Janet Yellen & Jerome Powell Testimony on Economic Recovery Full Hearing Transcript

Mr. Brown: (00:01)
Senate Committee on Banking, Housing, and Urban Affairs will come to order. This hearing is in a hybrid format. Our witnesses are in person. Members have the option to appear either in person or virtually. For those joining remotely, a few reminders. Once you start speaking, there will 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 ask questions. You should all have one box in your screens labeled clock that will show much time is remaining for those joining virtually you hear a bell ring at 30 seconds, and then when time is expired, if there’s a technology issue, we of course will move on to the next Senator.

Mr. Brown: (00:38)
Our speaking order will be as usual. That is seniority. The members who’ve checked in before the gavel came down at 10 o’clock, either in person or virtually then by seniority of members arriving later, alternating always in this committee between Democrats and Republicans. Welcome to our witnesses. We all remember the dark days of 2008, the painful years that followed Secretary Yellen and Chair Powell, you both helped us deal with the aftermath in your roles at the Federal Reserve. When the biggest banks were in trouble, Washington, as always sprang to action. We have no choice. We can’t allow these banks to fail. We heard over and over and over again, but millions of families were allowed to fail.

Mr. Brown: (01:18)
American workers bailed out the financial industry, but their livelihoods were not treated with the same urgency. Recovering their jobs, let alone empowering in demand. Better ones would have to wait for years. By the end of 2013, the stock market had its best year in almost two decades, 11 million people though were still out of a job. The question before us today is the same question we’ve grappled with for a year. Do we learn from our past mistakes? Americans do not have to settle for another Wall Street first recovery.

Mr. Brown: (01:51)
We have the tools to do things differently. The only question is whether we’re going to use them for as long as it takes. So far, we’ve worked to learn the lessons of the past and do better by American workers. That’s what the CARES Act and the American Rescue Plan were all about. We put money in families’ pocket, stimulus checks, earned income tax credit, child tax credit, money spent always in local supermarkets and shopping centers on food and back to school supplies.

Mr. Brown: (02:17)
Treasury helps state and local governments get emergency rental assistance. 420,000 families in August alone, and 950 million to help homeowners behind on their mortgages. The result’s been record job creation. I’m going to say this twice job creation in the first seven months of the Biden administration, Madam Secretary is nearly double any previous first year president. Job creation in the first seven months of the Biden administration is nearly double any previous first year president. It’s not just the jobs themselves, it’s the quality of these jobs. For the first time in decades, workers are starting to gain a little power in our economy.

Mr. Brown: (02:55)
Power to negotiate higher wages, power to fight for better working conditions, more control over their schedules and their future progress to be sure, but a long way to go. We’re down 5.6 million jobs since before the pandemic. Corporations to often use the pandemic as an excuse to cut costs. We know that by costs, they always mean jobs or wages or retirement contributions. They rarely mean CEO bonuses, or God knows they don’t mean stock buybacks. Instead of hiring back loyal workers as business expands companies, outsource or contract outwork, often paying people more or less half as much.

Mr. Brown: (03:37)
The Fed for its part is taking extraordinary action over the past year and a half to stabilize our economy. But many of the Fed’s efforts, Mr. Chairman helped stabilize markets much more than they stabilized working families. Those actions have been a bonanza for Wall Street, big corporate mergers, all time high. Biggest banks had one of their most profitable years ever and were, not to be reminded of it, all during a global pandemic. The same companies that benefited from the Fed’s actions want to restructure their workforce. They complain about a skills gap while refusing to cut into their stock buyback budgets to expand training programs or to offer truly higher wages or truly high wages.

Mr. Brown: (04:19)
This ought to be a reminder we’re still in the very early stages of recovery in the same old Wall Street system. Is this time not going to be good enough? Chair, Powell you’ve talked about your commitment to competitive labor markets, yet you have said that the test for full employment is your words all but met. Tell that to the working mother who was forced to quit her job because she couldn’t file for childcare or even find childcare. Tell that to the server who worked for decades in major hotel chain only to lose her job during the pandemic, and then be offered the same job by a contractor, paying a fraction of the wages with no benefits.

Mr. Brown: (04:54)
Tell that to work in my hometown in Mansfield, Ohio, who for decades, watch companies close down factories, move of good paying, often union jobs abroad only to have them replaced when they’re replaced at all by low wage non-union jobs at a big box store. Now is not the time to declare victory. Americans have watched this story unfold over and over again. Crash, recession, rapid Wall Street recovery, years of slow, slow, painful uneven job recovery. Always within the same corporate system that treats quarterly stock prices as the only real measurement that matters and treats workers as a cost to be minimized.

Mr. Brown: (05:32)
How many times are we going to continue to do this? How many times are Americans going to have watch history repeat itself? We can’t declare the recovery complete until all workers find a job that pays them fair wages and treats them with dignity. The Fed can’t pull back every time workers gain a tiny bit of power to demand higher wages. The Fed can’t continue to rubber stamp mergers and allow corporate consolidation to go unchecked and then wonder why job growth isn’t reaching whole regions of the country.

Mr. Brown: (06:02)
Full employment means a truly competitive labor market. One where everyone can get a job and employers compete for workers. We’ve not seen that kind of labor market in decades, but we can. It’s our job. It’s this committee’s job. It’s Treasury’s job. It’s the Fed’s job. Also, my colleagues need to say a quick word about the games Republicans are playing with people’s livelihoods. We all know this. The debt limit is not about future spending, it’s about meeting obligations. We’ve already made. It’s the bipartisan overwhelmingly popular CARES Act, the reason we’re holding this hearing today.

Mr. Brown: (06:37)
Every single one of my Republican colleagues who served on this committee last year, every one of them voted for the CARES Act. Every one of them again, who served in this committee before voted for the two trillion dollar tax cut for their wealthy friends. They didn’t seem to have a problem with the debt limit then, but now they don’t want to pay the bill. The partisan game’s pretty transparent. We need to pay our bills on time. We’ve always done it. Treasury Secretaries past and present across the political spectrum are sounding the alarm about economic devastation that they’re threatening.

Mr. Brown: (07:12)
China watches all of this with glee, all too eager to see the dollar tarnished as the world’s reserve currency and we play right into that. We can’t play politics with Full Faith and Credit of the state. Last comment, chair Powell, I understand you’ve initiated a review of the ethics and financial disclosure rules at the Fed after we learned of stock trades that at least two federal reserve bank presidents made during the pandemic. I have a bill with Senators Merkley and Senator Warnock, also a member of this committee. The ban conflicted Trading Act that would ban members of Congress from buying or selling any individual stocks.

Mr. Brown: (07:52)
The same should apply to Fed officials. I’m introducing a bill to do that. Your job, the Fed’s job, members of Congress’s job is to serve the public, not their stock portfolios. Ranking member to me.

Mr. Toomey: (08:05)
Thank you, Mr. Chairman. Secretary Yellen and Chair Powell, welcome. Last year, Congress on a bipartisan basis, forcefully responded to the threat of economic collapse that was caused by the pandemic and the resulting lockdowns. That response together with the Fed’s aggressive monetary policy support and the end to lockdowns enable the US economy to fully recover. Our economy today is not only larger than it was before the pandemic, but we’re now running above the pre-pandemic GDP forecasts for this year.

Mr. Toomey: (08:36)
Unfortunately, our Democratic colleagues are trying to ram through reckless tax and spending bill that will threaten this economic growth. Their policies include massively expanding the welfare state, raising taxes on US employers, and diminishing investment by raising taxes on capital gains. Now let’s be clear about the purpose behind these proposals. It’s not to spur economic recovery, the economy is strong, nor is it an anti-poverty plan. The programs are not limited to the poor. It is to redefine the relationship between the federal government and the middle class. It’s about socializing, many ordinary responsibilities that families have always assumed.

Mr. Toomey: (09:14)
Instead of raising taxes to partially fund economically harmful programs, we should be working to return to the best economy of my lifetime, which we experienced just before COVID hit. We had the lowest unemployment rate in 50 years, including record low unemployment rates for black and Hispanic Americans. Real median household income was at an all time high and strong wage growth above the rate of inflation was particularly powerful for the lowest income earners. This was all achieved by reforming the tax code, lowering tax rates and lightning the regulatory burdens. And now our Democratic colleagues are proposing to reverse all of these successful policies.

Mr. Toomey: (09:56)
The Fed has a clear and narrow mandates to conduct monetary policy that promotes stable prices, maximum employment, and moderate long-term interest rates, and also to conduct banking supervision and maintain an efficient payment system. It’s therefore concerning to see the Fed, especially it’s regional banks weighed into politically charged area like global warming and racial justice. These efforts undermine the Fed’s independence and distract from the Fed’s actual responsibilities like controlling inflation. Speaking of which the Fed successively accommodative monetary policy, emergency policies long after the emergency has passed, have produced the inflation that I feared in the Fed did not expect.

Mr. Toomey: (10:37)
We’re now seeing rates of inflation considerably higher than the Fed projected and it’s hurting businesses, consumers, and workers. And you don’t have to just take my word for it. Here’s what the CFO of one of the biggest retailers in America Costco said last week and I quote, “Inflationary factors abound. High labor costs, higher freight costs, higher transportation demand, along with container shortages and port delays, increased demand in certain product categories, various shortages of everything from computer chips to oils and chemicals.” To address this threat, I urge the Fed to accelerate the process of normalizing monetary policy so that it does not fall further behind the curve in responding to the inflation that is already with us.

Mr. Toomey: (11:19)
I’m also concerned that the treasury may be headed down a similar path of exceeding its authority. To much fanfare, the Biden administration has announced in an international tax agreement that consists of two pillars. Pillar one is an unprecedented change that would allow foreign countries to tax American companies based on their sales overseas. It’s a tax revenue transfer from us to them. Unsurprisingly, this is the priority for other countries who have long sought this tax revenue. Pillar two is a global minimum tax on multinationals foreign income. This is the Biden administration’s attempt to justify burdensome tax increases on US companies and unsurprisingly, this is the administration’s priority, and it’s part of its effort to dismantle our successful 2017 tax reform.

Mr. Toomey: (12:03)
Now, the administration’s imploring other countries to implement this global minimum tax that will harm their own workers and businesses. And by doing so, the administration has implicitly acknowledged that their proposed multinational tax increases will make US workers and businesses less competitive, if other countries either don’t implement a global minimum tax of their own, or if they implement a significantly lower rate than what the administration is proposing. But there’s a real possibility that other countries will not implement a global minimum tax for at least two reasons.

Mr. Toomey: (12:36)
First, the EU can only implement this global minimum tax by unanimous consent, which they don’t have. And second, these countries have only reluctantly agreed to pillar two in return for pillar one, which is the transfer of US tax revenue from us to them, but implementing pillar one in the US requires a treaty ratified by two thirds of the United States Senate. I think that’s unlikely to happen. So the administration has implicitly admitted that their global tax size will be a big problem for the United States if the rest of the world doesn’t follow suit, but there’s a very substantial risk that the rest of the world will not follow suit.

Mr. Toomey: (13:12)
And yet our Democratic colleagues are to charging ahead with this destructive tax increase in their reconciliation bill that apparently they’re going to try to pass any day now. It’s a lot to talk about this morning, Secretary Yellen and Chair Powell. I look forward to discussing these and other issues with you today.

Mr. Brown: (13:27)
Thank you, ranking member to me. I’ll introduce today’s witnesses. Today we hear from treasury secretary, Janet Yellen and Federal Reserve Chair Jerome Powell, and their agencies continued actions to support an equitable pandemic recovery and make sure that our economy works for all American. Secretary Yellen, and Chair Powell, thank you for your public service. Thank you for your testimony today. Madam Secretary, please proceed.

Janet Yellen: (14:00)
Yes. Chairman Brown, ranking member to me, members of the Committee, it’s a pleasure to testify today. We’re in the midst of a fragile, but rapid recovery from the pandemic induced recession. While our economy continues to expand and recapture a substantial share of the jobs lost during 2020, significant challenges from the Delta variant continue to suppress the speed of the recovery and present substantial barriers to a vibrant economy. Still, I remain optimistic about the medium term trajectory of our economy, and I expect we will return to full employment next year.

A rebound like this was never a foregone conclusion. In fact, the American recovery is stronger than those of other wealthy nations. One key factor for our over performance is the policy choices that Congress has made over the past 18 months. Those choices include the passage of the CARES Act, Consolidated Appropriations Act, and the American Rescue Plan. Treasury as you know, was tasked with administering a large portion of the relief dollars in those bills. And when we last met, our department was busy standing up programs to help individual families, state governments, and organizations of every size in between.

Well, we still have much more work to do. We have made significant progress, and I wanted to give you an update. Let’s start with families. In July, our department started sending the monthly expanded child tax credit payments to the families of nearly 60 million children across the country. To date, $46 billion in payments have been made and we’re already seeing the impact.

Analysis by the Census Bureau found that after the first payment in July, food insecurity among families with children dropped 24% as for state local tribal and territorial governments, COVID-19 decimated their budgets. There were mass layoffs and to end the health and economic emergencies, we knew that communities would need funding to hire educators, to bring kids back to school, for example, or frontline workers to administer the vaccine.

The American Rescue Plan included $350 billion to that end. And those dollar are indeed helping the machinery of local governments get up and running. States and localities can rely on relief money that’s available instead of resorting to painful budget cuts. Congress rightly designed the state and local program with flexibility in mind. I think many of us knew the recovery could run up against unforeseen challenges and we wanted communities to be able to devote resources where, and when they saw fit. I want to note that this flexibility is paying off now, especially with the spread of the Delta variant.

Harris county, Texas, for instance, has used this funding to boost its immunization rate, offering $100 to each person who gets their first vaccine dose. For the relief dollars not yet out the door, treasury is doing everything it can to expedite their delivery. The Emergency Rental Assistance program is one example. Prior to the pandemic, there was essentially no national infrastructure to get money from government coffers, to renters and landlords. Building that infrastructure has been a massive undertaking for states, localities and tribes. The program is scaling up quickly with 1.4 million payments made to help struggling renters keep a roof over their heads.

Still, too much of the money remains bottlenecked at the state and local levels. That’s why our treasury team has worked to eliminate every piece of red tape possible in order to ensure more payments can get to renters and landlords, but states and localities must also work to remove barriers that can speed up distribution of rental assistance funds. I’ll end my remarks there except to say this, it is imperative that Congress addressed the debt limit. If not, our current estimate is the treasury will likely exhaust its extraordinary measures by October 18th.

At that point, we expect treasury would be left with very limited resources that would be depleted quickly. America would default for the first time in history. The Full Faith and Credit of the United States would be impaired and our country would likely face a financial crisis and economic recession as a result. We must address this issue to honor commitments made by this and prior congresses, including those made to address the health and economic impact of the pandemic.

It’s necessary to avert a catastrophic event for our economy. Senators, the debt ceiling has been raised or suspended 78 times since 1960, almost always on a bipartisan basis. My hope is that we can work together to do so again, and to build a stronger American economy for future generations. Thank you. And I’m pleased to take your questions.

Mr. Brown: (20:08)
Thank you, Madam Secretary. Chair Powell, you’re recognized. Thank you for joining us.

Jerome Powell: (20:16)
Thank you. Chairman Brown, ranking member to me, and other members of the Committee. Thank you for the opportunity to discuss the measures we have taken to address the hardship brought by the pandemic. Since we last met, the economy has continued to strengthen. Real GDP rose at a robust pace in the first half of the year, and growth is widely expected to continue at a strong pace in the second half. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID 19 cases has slowed their recovery. Household spending rose at an especially rapid pace over the first half of the year, but flattened out in July and August as spending softened in COVID sensitive sectors.

Additionally, in some industries near term supply constraints are restraining activity. As with a overall economic activity, conditions in the labor market have continued to improve. Demand for labor is very strong and job gains average 750,000 per month over the past three months. In August, however, gains slowed markedly with the slow down concentrated in sectors most sensitive to the pandemic. The unemployment rate was 5.2% in August. And this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year.

Factors related to the pandemic appear to be weighing on employment growth. These factors should diminish with progress on containing the virus. The downturn has not fallen equally on all Americans and those least able to shoulder the burden have been hardest hit. In particular despite progress, joblessness continues to fall disproportionately on lower wage workers in the service sector and on African-Americans and Hispanics. Inflation is elevated and will likely remain so in coming months before moderating. As the economy continues to reopen, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors.

These effects have been larger and longer lasting than anticipated, but they will abate. And as they do, inflation is expected to drop back toward our long to run 2% goal. The process of the reopening of the economy is unprecedented. As it continues, bottlenecks, hiring difficulties, and other constraints could, again, prove to be greater and more enduring than anticipated posing upside risks to inflation. If sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to ensure levels that are consistent with our goal.

The path of the economy continues to depend on the course of the virus and risks to the outlook remain. The Delta variant has led to a surge cases causing human suffering and slowing the recovery. Continued progress on vaccinations would support a return to more normal economic conditions. The Feds policy actions are guided by our dual mandate to promote maximum employment and stable prices, along with our responsibilities to promote the stability of the financial system. In response to the crisis, we took broad forceful measures to support the flow of credit and to promote the stability of the financial system.

Our actions taken together helped unlock more than two trillion dollars of funding to support businesses, large and small, nonprofits and state and local governments between April and December of 2020. This helped organizations from shuttering and put employers in a better position to keep workers on and to hire them back as the recovery continues. These programs have served as a backstop to key credit markets and helped to restore the flow of credit from private lenders. We have deployed them to an unprecedented extent. Our emergency lending tools required the approval of treasury and are available only in unusual and exigent circumstances, such as those brought on by the crisis.

Many of these programs were supported by CARES Act funding. Those facilities provided essential support through a very difficult year and are now closed. The Fed completed its sales of assets from the secondary market Corporate Credit Fund on August 31. We were able to wind down the facility rapidly and efficiently with no adverse impact on credit conditions. We also recently closed the PPPLF to new lending and are managing the paydown of assets in our other cares facilities as they wind down. We continue to analyze their efficacy and to review the lessons learned.

The Fed’s actions affect communities, families, and businesses across the country. Everything we do is in the service of our public mission. We will do all we can to support the economy for as long as it takes. Thank you. Mr. Chair, if I may just offer one thing, what I say said last week was that we had all but met the test for tapering. I made it clear that we are in my view a long way from meeting the test for maximum employment. Thank you.

Mr. Brown: (25:18)
Thank you, Mr. Chairman. Madam Secretary, last night, my Republican colleagues blocked efforts to provide critical distant disaster relief to millions of Americans to keep the government open and to raise the debt ceilings so that the government can pay our bills. When time something we’ve always done bipartisanly, including right after the Republicans pass their deficit busting corporate tax giveaway via reconciliation. Be brief, if you would, what would be the impact on our economy if they block call efforts to raise the debt ceiling?

Chairman Brown, failing to increase the debt limit, we have catastrophic economic consequences. It would cause the government to default on its obligations, which is an utterly unprecedented event in American history. It would be disastrous for the American economy, for global financial markets, and for millions of families and workers whose financial security would be jeopardized by delayed payments. For example, nearly 50 million seniors would or could stop receiving social security payments or see them delayed.

Our troops would not know when their paychecks would come. 30 million families who rely on the child tax credit would not receive the monthly payment on time. Unemployment would surely rise and as we saw in 2011, even coming very close to the deadline without raising the debt ceiling can undermine the confidence of financial markets in the credit worthiness of the United States. It led to a debt downgrade and soaring interest rates, which ends up raising payments on mortgages, auto loans and credit cards.

Mr. Brown: (27:17)
Thank you. You made clear that the debt ceiling’s about money we’ve already spent like the CARES Act, that Republicans in Congress voted for and the president Trump signed into law, and now they want to run out and pay the bill. We know it’s just wrong. They know it’s just wrong. Chair Powell, the most recent jobs report, as you point out, saw unemployment decreasing generally, but it also showed a continued racial unemployment gap. And the unemployment is rising black workers.

Mr. Brown: (27:45)
You committed an airing on the side of lower unemployment in a more competitive labor market. Thank you for that. But last week you announced that policy tightening will begin in November with tapering, that interest rate targets will increase next year. Why take away economic support just when workers are getting back on their feet and starting to see glimmers real wage growth, and when the recovery has failed to reach so many black workers?

Right now, we’re buying $120 billion worth of securities every month. And all of those purchases add to accommodation. They’re increasing accommodation. And we had set a test for beginning to taper those purchases of substantial further progress towards our statutory goals. We haven’t met that yet, but as I mentioned, I think we’ve all but met it on the path that we’re looking at. We would continue to add accommodation, not subtract it well until the middle of next year. And we think that’s appropriate given the strength of the economy.

The test for raising interest rates is substantially higher. We want to see just, as you indicated at the beginning, we want to see a labor market that we both indicated. A labor market that’s very strong. We want to see the kinds of reductions in disparities and the kinds of things that we did see before the pandemic arrived.

Mr. Brown: (29:06)
Thank you. Secretary Yellen, Conservative Niskanen Center said the expansion of the child tax credit would result in billions of dollars in spending, hundreds of thousands of jobs in local communities, particularly rural communities. We know raising a child is work and most of the parents getting CTC are really doing two jobs at home and in the paid labor force. So, set the record straight briefly, if you would, does the expanded child tax credit particularly a fully refundable child tax credit? Does it increase labor force participation and boost local economies?

I believe that it does. I think the evidence shows that very strongly, that it helps parents take care of their children. As I mentioned in my opening statement, we have seen that hunger, the number of families that don’t feel their children don’t have enough to eat drop substantially after the first…

… we have enough to eat, drop substantially after the first round of payments. We see that parents are using the CTC payments to pay for basic needs, including food and clothing. And of course, it can be used for childcare and provide the kind of support that enables parents to take jobs [crosstalk 00:30:24]-

Mr. Brown: (30:24)
Thank you. And sorry to interrupt. Thank you for the way that you and Treasury have gotten those checks out monthly, starting in July. Thank you for that. Last question. Chair Powell, the New York Times reported in February only two out of 417 economists employed by the Board of Governors, two out of 417 are black. I appreciate you made the diversity at the Fed a priority. I agree with what you said in that article, institutions that focus on diversity and do it well are the successful institutions in our society. Cutting it even closer, over its 108 year history no black woman has ever served on the Board of Governors, not one ever. Do you think the Board of Governors would be more successful institution if a black women had a voice and a seat at the table? Should we make that a priority?

I would strongly agree that we want everybody’s voice heard around the table, and that would certainly include black women. And we of course have no role in the selection process, but we’d certainly welcome.

Mr. Brown: (31:32)
Secretary Yellen, do you agree with that, that it’s time we had a black woman on the Board of Governors?

I do. I think diversity is extremely important and that would certainly be a very welcome achievement.

Mr. Brown: (31:46)
Thank you.

Mr. Toomey: (31:50)
Thank you, Mr. Chairman. Let me begin by just stating the obvious. If the government goes on a spending binge, that will certainly require more borrowing to pay for all that spending. Our Democrats have a spending binge underway, they are threatening to dramatically expand that. And if they get their way, that will certainly necessarily involve more borrowing than we would otherwise need. The Democrats have chosen to ignore our warnings about this excess of spending, but they want us to vote to raise the debt ceiling in order to permit the massive spending increases that they’re planning. I would just remind everyone, just as the Democrats have the procedural ability to pass this spending on their own, as they intend to. They have the exact same procedural ability to raise the debt ceiling on their own, which they inevitably will have to end up doing. Mr. Powell, earlier this year there were certainly sectors of our economy, especially the sector sensitive to reopening experienced pretty dramatic, but largely temporary price spikes. It seems to me now we’re seeing a broader, more troubling kind of inflation. Input prices are soaring across the board, raw materials, electrical components, energy, and consumer expectations seem to have internalized this. The New York Fed’s most recent survey shows that they expect 5.2% inflation over the coming year. Despite this and all the growth that we’ve talked about, as you point out the Fed is still buying $120 billion in securities every month. And I guess my question is, doesn’t the inflation we’re seeing now seem broader and more structural in nature than the brief blip we saw say in used car prices earlier this year?

Yes. I think it’s fair to say that it is. Mainly what we’ve seen is that the supply side restrictions that are so much at the heart of the inflation we’re seeing have not only not gotten better, they’ve actually in some cases gotten worse. Look at the car companies, look at the ships docked, or with the anchors down outside of Los Angeles. And this is really a mismatch between demand and supply. And we need those supply blockages to alleviate, to abate before inflation can come down. We do believe that it will. However, if you look at measured inflation and what’s contributing to it, most of it is still from a very small category of items.

Mr. Toomey: (34:28)
But it’s considerably broader than it was. And I would also point out, and I know you’re aware of this, but the Fed’s projections of inflation have consistently been off. They’ve consistently been low. And at some point I think we need to acknowledge that this is not playing out the way I think the Fed had hoped. Let me shift the topic to a central bank digital currency. I’m increasingly intrigued by the opportunities that a properly designed central bank digital currency could provide to the US. To name a few, instant zero cost payments, interoperability and programmability with smart contracts, international competitiveness all come to mind. But getting the design correct, getting it right is essential. For instance, the privacy of Americans has to be respected. We shouldn’t design a central bank digital dollar that allows the government to spy on Americans’ every transaction.

Mr. Toomey: (35:21)
And the Fed is certainly not suited to be a retail bank, and so we certainly shouldn’t try to turn it into one. In my view, privately issued digital currency should be able to coexist with a digital dollar, if we go down that road. And private sector developers certainly should be able to innovate either on or in interoperable fashion with a digital dollar. I’m not asking you to opine on any of these things, but it seems to me the decision about whether or not to go down this road is transformational. And there are very, very important and sensitive design issues that would have to be resolved. I think that ought to be done in a transparent process with political accountability, which is to say, with congressional input. Could you comment on how important you think it is to have congressional authorization if we’re going to go down the road of a digital dollar?

I’d be glad to. And by the way, I agree, this is critical work that we want to take forward. The relevant parts of our law were written long before digital finance was a thing. And a central bank digital currency could take many forms, it is possible that under some forms you’d be able to make an argument that it would be authorized under current law. But I think this is such a fundamental issue. It would be ideal if this were to be a product of broad consultation, ultimately authorizing legislation from Congress.

Mr. Toomey: (36:47)
Thank you. Madam Secretary, I want to talk about the tax agreement. As you know, Pillar One will fundamentally rewrite how profits are allocated among countries, and will cede US taxing rights to foreign jurisdictions to some degree. Well, current bilateral treaties would need to be modified to implement this reallocation. And obviously this requires a treaty to implement, right? In fact, the international agreement itself, I think it acknowledges that by referring to a multilateral instrument, layman’s terms, that’s a treaty. And that’ll be necessary for this implementation. Do you acknowledge that Pillar One requires a treaty and therefore a Senate ratification in order to implement it?

I believe there are a number of ways in which Congress could implement it, but certainly a ratification of a treaty would be one way in which Congress could authorize. And certainly Congress has to authorize the transfer of taxing rights that’s contemplated in Pillar One.

Mr. Toomey: (37:55)
Well, I’ll finish Mr. Chairman, but I want to stress that we have for many, many decades had bilateral tax treaties that govern the amounts and the manner by which foreign governments can tax American companies. Changing those treaties requires ratification in the Senate. There’s no way around that, that I can see. Thank you.

Mr. Brown: (38:19)
Thank you, Senator Toomey. Senator Tester is recognized from his office.

Senator Tester: (38:24)
Thank you, Mr. Chairman. I want to welcome both Chairman Powell and Secretary Yellen. This first question is for you Secretary Yellen. Through the American Rescue Plan I have fought for, and we got targeted relief for local communities and states. I’ve heard some concerns that in Montana some of the funds that you’ve already gotten out from Treasury to the states specifically aren’t getting out for projects. And that proposes some problems, especially with winter coming on in Montana, that we might miss an opportunity to make upgrades to broadband or other critical investments. I have heard some folks in Montana, leadership, blaming this confusion that’s caused by the Treasury Department because the funding is coming in two traunches. That doesn’t make a lot of sense to me. So Secretary Yellen, beyond the restrictions on uses of these funds provided by Congress, and through Treasury’s guidance, is there anything that the Treasury Department is doing which would prevent states like Montana from receiving the funds in two traunches and using the funds that they have already received now?

Senator [inaudible 00:39:38]… There’s no restriction that Montana faces in using the funds that have been allocated or making plans are to use the funds that will be made available in the second traunch. That can be done now, there’s absolutely no need to wait.

Okay. So they can use that first traunch right now, no need new wait. Because your mic was on and off there for a minute. Do they need [crosstalk 00:40:20]-

Yes, that’s right.

Thank you. Do they need your approval to start planning what they might use the rest of the funds for? And to clarify, states with splits payments do not need Treasury’s approval to start getting the funds that they already have out the door. That’s correct. Just to make it absolutely clear.

That’s correct. And they can plan how they intend to use the second traunch of funds as well. They can begin doing that now.

On the second traunch, do you have a timeline for getting the funds to municipalities and states who have received these split payments?

I believe it’s a year lag between the payments.

Okay. It is my understanding that the process for these funds has worked just as Congress laid them out, and it’s been pretty predictable. Would you say that is correct?

Yes, I think it is correct.

Okay. And then, can you talk to me about the impact that you’re seeing in the communities this program funds through the coronavirus state and local fiscal relief fund are getting up and running?

Well, I think we’re already seeing significant impact of these funds. Some of it is being used for immediate pandemic response, vaccination efforts, helping unemployed workers, supporting small businesses. And some of it is being used to address longer term needs, including broadband infrastructure, water, and sewer. And so these funds can serve a variety of needs, and are doing so.

Okay. Secretary Yellen, I want you to respond to something the ranking member said. And I think he knows better. But he said that Democrats want the Republicans to expand the debt limit so that they can spend money. Is it not true that the debt limit is expanded because of money that is already spent? That it would be similar to you going down to a restaurant, ordering a steak dinner, paying for it on your credit card. And when the credit card comes back, you would say, “Nope, I’m not paying for it.” Isn’t that similar to what we’re talking about with the debt limit?

That is absolutely correct, it has nothing to do with future programs of payments. It is entirely about paying bills that have already been incurred by this Congress and previous congresses. And it’s about making good on past commitments, as you said, paying our credit card bill.

Thank you very much. Thank you, Mr. Chairman. I yield.

Mr. Brown: (43:11)
Thank you, Senator Tester. Senator Shelby from Alabama is recognized.

Senator Shelby: (43:14)
Thank you. Welcome, both of you, Madam Secretary, Chairman Powell. Chairman Powell, I’ll direct my first question to you. The Phillips curve is an economic concept that represents an inverse relationship between inflation and unemployment. Historically, it’s been utilized to understand the relationship between unemployment and inflation. In particular, in relation to the Federal Reserve’s dual mandate of price stability and maximum employment. You were aware of this Mr. Chairman. Some economists question the current validity of this concept as a connection between inflation and unemployment has seemed to grow weaker in recent years. Chairman Powell, is the Phillips curve still a valued economic model or tool? And have you observed any notable strengthening in the relationship between unemployment and inflation during the pandemic?

Senator, if you go back to the high inflation area that we both recall, there was a very close relationship. A one for one kind of relationship, or close to it, between unemployment and inflation. That is no longer the case. There is still a relationship, but we say the Phillips curve is very flat, but it’s not completely flat. So there is a relatively modest relationship. The slope of the line is seven degrees or something, so very flat. Is there any change that we observe in the near term? To get to your last question. Not at this point, no.

Do you watch the Phillips curve?

Well, [crosstalk 00:44:52] we do. But if you saw, we had 3.5% unemployment and very modest inflation for a couple of years before the pandemic. It’s not a top of mind concern. The inflation that we’re having is, but it’s really not related to the Phillips curve.

Would you say that the Phillips curve concept is not valid right now?

Well, it’s not particularly binding right now. Inflation is high and the unemployment rate is high, so it’s not really the binding constraint.

Okay. I’ll direct this question to the Secretary. The stepped up basis, Madam Secretary, is a tax provision that allows for a beneficiary to adjust the basis of an asset to its current value, rather than its value of when originally purchased. We know that. This provision allows for beneficiaries to avoid paying on taxes on assets that have increased over time, largely due to inflation. President Biden’s American Families Plan includes a proposal to eliminate the stepped up basis. A lot of people believe that such a change would result in a costly tax increase on family owned businesses, particularly on farms and ranches. According to a study by the Texas A&M Agricultural and Food Policy Center, 98% of the farms in his 30 state database will be impacted by the Biden administration’s proposal. The study calculates that the average additional tax liability for a farm to be over $ 720,000. Madam Secretary, do you support eliminating stepped up basis for state beneficiaries? And if you do, why?

Senator Shelby, I do support eliminating stepped up basis. The reason is that a very large share of the income of wealthy individuals is simply never. Taxed individuals hold onto these assets during their lifetime, that income is never taxed. And we know that for some of the wealthiest individuals in the country, they pay very low taxes overall because most of their income takes the form of unrealized capital gains. The Biden administration proposed that at death those gains be taxed. And with careful consideration, not in any way to harm the prospects of family owned farms or small businesses, there were substantial exemptions to protect them. Even if there is not actually taxation imposed at death, getting rid of stepped up basis would mean that in air would inherit the original basis of the asset. And when that person eventually sold the asset, taxes would be paid. But I regard step up of basis as a kind of loophole that allows a very large portion of income in this country of the wealthiest individuals to go untaxed.

Thank you. Thank you, Mr. Chairman.

Mr. Brown: (48:26)
Thank you. Senator Warner is recognized from his office remote.

Senator Warner: (48:35)
Thank you, Mr. Chairman. I want to go back and revisit with the treasury secretary some of the concerns we all share about potential default. I think we all, many of us, I know the Chairman and the ranking member were around when in 2011 our nation got close to that kind of default. Madam Secretary, and I worry about some of my colleagues who are concerned, rightfully, about additional mandatory spending. But if we were to go into this default basis, would it not be expected that would cause a lack of faith in the American government’s ability to meet its obligations, which in all likelihood would result in a interest rate spike? And is my math basically correct that if there were 100 basis point increase in interest rates, 1% increase in interest rates when we’re looking at a $27 trillion debt, you’re looking at more than a $200 billion a year additional mandatory interest payment, those interest payments because of that spike in interest rates comes before payment of social security, payment of our military, any of our other priorities?

And if you extrapolate that on a 10 year basis for concerns about spending, wouldn’t that be close to an additional $2 trillion over 10 years of mandatory spending? Is there, Madam Secretary, anything faulty with that analogy or my math?

I don’t believe… I don’t believe there’s anything at all faulty about the math. I think there’s no question, but if Congress were to fail to raise the debt limit, or even if it was feared if we’re getting close. And it looks as in 2011 like Congress might not raise the debt ceiling and we might not be able to pay our bills, that you would expect to see an interest rates spike. And if the debt ceiling were not raised, I think there would be a financial crisis and a calamity. And absolutely, it’s true that the interest payments on the government debt would increase. I would be concerned that the dollar and Treasury assets, which are regarded as the most secure in the world, and serve as the basis for the dollar to be the reserve currency, that it would undermine confidence in the dollar as a reserve currency. And the interest payments of ordinary Americans on their mortgages and on their cars and on their credit cards would all go up in line with higher Treasury borrowing costs. And it would increase our spending, absolutely.

And again, this is not something that you could then reverse if suddenly Congress came to its senses. Once you saw any kind of spike in interest rates or confidence losing, once this genie’s out of the bottle there’s no putting it back in. Is that correct?

I think that’s correct. This would be a manufactured crisis we had imposed on this country, which has been going through a very difficult period, is on the road to recovery. And it would be a self-inflicted wound of enormous proportions.

And we all know that we are in a economic competition with China. Would not this effort in terms of a China that’s trying to criticize our withdrawal from Afghanistan, and would not this give additional fodder to the Chinese arguments? And as you mentioned, undermining the confidence in the dollar as the reserve currency. Wouldn’t this action potentially also give more credibility to China’s efforts to try to make the RMB an equal to, or potentially even more of a default reserve currency?

Well, certainly it would undermine confidence in our government and in the role of the dollar and the safety of the dollar, which has really never been questioned. The dollar is the safe haven asset when times are turbulent that people feel is absolutely secure. I think China has a long ways to go in reforming its financial markets before the renminbi is a serious rival to the dollar as a reserve currency. But I can’t think of anything more harmful to the role of the dollar than failing to raise the debt ceiling.

Again, I know my time is up, but I would just point out to my colleagues that are rightfully concerned about mandatory spending. That interest rate spike and the, again, 100 basis points, roughly is $200 billion a year. My math says that’s two trillion over 10. That would be spending we don’t need to do, and we can all avoid that taking place. Thank you, Mr. Chairman.

Mr. Brown: (54:07)
Thank you, Senator Warner. Senator Kennedy from Louisiana is recognized.

Senator Kennedy: (54:12)
Thank you, Mr. Chairman. Thank you, Madam Secretary and Mr. Chairman for being here. Madam Secretary, when you were here last, and we all look forward to you coming, I asked you to tell me what you thought inflation would be at the end of this year. And you told me 2%. Do you still stand by that prediction?

Clearly inflation this year is going to be above 2%, just the experience so far this year makes that clearly true. But I think we are seeing monthly inflation rates taper off.

Yes, ma’am. What do you think it will be at the end of the year, if not 2%?

Probably closer to 4%. And that’s already almost must be the case based on what’s happened this year. But in my estimation, there are the types of supply bottlenecks that the economy [crosstalk 00:55:27]-

Okay. I don’t want to spend too much time on inflation. And I’m sorry to interrupt, but we have so little time and I talk slowly. What party controls the House?

The Democrats.

What party controls the Senate?

The Democrats.

I believe we can agree that President Biden is a Democrat.

I believe.

Okay. Senator Schumer, who’s a Democrat, and my friend, controls the Senate floor. And he can raise the debt ceiling by just amending the budget resolution, can’t he?

It’s possible that could be done.

Yes, ma’am. So why didn’t he do it? Why don’t you all do it? [crosstalk 00:56:33]… Let me just finish. Why don’t you all just do it and then we don’t have this fight? Why do you insist on doing it the hard way?

Because it’s very important to recognize that raising the debt ceiling is about paying bills that congresses [crosstalk 00:56:56] in the past. And its a shared responsibility. [crosstalk 00:57:01] Democrats have-

Why don’t you just amend the budget resolution?

Democrats have provided votes in the past when both houses of Congress, who are controlled by Republicans when the Republican party was in the middle of reconciliation, 2017 is a good example. And Democrats pitched in to do their duty to raise the debt ceiling.

But I just… I know all that. And I appreciate your perspective. But let me ask you again, there’s a real simple solution. Why don’t you all just amend the budget resolution? It just takes 50 votes by my Democratic friends and the vice-president. Why don’t you just do that? Problem solved, done, easy peasy, finish. Let’s go have a cocktail.

Well, it will be up to the leadership of Congress to [crosstalk 00:57:57]-

Are you going to recommend they do that?

We will confer with them on what is the best strategy to move forward.

I haven’t been around this place as long as you have, but it’s not often around here that we have a problem that has an easy solution. And this is a real easy solution. And I get politics. I understand why politically you folks want to have Republican fingerprints on the spending fiscal knife. I get that. But is your politics so important that you want to gamble here on the [crosstalk 00:58:49] sovereign debt of the United States when you have a very, very simple solution that you refuse to take?

I want to see that the debt ceiling is raised. As I’ve said, I believe it would be catastrophic not to do so. But I equally believe that deficits have been run under both Democratic and Republican administrations. It’s important to recognize that. And that means that paying the bills for those deficits is a shared responsibility, and it should not be the responsibility [crosstalk 00:59:29]-

I agree with that. Very eloquently put. But it’s a fact, isn’t it, that you and your folks just want Republican fingerprints on the Democrat’s effort to tax, spend, and regulate America into Europe. Now it’s your prerogative to do that, but this is all about the administration’s desire to have Republican fingerprints on it, and later call it bipartisan. And you know that-

Sen. John Kennedy: (01:00:03)
… on it and later call it bipartisan, and you know that Madam Secretary, with all the respect I can muster, and so do the American people. Thank you, Mr. Chairman.

Sen. Sherrod Brown: (01:00:14)
Senator Kennedy, I rarely speak between witnesses, but I wonder if Secretary Yellen takes you up on that offer to go get a cocktail, if you would pay or you’d skip out on paying the bill or expect Secretary Yellen to pay?

Senator Menendez is recognized from New Jersey.

Sen. Bob Menendez: (01:00:35)
Thank you, Mr. Chairman. I had not intended to pursue this line of questioning, but I must say my distinguished friend and colleague from Louisiana always sparks my interest.

Republican fingerprints were all over the tax cuts to the wealthiest people in corporations in America to the tune of two trillion dollars. Republican fingerprints for the many years that they were in a majority were all over the budget spending that was unpaid for. Republican fingerprints are all over the politics of this now. When Democrats were in the minority, Democrats did the fiscally responsible thing. They voted with Republicans to recognize the debt that had already been inherited, not a debt to come, but that which had already been inherited. You all created a significant part of this debt, and now you want to walk away from it. I know that President Trump was the king of debt and bankruptcy, and maybe you’ve adopted that as your view, but it is not a view in the national interests of the United States. I love that my friend sparks my concerns.

In any event, let me turn to my real purpose here. We have discussed at length how diversity remains a problem at both of your agencies. Chairman Powell, during your tenure, the number of minorities in management positions have barely budged. In the most recent report, the Fed’s office of minority and women inclusion states quote, “The Hispanic participation in our workforce has remained steady over the past five years.” Steady. Well, when it’s already pretty dismal, steady doesn’t really do very much for me. “We recognize that our prior efforts,” it goes on to say, “resulted in minimal progress.” So my question is, what are you doing about it? What are you doing about it?

Then let me just make this a joint question. Secretary Yellen, I see the same thing happening at Treasury. I’ve raised this from the date of your confirmation proceedings to most recently. I’m really chagrined that I have to be forced to consider not voting for nominees because it’s the only way to get the attention of these agencies. But if you’re sitting as one of the few Hispanic American senators and seeing what is coming forth from this administration, especially in these two sectors, it’s abhorrent. What are we going to do about it? Chairman?

Jerome Powell: (01:03:26)
Let me start briefly by agreeing that if you look at successful organizations in the United States, private and public, you will almost always see a successful approach to diversity, a focus on diversity from the top. I think it really starts with making diversity a high priority. I have done that. My predecessors have done that. If you talk to any of our senior leadership, the people who do the hiring, the people in all the divisions, you will see that they talk about diversity, that they focus on diversity and hiring. It’s not easy to move-

But if it’s a high priority, it’s a dismal failure. I mean, I hear high priority, but the proof is in the pudding and it’s just not there. I don’t know how high a priority it is when we continue to have the same types of numbers. Madam Secretary?

Janet Yellen: (01:04:18)
Senator Menendez, I would say that it is a high priority at Treasury. With respect to political appointments that I’ve been involved with, we are very focused on recruiting and hiring Latinos and we’ve been engaging with Latino interest groups to identify and source candidates. Just over the past several weeks, we’ve extended three offers to Latino candidates, including two Latinas who will serve in leadership roles within the Department of the Treasury, and we’ll announce those soon.

In hiring within the department as a whole, we track very carefully the demographic composition of our workforce, and it is a high priority to improve diversity. Every treasury bureau has a partnership with Hispanic serving institutions and Hispanic community organizations. We have employee-

I don’t mean to interrupt you, but I look forward to seeing actual nominations. Every nomination that I have been asked to cast a vote on here certainly is not Latino.

They’re not all Senate-confirmed, but they are senior leadership positions.

I would love to see those that aren’t Senate-confirmed because as far as I can see the numbers haven’t changed. I look forward to the announcements because I would love to applaud progress in a significant way.

If I may, Mr. Chairman one last question.

Sure.

Chairman Powell, for the Latino community but beyond, expanding access to childcare, wouldn’t that improve the labor force participation rate among women? I know so many women who want to get back in the labor force, but they have no access to any affordable childcare that at the end of the day allows them to do so.

There’s a good bit of research that would support that conclusion. Yes.

Thank you.

Lummis of Wyoming is recognized.

Sen. Cynthia Lummis: (01:06:45)
Thank you, Mr. Chairman. Let me say something on behalf of the people I represent in Wyoming. This is not pointed to either party. This is pointed to the Congress of the United States. It is absolutely irresponsible that we are $28 trillion in debt and that both parties sit here and blame each other for what they both did irresponsibly. It’s absolutely unconscionable what we have done to the people of this country. It’s both parties’ faults. It’s the Congress’s fault and we need to address it, but we’re so busy making each other look like the rat’s rear-end that we won’t address the real problems in this country that led us to be 28 trillion-plus in debt, and now asking to get further in debt. I’m horrified. My constituents are horrified. This is got to stop.

That said, now I’ll turn my attention to the secretary. Secretary Yellen, speaking of horrified, my constituents cannot believe that you support a proposal to require banks and credit unions to report customer data to the Internal Revenue Service for transactions of $600 or more. There are obvious privacy concerns for all Americans here, and this represents a dramatic new regulatory burden for community banks and credit unions in Wyoming and elsewhere. Our banks will have to hire contractors to rat on their customers, implement new computer software, deploy resources better used elsewhere in order to collect data for the government. Bank customers are not subjects of the federal government. Banks do not work for the IRS. This is invasive of privacy. Wyoming’s people literally will find alternatives to traditional banks just to thwart IRS access to their personal information, not because they’re trying to hide anything, but because they’re not willing to share everything.

My question is, are you aware of how unnecessary this regulatory burden is? Do you distrust the American people so much that you need to know when they bought a couch or a cow? I am astounded by what you’re supporting and proposing. I think it’s invasive. I think privacy for individuals is getting ignored. And I think treating the American people like they are subjects of the government is unconscionable.

Well, Senator Lummis, I really disagree with the assessment that you have and I think you misunderstand the proposal. Banks already report directly to the IRS the interest that they pay on accounts when it exceeds $10. This is not a proposal to provide detailed transaction-level data by banks to the IRS. It is a proposal to add two additional pieces of easily ascertained information onto the 1099 INT form that banks already file, namely the aggregate inflows into the account during the year and the aggregate outflows. I think it’s important to recognize that we have a tax gap that’s estimated at seven trillion dollars over the next decade. That is taxes that are due and are not being paid to the government that deprive us of the resources we need to do critical investments to make America more productive and competitive. The reason that that tax gap in part exists, partly it’s because the IRS has been deprived of revenue to hire auditors, but the IRS has a wealth of information about individuals. If you work at a job where you get labor income, a W2 is filed and sent. There are dividend payments and transactions payments that are sent to the government. But there are a class of partnerships, businesses, high-income individuals who have opaque sources of income that the IRS doesn’t have direct information about and that’s where the tax gap is, not low income people. This additional information would help to-

$600 threshold is not usually where you’re going to find the massive amount of tax revenue you think Americans are cheating you out of.

That’s correct, but it’s important to have comprehensive information so that individuals can’t game the system and have multiple accounts.

Mr. Chairman, I yield back.

The Senator from Massachusetts, Senator Warren, is recognized.

Sen. Elizabeth Warren: (01:12:48)
Thank you, Mr. Chair. Thank you both for being here today.

Chair Powell, during your time as chair, you’ve taken plenty of actions to weaken the feds regulatory oversight of our largest banks. Today I want to talk about three instances of that and ask you to think about them in hindsight.

First, the stress test. Now these are designed to tell whether or not big banks can survive without a taxpayer bail out. When the tests were first set up, bank supervisors could restrict stock buybacks and dividend payments to strengthen the bank’s balance sheet. In 2019, you took that power away. We now know from the Fed’s own research that when the economy hit choppy waters last year, those banks needed stimulus from the taxpayers and that without this taxpayer help, they would have faced up to $300 billion in losses, meaning that they were in a sharply weakened position to withstand the stress. Chair Powell, do you regret weakening the stress tests?

I don’t think we have weakened the stress test. I’m not sure what you’re referring to. When banks fail the stress test, their distributions are limited.

I laid it out here that you took away the power to restrict stock buybacks and dividend payments that could be used to strengthen the balance sheet. You don’t see any changes you made to the stress test and handling stress tests out in advance?

Capital in the largest banks is at multi- decade highs.

That’s not my question. I’m looking at the Fed’s own research which says that without the help that you had to put into the economy last year, they would have faced up to $300 billion in losses.

Look, I don’t want to argue with you about what capital-

Which they would have been able to absorb without difficulty.

Let me ask you the question then. I take it you don’t have any regrets about any changes to the stress test?

Not really. Anything we did is fair game to look at again, but I don’t think so. No.

Okay. But let me ask about another action. In 2020, the Fed along with the other agencies removed the Volcker rule restrictions on whether banks could co-sponsor so-called family funds. Then earlier this year, we watched the collapse of a quote unquote “Family fund” called “Archegos,” which caused banks to suffer a quick $10 billion in losses. Given the Archegos collapse, do you regret weakening the Volcker rule?

That’s actually a family office, Archegos is. I don’t know that there are any Volker rule implications for Archegos. I will say we’ve looked at the Archegos situation closely. And I think learned our lessons from that.

Learned your lessons, but do you have any regrets about weakening the Volcker rule around family funds, having watched what Archegos did?

I’d have to understand Archegos’ connection. Generally, it was widely agreed that the Volcker rule as implemented was complex and not workable. We took a fresh look and-

Okay. I’ll take that as a no. I just want to make sure I can get through all three of these.

One last example, in 2019, the Fed weakened liquidity requirements, the rules that ensure that firms have adequate cash to meet their obligations. For banks between 250 and 700 billion dollars in assets, the liquidity requirement was cut by 15%. Let me just ask, do you regret slashing liquidity requirements designed to protect markets from crashing like they did in 2008?

That was tailoring, which the law that had been passed through this committee required. I don’t see that there has been any evidence that that was a bad idea, but it’s one that could certainly be looked at again.

Okay, so you’d be willing to at least look at that one again?

Yes.

Okay. This cut by 15%.

Chair Powell, the elephant in the room is whether you’re going to be renominated for a second term as Fed chair. Renominating you means gambling that for the next five years a Republican majority at the Federal Reserve with a Republican chair who has regularly voted to deregulate Wall Street won’t drive this economy over a financial cliff again. And with so many qualified candidates for this job, I just don’t think that’s a risk worth taking.

I know that some argue that your deregulatory actions are mostly harmless. I disagree. I think they’ve put taxpayers at risk for hundreds of billions of dollars. But even at that, so far you’ve been lucky, but 2008 crash shows what happens when the luck runs out. The seeds of the 2008 crash were planted years in advance by major regulators, like the Federal Reserve that refused to reign in big banks.

I came to Washington after the 2008 crash to make sure that nothing like that would ever happen again. Your record gives me grave concern. Over and over you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed. And it’s why I will oppose your renomination.

Thank you, Mr. Chair.

Senator Rounds from South Dakota is recognized.

Sen. Mike Rounds: (01:18:39)
Thank you, Mr. Chairman.

Well, needless to say Chairman Powell, I would probably disagree with my colleague and I commend you for the hard work that you have done. And I most certainly think that you do deserve to be renominated to the position that you have right now. I look forward to working with you for the next several years. Chairman Powell, I would like to ask you about the supplementary leverage ratio, the SLR exclusion that the Fed and the other banking regulators instituted during the pandemic that allowed banks to exclude ultra-safe assets, including US treasuries and deposits to the Fed from their balance sheets. This exclusion allowed the banks to take in the extraordinary amount of deposits that we saw during the pandemic without having to grapple with needless capital requirements. I’m just curious whether or not you believe that that move was successful and whether or not you would see any possibilities of perhaps a continuation of that in the future?

It was important that we did it in the crisis, and it worked. I think it’s less binding now because of all the money that’s now at the reverse repo facility. Ultimately, we don’t want leverage ratios to be the binding constraint on banks because we think that that gives them the incentive to take more risk. I would say we need to be very careful with the supplemental leverage ratio because we want to make sure that any changes we make to it will not reduce the overall binding-ness of the capital, requirements for the largest institutions. But it is something we would look at modifying. It’s one of the things we’re looking at right now.

Presumably you felt that you received pretty positive feedback from the institutions that were impacted by this particular modification of the rule?

Yes, and that was an emergency situation. When the emergency ended, we allowed that provision to lapse. But I think overall though, with all the liquidity in the system, it could again become the binding constraint and that would not be good from a safety and soundness standpoint.

Thank you.

Secretary Yellen, welcome.

Thank you.

It’s good to see you again. I’d like to direct this question to you. During our last quarterly cares hearing, I inquired about the severe backlog of tax returns facing the IRS as approximately 2.4 million tax returns remained untouched by the IRS at that time, many of which were from 2019. That number only continued to grow with an approximate 35 million backlogged tax returns at the end of June when the National Taxpayer Advocate released the mid-year report to Congress. When I originally asked about the IRS’s possible plan to address the backlog, you responded that you had not yet had a discussion with the IRS commissioner about this particular issue, but you did provide assurances that you would work with me and my office and remain committed to developing a plan to address the backlog.

After receiving no correspondence following the hearing, I sent a letter to you asking these same questions to which I have also not yet received a response. My question, Secretary Yellen, I’m asking for a third time, have you discussed the IRS’s plan to address its immense backlog of tax returns with the IRS commissioner? If so, what’s the plan?

We have discussed this with the IRS commissioner and he is addressing it and I’d be happy to get you more details. My apologies if we haven’t responded in a timely way. I promise to do so quickly.

It would be fair to say that the IRS does have a plan in place to prevent this level of backlog in the future?

We are trying to add to the IRS’s resources so that they will be able to handle these things in a more expedited fashion.

We can perhaps expect a communication from your office here in the next five days or so?

We will try to get you that communication.

Thank you.

Also, Secretary Yellen, with the treasury quickly approaching the debt limit, and I know that this is something which you’ve identified it and have expressed concern over, it makes one question when America might become the next Greece. When in your view, when do we have to say enough is enough when it comes to our deficit and our debt?

One, in thinking about what is a reasonable level of debt, there are a number of different metrics that one might look at. Commonly debt to GDP ratios are a measure that’s widely used. Ours is a little bit over 100%, which traditionally has been regarded as high. But we are in a very low interest rate environment, that’s been true for a very long time and is likely to be true going forward. An alternative, and I think better, measure of fiscal sustainability is to look at the real net interest cost of the debt. What is it in real terms costing to service the outstanding debt? For the last several years, that’s been negative. Even if interest rates, ten-year rates and the treasury yields revert in future years backup to more normal levels, the interest cost, which really is the burden, is projected to remain low. The plans that the Biden administration has put forth, we keep that low at under 1% of GDP.

Thank you. My time has expired. Thank you, Mr. Chairman.

Thank you, Senator Rounds. Senator Smith of Minnesota is recognized.

Sen. Tina Smith: (01:24:47)
Thank you, Mr. Chair, and welcome to Secretary Yellen and to Chair Powell. I’m going to direct my questions to Secretary Yellen today, and I’d like to start with the question of emergency rental assistance. I think we have all seen that the pandemic has not been a great equalizer. It has laid bare the deep inequities in our society, particularly, I would argue, in housing. With COVID, we’re all in the same storm, but we’re not all in the same boat. What this looks like in Minnesota is the following. There are about 60,000 families in Minnesota that are behind on rent. To support those families, we all worked hard here in Congress to get the emergency rental assistance. So far, however, only about 15,000 families have received help through Minnesota’s Emergency Rental assistance Program, and that’s not nearly good enough. This is particularly troubling because about two-thirds of these families are families of color and indigenous families; so if this program isn’t working, it’s disproportionately hurting them.

Secretary Yellen, here’s my question. I appreciate that Treasury has worked hard to clear away the red tape at the federal level to make this program work better, and I appreciate that this is being run at the state level and often also at the local level. What can you tell us about what you are doing to make sure that renters aren’t hurt as Treasury approaches this recapturing of emergency rental assistance funds?

Well, we want to make sure that renters are helped and we’ve been, as you noted, working hard to provide the support to state and local governments to put in place effective programs. But the ERA One statute requires Treasury to begin reallocating excess funds that will be required as of September 30th. Treasury is developing a procedure to govern that process. We want to make sure that localities with demonstrated need receive additional funds and that they come from places that are not running effective programs or have less need. We will be looking at reallocation in order to improve the effectiveness of the program.

Secretary Yellen, in Minnesota, about 30,000 applications remain to be processed, which is a sign I think of the great need in our state. Can Treasury approach this, looking at these large backlogs of applications that are remaining to be processed, that are in other words sort of in the system right now as you’re working on this?

I mean, we will look at backlogs. We will look at the effectiveness with which states and local governments have gotten out the rental assistance that they have. We want to see before additional funds are made available that the ones that are available have been allocated effectively. But if that’s true and there’s clearly additional need than those places would be eligible to receive additional funds.

Thank you. I appreciated in your opening statement that you talked about the mammoth task of standing up infrastructure at the state and local level in order to distribute this rental assistance. As you move forward with this, following the law, we need to make sure that the folks that are really needing the help, aren’t the ones that are getting penalized because of slower than we would have liked implementation of this program. I appreciate your comments and I look forward to continuing to work with you on this as well.

Very good. We do as well.

I just have about a minute left and I want to just touch briefly on the question of childcare. We know that childcare is a family and an economic imperative, and I’m really grateful to the work that you have been doing. I appreciate it very much. The Treasury’s recent report on the childcare supply challenge and the great difficulties we have here.

Secretary Yellen, Minnesota childcare providers tell me that they are really struggling to find and keep workers. They’re painfully aware that they are not able to pay their workers as much as they are worth and as a result, there’s high turnover in the sector. Now, when most businesses encounter challenges in hiring, they raise wages to attract people. Can you just explain to everybody why that is not a feasible option for folks that are trying to make the system work in the childcare sector?

Well, in many ways, this is a market and this is what the Treasury report showed that just doesn’t work. That parents, when they most need childcare are unable to borrow in order to cover it.

… are unable to borrow in order to cover it. So they’re struggling with very high childcare expenses at a moment in their lifetime when they can often simply not afford it, and that puts the childcare providers in a situation where they just can’t forward to pay wages that are living wages. And in fact, a substantial fraction of childcare workers receive some additional social support because the wages are so low, and we really need to fix that. It’s a broken market, and there are huge gains to society for making sure that children have quality childcare. It influences the course of their success over their whole lives.

Senator Tina Smith: (01:30:52)
Well, thank you for that. And Mr. Chair, I know we’re out of time, but we have a solution to this problem that is included in the Build Back Better plan that President Biden has proposed and that we’ve been working on in the Senate and the House. I look forward to getting that solution passed in the law to address these systemic problems in childcare. Thank you.

Chairman Sherrod Brown: (01:31:12)
Thanks, Senator Smith. Senator Scott of South Carolina’s recognized.

Senator Tim Scott: (01:31:15)
Thank you, Mr. Chairman. Thank you, member. Thank you to both witnesses for being here this morning. Good morning. I know you all have difficult challenges that we all face as a nation and look like they’re getting more difficult, not less difficult. Democrats control the White House, the Senate, the House. They have the votes to raise the debt ceiling. Unfortunately, they also have the votes to fundamentally weaken the greatest economic engine in world history. What they do not have the votes to do is to force Republicans to be complicit with their reckless spending spree. Killing the goose that lays the golden eggs isn’t just bad for the goose. It’s bad for everyone who depends on the eggs as well. There is nothing compassionate about spending money we don’t have on new benefits we can’t afford, all the while discouraging work and increasing the likelihood of a future default, when the yet to be born American receives the bill for benefits she didn’t experience and are no longer available. It’s also important to note that our labor force participation rate is down, not up, even with the new programs and the payouts that I heard this morning during this hearing that somehow is supposedly increasing our labor force participation, when in fact it’s apparent and clear to Americans that’s not the case.

Chair Powell, you know as well as I do, and certainly maybe neither one of us knows as well as the folks working paycheck to paycheck around this nation are the seniors depending on their social security checks to make their ends meet, and inflation is having a devastating impact on people on fixed income, people working paycheck to paycheck. I think about the fact that gas prices are up over 40% as a nation, and frankly, over the last few days we’ve seen signs that it’s going to only get worse, not better. The gas prices are going up over $3 a gallon in so many parts of this country, and frankly, even higher in other parts. The fact that food, whether it’s bacon or fish, meat, all are up double digits. Can you point to any specific policies put in place by the current administration that may be exacerbating the runaway rise in food and energy prices in recent months?

Senator, that wouldn’t be for me to do, but I think those things are… I wouldn’t be identifying policies of the current administration.

Would you agree that the fact is that when we have limited supply and an increasing demand, that a $1.9 trillion COVID relief that’s spent less than 1% on vaccines and 9% on COVID-related health only adds more pressure on our markets, and that pressure results in higher inflation?

Senator, we have some really difficult and important jobs, but one of them is not commenting on fiscal policy, I’m sorry to say, with respect.

I do think that it does include inflation and employment. Aren’t those two major aspects of being the chairman of the Reserve?

Those are the two major aspects.

Indeed. And so when you see policies that are put in place that has not increased our labor force participation but decreased our labor force participation rates, and you see policies that are actually designed, so I heard earlier this morning, to put people back at work, in fact that number’s going down, you see that the impact of the inflationary, what I thought was transitory, that’s what we heard earlier this year when I asked you all both the question about inflation in this country, seems to me that we’re heading in the wrong direction. Let me ask Secretary Yellen. The phase of spiking inflation, slowing growth, lingering high unemployment, and historic levels of government spending and government debt, how do we justify supporting President Biden’s $3.5 trillion tax spend package?

Well, first of all, the package is paid for, so-

How is it paid for, ma’am?

There are increases in taxation on corporations-

May I ask you a question?

… and high income individuals.

Let me ask you a question on that while I have you here. Do you think that taking the cap gains tax from 23.8% to 43.8% will encourage more investment in our economy or less investment in our economy? Do you think that taking the corporate tax from 21% to 28% will actually… We both recognize that corporations, they may write the check, but the people who pay the tax are the consumers and the employees with fewer increases in wages and lower benefits. How do we think that these higher taxes are going to lead to more opportunities in our marketplace?

Well, first of all, I think that the likely impact on investment spending is very small. And I think in 2017 when taxes were cut substantially, you did not see any surge in investment spending. Instead, what you saw was a surge in stock buybacks. So the linkage between investment spending and the corporate tax rate is really very modest. Mainly it falls on excess profits. So I think the Biden package, the Build Back Better package, will improve corporate competitiveness because it’s going to invest in critical infrastructure in our economy-

Thank you. Secretary Yellen, I don’t want to cut you off, but I have no choice because Chairman Brown’s going to cut me off. So before I lose my time here, thank you, Chairman, for-

You already have lost your time, but proceed, Senator Scott.

You are a patient chairman, and I appreciate that more than I could say. I’m so glad that you brought up the 2017 tax reform package that we worked so hard on. Bottom line is I would say that someone who watches the market, and I know you watch it very closely, the fact is that in 2018, in 2019, we saw more revenue to the government, not fewer dollars for the government. And to think that taking the corporate tax from 21 to 28% is somehow going to make us more competitive against our OECD competitors… I know that you have a strategy to raise our guilty and make us more competitive somehow by having other countries agree to hire taxes. I’ll just say that the proof will be in the pudding and maybe you and I will be here in a couple years to have a conversation about the results of the tax increase that will make us less competitive and not more competitive, but thank you for your graciousness. Thank you, Mr. Chairman.

Senator Van Hollen of Maryland is recognized.

Senator Chris Van Hollen: (01:38:07)
Thank you, Mr. Chairman. Thank both of you for your service. Madam Secretary, just to pick up on that last thread because we’ve heard it throughout this morning, our Republican colleagues trying to have it both ways. On the one hand, they beat up on our proposals to reform the corporate tax code to make it more fair, to make sure that every multinational corporation pays its fair share, that they can’t park their profits in the Cayman Islands and other places. And then on the other hand, they say, “Oh, this reconciliation bill’s going to add to the deficit,” and they tie it into this debt ceiling debate. Let’s just be very clear. The Build Back Better agenda that President Biden has proposed would pay for itself through some of the tax reform measures you mentioned, right?

Yes, absolutely. It will pay for itself.

Right, which is very different than the 2017 Trump tax giveaway to big corporations that didn’t have a penny to pay for it. Isn’t that correct?

That’s correct. It was resulted in very large increases in deficits, and the Biden package will not. And beyond a 10-year horizon, it will improve tax collections and reduce deficits substantially.

Right. And let’s now talk about one of the tax cuts we want to extend, right? Which is the tax cut for middle income and lower income families with kids. We estimate that this year that cut child poverty in half in the United States, right?

Yes, the child tax credit and other features.

But that expires at the end of the year, does it not?

It does, and we think it’s important to extend it. It’s really critical support to families that are trying to raise children. We’ve already seen in three months of distributing these child tax payments spending on food that’s reduced food insecurity, on apparel, and on children and their wellbeing. It makes a huge difference.

Right. So let’s just be clear. We’re hearing Republicans this morning beat up on us for closing big loopholes in the corporate tax cut, in part to pay for an extension of tax cuts for middle income families with kids, which cut child poverty in half this year. And I guess their position is, “Well, let’s just let it lapse, and then we can have child poverty double in the years to come.”

Madam Secretary, I have series of questions. Some of them I’m going to put you for the record on the issue you raised with respect to the emergency rental assistance. I share your concern that this money hasn’t gotten where it’s needed quickly enough, and I appreciate some of the measures you’ve taken recently to allow renters to self-certify income and financial hardship. I hope you will also make it clear that with the appropriate safeguards, landlords can submit applications in bulk on behalf of tenants, and we’ll be following up with you on that. Also, I heard you responding to Senator Smith. Can you give us assurances that as we reallocate some of these funds, and I understand why you want… that we’re not going to harm the very people we wanted to help simply because their local government couldn’t get the funds out as quickly as some others?

We will certainly try to avoid that. We’re aware of that possibility, and we will try to reallocate, for example, within states so that individual who aren’t being helped locally will have access.

Right. I’m also going to follow up with you on… In Baltimore city’s case, the Treasury has said that they can use their funds to try to bring back tourism, which is a good thing, but they can’t use their funds to try to bring back families who may have left Baltimore city during this pandemic to live in other places, even though bringing them back would not just be a one-time tourist investment in the city, but a long-term investment. I will follow up with you on that.

I’d be happy to do so.

Chairman Powell, you’ve spoken to it generally, but you heard Secretary Yellen’s assessment of what the impact on our economy would be if we didn’t lift the debt ceiling and default it. Do you agree with the assessment she’s provided here this morning, that it would be devastating, and all the other pieces?

Yes, I do. I think it’s essential to raise the debt ceiling in time to avoid payment defaults of any kind. The potential effects could be severe.

Right. And just to be very clear, isn’t it the case, Secretary Yellen, that about 68%, excuse me, 28% of our total debt right now was incurred during the four years of the Trump administration.

I believe that’s right. I think about eight trillion. That’s right.

Right. And I suspect that almost every Republican member of this committee voted for the measures during those four years, including that big tax giveaway. And I would just point out, I heard Senator Kennedy earlier this morning talk about how… Let Democrats do it alone. We would like our Republican colleagues to do the right thing, but we are willing to do it alone. In fact, Senator Schumer just announced that later today he’ll go to the floor of the Senate and say, “Just let the Democrats, with 50 votes, and the vice president lift the debt ceiling.” He’s going to ask unanimous consent to do that. We could do that today. I’ve noticed Senator Kennedy’s not here anymore, but that would get it done. And while we’d like our Senate Republican colleagues to do the right thing for the country, we are willing to do it alone if they just let us and get out of the way. Thank you, Mr. Chairman.

Thanks, Senator Van Hollen. Senator Daines from Montana is recognized.

Senator Steve Daines: (01:43:50)
Chairman Brown, thank you. And thank you, Secretary Yellen and Chairman Powell, for being here today. I want to start by expressing my continued concern with the inflation we’re seeing in the economy. Real wages are down. It results in inflation. I’m deeply concerned that supply chain issues that we’re seeing will not be quickly resolved. Add to that the reckless $3.5 trillion tax and spending spree. Let’s be clear. It’s the largest tax increase in 50 years. It’s the largest spending bill in the nation’s history. You have to have superlatives if you start talking about what’s being proposed right now in Washington. I fear inflation will persist. The reduction in wages that workers are seeing as a result might indeed accelerate. This package would affect and kill hundreds of thousands of jobs, hurt economic growth in my home state of Montana, as well as across the country.

Turn to my questions. Secretary Yellen, yesterday I sent a bipartisan letter with eight of my colleagues urging Treasury to ensure that water storage projects, like those on the, it’s called the St Mary’s Milk River system, are eligible for water infrastructure, ARPA, funding. Would you commit to working with me and my team and some of the other senators on both sides of the aisle to ensure these critical water infrastructure needs would be addressed?

Certainly. I’m not knowledgeable [crosstalk 01:45:14]-

I wouldn’t expect you to know the details of that, right.

… but we’ll certainly work with you on that [crosstalk 01:45:18]-

I want to raise your attention, so thank you, Secretary Yellen.

We will definitely do so.

Much appreciated. Turning now to the topic of energy. Secretary Yellen, I’d like to get your thoughts on what’s happening in Europe right now. The UK, in particular, is increasingly reliant on renewable power generation, and right now the wind simply isn’t blowing and they aren’t able to get enough natural gas to meet demand. This has led to massive spikes in the cost of power. In fact, power prices for next day delivery in the UK are 10 times higher than the average price just one year ago. In the US, we’re very fortunate. We’ve moved from being a net importer of energy to now a net exporter. I think it’s providing incredible competitive advantage for us, national security implications by reducing reliance on other countries for energy.

We’re able to do this because the US has a very diverse mix of energy production: national gas, hydro, coal, wind, solar, nuclear, many other sources. However, I’m deeply concerned with the Biden administration’s policies to curtail reliable base load power that comes from coal, oil, gas, and would send us back to where we perhaps were back in the 70s into where Europe seems to be headed today. Secretary Yellen, could you help us understand and explain how the Biden administration’s tax hikes and grand aim to really shut down fossil fuel production would not lead us to the same path of dependence on hostile adversaries, for example, Russia, where much of Europe now is faced with today?

Well, President Biden, and I feel the same way too, believe that climate change is an existential threat that absolutely must be addressed. He’s proposed a clean electricity plan that would by 2035 shift entirely the electricity sector to reliance on renewables. And of course with renewables, as you pointed out in the case of the UK, there’s a question of what to do if the sun isn’t out and the wind doesn’t blow. I believe there are storage technologies that can be deployed and other other means to address that, and of course that has to be part of a plan to switch to renewables and address climate change.

Yeah, and one of our concerns of course is of course the technical challenge here on intermittent sources of energy, as you described, and storage, but the impact this will have on families that are on fixed incomes, are seniors, are lower income families are seeing these massive spikes in energy costs.

Well, that’s certainly something we would want to avoid, and I don’t believe that the president’s program is going to lead to increases in the cost of energy.

And I respect that point of view. I’m sure when the Europeans launched on this path, they weren’t planning to have order of magnitude increases in prices either, but it has been a consequence of the policies.

Chairman Powell, earlier this month in response to the revelations about securities trading by presence of Fed regional banks, you began to review the ethics and transparency rules across the Fed because, and I quote, “The trust of the American people is essential for the Federal Reserve to effectively carry out our important mission.” The Fed Board of Governors is subject to FOYA and the Federal Records Act, but the Fed regional banks currently are not. Would you support making Fed regional banks subject to FOYA and the Federal Records Act to ensure greater public transparency and trust in the Fed?

Senator, that’s a good question. I’d like the chance to think about it and come back to you. I would want to reflect on that and on the reasons why they’re not subject to it, and I will do that.

I appreciate that, Chairman Powell. Chairman, I’ll wrap up here this statement, if there’s something that concerns many of us is the loss of trust to the American people in their government, and here you have one more example. I appreciate your leadership, and thanks for consideration of that request.

Thank you.

Senator from Georgia, Senator Ossoff, is recognized.

Senator Jon Ossoff: (01:49:50)
Thank you, Mr. Chairman, and thank you to our guests. Mr. Chairman, a question I’ve asked you in several consecutive hearings. The COVID-19 pandemic, of course, the most significant shock to the US and global economy in the last two years. Beyond COVID, what do you assess are the most significant systemic risks or threats to financial stability in the US and globally?

When I think about systemic risks to the financial system, I always think about cyber risks, really more than anything else. We have a very highly capitalized banking system, one that is much better at measuring its risks, so that more traditional… Making bad loans, losing money, and things like that, that’ll happen, but the banks are really well fortified against that. The risk that we haven’t really faced the full brunt of yet is a successful cyber attack on a financial institution of some kind, be it a financial market utility or a bank or another financial institution. We work closely with Treasury and other agencies all around the country on that. You never have the feeling you’re doing enough, but it’s a very high priority to be ready for. But that would be the number one thing.

Madam Secretary, the same question for you, please. Other than the ongoing COVID-19 pandemic and the terrible economic toll that it’s taking and the terrible health toll that it’s taking, looking more broadly, what do you assess to be the most significant systemic risks or threats to financial stability?

I think there are threats to financial stability that have come from the growth of activity in the shadow banking sector. We saw some of those threats emerge during the onset of the pandemic. We have, for example, open-end bond funds that guarantee daily redemption, saw massive withdrawals by individuals who wanted to flee to cash, and that can trigger fire sales of assets with systemic consequences. The Financial Stability Oversight Council that I head has taken that up as a topic that we are looking at and examining. There are issues relating to hedge funds and the possibility of leverage there that can trigger financial runs. That’s another topic. And more broadly, climate change over time I believe could be a significant risk to the financial sector and the economy, and FSOC is also doing work on that to assess, evaluate, coordinate regulators, work with them to make sure they have the data that they need and that we develop the methodologies to examine that risk.

Thank you, Madam Secretary. Mr. Chairman, you noted in your testimony the impact of supply chain bottlenecks on prices. Can you give a sense to what extent you assess that difficulties in the shipping markets and import operations are driving those bottlenecks and contributing to high price levels in some sectors?

It’s certainly one of the major factors. We’re told by our contacts that retailers, for example, that are trying to buy products for the holiday season can’t get the product. If they can get the product, they can’t get a container. They can get the container, they can’t get a ship. If they can get the ship, it’s at anchor outside of the port of Los Angeles. So transportation is a big issue. Really, our supply chains have gotten all tangled up and blocked up. Big part of it.

Thank you, Mr. Chairman. And Mr. Chairman and Madam Secretary, as you know, Georgia hosts the Port of Savannah, which is the fastest-growing deep water port in the United States. It hosts the largest single container terminal in the United States. We have additional capacity at the Port of Savannah. Broadly speaking, have you been in any meetings, Principles meetings, or National Economic Council meetings, or discussions at a high level about surging governmental resources and ingenuity to solve these shipping bottlenecks? When I reflect upon the capacity, for example, that our Department of Defense has to project power and mobilize resources and execute complex logistics around the world, I can’t help but wonder whether with a more hands-on and targeted approach we could resolve some of these issues at major US ports and in the shipping industry.

The National Economic Council is looking closely at this issue. They’ve hired someone who has extensive experience with logistics and supply chains to take a very careful look and to see what we can do to try to untangle these supply chains.

Thank you. Any recommendations to Congress would be appreciated. And perhaps if there is some emergency legislative measure that would allow us to tackle this problem which is contributing to price and stability and price increases, let’s follow up directly about opportunities to work together. [crosstalk 01:55:29] Thank you, Mr. Chairman. I yield.

Thank you, Mr. Ossoff. Senator Tillis is recognized from his office, remote.

Senator Thom Tillis: (01:55:34)
Thank you, Mr. Chairman, Secretary Yellen, and Chair Powell. Thank you for being here. Chair Powell, the Administrative Procedure Act requires federal agencies, including the Federal Reserve, to follow well-established when entering proposed and final regulations. I believe the Fed issues far too much guidance that’s generally applicable to all banks, which should instead be subject to thoughtful and transparent notice and comment. I believe former board member, [Torello 01:56:06], has suggested that that certain federal actions are exempt from the APA, and I think specifically noting CCAR, the Comprehensive Capital and Analysis Review. In my conversations with Vice Chair Quarles, he’s made it abundantly clear that he believes that Fed does in fact have to abide by the APA in all circumstances. So, Chair Powell, who’s right? Does Torello have a leg to stand on in terms of saying that the Fed is not subject to the APA in all circumstances, or is Vice Chair Quarles right, that you are?

Senator Tillis, I will speak to you to this issue under the control of my general counsel who’s here, but my understanding is that the APA does apply to the board and that we take care to observe its requirements. I know that our stress testing and capital plan rules were promulgated in compliance with the APA.

So I guess with legal counsel in the room, I’ve got a half answer.

Well, I’ve given you what I know. I’d be happy to follow up with you.

Yeah, I feel very strongly about it. We’ll come back to that. I did want to ask you another question, Chair Powell. In minutes from the FOMC conference call on October 13th, you advocated for… Or I’m sorry, October 2013. You advocated for not disclosing contingency plans you had made for a potential breach of the debt ceiling, saying it would, and quote from the minutes, “Make it less likely that the Congress will feel enough pressure to actually raise the ceiling.” Do you think it’s the role of the Federal Reserve to decide to withhold such information, if you do believe that, and what other instances have you deemed it not important enough to not influence congressional outcomes?

Actually, if you look at that transcript, what I said was, and what I meant was the things that we will do that are within our power to do I think are very well understood by market participants. There was a long list of things discussed at that meeting, and as you get down the list these were things that we really would not like to do and probably wouldn’t do, but really in a national emergency we’d have to think about doing. So I was talking about those sorts of things. I thought putting those out there and having people believe that we would do these things was really not a good idea and that it might create a misunderstanding on the part of the public that we actually could shield the financial markets in the economy and the American people from a default on the debt ceiling, on our debt, and that is not the case.

Secretary Yellen and Chair Powell, I know you both made comments endorsing the federal legislative solution to provide a replacement framework for outstanding financial contracts tied to LIBOR. I agree completely and I was pleased to see the legislation clear the House Financial Services Committee last week on a strong bipartisan basis. Just want to let you know that we understand that bipartisan action is needed in the Senate to affect a smooth transition and to provide certainty to capital markets, and I look forward to working with my colleagues, first among them Senator Tester, to make sure that Congress does act and provide for a smooth transition. Thank you, Mr. Chairman. I yield back.

Thank you, Senator Tillis. Senator Cortez Masto.

Senator Catherine Cortez Masto: (01:59:57)
Thank you. Thank you both for being here. It has been a, at times, loud, exciting-

Speaker 1: (02:00:02)
At times loud, exciting hearing this morning and I appreciate your patience and you’re still there willing to ask questions. I think it says a lot about both of you. Let me just put something because at the end of the day, at least for the people in my state, it is about the truth and the facts and people working together and what is happening in this country during this pandemic. So let me just verify because Congress passed the CARES Act, the American Rescue Plan, and an appropriations bill with significant resources for healthcare, for housing, and support for local governments and they did this because we were in the middle of a worldwide health pandemic due to COVID-19. Isn’t that correct? Yes for both of you? Both shaking your heads yes?

Yes.

Speaker 1: (02:00:53)
Yes. So how important were those investments to avoid a deep and painful recession? Were they important to avoid that recession? Is that-

Absolutely.

Utterly essential.

Speaker 1: (02:01:05)
Okay. I appreciate that because at the end of the day, there’s bipartisan work to address this pandemic and it was needed at that time. The work that we are doing to increase the debt limit has a lot to do with that debt that was incurred back then to address the pandemic. Isn’t that right, Secretary Yellen?

That’s true. Raising the debt limit allows us to pay bills that were incurred because of those acts and others of Congress.

Speaker 1: (02:01:39)
So just so I can clarify, so my colleagues who are refusing to come to the table to address this, they’re getting the benefit of that relief in their states however, correct?

Yes, of course.

Speaker 1: (02:01:50)
All right. Just to clarify that. Now, I do know though coming from Nevada, and Chairman Powell, you and I have had this conversation, Secretary Yellen, you as well, there’s still an industry that was so hard-hit that it’s still trying to recover from this pandemic which is that hospitality, that travel and tourism industry. Isn’t that correct?

It’s still deeply depressed, hasn’t come back to normal yet.

Speaker 1: (02:02:16)
That’s right. So Chairman Powell, can I ask you your thoughts on what we should continue to do to address to help the recovery? Because I know at least in Nevada, which the main revenue generated for our state is this hospitality, travel, and tourism, that leisure travel has been there, but the business traveler’s not back, the international traveler’s not back. Are you anticipating what can be done by the Federal Reserve to address this — Secretary Yellen, I’ll ask you the same thing — by the administration or what should we be doing as Congress? Have we done enough for this industry or does more need to be done to help bring it back because of this pandemic?

In my view, the most important thing is to get control of the pandemic. That’s what’s keeping people out of sporting arenas and off of airplanes and out of restaurants and bars. We saw that very clearly in the August payroll report where job creation in these industries had gone from very strong for several months to zero in August. So it’s really all about at this point getting the Delta variant and really frankly getting vaccination and immunity up higher which is not something we can do.

Speaker 1: (02:03:28)
Thank you. Secretary?

And I would agree with that answer and it is something we are working as hard as we possibly can to do to get vaccination rates up to deal with the pandemic.

Speaker 1: (02:03:42)
Thank you. Let me talk about something that is also impacting my state and I think many which is the disruption in the supply chain. Senator Ossoff was talking to you about it, Secretary Yellen, and you talked about the National Council if I remember correctly.

National Economic Council.

Speaker 1: (02:03:58)
Yes. Is there a timeframe when they anticipate coming back with some kind of concrete answers to how to address this disruption in the supply chain?

I can get information for you on that. I know they’re bringing together business leaders who were in infected industries with experts to see if things can be worked out.

Speaker 1: (02:04:23)
Thank you. I appreciate that. I am going to yield the remainder of my time. I’ll submit the rest of my questions for the record, but thank you both for being here.

Thank you.

Thank you, Senator.

Chairman Brown: (02:04:36)
Senator Hagerty.

Senator Hagerty: (02:04:43)
Thank you, Ranking Member Toomey, and thanks to the members of the committee for holding this hearing. I want to thank Chairman Powell, Secretary Yellen for being here today. Chairman Powell, I’d just like to also acknowledge you. You and I have talked extensively about my concerns about the inflation in the economy. We spoke about this in February and we spoke about it in depth during our hearing in July. Very pleased to see the Fed beginning to lay the groundwork now to address inflation in our economy, and for that, I want to thank you.

Secretary Yellen, I’d like to turn my attention to you and if we might speak about the $3.5 trillion transformation of the US economy that’s being proposed right now that we’re going to be expected to vote upon very soon. Last week, you, Leader Schumer, Speaker Pelosi stood before the American public and said you’d agreed to framework, a framework to pay for this. Could you tell us what’s in this framework?

Well it was essentially a list of ideas where there’s support from the House, the Senate, and the White House for how revenue could be raised that would be sufficient to cover the expensive programs under consideration. As we’ve articulated, this involves increases in the corporate tax rate, a reform of international provisions that will reduce the incentives we currently have in the tax code to export jobs and export profits to low-taxed areas and to export jobs abroad and raise revenue, and additional revenue raised from high-tax, high-income individuals, well above $400,000 for example, by raising back the highest income tax rate to where it was before 2017 and will go in 2026 under current law to increase the tax rate on capital gains, and importantly to improve tax compliance. We have a huge tax gap that’s estimated at $7 trillion-

I’ll come to the compliance issue in just a moment. I would though very much like to see this framework that you agreed to. We’re going to be expected to vote on the most massive transformation of the US economy that this nation has ever seen. $3.5 trillion is a huge amount of money in pay force. The industries and the individuals and how they’re going to be targeted is something that I would very much like to get a copy of before I’m expected to vote on this. I’m certain that my-

I’m sure-

… fellow committee members would like to see this. Is this something that you could get to me and my team by the close of business today, Secretary?

No, it is not. There are currently discussions and negotiations taking place within the House and the Senate with involvement in the White House to try to decide what a final package will look like. Until that’s decided, you can see that things coming out of House Ways and Means, for example, but this is very much in the process of being decided.

This is very, very disturbing when we’re talking about something of this magnitude and you’re telling me that I cannot see the framework, that the members of this committee cannot see the framework. I guess we’re just supposed to trust the administration.

Well you can look at our proposals that the President put out in conjunction with his Build Back Better plan.

These are just platitudes. I’m talking about the specifics of the program.

Well the Treasury’s green book had specifics of our proposals and House Ways and means marked up a bill pertaining to revenue that you can look at the specifics-

I’ll look forward to you working with my staff so we can have a detailed understanding because the last thing I want to do is find ourselves yet again in a situation where we’ve got to pass a bill to find out what’s in it. In fact, we need to have a very clear understanding of this sort of transformation because the credibility of this administration has been seriously challenged. If you look at the disaster that’s taking place in Afghanistan, if you look at the disaster at our southern border, the inflation that’s running rampant in our economy, I’m very concerned and I want to have a much clearer picture of what the intended pay for will be and the impact on the economy. So I appreciate your team working with mine so we can get as much information as possible on this. Thank you.

I’d like to turn to another specific area, much more specific indeed. You spoke about this with Senator Lummis. That has to do with the new requirement that our banking system now report transactions that exceed $600. That’s going to be an impact on community banks, on farm credit lenders. It will be an extensive compliance burden, but there’s a greater concern that I have. That’s the concern that my constituents will raise with me and that the American public has in the ability to keep this information confidential. After we’ve seen what happened when the IRS disclosed the private confidential tax information of its political enemies during this administration to ProPublica, there’s a huge concern and a deserved concern on the part of the American public that this information … The detail that we’re talking about it a detail level that I would expect from the Chinese Communist Party, not here in America. The detail will be protected. Can you tell me what you’re going to do to make certain that this taxpayer confidential information will be protected?

Protecting taxpayer information is the highest priority of the Internal Revenue Service. The ProPublica information represented an illegal revelation of taxpayer information. It’s an illegal act and it is being investigated thoroughly by independent entities, law enforcement, and the Inspector Generals of Treasury and the IRS. There really can’t be tolerance for that. We are proposing to invest in the IRS so that they can modernize their systems and put in place better controls that will protect taxpayer information. Just to be clear, we do not know that the ProPublica information came from the IRS. That hasn’t been established. We’re talking about a small amount of information, not every transaction that’s less than $600. Banks already report to the IRS on Form 1099(R)-

I’m aware of that.

… that amount of interest and we’re just asking for two additional pieces of information, aggregate inflows and aggregate outflows from the account during the year.

Again, far more detail about it, Americans’ private transactions. Again, I will say I appreciate the fact that you’re looking for accountability within the IRS. We’ve seen a great lack of accountability in this administration. Just look at what’s happened in Afghanistan, zero accountability. Look at what’s happened at out border, zero accountability. The American public is concerned and I very much appreciate the efforts that you’re taking and I hope that you get to the bottom of this so it never happens again. Thank you, Madame Secretary.

Senator Warnock from Georgia is recognized.

Senator Warnock: (02:12:39)
Thank you so very much. Thank you so much, Mr. Chairman, and thank you, Chairman Powell and Secretary Yellen, for being here. Yesterday, it was reported that the Regional Federal Reserve Bank presidents in Dallas and Boston are resigning following earlier reports that they were actively trading their private investments while the bank was intervening in the markets. Throughout the COVID-19 pandemic, many experts have underscored the importance of maintaining the independence of the Central Bank, independence of course necessary before the pandemic, after the pandemic, during the pandemic. Even though neither serves now as voting members of the Federal Open Market Committee, this is a blow to the image of the Central Bank serving as an impartial and independent agency charged with maintaining stability in pricing and employment. Chairman Powell, what immediate actions have you taken to ensure the impartiality of the Fed and what systems already that are in place failed here and how do you plan to fix them going forward?

We take … Our need to sustain the public’s trust is the essence of our work. We want the public to understand that we work for all Americans. So we don’t like to be having these concerns raised. It’s really something that’s very, very concerning. So as soon as I learned of it, I directed our staff to undertake a review of our practices. We’ve had in place a set of practices around investments and trading and disclosure that seems to have worked for a long time, only it’s clearly really not working now and we understand now that we need to raise modifier practices and we’re in the process of creating ideas and recommendations for that. That’s one thing that we’re doing. We’re also looking carefully at the trading that was done to make sure that it’s in compliance with our rules and with the law.

The rules seem to have broken down. Do you think there needs to be any changes in the trade?

Yes, I’m 100% sure there is a need for those and there will be. I don’t know precisely what they will be, but the appearance is just obviously unacceptable. Even if, as appears to be the case, these trades were in compliance with the existing rules, that just tells you the problem is that the rules and the practices and the disclosure needs to be improved and that’s what we’re working on. We will rise to this moment and address this forthrightly.

I agree. Confidence in the Central Bank is essential and I look forward to working with you on this issue and also working with Chairman Brown who’s working on legislation. Let me change topics. I’m a strong advocate for working and middle-class families and we successfully pushed to include an expansion of the vital Child Tax Credit program in the American Rescue Plan. I think it’s really important as some folks are talking about this $3.5 trillion package that what we’re talking about here with the Child Tax Credit is a tax cut. That doesn’t get said often enough. I think it has something perhaps to do with the kind of attitude about working people, ordinary people, poor people. It’s a tax cut. Experts say that this tax cut would cut child poverty in half nationwide. 97% of families with children qualify. So this is about lifting the burdens of our neighbors. If made permanent, this tax cut for families would push poverty in a typical year down below 10% in 47 states, including Georgia. Secretary Yellen, should Congress make this program permanent and if so, what kind of longterm benefits will this have for our nation’s economy and families?

Well we certainly would like to find a way to make it permanent. It’s a very important support for children and their families. We saw just after one payment that the share of families reporting that there wasn’t enough to eat in the household dropped by 24% and it’s clear that families are spending this on their children for clothing, for food. The security that our children have whether they grow up in secure, in families that don’t have enough to provide for them, make all the difference to their success in life. So this program that will provide a steady source of income along with other supports in the sort of Build Back Better agenda, including two years of preschool, childcare support, I think these are critical investments to make sure that families with children can support them and they can succeed in their lives.

You said they use the money to buy things like food, I believe you said-

Yes.

… clothing. What in your estimation is the impact of that on the economy? In a consumer economy, does that help or hurt?

Well of course it’s positive. It supports spending in the economy that creates jobs in the process.

And what would be the impact of adding mandatory work requirements if we extend this and made it permanent?

Well we wouldn’t be in favor of mandatory work requirements. The truth is that the vast majority, over 90% of families that require this assistance are working, have workers, and you had in addition grandparents, for example, who are no longer in the workforce or people who are disabled may not be working and can’t work who are also getting support that they need to take care of children.

Thank you, Senator Warnock.

Thank you.

The Senator from North Dakota, Mr. Cramer, is recognized.

Senator Cramer: (02:19:25)
Thank you, Chairman. Thank you, Senator Toomey. Thanks to both of you for being here and I cannot resist. For some reason, I’m just not surprised, Madame Secretary, that working for money is something that your administration is against. I mean part of the reason we have this no longer transitory inflation, Mr. Chairman, is because we keep giving money away like it grows on trees and we increase the demand for products while diminishing the supply. I want to get to another point, related however. Secretary, you made addressing climate change a high priority in your term. It’s a central point of your term. You and John Kerry, the President’s climate czar, have encouraged banks and investment institutions to form this net zero banking alliance. By the way, net zero, Mr. Chairman, what that means is we’re going to transfer our climate guilt to other people who don’t have a climate conscience. I’d rather set a goal, a global goal, and hold the real polluters accountable rather than reducing our economy and putting us at a disadvantage.

Anyway, the President’s urged banks to provide as much support for alternative energy projects as possible, which of course presumes at the expense of current energy projects. That would obviously force financial institutions to put political and social agendas ahead of their investors and ahead of their banks, ahead of the American economy. That’s why I’ve been such a harsh critic of these very arbitrary ESG statements put out by banks, but in light of this weak unemployment and recovery numbers, the fact that this inflation, I never believed it was transitory, clearly wasn’t any longer, do you think it’s really a good idea for private businesses to be forced by a government official to make decisions about where they should or should not put their money, jeopardizing jobs, jobs in our energy sector? Guess what’s up. Price of gasoline, price of oil, price of electricity skyrocketing. There is no worse tax.

Mr. Warnock wants to call Child Tax Credit a tax cut and he complains that we don’t say that often enough. We don’t say it because it’s not a tax cut. It’s a subsidy. It’s a subsidy. Now, you can argue whether it’s a good subsidy or a bad subsidy, but calling it a tax cut is not fair. What we’re doing is driving the price of all of these fuel sources up, transferring our climate guilt, and then hamstringing our own financial institutions with these arbitrary rules. So in light of what’s going on with unemployment, now I know you want to just tax people a whole bunch more and pay people not to work so maybe unemployment’s not a problem, but is it … Couldn’t we please rethink this strategy, Madame Secretary?

Well look, climate change is an existential threat and it is a very high priority of President Biden and of mine to address it, but no one is forcing banks or other financial institutions to make investments that they don’t think are profitable and desirable. There is enormous interest in the financial community in making investments that will be profitable in sustainable investments. What we want to do and we’re working through [FSOC 02:22:58] to do this is to make sure that investors have the kind of information that will enable them to make investment decisions that they want to make that are profitable.

So you don’t think they’re capable of getting their own information at risk and opportunity so you have to have a czar and a secretary and other czars give them information that might be helpful to their decision? All the while, by the way, Russia, Venezuela, Saudi Arabia, they get the benefit of all of this. I mean when our President has to call on OPEC Plus to bring the price of gasoline down by increasing production, all the while we shut off our own whether by fiat or by innuendo, that doesn’t seem like a great strategy to me. I think you’re wrong. I’ll yield back. Thank you.

Thanks, Senator Cramer. As we close, Senator Toomey has some remarks and then I’ll make a closing statement.

Mr. Toomey: (02:23:59)
Thank you, Mr. Chairman. I just feel compelled to go back one more time and touch on this issue of the debt ceiling. I have to confess I’ve been shocked to hear our Treasury Secretary and some of my colleagues tell us today that raising the debt ceiling and additional borrowing that that permits is 100% about covering spending that was committed to in the past as thought the spending that has not yet occurred this year somehow is not going to cause a deficit, somehow that spending won’t require borrowing. The spending that has not yet occurred but is going to occur absolutely is going to increase the amount that we’re going to have to borrow. When we go on an unprecedented blowout spending spree, it’s going to increase spending by that much more. I mean just think about it. Imagine that this $3.5 trillion spending bill, let’s imagine Senator Sanders had his way and it was $6 trillion. We seriously think that would have no impact on the amount of money our government would have to borrow? How ridiculous. Of course it does.

Mr. Toomey: (02:25:03)
So the truth of the matter is our Democratic colleagues do not want the American people to associate this huge spending binge they’ve been on and want to continue on with the debt that will be required in part to pay for it, and we’re not in favor of either one and that’s why, Mr. Chairman, I think you’re going to need to use the procedures readily available to you to raise the debt ceiling just as you intend to pursue all this spending, which is with a simple majority vote.

Thank you, Senator Toomey. Of course we all know that three years ago, 45 Democrats joined a number of Republicans with a Republican president, a Republican Senate, a Republican House to pay our debts. We believed it was our patriotic duty. We all took an oath of office swearing to the obeisance thereof of what we believed and American values and we paid our debts. We did it then bipartisan overwhelming vote and we should do it. We know that Senator McConnell doesn’t seem to think that.

Let me get one thing straight though about what we’ve talked about. The infrastructure we’ve had, investments we passed in a bipartisan bill we’re working on now are fully paid for. It’s simple. Instead of American taxpayers racking up debt due to corporate handouts and tax cuts for wealthy CEOs, those corporations, those billionaires for the first time are finally going to help us pay for the investment we need and our greatest asset, the American people, it’s not just nurses and teachers and firefighters that are paying their taxes. It’s time that the wealthiest people in this country paid their fair share. Corporate greed’s a big reason why we need this investment in the first place. For decades, we had a corporate business model, I mentioned that in my opening statement, where they plow all their cash into stock buybacks and bonuses and other schemes where the money ends up in their pockets instead of funding the real economy.

The economy of a year ago may have looked pretty good from a corporate boardroom or may have looked pretty good from the Dirksen Office Building, but anyone who got, as Lincoln would say, their public opinion [inaudible 02:27:11] would know that so many workers, entire neighborhoods, entire towns were not seeing the gains, those stock market gains translate into opportunity for them and their family. We’re changing that. One of the best things about our economy today is for the first time in decades, the first time in some people’s memory, workers are starting to gain a little power in our economy over their schedules, over their wages, over their benefits. They’re going to gain a whole lot more power when we invest in jobs in their towns and childcare and housing and the Child Tax Credit and education and workplace protections and everything workers need to feel stable and think, just so they know finally in this country they’re getting a fair shake.

I thank Secretary Yellen for joining us, thank Chairman Powell for joining us. The meeting is adjourned. Thank you, sir.

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