we’ll be back where we were in February 2020?

Actually, Senator, I have consistently not taken a position on this bill.

So you don’t have an opinion about whether we ought to pass President Biden’s bill?

As I’ve said since the December press conference I think on every public occasion when I’ve been asked about it, I’ve said that it’s not appropriate for the Fed to be playing a role in these fiscal discussions about particular provisions in particular laws. It’s just we didn’t comment on the Tax Cuts and Jobs Act. We didn’t comment on the CARES Act. It’s not our role.

Okay. So, so your opinion is if we don’t pass the bill, you’re cool with that?

Well, that would be expressing an opinion, so that’s what I’m not doing is expressing an opinion.

Well, would you be uncool with that?

I think by being either cool or uncool, I would have to be expressing an opinion.

Okay. How do you think we ought to pay all this money back that we’re going to borrow and that we already have borrowed?

I think that we will need to get back on a sustainable fiscal path, and the way that has worked when it’s successful is you just get the economy growing faster than the debt. I think that we’re going to need to do that, and that’s going to need to happen, but it doesn’t need to happen now. Now is the wrong time to be doing that.

Do you think we ought to go Catwoman on the budget and actually look for savings there?

Go Catwoman? I don’t know that reference. I think in the fullness of time, we will need to right-size our budget relative to our … So that the economy is growing faster in nominal terms than the debt. We’ll have to eventually on the path we’re on.

Well, do you think that deficits matter?

Certainly. In the long run, I do believe they do.

You don’t think they matter in the short run?

Again, I think we will need to return to …

[crosstalk 01:17:38] call Haggerty because he’s waited so long.

We’ll need to return to this issue, but I wouldn’t return to it now, and the way that the way to get after this issue is to get a situation where the economy is growing faster in nominal terms than the debt is.

Yeah. What if that becomes the case, but your spending’s also growing faster than your economy?

Well, no, that is the deficit. I mean, the question really is … The deficit is the difference between intake and spending, so it depends. It’s the net of those two.

Let me stop you, Mr. Chairman, because I’m going to have one last question quickly. M2, the money supply is up. I think about $4 trillion over the past year, or $6 trillion. $4 trillion, $6 trillion, what’s a few trillion? It’s up 26%, the highest amounts since 1943. What does that tell you?

Well, when you and I studied economics a million years ago, that M2 and monetary aggregates generally seem to have a relationship to economic growth. Right now, I would say the growth of M2, which is quite substantial, doesn’t really have important implications for the economic outlook. M2 was removed some years ago from the standard list of leading indicators, and just that classic relationship between monetary aggregates and economic growth in the size of the economy, it just no longer holds. We’ve had big growth of monetary aggregates at various times without inflation, so something we have to unlearn, I guess.

Thank you, Senator.

Thank you, Mr. Chairman.

Senator Cortez Masto from Nevada.

Senator Cortez Masto: (01:19:22)
Mr. Chairman, thank you. Thank you, Chairman ranking, and Chairman Powell, thank you again for being here as usual. I so enjoy listening to you in the conversation so far. Let me bring up a subject that you and I quite often talk about, which is Nevada and the tourism and service industry as we all know has been so hard hit. We have the second highest unemployment rate in the nation. In this type of labor market, there is no upward pressure on wages because when people are desperate for work, they’re willing to take lower paying jobs, but when the unemployment rate is low, employers are more willing to both raise wages to find workers as well as invest more in in-house training and retraining. Can I just ask a question? How does a tight labor market encourage employers to invest in in-house training? Do you have any thoughts or answers to that at all?

I do. And as we’ve discussed in that last couple of years, when unemployment was routinely below 4%, as low as 3.5% and where labor force participation was high, had moved up actually, despite expectations that it wouldn’t, we saw lots of virtuous effects in the labor market. I actually talked about those a couple of weeks ago. One of them was, and I didn’t focus too much on, you saw employers investing more in training. You saw employers looking for people at the margins of the labor force. Employers were going to prisons and getting to know people before they came out and giving them jobs as they came out. Great things happening from a tight labor market, and I just think we saw that, and that’s one of the reasons we’re so eager to get back to that, consistent with also maintaining price stability. But we really do think, and others saw the same thing we did, which is the broad societal benefits of a tight labor market.

And in particular, wouldn’t you agree that Congress’s investment in workforce and workforce development and helping developing those skills for that workforce would be important?

I do. Again, I don’t want to comment on any … I’m not entirely sure if what you mentioned is in the current proposal, but I would say that the kinds of investment in people that enable them to be more effective in the labor force and policies that enable people to take part in the labor force, those are big things that can increase the productive capacity of our economy over time.

Yeah, I agree. And with that [inaudible 01:21:57], that’s why I’ve introduced the Workers Act, the Pathways Act. Many of my colleagues are really focused on this investment, particularly now when we have opportunity to have a longterm impact on jobs, so thank you for that. Let me jump to just the unemployment in the service industry now. This is an area that I know we’re really hard hit, and we have to do more to turn this economy around in our hospitality industry, but let me ask you this. If the Congress does not extend and bolster unemployment insurance, what is the Federal Reserve’s economic forecast for the impact on communities like Las Vegas that are dependent on traveling and hospitality?

So again, I’m not going to comment on … Unemployment insurance is part of the bill, so I’m just going to stay away from the current fiscal discussions. I really have to do that. I mean, the single most important thing for your service sector employees is to get the pandemic behind us so people can get on airplanes and go to Nevada again and take vacations. That’s the single most important economic growth thing that we have. I mean, after that, I think there’ll be, and it’s possible that that will begin to happen relatively soon, if we can get the vaccines out and get people vaccinated, and people do the right things with social distancing, masks, and that kind of thing. You could see that happening relatively soon, which would be great.

I agree, but you would agree there’s an investment that still needs to be made? I mean, we are not done here at the federal level with our monetary fiscal policy and addressing the economic crisis we have. It’s one thing to get the pandemic under control. It’s another to understand how we turn this economy around as well. Would you agree?

I would agree. So we, as I’ve said, we will keep our policy accommodative. We think we have significant ground to cover before we get even close to maximum it, and we hope to do everything we can to speed that process.

Yeah, and let me just say one final thing. Because you just said it is the pandemic that has hit state after state and individual communities after individual communities, I hope we do not shift gears here about making investments when some states turn around much quicker and their economy turns around much quicker than ours, particularly in the service industry. No state should be left behind, and I hope that we would all agree to that, that we need to pull everybody with us as we address this pandemic and start to turn the economy around. So I know my time is up. I will submit the rest of my questions for the record. I also [inaudible 01:24:41] that Chairman Brown has had to get over to the Senate Finance to ask a question. He will return. So I am going to sit in his chair temporarily, and I am going to go ahead and turn the gavel over to Senator Haggerty. Thank you.

Senator Haggerty: (01:24:56)
Well, thank you, Senator Cortez Masto, and I want to say thank you to Chairman Brown and to Ranking Member Toomey as well for holding this hearing today as we work toward full economic recovery, and as noted, this is an important part of Congress’s oversight of the Federal Reserve system. And Chairman Powell, I want to thank you for your time and your participation today. More generally, I want to thank you for your leadership of the Fed as we work our way through this crisis. And I want to say this, Mr. Chairman; I’m very encouraged by the indications from the monetary policy report of the progress that we’re making as we come out of this downturn. We’re looking at potentially north of 4% economic recovery, or as you and Senator Kennedy were just discussing, maybe even 6% growth for 2021. I find that very encouraging. Albeit an uneven recovery, I feel that it’s very good news that we’re on the way.

That also raises concerns that I have, and I’m sure it’s been discussed many, many times about the amount of liquidity that we’re going to continue to pump into this economy. We have already allocated $4 trillion in coronavirus recovery relief, $1 trillion yet to be spent, and now we’re talking about putting close to an additional $2 trillion into the economy. I won’t belabor this anymore. It’s been discussed by my colleagues, but I share their concerns about injecting that much liquidity into the economy at a time when we’re in the process of recovering, particularly noting our touch and slow recovery after the 2008 recession, given the amount of funding that was injected in the economy then.

Chairman Powell, I’d like to shift gears for a minute. Yesterday, Treasury Secretary Yellen talked about the digital dollar, the digital dollar that’s overseen by the Fed. It’s tied to blockchain technology, something that she said result in faster, safer, and cheaper payments. You and I have discussed the importance of the dollar as the world’s reserve currency on previous occasions. It’s a vital asset for us as Americans. I would very much appreciate, Chairman Powell, your perspective on whether the Fed should develop a digital dollar, a digital dollar that will be held directly by households, directly by businesses, and not mediated by commercial institutions.

Thank you. So we are looking carefully, very carefully at the question of whether we should issue a digital dollar, and it’s something that full banks around the world are looking, and doing so appropriately because the technology now enables us to do that, and it also enables private sector actors to create their own kind of digital quasi money type of instruments. So there are significant both technical and policy questions to do with how we would go about doing that. I would say that we’re committed to solving the technology problems and to consulting very broadly with the public and very transparently with all interested constituencies as to whether we should do this.

I would also say we are the world’s reserve currency, and we have a responsibility to get this right. We don’t need to be the first. We need to get it right, but this is something we’re investing time and labor in right across the Federal Reserve system. You may know that the Federal Reserve Bank of Boston has a partnership with MIT looking at one particular thing. We’re doing research here at the board. It does hold out the prospect of the things that you mentioned very positive. It could help with financial inclusion as well. At the same time, you want to avoid creating things that might be destabilizing or that might draw funds away from the banking system. We have a banking system which intermediates between savers and borrowers. We want to be careful about what the implications are of what we do, so a very high priority project for us.

I share your concerns on the need to be careful. I also appreciate the fact that you’re going to stay at the leading edge of looking at this and making certain that America does not fall behind in any respect in terms of maintaining our status as the world’s leader in reserve currency. With just a moment of time left, I want to follow up on a more technical comment that Senator Rounds made regarding the importance of looking hard at the SLR exemptions as we continue to move forward this year. I know they’re coming to expiration at the end of March, but I very much appreciate your taking a hard look at that as we move forward, because there’s a tremendous amount of liquidity coming in. And on inflation, you and I have talked before about the experience in Japan of disinflation. At the same time, I share Senator Toomey’s concerns about the asset price bubbles that we’re seeing already occur here in America, and again, I appreciate your role in taking a very steady hand in monitoring inflation and making sure we stay on top of it. Thank you very much, Mr. Chairman.

Thank you, Senator.

-and making sure we stay on top of it. Thank you very much, Mr. Chairman.

Thank you, Senator.

Thank you. Next I’m going to call on Senator Van Hollen. I know Senator Brown is asking a question to finance. I’m going to ask a question to E and R. So I am going to also pass the gav to Senator Van Hollen. Thank you.

Senator Van Hollen: (01:30:20)
Thank you, Senator Cortez Masto, and welcome, Mr. Chairman. Thank you for your service. At the outset here, I just want to underscore the importance of the Fed continuing to move ahead with the FedNow Service. As we’ve discussed in previous hearings, the United States’s outdated payment system is inflicting large and unnecessary costs on millions of American consumers, leading to billions of dollars of unnecessary funds spent. This doesn’t impact people with big bank accounts who are not close to overdrawing. It impacts those who are living paycheck to paycheck. So I see that the Fed has accelerated its timetable a little bit to 2023. If you can move even faster, all the better. You’ll be saving millions of Americans lots of money in unnecessary costs.

I want to focus my questioning on the issue of long-term unemployment. In a speech you gave on February 10th, you pointed out that the unemployment rate would be close to 10% if you adjust for the Bureau of Labor Statistics, its clarifications and people who dropped out of the labor force since the pandemic. This includes over [inaudible 01:31:47] million Americans who are counted in the unemployment figures, but are long-term unemployed, and millions more who have dropped out of the labor force during the pandemic, but would like to get back into the workforce.

You noted in that speech the concerns of and damage from persistent long-term unemployment, what it inflicts on workers personally and their families and the negative impact on productive capacity for our entire economy. You stressed that monetary policy alone can’t do this. It requires a fiscal response. So here’s my question. Beyond the overall impacts that the bill before us or other fiscal responses will make in terms of increasing overall economic growth, based on your experience, would you agree that it’s important to very intentionally develop policies to help the long-term unemployed, individuals who even during good economic times were unable get into the workforce?

I do, and this really is a longer run thing, I would say, but it’s particularly relevant now. As I also mentioned in those remarks, industries are always growing and shrinking, and workers are moving from one industry to another. That’s just a market-based economy working. In this situation, you have that accelerated in a big way. So we may find that many of the people who are not going back to work or not back at work now may really struggle to find jobs, because businesses are being automated. We hear that all the time, that computers and automated answers are becoming more and more common. So I think those people are really going to need help to get back into the labor force and get their lives back. That will take, I think, the kind of investments you’re talking about.

No, I appreciate that. We’re talking about a focus and an intentional investment beyond the investments that we’re making for overall economic growth, right?

Yes.

Yeah. I also wanted to turn really quickly to the importance of using the right kind of economic measurements to determine the wellbeing of American workers and families. As you noted in that same speech, unemployment among low wage workers is 17% where it was at the start of the pandemic, whereas among high wage workers, it’s only down 4%. So if you take the average, you’re not seeing the impact, the disproportionate impact on low wage workers. I often give the example that if Jeff Bezos had moved to Baltimore City last year, the per capita income of Baltimore City would have gone from $53,000 per person to $175,000 per person, even though nobody was better off individually. So what should we be doing, and what is the Fed going to be doing to make sure that as our economy improves, which we all want it to do quickly, we don’t overlook the continuing pain people are feeling because we’re looking at averages and not looking beneath those averages?

These people who are struggling in that way are doing so because they were employed in the public-facing jobs in the service industries. So clearly, the number one thing we can do to get them back to work is to get the pandemic behind us, and that’s not something we can work on here at the Fed, but that’s the top thing. Beyond that, I just think it’s up to us to continue what we can do to support the economy, really, with some patience in order so that they’ll have time to get across. We’ve talked about a bridge. Most Americans will have a bridge in the end, but there’s a group that will really struggle. I think we need to be mindful of them, because, really, they did nothing wrong. This was a natural disaster. As a country, we set out to provide support.

I appreciate that. My hope is the Fed releases its numbers, going forward. In addition to the aggregate average numbers, you also continue to provide us with the impact on lower wage individuals. Thank you, Mr. Chairman. Senator Tillis. If Senator Tillis is not with us, Senator Lummis. If Senator Lummis is not with us, then Mr. Chairman, is Senator Tillis I’m told maybe joining us soon? Senator Moran.

Senator Moran: (01:37:21)
Thank you, Mr. Chairman, Mr. Chairman pro tem, and Chairman Powell, thank you for the opportunity to visit with you today. Thank you for your work at the Fed. Just have a broad question. How do you view your job in relationship to an administration? So a change in administration from one president to the next, what does that mean at the Federal Reserve, from your perspective, anything or a lot?

Well, our job doesn’t change, and at the very beginning of the administration, the personnel don’t change. Of course, the one way that administrations really do interact importantly with the Fed is with appointments. So those will happen over time. The second thing is it’s a different group of people. We have ongoing relationships by a longstanding practice with various parts of the Treasury Department mainly, but also to a much more limited extent with the White House, and we make new relationships and continue to have the same sorts of discussions that we have. Ultimately, the answer to your question is nothing really changes because of the election, other than meeting new people.

Chairman, thank you, and thank you for your answer. During my time on the Senate Banking Committee, I’ve been an advocate for an independent Fed and want the Fed to make decisions based upon best policy without significant political interference, other than perhaps the Senate Banking Committee, anytime that we can take that opportunity.

Let me ask a specific question. In the most recent Monetary Policy Report to Congress, the Central Bank indicated that, and I quote here, “commercial real estate prices remain at historically high levels despite high vacancy rates and appear susceptible to sharp declines, particularly if the pace of distress transactions picks up or, in the longer term, the pandemic leads to permanent changes in demand.” I have great concern for the commercial property markets and would like to hear what your thoughts are. Is this something we need to wait out? Is it something that needs more attention than we have been able to provide in CARES or COVID relief before? What does it mean to CMBS borrowers with this market?

Well, some parts of commercial real estate, office, hotel, and some maybe retail to some extent are under real pressure because of the pandemic. Those changes may be lasting or they may be temporary, or they may be somewhere in the middle. So this is something that we’re keeping a close eye on. There is exposure to the banking system, and, as you pointed out, there is significant exposure in CMBS to I think the hotel space in particular.

So we watch these things. Of course, as I think you also mentioned, the single best thing that can happen is to have the economy to recover quickly so that offices and hotels can be filled up again. Where it relates to offices, are more people going to work remotely, and so will the demand for office space feel some downward pressure for a while or even for the long run? That’s very possible. We don’t really know that, but if you talk to … We had a presentation a couple weeks ago from someone who had done a survey that suggested that there may be sort of sustained lower demand for office space in particular.

So those are the things we watch very carefully. We watch it through the banking system and to see whether … Most banks are okay on that, although some of the smaller banks do have a concentration in CRE. So we watch that carefully.

Mr. Chairman, thank you very much. I yield the balance of my time.

Thank you, Senator Moran. Senator Smith.

Senator Smith: (01:41:34)
There we go. Thank you, Mr. Chair. Can you all hear me? So I know, of course, Senator Tillis was having a hard time with his audio.

We can hear you.

Yes. Great. Thank you. Chair Powell, it’s great to see you today, and I want to start by asking you a question around climate risk and disclosing climate risk. You and I have discussed before that climate change remains one of the most pressing challenges that we face. It is an economic issue. It is a health issue. I mean, it really cuts across our entire economy. I think in some ways, it’s like a slow-moving pandemic, and of course it poses a real risk to the banks that the Fed regulates.

So I know that in December, and I think it was a great idea that the Fed joined, excuse me, the Network of Central Banks and Supervisors for Greening the Financial System. I think that’s a step in the right direction. But my question gets to this. A lot of public disclosure on climate risks is mostly voluntary. It varies a lot from company to company, which makes it really hard to compare risks or interpret what those disclosures mean. So could you talk to us about whether or not you think that climate risk disclosures should be standardized, or should we continue to allow firms to sort of make their disclosures, if they make them at all, in whatever form they choose?

I will. If you permit me, I’d first like to say that, of course, the overall response of society to climate change, which I agree with you is a very important problem, has to come from elected officials in Congress and also in executive branch under existing law. So that’s really where this comes from.

I would agree with you.

We have a specific role on climate change, which only extends to the scope of our mandate, which is really to assure the resilience of the institutions that we regulate and supervise. But on disclosure, and this is really an SEC issue, but I would just say in general, financial institutions everywhere, particularly the larger and medium-sized ones, are working hard on this question. There’s been a lot of work done with the Task Force on Climate-Related Financial Disclosure and other groups and are struggling with this question of different kinds of disclosure that varies by jurisdiction and by institution.

I do think that it’s appropriate to allow some of that difference to persist for now. In the long run, clearly we ought to be going to kind of a template and more standardized, but it seems to me we can let this process, which is very much ongoing now among our own financial institutions, we can let it bear fruit for a while. But I think in the long run that we have to be going in the direction of more standardization.

So moving towards a more standardized, reliable, comparable kind of standard of disclosure makes sense to you?

Yes, it does, over time.

Thank you. Thank you. I just want to also just loudly agree with you that this is primarily an opportunity where Congress and the executive need to step up and take the steps that we need to take from a policy perspective. So I agree with you on that.

I have one other thing I’d like to ask you about. There’s been a lot of conversation today about the unevenness of the economic recovery and how that is affecting different people differently. I’d like to hit on one point about this. Last week, I think it was, the Minneapolis Fed came out with a report looking at recovery, people’s recovering their employment, and it revealed in Minnesota and in the Minneapolis Fed district a dramatic difference in women rejoining the workforce or, in this case, not rejoining the workforce, a dramatic difference between women and men and even a particular difference between lower wage women workers and higher wage women workers.

This is a huge challenge, because in many parts of my state, we actually have a workforce shortage. So it’s an economic challenge as well as, of course, a challenge for families that have lost that really significant wage earner. So Chair Powell, could you just talk a little bit about this unevenness, the challenges of women returning to the workforce as we move through the pandemic, and how you see that affecting our economic recovery?

Sure. So we know that with the closure of schools and with homeschooling, parents have had to stay at home, and that burden has fallen significantly more on women than on men. So women in effect have had to involuntarily withdraw from the workforce. Hopefully, that’ll be temporary, to the extent people want to return to the workforce, but that interrupts your career. It may be difficult to get back to where you were in the workforce and replace that work life that you had and sort of limit your ability to contribute to the economy. So it’s important. Again, it’s not really our policies that can accelerate that, but policies that bring the pandemic to an end as soon as possible would help and allow us to open the schools up again would certainly help. But you’re right, though, that there have been disproportionate impactsm and that’s one of them.

Well, and I know I’m out of time, but I want to just toss in there that one of the key pieces of infrastructure for our economy to work and especially to work for women is a childcare system that is there so that their young children have a safe, affordable place to go. This has been a big really kind of collapse in the childcare system during the pandemic and something that I hope to be able to work with, continue to work with my colleagues on in Congress. Thank you.

Thank you.

Thank you, Senator Smith. Senator Tillis.

Senator Tillis: (01:47:23)
Senator Van Hollen, can you hear me?

I can hear you. We can hear you.

I had to reboot my PC. Sorry about that, but thank you for your indulgence. Chairman Powell, thank you for being here, and thank you for the time that we spent on the phone a few weeks back. We have 210 million adults, Americans over the age of 18 in this country, and now we’re at a run rate of about 1.7 million vaccinations a day now that we’ve had the lag in January. That’s the first and second vaccination. So I think in answer to Chairman Brown’s question, you said the most important thing we can do is accelerate the vaccine. Now we’re on pace for having well over half of the country for people who want to take the vaccine vaccinated by let’s say June, early July timeframe.

Back when you and Treasurer Mnuchin were before us, when we were debating what a follow-up package should look like, we ultimately passed one that was over $900 billion. We were talking about a bridge. In your opening statement, you also talked about an optimistic outlook in the second half if we continue to make progress on the vaccine. I’m not going to ask you questions about the fiscal policy that we’re debating in a $1.9 trillion package. But I am curious if at least at a high level, do you think it would be prudent to make sure that the additional money that we expend to continue to provide that bridge or build that bridge to recovery, should it be spent on things that are truly stimulative? Do you see any stimulus devalue, for example, in money coming from the federal government that ultimately makes it into bank accounts and not back into the economy on a short-term basis?

Again, I don’t want to comment on the particulars of the bill. Clearly, some kinds of support have higher multiplier effects. People who get the money have different marginal propensities to consume.

I want to follow up on a question that Senator Moran asked about CMBSs is in particular. With the eviction and foreclosure moratoriums ultimately sunsetting and with the CMBSs also being linked in many cases to pension plans and their potentially being volatile, what specific proactive steps should we consider as a matter of policy or can you take to avoid what may be some tough waters for that space of investments in the probably coming year?

The kind of tools that we have are not really appropriate for addressing those kinds of situations unless they become extremely broad, and I wouldn’t expect that. So I think it would come down to whether you want to direct specific assistance.

Well, let me go back to one other thing on asset bubbles. I’m sure you’re familiar with President Bullard’s comments about his belief that he doesn’t see any potential risk of bubbles. Do you share that view?

I wouldn’t comment on what one of my colleagues said. So I guess what I would say is this. We look at a really broad range of things when we talk about financial stability. We’ve got how much leverage is there in the banking system, households, non-financial corporates? We look at funding risks, and we look at asset prices. The thing we always get asked about is asset prices, but they’re only one thing. Ultimately, what you want is a situation where movements in asset prices do not disrupt the broader financial system. I think we have highly capitalized banks, and we’ve done a lot to shore up the parts of the financial system that didn’t hold up during the prior crisis. I wouldn’t comment on any particular bubbles. No one can really identify them. For any particular asset, even now, people have different perspectives. For example, in the equity market, there’s some who say there’s a bubble. Others say if you look at it this way, there’s a lot of … I mean, I don’t have an opinion on that for this purpose.

Final question. I can’t see the timer, so I don’t know if I’m out of time. I know I’m close, but I think Senator Van Hollen mentioned the payment system. What’s the current status of the implementation relative to the original timelines for implementation and pricing?

So we’re right on track and feeling like we’ll be up and running in ’23. That’s good. We said it would be ’23 or ’24. So now we’re thinking ’23. That’s really good, and I just think it’s a project that overall is very much on track. I don’t have anything for you on any news on pricing, but it’s on track.

Okay. Well, I look forward to reaching out and maybe speaking with you all about the implementation and some of the issues on pricing, which have been a concern of mine. Thank you, Chairman Powell.

Thank you, Senator.

Thank you, Senator Tillis. Thanks to Senator Van Hollen [inaudible 01:52:35] taking committee. Senator Sinema from Arizona.

Senator Sinema: (01:52:39)
Well, thank you, Chairman Brown, and thank you to our ranking member, Toomey, for holding this hearing. Chairman Powell, it’s good to see you. Thank you for joining us today. Now, I’ll admit that when I hear from Arizonans, the first question or concern they have for me isn’t usually about the federal funds rate. It’s not about the Fed’s dual mandate or the money supply curve, because right now, Arizonans are concerned about getting the coronavirus under control and getting our economy back on track. We want to ramp up vaccine production and distribution, support small businesses, deliver relief to struggling Arizonans, and reopen our schools safely. So my hope is that we will get critical [inaudible 01:53:17] to think about the future, not just the present crisis. We want a strong economic recovery, and that means ensuring that Fed’s work complements our legislative efforts. On December 16th, the Federal Open Market Committee stated that it will be “appropriate to maintain the current accommodative target range of the federal funds until labor market conditions have reached levels consistent with maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.” So the FOMC summary of economic projections from December show that most members’ projections of the longer run unemployment rate lie between 3.9 and 4.3%. So Chairman, does that mean that the FOMC will not view the US as having reached conditions that are consistent with maximum employment until the unemployment rate is 4.3% or less?

Yes, it means more than that, too. When we say maximum employment, we don’t just mean the unemployment rate. We mean the employment rate, which is the inverse, and we mean it as a percentage of the population, employment of the population, which also takes onboard relatively high levels of participation. We look at wages. We look at many things, a broad range of indicators on maximum employment.

I see. Now, the statement lists three conditions for raising rates, full employment, 2% inflation, and projections of 2%-plus inflation. Are all three of these conditions necessary for the FOMC to consider raising its target for the federal funds rate?

Yes, they are.

Oh. Well, thank you. That’s very helpful, and I appreciate you clarifying that for all of us. As we work to rebuild the economy and reopen safely, we will likely see pent-up demand in the hardest hit sectors, hotels, tourism, and restaurants. As you know, excessive pent-up demand can cause temporary sector-specific price inflation, but temporary sector-specific price inflation is very different than persistent economy-wide inflation. So taking overly aggressive action on a short-term limited problem risks cutting off relief before it reaches Arizona families, and that’s because such action would increase interest rates on student loans, mortgages, and other household debts when families can least afford it. So what tools would the Fed utilize to ensure that you effectively distinguish between temporary sector-specific inflation and the real deal?

So, as I mentioned earlier, we’re very aware of the history of inflation and how it was gotten under control and how it got out from under control. I would just say looking at the current situation, we do expect that inflation will move up, in part because of what you mentioned, which is enthusiastic spending as the economy reopens, but we don’t expect that the effects on inflation will be particularly large or persistent, so particularly from sort of a one-time amount of spending due to the current situation. So we’ll be watching that carefully to make sure that’s right, but we’ll be doing that patiently. We would expect that the longer-run inflation dynamics that we’ve seen for more than a quarter century, where inflation expectations are grounded and inflation doesn’t move up very much or it doesn’t move down in bad times, doesn’t move up that much in good times, we think those won’t go away overnight. We think they’ll persist. They may well evolve, but, again, we would expect inflation to perform somewhat in keeping with the history of the last few decades.

Thank you, Chairman Powell. Again, I appreciate you being here today. Mr. Chairman, let’s work together to get the economy back on track and ensure that everyone benefits from this recovery. Thank you, and I yield back.

Thank you.

All right. Thank you so much, Senator Sinema. Senator Lummis from Wyoming is next.

Senator Lummis: (01:57:13)
Well, thank you, Mr. Chairman, and Chairman Powell, thanks so much for appearing before the committee today. I have two questions. The first one centers on energy. As you know, demand has dropped for energy since the pandemic started, but economists are projecting greater demand later this year and into 2022, even while production declines under the current administration’s actions to restrict oil, gas, and coal development. My question is this. Are inflationary risks weighted to the upside or downside if a demand shock occurs and reduced production cannot keep up?

The downside for a long time. The situation you described, let’s say hypothetically that it does push up energy prices in the near-term. That would move through headline inflation, but it would raise prices. It wouldn’t necessarily change the rate of underlying inflation.

Would a balanced energy approach, more balanced than we’re looking at right now, be appropriate until the supply-demand curve returns to normal?

We don’t really take positions on energy supply. Those are really issues for our elected representatives, notably including you. I know you’re an expert in the energy space.

Well, I’ll switch my questions then to innovative payment instruments. FedNow and other instruments, like stable coins and Central Bank digital currencies, have the potential for much higher monetary velocities. So how will this impact the monetary transmission mechanism and collateral availability in the markets?

Well, we don’t think they will have much of an effect on monetary transmission, actually. We’ve had a tremendous amount of payment sector innovation for a long time, really, and monetary policy transmission continues to be about what it is. We change interest rates, and that works its way through the economy. That supports economic activity or restrains it, depending on where interest rates are. So we don’t actually think there is going to be a tight connection between the FedNows and the stable coins of the world. I would agree with you it’s important to have collateral. What we see in the markets is far from a shortage of collateral. There seems to be-

… is far from a shortage of collateral. There seems to be ample collateral, if you just look at the rates that are being paid.

Could higher velocities from innovative payment instruments lead to a refocusing of the monetary transmission mechanism, away from the securities markets and towards more of a bank focus transmission mechanism, based on demand deposits.

Again, we don’t see the premises… that might be right. We don’t actually think though that there’s much reason or evidence to expect showing that these innovations will have much of an effect on velocity, or on transmission for that matter. So you should talk about this online. It’s a very interesting question, actually. But we don’t really see the premise, but I’d love to hear more.

I’ll look forward to those conversations. One more question, do we need a central counterparty for the clearing of treasuries?

Interesting question. And that’s a proposal. We’re doing a lot of thinking these days, along with colleagues from other agencies about the structure of the treasury market, given what happened during the acute phase of the pandemic, when there was so much selling pressure and there wasn’t the capacity to handle it. And one way to do that would be to have central clearing. It certainly has benefits, and I’ve been a big fan of central clearing in other parts of the economy. It’s something that we’re looking at. I don’t know that it’ll wind up being part of the solution, but it’s certainly worth looking into. So again, another very interesting analysis and question.

Well, thank you. Senator Sinema, who previously spoke, and I have founded a Financial Innovations Caucus in the Senate, and these are some of the things that we want to explore, plus many other things. So we will look forward to addressing some of these questions through the Financial Innovations Caucus and through this committee. So thank you so much, Chairman Powell for being with us today and for your insights. I yield back.

Thank you, Senator Lummis. Senator Ossoff from Georgia, you’re recognized.

Senator Menendez: (02:02:19)
Thank you, Mr. Chairman, and thank you, Chairman Powell for joining us this morning and this afternoon, and for the discussion that we had several days ago. Chairman Powell, it may not be widely known that the feds retail payment office, or RPO is based in Atlanta and the RPO is responsible for most transactions involving Americans checking accounts, ACH transactions, direct debit. This is critical financial infrastructure vital to the functioning of our economy. Do you have concerns that cybersecurity threats to the RPO could pose a systemic risk to the US economy? And will you commit to working with my office to review the cybersecurity of the Atlanta-based RPO and to improve it if necessary?

I would agree with you that those are very important issues. I do think that the Atlanta fed is very focused on those issues, but would be of course, delighted to work with your office in that respect.

Thank you so much. There is no doubt, Chairman Powell, that the COVID-19 pandemic is the most significant drag on economic growth and job creation, but could you step back please, and comment on what you assess to be the most significant systemic threats to global, or national financial stability?

Well, clearly, bringing the pandemic to an end in the United States and globally, a real decisive end, would take so much risk to the financial system end of the economy and to the people we serve off the table. So you really can’t overestimate the importance of getting that done quickly and we can do it, just remember, we haven’t done it yet, but we really can do it as a country. And it has to happen all around the world or we’ll keep getting echoes of this, possibly next winter, but this is where we don’t want to be. We want to get this done and have it decisive.

Beyond that, I think the advanced economies have issues around growth, around an aging population and low interest rates, low inflation, low growth, low productivity worldwide, the United States to a lesser extent than many other advanced economies, but those are issues that we face that threatened different kinds of stability. Those are big, big issues that we think about, and we have to address to some extent with our policies. So, I could go on.

Thank you, Chairman Powell, appreciate that. And recognizing that you’re, as a matter of policy, not commenting on the specific fiscal measures that Congress is considering. Can you please guide us through what your thinking would be, if Congress were to engage in more ambitious fiscal expansion, with more significant, or more sustained fiscal support for low, or middle income households? Without commenting on any specific legislation, how might that change the fed’s policy outlook?

So we take fiscal policy into account. We take it as a given, whatever fiscal policy is. And it’s one of many, many factors that will affect the path of the economy. We are focused entirely on the state of the economy, and the path to maximum employment and crisis stability. That’s our focus. Anything that affects that can affect what we see. But we’ll be looking at the actual data in our forecast. We won’t be reacting to specific policies, if that’s what you mean. Again, I would say over the longer term [crosstalk 02:05:50]

Chairman Powell, you’ve acknowledged the extreme difficulty of economic conditions for low income and low wealth households in this hearing. Which provides more direct economic relief to low-income households who may not own stocks, or hold mortgages, or run businesses, direct fiscal relief, or monetary expansion whose effects are mediated by money markets and the banking system?

Well, I would just say again, without commenting on a particular bill, fiscal policy, if we’re talking about targeting specific groups within society for support, that is the work of fiscal policy. Monetary policy is really not designed to do that.

That’s right. So if trying to relieve the suffering of people who are in economically precarious situations in their household, who, again, don’t own stocks, don’t own businesses, don’t have mortgages, direct fiscal relief will be a more effective means of relieving their suffering than the broader macroeconomic intervention of the fed through monetary policy? Is that a correct paraphrasing of your statement?

Yes. And that’s really been the story of this recovery, is fiscal policy has really stepped up and done that. We’ve done what we can too, but fiscal policy…

Okay. I have just 20 second. Chairman, I want to return to systemic risk. The provision of massive liquidity to the financial system, not just since COVID, but since the ’07, ’08 crisis, risks the emergence, as the ranking member noted, of asset bubbles that could pose a systemic risk to the banking system. Do you believe that we have sufficient surveillance and risk management capacity right now to identify those risks before they threaten financial stability?

I do. We monitor financial markets very carefully and so do many others. It’s not a question of lack of monitoring capacity.

Okay. Thank you so much, Chairman Powell. Thank you, Mr. Chairman.

All right. Thank you, Senator Ossoff. Senator Daines from Montana is recognized, or perhaps not here. Senator Cramer from North Dakota has not spoken yet. He had checked in earlier. Is he here? Senator Warnock from Georgia’s recognized. I understand people are voting yeah. Let me ask one question. Hang on a second. I apologize. I wanted to ask the chairman a question about climate and we I’d mentioned, I will do this question in writing. I’d rather obviously do it now while we’re waiting and I won’t keep you long, if the other members don’t show up.

We know that low and moderate income communities and black and brown communities suffer the effects of climate change disproportionately. When a hurricane hits, and always have suffered weather disasters, way out of proportion to their numbers. When a hurricane hits, when wildfires ravage an entire town and regions, entire spring planning washes down the Mississippi. Local residents need government agencies to be agile and flexible in response. What policy changes, Mr. Chair, will the fed implement to promote consumer protection in community development and do things like ensuring access to cash, or other means of payment, when these more frequent extreme weather events devastate already distressed communities, or whole regions? Are you coordinating on this with the federal reserve banks, among the 12 banks?

Yes. So, that’s a good example, really of the way, to the extent climate change leads to increased episodes of severe weather. We need the banking institutions that we supervise to be in a position to perform really critical functions in the aftermath of this. [inaudible 02:09:53] to see that. By the way, the federal reserve system itself, our reserve banks get the cash. They take the actual physical cash and get it to those affected areas. It’s something they do very well and we need to be resilient and able to do that, rather. And then we need the banks to be able to, to perform the function that they perform with their ATM’s and their branches to get that cash out to people who may be in pretty dire circumstances in the wake of a natural disaster.

Senator Daines from Montana’s recognized for five minutes.

Senator Steve Daines: (02:10:29)
All right. Thanks, Mr. Chairman. Chairman Powell, it’s good to have you here. I just was looking at the T bill chart and noticing since the 1st of February, the one month rates have dropped in half from 0.06 to today 0.03, two months went from 0.07, to 0.02. We’re starting to get into that realm here of possibly negative rates, which we saw of course briefly a year ago, March. Just want to get your thoughts on that. Is there any issues here of shortage collateral? What’s driving this as you’re watching some of these short-term rates approaching zero?

So with T-bills in particular, this would really be a treasury issue, but I would say, it’s a lot of demand for short term. There’s a lot of liquidity and people want to store it to some extent in T-bills, and there’s demand, and therefore that drives down the rates that people are being paid, or receiving for buying those assets. From our standpoint, our policy rate is the federal funds rate. And to the extent there were to be downward pressure on that because of, for example, the treasury general account shrinking in size, then we have tools that we can use to keep that rate in our intended policy range. And we will do that. And that should also limit the extent to which other money market instruments, like T-bills would, would go even lower, or perhaps negative.

So do you have a concern? Many of us were surprised when we saw negative rates here a year ago. These rates are getting awfully low in the short-term. Is that a concern of yours then, or not?

Well, again, our principal concern is that the federal funds rate be in its intended range, the range intended by the federal board committee. We do see that there’s the possibility that other money market rates could move down. And I think to the extent we’re able to keep the federal funds rate in its range, that should ameliorate some of that downward pressure. And then that would be appropriate.

To follow up on that same point. Mr. Chairman, the last couple of weeks, we have seen a lot of volatility, for example, in the Texas gas markets, that to a degree spread out to other markets. If there were several these other special circumstances all happening at the same time, might this lead to a shortage of collateral, from T-bills, as seemed to be in the case that we saw here last March?

It’s possible. I don’t really see that happening, but it’s true that there’s tremendous demand. And again, the issue of supplying the demand across the curve is really one for the issuer, which is treasury.

Is there any merits, or it might it be a good idea to wave the supplementary leverage ratio for say a year, until some of these specials circumstances we’re seeing regarding the recovery from the pandemic in the past, and when perhaps we will have less possible need for some of the dealer intermediation in the repo market and some of the other short term markets?

As you I’m sure know, the temporary relief that we’re granted regarding the SLR expires at the end of March. And we’re right in the middle of thinking about what to do about that. I haven’t got any news for you on that today, but we do expect to make a decision on what to do about that exemption, that change made to SLR back last year.

To shift gears and looking at some of the prospects of these asset bubbles here, we’re seeing signs of speculation across various portions of the economy. Stocks of course are trading at very high prices to earnings ratios, ag commodities moving up, economically sensitive materials, such as copper, nickel, they’re soaring, Bitcoin’s up 80% this year alone. Mr. Chairman, how we know when, to quote, I think it was Mr. Greenspan talked about irrational exuberance as unduly escalated asset values, which then might become subject to unexpected and perhaps prolong contractions?

So as we look at those things that you cited, what many of them have in common is that they’re related to expectations of and greater confidence in a stronger recovery. So that’s the metals. It’s not so much Bitcoin, but it’s the metals that you mentioned and inflation expectations and other securities. Prices are really related to, because of all the factors that are out there right now, an expectation that the recovery is going to be stronger, sooner and more complete. And so that’s okay. We saw commodity prices moved up a lot in 2008 and nine, and people were worried about inflation, the Inflation never came. So it’s a healthy sign, I think, there.

Honestly, we’re focused on making sure that we’re providing the support that the economy needs to get back to maximum employment and stable prices. We’ve still got 10 million people, fewer working now, according to the payroll statistics. And it’s much worse than that among the workers in [inaudible 02:16:15]. So that’s really our focus. Our focus in financial stability generally has been to have a banking system and financial sector that is highly resilient to shocks and…

I’m going to change the order of this.

All right, Mr. Chairman, I’m over my time at the moment. So thank you. I yield back.

Thank you, Senator Daines. Senator Warnock from Georgia is recognized for five minutes. Senator Warnock.

Senator Raphael Warnock: (02:16:42)
Thank you so very much Chairman Brown, and I look forward to working with you, and also with ranking member Toomey and other members of this committee. I’m grateful to Chairman Powell. Thank you so much for taking the time to talk to me two weeks ago. I look forward to working with you as we work on a recovery that embraces our whole country. I especially look forward to working with you and Atlanta Fed President Raphael Bostic, to help Georgians over the next two years.

Some have suggested that our COVID-19 challenges with unemployment with homelessness and poverty will be solved if we simply lift all local restrictions and open up the economy. But since the beginning of this crisis, I’ve heard you stress time and time again, and something along this order, even today, as you offered your testimony, that the path of the economy, you said on one occasion, continues to depend significantly on the course of the virus. Would you mind elaborating on why this is the case? Will the economy fully recover if people don’t feel safe and comfortable that the virus is contained?

I would answer your question in a negative. It would not. We know that actually at the beginning of the pandemic, if you look at the plummeting levels of travel, and going to restaurants through OpenTable, all that data, it shows that people stopped doing those things, because of the coronavirus, before there were governmental restrictions at the state and local level to do it, to do those things. So it really is to a significant extent, just people wanting to avoid catching the coronavirus.

It’s also the restrictions that are in place, in some cases on the part of governments. It’s not a role for us to express views on whether they should be lifted or not. That’s really something for state and local governments. But clearly, if you look at the 10 million people who are out of work, a great number of them are in those sectors of the economy that have been so badly affected by COVID. And those are the ones where they gather closely and where people are still, not every person, but many people are still reluctant to go to indoor restaurants, for example. And you see sporting events, they’re not having crowds. The people who worked in those areas, those are the ones who were affected, and it’s going to be hard for them to go back to work until people are confident, as you said.

So, we want the economy to fully recover, but we’ve got to get the virus under control, and those things work together, which is why I’m glad to see $20 billion in the vaccine rollout funds and the COVID-19 stimulus package. And I’m going to do everything I can to make sure that we get those funds approved and out the door, so that we can reopen and do so safely and permanently. You’re tasked primarily with looking at the whole economy and with the big picture in guiding our country forward. And one of the things that you have to look at as you do that is systemic risks. You and the other governors over the fed board have to ask, “Well, what risks are systemic?” And in that regard, I’m curious how broad is your definition of systemic risk? My definition of systemic risks includes a cycle of poverty. It includes things like disparities in wages that mean women make less than men, people of color make less than their white sisters and brothers. It includes food insecurity, housing insecurity, lack of access to healthcare. These things feed a cycle that limits opportunity, limits upward mobility and people’s ability to reach their full potential, which then has implications for the whole economy. How do you factor these kinds of things in, as you take stock of whether the economy is working, or not, and for whom is the economy working?

So you’ve heard us, increasingly in recent years, talking about these longer run disparities and why do we feel that we can do that is because they weigh on the economy. In the sense that if not everyone has the ability, opportunity to participate in the economy and contribute as much as that person can contribute, given his or her talents and abilities and willingness to work, and all those different things, then the economy is going to be less than it can be. And in our country, of course, and every country faces challenges. We’re not alone in this, but we do face very persistent differentials that are hard to account for, and then weigh on the economy. And those are along racial lines, along gender lines and other lines. And I would say, it’s widely understood now that we need to do everything we can to bring people into the economy and let them contribute, and let them share in the broader prosperity.

Thank you, Chairman Powell. It’s clear that the bottom line is that poverty, systemic inequality, wealth inequality, are risks to the entire economy and have implications for all of us. That these issues cannot be siloed, which is why we’ve got to take this into consideration as we push forward COVID relief, and then pivot to address longstanding issues of wealth inequality in our country. Thank you so very much.

Thank you, Senator Warnock. For senators who wish to submit questions for the record. These questions are due one week from today, Tuesday, March 2nd. Chair Powell, based on the change we made to our committee rules, bipartisanly, you have 45 days to respond to any questions. I appreciated the dose of reality we heard from Chair Powell today, 10 million fewer jobs. We’re only creating 29,000 new jobs a month. That’s unacceptable. As you said, Mr. Chairman, when it comes to our recovery, the job is not done. Talk to any mother, or essential worker, or mayor. Talk to the people who own barber shops, and diners, and dry cleaners. Everything is not fine. Much of what we heard from my Republican colleagues today sounds pretty out of touch with the reality that the great majority of American families are living in. It’s the same message we heard all last summer, last fall, the stock market’s up, everything is fine. We heard it again today.

Certainly the wealthiest sliver of Americans are doing just fine, just like they were before the pandemic, but our job isn’t to work for them, it’s to work for everyone as you and I have discussed, Chair Powell. The fed has multiple tools to increase employment, fight wealth inequality, create an economy that Senator Warnock just spoke about, that works for the vast majority of people who get their income from a paycheck, not an investment portfolio. You, Mr. Chair have responsibility to use all of those tools towards that goal. I continue, and to look forward to continuing to work with you, to do all of that. With that, the hearing is adjourned. Thank you so much.

Thank you,

Fed Chair Jerome Powell Testimony on Economic Recovery Transcript February 23

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