Janet Yellen & Jerome Powell Testimony on Economy Full Hearing Transcript November 30

Chairman Sherrod Brown: (00:00)
… all that we’re doing. Our speaking order though will be as usual. That is by seniority. The members who’ve checked in before the gavel came down, either in person or virtually, and then by seniority of members arriving later alternating between democrats and republicans.

Last week, many Americans sat down with family and friends to celebrate Thanksgiving, I start with taking a moment to thank the workers who made that possible, many of whom didn’t get the day off. Farm workers, grocery store workers, restaurant workers, auto workers, delivery workers, longshore workers and so many others who touch our lives.

These are the people who make our economy work. It’s something that the Treasury secretary and the Fed chair need to always keep in mind. Under the Biden-Harris administration, our economy’s bouncing back. It’s getting stronger every day. We created 5.6 million jobs, this year, the unemployment has dropped to 4.6%, weekly unemployment claims dropped 200,000 last week. The lowest level, not just since the pandemic began, but in over 50 years since 1969.

Of course, raw jobs numbers alone don’t tell the whole story, they don’t tell you how good the job is, what kind of wage it pays. And on that front, the news is even better, workers are starting to finally get a little more power in our economy.

Last year, corporations called their workers essential, then many turned around and cut hazard pay if they ever offered it at all, and cut corners on safety to make sure their profits didn’t take a hit. Or worse, they laid off loyal longtime employees in the midst of a public health crisis.

They can’t make those record profits without someone to actually do the work though. Today, American workers are demanding what they’ve earned. After years of stagnant wages, of shrinking benefits, of no control over their schedules, workers are standing up for themselves and for each other in asking for their fair share of the profits they create. We just saw the United Auto Workers win better pay and better retirement benefits after a five-week strike of John Deere. It was good for non-union employees too, this is typical, who get a bump in their pay too.

For too long, corporate greed has kept paychecks down and prices up. Corporations cut costs at workers’ expense to juice quarterly earnings numbers even when they’re already plenty profitable. Executives reward themselves with record profits and stock buybacks while arguing they can’t afford to pay higher wages to anyone else or can’t afford to lower prices.

During a once in a generation global pandemic, despite the supposed labor shortages and inflation fears, Wall Street banks and corporations still manage to rake in record profits. Profits at the biggest US companies shot above $3 trillion, $3000 billion this year. The margins keep growing.

And now while working families are just starting to get back on their feet, mega corporations would rather pass higher costs onto consumer than to cut into their already large profits. To continue the progress, we need to rethink the old system.

The Biden administration’s creating jobs and bringing down costs for families to build a resilient economy for the long run. The biggest cost families say have been rising for years, in many cases, decades; housing, healthcare, prescription drugs, childcare, preschool.

The Democrats’ agenda will bring down these costs. We passed the American Rescue Plan, which got shots in our arms and money in pockets, including the child tax credit, the largest tax cuts for working families ever that’s helped millions of families afford childcare and keep up with the cost of living.

90% of families in Pittsburgh, in Cleveland, in Toledo, in Philadelphia, 90% of families with children under 18 are getting at least a $3,000 tax cut. We passed the Bipartisan Infrastructure Bill to upgrade our ports and transit systems to revitalize manufacturing here in the US to secure supply chains to create millions of good jobs.

Two weeks ago, the House passed Build Back Better, which will bring down childcare, and housing, and healthcare, and other household costs, and extend the child tax credit, the biggest tax cut as I said. Now the Senate must act, the ongoing pandemic has exposed long standing weaknesses in our supply chain, global supply chain disruptions and increased demand.

As our economy rebounds are causing higher prices in certain sectors, Secretary Yellen and Chair Powell are keeping an eye on this, the more we get the virus under control and understand its variance, the faster we’ll see these disruptions subside. We’re already seeing some progress.

The bipartisan infrastructure plans and investment in our ports will help speed up our supply chains in the long run passing my Supply Chain Resiliency Act would further reassure and strengthen US supply chains. There’s also an even simpler short term fix available.

Corporations could lower their prices. Executives could get a slightly smaller pay bump this year. Stock buyback plans could be put on hold instead of raising costs for customers. Again, that’s the choice they face. They could take a slightly smaller pay bump this year, they could cut back on their stock buyback plans, actually put them on hold instead of raising costs for consumers.

There’s no inexorable law that says profits for those of the top must continue to rise and rise and rise in perpetuity, even at the expense of everyone and everything else in the economy. Corporations can get away with it, we know this. I’ve had these conversations with Chair Powell and Secretary Yellen.

They can get away with it because they have too much power in our economy, that makes it all the more vital that we not pull back when empowering workers. The Fed can’t pump the brakes in our economic recovery too soon before workers get a chance to fully rebound, and I mean all workers.

Women who finally started to make significant job gains last month, disproportionately forced out of the labor market as many took on the extra jobs of full-time caregiver and homeschool teacher. The Black unemployment rate’s still twice that of White workers. That’s increasingly unacceptable.

A resilient economy and economy with full employment means everyone can get a job, a good job that pays a living wage, allows you to build a career and raise a family. It’s an economy where everyone shares in the benefits of growth, where our progress isn’t gambled away by Wall Street greed.

Instead of doing Wall Street’s bidding, we all, and I include the Fed, the Treasury Department in this Congress, we all need to support the institutions that work at serving their neighbors and contributing to the real economy.

That means supporting small businesses. It means creating paths to home ownership. It means supporting institutions like MDIs and CDFIs that serve communities that the banks ignore. That means making sure that workers have power in our economy and share in the prosperity they create.

Corporations and their allies in this building, and there are a whole lot of them, want you to believe we have to choose between high wages and low prices, that’s a false choice. We can have an economy where you earn a living wage and you can to the things you need to live; childcare, and healthcare, and education, and housing and groceries.

Our economy can be a reflection of our values as Americans. Ones that recognize every worker’s potential from all walks of life from every corner of our country. President Biden recently announced his intention to renominate Chair Powell to lead the Federal Reserve and Governor Lael Brainard to be the vice chair.

They’ve helped lead our economy through the pandemic, I’ll continue to work with both of them and the next Federal Reserve nominees that reflect the diversity in thought in gender and race, the diversity of our country. I look forward to hearing from the secretary and the chair and how they plan to build a resilient economy that works for everyone. Senator Toomey.

Senator Pat Toomey: (08:01)
Thank you, Mr. Chairman. Secretary Yellen and Chairman Powell, welcome back to the committee. Chairman Powell, congratulations on your renomination. Despite our several disagreements, I look forward to supporting your confirmation.

When the pandemic hit in 2020, Chairman Powell acted swiftly to stabilize financial markets and the economy. He also implemented a number of sensible regulatory reforms that helped to spur economic growth.

And for those who would criticize those efforts, I suggest they look at the past two years. Our economy and our financial system experienced a very severe real world stress test during the worst days of the pandemic, and we came out of it with the best capitalized banking system in American history.

While I support Chairman Powell’s renomination, I’m very concerned about whom president Biden may nominate to fill other seats on the Fed board, given some of the radical financial regulators he’s nominated so far. Just consider his radical nominee to serve as the comptroller of the currency, the nation’s top banking regulator.

Members of the Fed board ought to have exceptional qualifications and an appreciation for the Fed’s narrow statutory role on monetary policy and banking supervision. We need Fed nominees who are focused, not on social policy, but are rather the alarming bout of inflation that we are currently experiencing.

Inflation is at a 31 year high. Just last month, the Consumer Price Index increased by 6.2% year over year. Price hikes are everywhere. From the cost of a Thanksgiving meal which rose by 14% over last year to the pump where gas has reached as high as $6 a gallon in some places.

And inflation is a tax that’s eroding Americans’ paychecks every day, even though wages are growing, inflation’s growing faster, and that’s causing workers to fall further and further behind. I’ve been warning about the risks of higher and more persistent inflation since January.

Unfortunately, the Fed has decided to continue it’s really emergency monetary policy, adding fuel to the inflationary fire long after the economic emergency has passed. Earlier this month, I was glad to see the Fed finally announce a long overdue taper of its bond buying program.

Quantitative easing should be used in emergencies only, and we are well past the need for such support. Our economy took a nose dive in the second quarter of last year, but by the third quarter of 2020, it had largely recovered.

And yet here we are in November, 2021, and the Fed’s still buy more than a $100 billion in bonds each month. The Fed should have started tapering nearly a year ago, but instead it’s expected to continue buying bonds through next June.

And on interest rates, which are currently near zero, the Fed is still maintaining a wait and see approach. I am somewhat relieved that Chairman Powell has recently spoken about the heightened risk of higher and more persistent inflation and has indicated his determination to control it.

Unfortunately, the Biden administration and many of our democrat colleagues in Congress are not willing to do their part to limit inflation. Instead, they’re exacerbating the problem and then blaming inflation on their usual suspects, greedy corporations.

Apparently some of my colleagues believe that companies were for years generously leaving money on the table, and only now have thought to raise prices to maximize profits. Well, this is a cynical fib meant to distract from the fact that congressional democrats’ extremely liberal policies are contributing to the price hikes hitting Americans’ wallets.

Just take energy prices, for example, President Biden kicked off his presidency by taking measures to curb our nation’s energy supply. He terminated construction of the Keystone pipeline, a tremendous source of oil. He placed an indefinite ban on new oil and gas leases on Federal land.

Meanwhile, on the demand side, the administration and democrats in Congress have propped up demand for energy with their March, 2021, 1.9 trillion stimulus bill. It’s no wonder then that Americans are seeing skyrocketing energy prices when you decrease supply and then subsidize demand, prices go up. That’s basic economics.

Unfortunately, the administration has not learned its lesson. It’s still pushing a multi-trillion dollar reckless tax and spend plan that will contribute to more inflation and damage our economy.

This plan is a massive expansion of the welfare state and it will partially be paid for by large tax increases that’ll hurt American families and make the US a less competitive place to do business.

The intent of this plan is to fundamentally transform the relationship between the Federal government and the middle-class. It’s about socializing many ordinary responsibilities that middle income families have always assumed, including by providing free preschool, free paid leave, free childcare, just to name a few.

Democrats are attempting to hide the unprecedented enormity of this tax and spending spree through budget gimmicks. According to the nonpartisan Penn Wharton budget model, the House version of the Build Back Better plan will cost 4.6 trillion over 10 years if the Bill’s temporary provisions are made permanent as the democrats plan and hope.

As Senator Manchin has noted, democrats are using “shell games” to hide the true cost of this inflation. I hope that democrats will reconsider their misguided efforts to double-down on the reckless spending that has contributed so much to the highest inflation that Americans have experienced in 31 years.

Thank you Senator Toomey. I’ll introduce today’s witnesses. We will hear from Treasury Secretary Yellen, Federal Reserve Chair Powell, and their agencies’ continued actions to recover from the pandemic and the elder resilient economy that works for all Americans. Thank you both for your service. Congratulations again to you Chair Powell, and thank you for your testimony today. And Secretary, if you’d begin. Thank you.

Secretary Janet Yellen: (13:58)
Chairman Brown, ranking member to me, members of the committee, it’s a pleasure to testify today. November has been a very significant month for our economy, and Congress is a large part of the reason why. Our economy has needed updated roads, ports and broadband networks for many years now.

And I’m grateful that on the night of November 5th, members of both parties came together to pass the largest infrastructure package in American history. November 5th it turned out was a particularly consequential day because earlier that morning, we received a very favorable jobs report, 531,000 jobs added.

It’s never wise to make too much of one piece of economic data, but in this case, it was in addition to a mounting body of evidence that points to a clear conclusion our economic recovery is on track. We’re averaging half a million new jobs per month since January, and GDP now exceed its pre-pandemic levels.

Our unemployment rate is at its lowest level since the start of the pandemic, and our economy is on pace to reach full employment two years faster than the congressional budget office had estimated.

Of course, the progress our economic recovery can’t be separated from our progress against the pandemic. And I know that we’re all following the news about the Omicron variant. As the president said yesterday, we are still waiting for more data, but what remains true is that our best protection against the virus is the vaccine. People should get vaccinated and boosted.

At this point, I’m confident that our recovery remains strong and is even quite remarkable when put in context. We should not forget that last winter, there was a risk that our economy was going to slip into a prolonged recession. And there is an alternative reality where right now millions more people cannot find a job or are losing the roofs over their heads.

It’s clear that what has separated us from that counterfactual are the bold relief measures Congress has enacted during the crisis. The Cares Act, the Consolidated Appropriations Act and the American Rescue Plan Act. And it’s not just the passage of these laws that has made the difference, but their effective implementation.

Treasury, as you know, was tasked with the administering a large portion of the relief funds provided by Congress, and under those bills. During our last quarterly hearing, I spoke extensively about the state and local relief program, but I wanted to update you on some other measures.

First, the American Rescue Plan’s expanded child tax credit has been sent out every month since July putting about $77 billion in the pockets of families of more than 61 million children. Families are using these funds for essential needs like food. And in fact, according to the Census Bureau, food insecurity among families with children dropped 24% after the July payments, which is a profound economic and moral victory for the country.

Meanwhile, the Emergency Rental Assistance Program has significantly expanded, providing much needed assistance to over two million households. This assistance has helped keep eviction rates below pre-pandemic levels.

This month we also released guidelines for the $10 billion State Small Business Credit Initiative Program, which will provide targeted lending and investments that will help small businesses grow and create well paying jobs.

As consequential as November was, December promises to be more so. There are two decisions facing Congress that could send our economy in very different directions. The first is the debt limit. I cannot overstate how critical it is that Congress address this issue.

America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery. In a matter of days, the majority of Americans would suffer financial pain as critical payments like social security checks and military paychecks would not reach their bank accounts, and that would likely be followed by a deep recession.

The second action involves the Build Back Better agenda. I applaud the House for passing the bill and I’m hopeful that the Senate will soon follow. Build Back Better is the right economic decision for many reasons. It will, for example, end the childcare crisis in this country letting parents return to work.

These investments we expect will lead to a GDP increase over the longterm without increasing the national debt or deficit by a dollar. In fact, the offsets in these bills mean they actually reduce annual deficits over time.

Thanks to your work, we have ensured that America will recover from this pandemic. And now with this bill, we have the chance to ensure America thrives in a post pandemic world. With that, I’m happy to take your questions.

Thank you Secretary Yellen. Chair Powell, you’re recognized. Thank you for joining us.

Chair Jerome Powell: (20:13)
Thank you Chairman Brown, ranking member to me and other members of the committee for the opportunity to testify today. The economy has continued to strengthen. The rise in delta variant cases temporarily slowed progress this past summer restraining previously rapid growth in household and business spending intensifying supply chain disruptions, and in some cases, keeping people from returning to work or looking for a job.

Fiscal and monetary policy and the healthy financial positions of households and businesses continue to support aggregate demand. Recent data suggests that the post-September decline in cases corresponded to a pickup in economic growth, and GDP appears on track to grow about 5% in 2021, the fastest pace in many years.

As with overall economic activity, conditions in the labor market have continued to improve. The delta variant contributed to slower job growth this summer, as factors related to the pandemic, such as caregiving needs and fears of the virus kept some people out of the labor force, despite strong demand for workers.

Nonetheless, October saw job growth of 531,000, and the unemployment rate fell to 4.6% indicating a rebound in the pace of labor market improvement. There is still ground to cover to reach maximum employment for both employment and labor force participation, and we expect the progress to continue.

The economic downturn has not fallen equally, and those least able to shoulder the burden have been the hardest hit. In particular, despite progress, joblessness continues to fall disproportionately on African Americans and Hispanics.

Pandemic related supply and demand imbalances have contributed to notable price increases in some areas. Supply chain problems have made it difficult for producers to meet strong demand, particularly for goods. Increases in energy prices and rents are also pushing inflation upward.

As a result, overall inflation is running well above our 2% longer run goal with the PCE Price Index up 5% over the 12 months ending in October. Most forecasters, including at the Fed, continue to expect inflation will move down significantly over the next year as supply and demand imbalances abate.

It’s difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year. In addition, with the rapid improvement in labor market, slack is diminishing and wages arise at a brisk pace.

We understand that high inflation imposes significant burdens, especially on those less able to meet the higher costs of essentials like food, housing, and transportation. We are committed to our price stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.

The recent rise in COVID-19 cases and the emergence of the Omicron variant post downside risks to the employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would low progress in the labor market and intensify supply chain disruptions.

To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission, and the Fed will do everything we can to support a full recovery and employment and achieve our price stability goal. Thank you very much.

Thank you, Mr. Chair. Secretary Yellen, thank you for your comments on the debt ceiling, we have two more weeks, we know failing to get this done will hurt families in small businesses and our whole economy.

I want to ask you about something else though. The Wall Street Journal reported two weeks ago the two thirds of the largest publicly traded companies had larger profit margins in 2021 than in 2019 before COVID-19.

In 2020, top CEOs made 351 times the income that a typical worker made. Even during an ongoing pandemic when faced with increased demand and supply chain issues, big corporations refused to cut their own profits, they raised prices on people, they complained about having to pay workers more, nevermind the fact they’ve been giving themselves raises for years without it impacting their prices.

Meanwhile, the cost of housing and medical care and almost everything else for most workers has been rising for years. You’ve said Secretary Yellen, you’ve said the Bipartisan Infrastructure Bill and Build Back Better will bring costs down for most Americans. Could you explain that?

Yes. The Build Back Better plan contains support for households to help address some of the most burdensome and most rapidly rising costs that they face. For example, the cost of childcare, which is virtually unaffordable for many American families. There is subsidies for quality childcare that will bring down the cost for the great majority of American families, universal pre-K for three and four year olds and a child tax credit.

And all of that will bring down the cost of childcare and for families that are facing crushing burdens, for example, very high rental costs in many areas. The additional money that they get through the child tax credit will help them keep a roof over their family’s heads.

And as I indicated in my opening remarks, is already helping them put food on the table. With respect to the costs of caring for the elderly, Build Back Better contains support for those who are disabled and the elderly to get care in their homes.

There are subsidies, an increase in the Pell Grant and money for education and for workforce training that will make that more affordable and reductions in the cost of prescription drugs. These are some of the most burdensome items in family budgets, ones that have risen more rapidly than the general level of prices over time. And the bill will help families meet those burdensome expenditures.

Thank you Madam Secretary. Chair Powell, is it still your belief that higher prices in certain sectors are chiefly caused by the upheaval we’re experiencing as a result of the global pandemic, and then as the pandemic eases, so too should inflationary pressure?

I guess I would say it this way. Generally the higher prices we’re seeing are related to the supply and demand’s imbalances that can be traced directly back to the pandemic and the reopening of the economy. But it’s also the case that price increases have spread much more broadly in the recent few months across the economy, and I think the risk of higher inflation has increased.

Thank you. This is a question for both of you. The dollar is controlled by the American people, but stablecoins are controlled by opaque, secretive technology companies over and over on issue after issue. We’ve seen tech firms put profits ahead of the public interest with our elections, with our privacy, with competition in our markets. And start with you Madam Secretary, is it risky to let control over our money fall into the hands of these companies?

I believe that stablecoins can result in some greater efficiencies in the payment system and could contribute to easier and more efficient payments, but only if they’re adequately regulated.

And the president’s working group that I chair recently issued or report indicating that there are significant risks associated with these currencies. Risks to the payment system, risks of runs, and risks related to the concentration of economic power.

And we have called upon Congress to put in place, force these stablecoins a regulatory framework that would make them safe and protect consumers, and put them on a level playing field with other providers of similar services such as banks.

Chair Powell, do you agree with that?

Yes, I do.

Thank you. In closing out my time, I think it’s important to look in a bit of historical perspective, as both of you have explained to me and other conversations in the late ’90s and early 2000s over the counter derivatives and subprime mortgages were billed as financial innovations.

Financial regulators at the time pushed to weaken safeguards saying that a cloud of legal uncertainty hung over the OTC derivatives markets and regulations. Again, their words could discourage innovation and growth and drive transactions offshore.

Later, the banking lobby argued that regulating subprime mortgages would decrease borrower choice and reduce access to capital. Financial Crises Inquiry Commission cited derivatives and subprime mortgages as key factors in the crisis.

It looks again, again, again like the financial industry is using these same arguments for stablecoins in decentralized finance platforms. Today, all of us on this committee and both parties should be concerned about that, should understand the historical parallels, and should listen to this very bipartisan panel, the Secretary of the Treasury and the Chair of the Federal Reserve. Senator Toomey.

Thank you, Mr. Chairman. Since the topic of the debt ceiling came out, let me just remind all of us of something-

Since the topic of the debt ceiling came out, let me just remind all of us of something that we know very well. And that is our democratic colleagues could raise the debt limit all by themselves any time they want and there’s nothing Republicans could do to stop them. The tools have been available to them all year long. And in fact, Republicans have offered to expedite the process. There is only one reason that our democratic colleagues refuse to use reconciliation to raise the debt limit. And that is because they would have to specify the amount of debt they want to inflict on the American economy. They want to avoid accountability for this terrible spending spree they’re engaged in by obfuscating and not specifying a dollar amount. I think we should be very clear about what’s going on here.

Mr. Powell, under the Fed’s new flexible average inflation targeting, the inflation target remains at 2%, but now it’s on an average over an unspecified timeframe. Core PC, the Feds preferred inflation metric, is running above 2% over the past five years, nearly 3% over the past two years, and 4.1% over the past year. So it’s above target. It has been above target and it’s accelerating. Yet, the Fed has maintained an extraordinary emergency monetary policy stance. It looks to me like this framework appears to be a weakening of the Fed’s commitment to stable prices. Now I know you believe this is transitory, but everything’s transitory, life is transitory. How long does inflation have to run above your target before the Fed decides maybe it’s not so transitory?

Well, first of all, the test that we’ve articulated I think clearly has been met now. You’re absolutely right. Inflation has run well above 2% for long enough that if you look back a few years, inflation averages 2%. So I think we can say that it was not the case going into this episode. It had been many years since we had inflation at 2%. So I think the word transitory has different meanings to different people. To many, it carries a sense of short lived. We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s probably a good time to retire that word and try to explain more clearly what we mean.

Well, it still strikes me as just extraordinary that the economy has… It’s long past recovery. We’re in a full blown expansion. Unemployment’s down to 4.6, we have record high asset prices. Housing is leading the way to the point where in many markets houses are just unaffordable for many people. And yet, the Fed’s going to purchase 35 billion dollars in mortgage back securities in December alone and schedule to continue purchasing mortgage back securities for the months on end. I would strongly urge you to reconsider the pace of the tapering. Secretary Yellen, I want to follow up on the discussion about payment stable coins in the president’s working group. Payment stable coins were defined. And the definition is, and I quote, “Those stable coins that are designed to maintain a stable value relative to a fiat currency, and therefore have the potential to be used as a widespread means of payment.” Well, that certainly covers every major stable coin that exists right now. And what strikes me as perplexing is that the president’s working group recommendation is that all such stable coins be required to be issued by depository institutions only. But yet, as you know, the mechanism by which the value of the stable coin is maintained relative to a fiat currency, they vary significantly. Some arguably look somewhat like depository institutions. Others look more like money market accounts. Still others look like something wholly new. Why suggest that they all must be regulated the same way and treated as depository institutions?

Well, they all have the potential to be used as a means of payment regardless of how they are used at the outset when they’re introduced. And the structure that they espouse and adhere to, which is that they have a stable value relative to a fiat currency. That is really what depository institutions guarantee.

I would just suggest that we really think this through. I think the very fundamentally different designs suggest that there might be different regulatory approaches. I’m going to run out of time here. So Mr. Chairman, I just want to note that pillar one of the Biden administration’s international tax agreement will be the most significant international tax change in 100 years. To implement it, everyone of our bilateral trade… I’m sorry. Our bilateral tax treaties would need to be modified. There is no historical precedent for bypassing the Senate treaty process to implement pillar one. Secretary Yellen, during a recent finance committee briefing, I asked you to acknowledge that administration would need to come to the Senate for treaty approval to implement pillar one. You responded that Treasury has yet to determine whether a treaty will be needed or not. In my view, and that of many of my colleagues, implementing pillar one would require modifications to our existing bilateral tax treaties and those modifications must be approved by two thirds of the Senate. The executive branch cannot ignore the Senate on a matter that is clearly our constitutional responsibility. Thank you, Mr. Chairman.

Chairman Brown: (36:54)
Thanks Senator. Senator Reed is recognized from Rhode Island.

Senator Reed: (36:57)
Thank you, Mr. Chairman. And first, let me thank Secretary Yellen for being our guest speaker at the Providence Chamber of Commerce last week. Thank you, Madam Secretary.

Thank you.

And I learned something there. I always do when I’m with the secretary. She is the only person that has been the chairman of the president’s council of economic advisors, chairman of the federal reserve and secretary of the treasury. So thank you, Madam Secretary, for your work. And let me, Chairman Powell, extend my congratulations for your reappointment to the Federal Reserve. Thank you. Chairman Powell, we’ve seen, as you both discussed, a steady job growth. What is troubling though is the labor participation rate has remained depressed. And until we get that participation rate up higher, we’re going to have the complaint that we receive, the inability to get workers, et cetera. How do we do that? And what do you think are the causes of this fall off in the participation rate?

I didn’t catch the very end of that. Sorry.

The causes of the fall of the participation rate, and then how do we rectify those causes?

So it’s very surprising. Since June of last year, the unemployment rate has dropped six and a half percent. And participation has basically moved up to 2/10th. It sort of moved sideways, which was surprising. I think when enhanced unemployment insurance ran off and schools reopened and vaccination came, we all thought there would be a significant increase in labor supply and it hasn’t happened. So you ask why there’s tremendous uncertainty around that. But a big part of it is clearly linked to the ongoing pandemic. People answered surveys and they’re reluctant to go back to work.

They’re reluctant to leave their caregiving responsibilities and go back to work because they feel like schools might be closing again, things like that. So it’s an issue. And I think what I’m taking on board is that it’s going to take longer to get labor force participation back. We’re not going right back to the same economy. And really, often labor force participation is a lagging indicator. It follows big improvements in the unemployment rate. We’re probably on track to have that happen. And that means to get back to the kind of great labor market we had before the pandemic. We’re going to need a long expansion to get that. We’re going to need price stability. And in a sense, the risk of persistent high inflation is also a major risk to getting back to such a labor market.

Thank you very much. Madam Secretary, let me thank you for maximizing the flexibility in the Emergency Rental Assistance Program, steps like self-attestation and bulk utility payments have been very helpful to Rhode Island is trying to get these returns. One area though is very difficult and it always seems difficult. That is the homeless population of… Again, can you look at and try to develop the RA guidelines to emphasize how funds can be appropriately used for homelessness?

That’s an extremely important area. We are very focused on it and we’ll be happy to work with you on it. What I can say is that ERA funds can be used to provide so-called housing stability services, a range of services to the homeless to help them find a stable shelter. Something that Treasury did, a kind of flexibility that we built into our guidelines, is ERA statue requires that to be eligible for assistance a household has to have a so-called rental obligation. Recognizing that would be something that would be challenging for families experiencing homelessness. We created an opportunity for ERA grantees to provide individuals with a letter of intent to pay a rental obligation. So with this letter of intent, that would make it easier for the homeless to be able to secure housing. So those are two forms of flexibility we think will help. And we’d be glad to work with you to see if we can identify more.

Thank you, Madam Secretary. And on communicating those provisions to local authorities would be helpful. And just a final point, Secretary Yellen. This is with the Homeowner Assistance Fund. I know you’re looking at the state plans. And if you could accelerate that to get the money out, because as you well know, a lot of these moratoriums on eviction are either gone or going and it would be very helpful to get the money out. Thank you.

Yes.

Thank you, Mr. Chairman.

Thanks Senator Reed. Senator Crapo of Idaho is recognized.

Senator Crapo: (42:23)
Thank you, Mr. Chairman. Secretary Yellen, some appear to believe that you have announced that unless a debt limit increase or a suspension occurs before December 15th, that the Treasury faces imminent default. That’s not how I’ve read your comments. So it would be helpful for you to clarify what your current projection is for when Treasury would run out of headroom to operate below the debt limit and run dangerously low of operating cash. I also request that Treasury provide details of its latest debt and cash projections to the finance committee and look forward to receiving those projections.

Yes. Let me clarify what I said. What I indicated in my most recent letter to Congress is that I have a high degree of confidence the Treasury will be able to finance the US Government through December 15th. But there would be scenarios in which Treasury would not have sufficient funds to continue to the operations of the US Government beyond that date. I would note that on December 15th, Treasury will invest funds from the infrastructure bill and that will use up $118 billion worth of capacity when those funds from the Highway Trust Fund are invested in government securities.

And I didn’t say that there is no way that we can make it past December 15th. There are a range, there’s uncertainty about what our cash balance will be. And our resources right now, there is uncertainty about where we will be on December 15th. And there are scenarios in which we can see it would not be possible to finance the government. That doesn’t mean that there are not also scenarios in which we can. But we think it’s important for Congress to recognize that we may not be able to and therefore to raise the debt ceiling expeditiously.

Well, thank you for that clarification. Chair Powell, inflation hit 6.2% last month, which is the highest in more than three decades. Still, the administration is pushing for support of a nearly $2 trillion social spending package. And by the way, that number even accepts their budget gimmicks that hide real costs that could mean several trillion more in spending over the next 10 years. Most of that spending does nothing to ameliorate the problems of rising inflation. In fact, will simply add fuel to the inflation fire. I’m very concerned that the administration is not taking inflation’s threat seriously. And in the case of energy prices, is enacting regulatory policies that themselves are threats. Do you agree that inflation is a serious threat to our economy? And how do you intend to address inflation?

I do think that the threat of persistently higher inflation has grown. I think my baseline expectation is still, as I mentioned, and of most forecasters is still that inflation will move back down over the course of next year, closer to our target. But clearly, the risk of more persist inflation has risen. And I think what you’ve seen is you’ve seen our policy adapt and you’ll see it continue to adapt. We will use our tools to make sure that higher inflation does not become entrenched.

I noted in opening statement that you indicated that inflation pressures will linger well into next year. You do stand by that?

Yes, I think we can now see certainly through the middle of next year. It’s an expectation. Forecasting, as it is, is not a perfect art as you may have noticed. But yes, right into the middle of next year. And that’s our expectation. But of course, what’s happened is that data’s been pushed out repeatedly as supply side problems have not really improved.

And if Congress were to pass an additional 2 trillion plus in spending, mixed with a number of increases in taxes, would that add to inflationary pressures?

Senator, I’ll just note that we have a long standing policy of not commenting on active legislation as you probably aren’t surprised to hear.

I suspected that. One last, very quick question. And for you, Chair Powell, you’ve indicated that there would be a report by the Fed on its discussion paper relating to digital currencies. And that’s been delayed several times. My question to you is, when can we expect the Feds report and are there reasons for that delay?

I would think very soon. I mean, certainly in coming weeks. And the reasons are just trying to get it right and trying to find the time to get it right. It’s been a very busy time as you will know.

Thank you.

Thank you.

Thanks Senator Crapo. Senator Warner of Virginia is recognized.

Senator Warner: (48:00)
Thank you, Mr. Chairman. And it’s good to see you Secretary Yellen. And congratulations, Chair Powell on your reappointment. I want to start with you, Chair Powell. I mean, I actually think the Fed’s activities, particularly during the pandemic, which included both extensive use of 13(3) facilities and some aggressive bond purchases actually helped stave off which could have been a complete economic meltdown. And while we did spend an excess of $5 trillion, mostly all in extraordinarily partisan way under both president Trump and president Biden on recovery from COVID, I think history will treat those actions, certain areas excessive. But I think net-net from a historical perspective, it’ll be well regarded both through the American economy and for the world’s economy. But I think, as you’ve indicated, Chair Powell, I think we’re seeing our economy come back. We will differ on the bipartisan infrastructure plan and maybe even a bit of the Build Back Better, but that’s part of our job. But I have seen since your FLOMC’s November meeting that the Fed signaled a shift, announcing starting to move back from some of the very aggressive means you’ve used and announcing a tapering on the pace of bond purchases month-by-month as the economy continues to strengthen. I’d like you to get into that a little bit. Which factors most influence that decision for a gradual change in course? And how long do you think it’ll take the Fed to gradually wind down these purchases?

So we actually haven’t made a decision on that. But I would just say this. The most recent data, particularly since the November FLOMC meeting show elevated inflation pressures, a rapid improvement in many labor market indicators without an accompanying addition of labor supply. And also strong spending that really signals big, significant growth in coming months. Remember that every dollar of asset purchases actually adds accomodation to the economy. But at this point, the economy is very strong and inflationary pressures are high and it is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting. Perhaps a few months sooner. And I expect that we will discuss that at our upcoming meeting in a couple of weeks. Of course, between now and then we will see another labor market report, another inflation report, and we’ll also get a better sense of the new COVID variant as well before we make that decision.

Let me drill down on that a little bit. I mean, clearly I think I was surprised. You say you were surprised. I think most of us were surprised that coming back in September that we didn’t see more folks reenter the labor force. I believe that tapering and frankly accelerating it can kind of serve as an insurance policy if we don’t see this return and we see these potential overheating of the economy. So I do hope that you will move more aggressively on this tapering. I also would like to just touch again, you mentioned some of the new variants with COVID, one of the things we’ve got to maintain is some ability to move quickly. And obviously, Congress moved very quickly under President Trump and Secretary Mnuchin. With the outset of COVID, hopefully we won’t have to come back to those kind of actions from this entity. But with these new variants coming on board, what are the markers you’re going to look at to determine how that might influence Fed activity?

So at this point, I think we’re all looking at the same thing and we’re listening to the experts, which I’m certainly not one of those. But I talk to those people. And it’s really about transmissibility, it’s about the ability of the existing vaccines to address any new variant, and it’s about the severity of the disease once it is contracted. And I think we’re going to know, what I’m told by experts, is it will know quite a bit about those answers within about a month. We’ll know something though within a week or 10 days. And then and only then can we make an assessment of what the impact would be on the economy. As I pointed out in my testimony, for now, it’s a risk. It’s a risk to the baseline. It’s not really baked into our forecast.

I’m down on my last 20 odd seconds. I’m not going to get away without at least raising an issue. I always raised with Secretary Yellen and I know, Chairman Powell, I’ve raised with you as well. And that’s, I think, the very smart action that took place again, actually under President Trump on investment in CDFIs and minority depository institutions. And I want to thank Chairman Brown and people like Senator Crapo and so many others, including Secretary Mnuchin that we made that investment.

And you now, Secretary Yellen are implementing that. We’ve seen a great take up rate from the ECIP program, in terms of tier-one capital investment into these institutions that hit low and modern income individuals. I guess, with this demand way exceeding the amount of money we had, what else can we do to shore up these institutions? And I would love to press both of you. Maybe you can take this partially for the record since I’ve gone over on how we might even be able to look at securitization of some of this CDFI debt so that we can again, increase the liquidity of these institutions? But if you briefly, recognizing I’ve gone over, answer that I’d appreciate it. Thank you, Mr. Chairman.

Well, we would be glad to work with you to discuss possibilities there. I think that the infusion of funds into CDFIs and MDIs, it’s historic, it’s going to make a tremendous difference to their ability to support businesses, particularly in minority areas. We’ve seen huge take up of the ECIP funds that have been provided. It’s $4 billion over subscribed. We’re working through applications and we’ll try to make decisions on investments shortly. But it certainly shows that it’s a program that has the potential to make an enormous difference to this lending. We would be happy to work with you to find ways to make it yet more effective.

I’m way over time. If you could just say yes, you’ll work with me too, Chair Powell, that would be great.

Yes, I’ll work with you too.

Senator Rounds from South Dakota is recognized for five minutes.

Senator Rounds: (54:50)
Thank you, Mr. Chairman. First of all, Chairman Powell, congratulations on your renomination. I do look forward to supporting your nomination. I think you’ve provided stability during a very challenging time. Secretary Yellen, it’s good to see you once again. And I thank you for your service to our country. In September, when you were before this committee, I asked you when you would say enough is enough when it comes to our debt and deficit. You acknowledged that debt becomes an issue when it exceeds 100% of GDP, a level we have already hit as you know. But said also, that since the cost of servicing our debt has been negative due to a long stretch of low rates, our debt has been less burdensome. However, due to skyrocketing inflation, I think it’s just a matter of time before we exit this very low interest rate environment. Secretary Yellen, do you think it’s finally time to start sounding some alarm bells with regard to the financing of our national debt?

Well, I wouldn’t want to sound alarm bells. I think that we are in a sustainable debt path, but President Biden was very clear when he proposed the Build Back Better Plan, that it should be fully financed as the infrastructure bill was. And that is what CBO found, that the fiscal plans that the Biden administration have put forth in infrastructure and Build Back Better, will not worsen the debt or deficit path. And indeed, by the end of the 10 year horizon, Build Back Better lowers deficits. And it yields very great benefits beyond the 10 year horizon, particularly from the investment in the IRS to enhance its ability to close the tax gap and to collect revenues that are due under our tax code.

Right. But-

So it is of fiscally responsible plan that makes matters better rather than worse.

But Madam Secretary, I guess the reason for my question is that it’s not just a matter of whether or not we have half a trillion dollars or so that’ll have to be financed or more during a 10-year time period as that money comes back in for paying for programs that are four to five years in duration under the proposal. But rather, we have 29 trillion plus dollars that will not only be refinanced during a time period, but may very well be refinanced at a higher rate. In fact, treasuries right now have run anywhere from 1.54% to 1.42% over the last couple of days. But they’re going to trend upwards. And in fact, there are some people that would suggest that treasuries may very well hit 3.5% over the next 18 months. Do you think that would be a reasonable expectation?

The forecasts that were included most recently in the mid-session review assumed that interest rates would move up over time over the 10-year horizon in line with the forecasts of blue chip and other private sector forecasters. And even then, given the expectation that real interest rates are likely to remain low, below levels that prevailed for much of the post-war period, for important structural reasons that we’ve seen plentiful savings at the global level and weak investment demand. Even with interest rates moving up, the interest burden of the debt remains quite manageable. Now, of course there is some scenarios in which interest rates could move up more than that and there’s a chance that the interest burden would become difficult for us to manage. But I believe we could have the capacity to make fiscal decisions.

Thank you, Madam Secretary. And Chairman Powell, I recognize and you’ve been very consistent that you manage based upon your direction, which is full unemployment and a 2% interest rate goal. But does the Fed take into account the impacts on a national debt servicing and our credit worthiness when it considers interest rate decisions?

I think certainly the cost of programs, it all goes into our model. You mentioned credit risk. There isn’t any credit risk baked into treasuries at this time and I wouldn’t expect that there would be certainly in the foreseeable future.

Senator Rounds: (01:00:04)
When you look at this, do you project that treasuries will rise over the next 18 months?

Chair Jerome Powell: (01:00:13)
So generally, that’s something that staff has been forecasting ever since I got to the Fed 10 years ago. And it really hasn’t happened. What’s happened is that, as the Secretary mentioned, you have a series of long running global forces that are leading to lower sustained interest rates. How long will they last? It’s very hard to say. But for now, we have lower inflation trend. Obviously, currently at the moment we have high inflation. But for many years, we’ve had low inflation. And the markets are banking in a return to lower inflation.

Senator Rounds: (01:00:48)
Thank you. Mr. Chairman, thank you for your time. Thank you for your answers.

Chairman Brown: (01:00:53)
Senator Menendez from New Jersey is recognized.

Senator Menendez: (01:00:55)
Thank you, Mr. Chairman. One of the central pillars of the house passed version of the Build Back Better Act is an expanded childcare support program that would provide direct support to families so that nobody has to pay more than 77% of their income on high quality childcare. Madam Secretary, would expanding access to childcare services and improve the labor force participation rate and overall economic outcomes among women?

Secretary Janet Yellen: (01:01:27)
Senator, I believe that it will succeed in having that impact. One of the reasons that labor force participation, especially of women, in the United States is now lower than that in many developed countries. Once upon the time, we were the leader. Now we have fallen behind. And a major difference between the United States and other developed countries is our support for childcare, paid leave, things that enable women to…

… believe are things that enable women to participate in the labor market. And so I believe the provisions, the subsidies for childcare and the universal two years of pre-K, both of those things, I believe will enhance labor force participation. There are a number of studies that show that. The Treasury Office of Economic Policy recently issued a paper that summarized some of the evidence. And recently, the Congressional Budget Office in assessing Build Back Better issued a statement that indicated that this was likely to boost labor force participation.

Well, let me… I agree. One study suggests that the rising costs of childcare resulted in an estimated 13% decline in the employment of mothers with children under the age of five. Another study found that one major city started offering two years of free public preschool. The percentage of mothers with young children participated in the labor force increased by 10%. So you have real life realities of that.

And one of the things that I’m looking forward to on this is the effect on minority families. A study from October in the Washington Post showed that black men and women are twice as likely as their white peers to report that they are unable to look for work because they can’t find childcare. So there is evidence here that the currently broken childcare system’s especially harmful, particularly to the most vulnerable members of our society.

Chairman Powell, earlier this month, I sent you a letter along with Chairman Brown and several of our Senate colleagues asking you to work closely with the Boston and Dallas board of directors and search committees to find and select diverse candidates for the open president’s position. We haven’t had a Hispanic in this role. Can you give us an update on how that search is going, including what specific steps you’ve taken to ensure the diverse candidates are being considered?

Those searches are just getting going now. They’ve, I believe, both hired head hunters and I know the process well, and it will involve extensive outreach to all different kinds of communities and an openness to different kinds of candidates. It’s essential, we believe, that diverse candidates be identified and be given every chance to do well and win those processes as they go forward. So I can take you through the details of it if you’d like offline, but it’s something we’re pretty committed to.

I’d very much like to see that, because as you and I have discussed on several occasions, the Federal Reserve has a serious diversity problem, particularly at the leadership level. And the lack of minority representation hurts the Fed’s ability to do its job, especially when we talk about promoting maximum employment and price stability, it’s essential that the Fed has in place individuals that understand how an uneven recovery will impact minority communities. So I look at this as the beginning of I hope, an effort as it relates to diversity. And I hope we will have a successful result. I understand a process that hopefully includes good qualified candidates to be considered, but I hope it will lead to a successful result.

Madam Secretary, let me turn to you on the same question. How have you empowered Janice [Bowler 01:05:52], the Treasury’s first counselor for racial equity to diversify the Treasury Department? This is something that I think I’ve raised with you several times. I’d like to understand what her first goals will be, what are the immediate goals for the council for racial equity? Can you speak to me to those issues?

Yes. Briefly, she’s empowered to review and look for ways to enhance not only our internal hiring and diversity efforts within Treasury, but also to review all of the programs that we conduct, whether it’s the emergency programs that were authorized by the ARP or our tax code and the way it’s administered more broadly. We have asked her to undertake a review of ways in which these programs can be changed, or they may have unintended negative consequences on diversity or on minority communities and we’re asking her to look for ways to improve what we do, both internally at Treasury, and with respect to the many programs we conduct.

Well, I look forward to seeing the effects of her work. Thank you, Mr. Chair.

Mr. Brown: (01:07:16)
Thanks Senator. Senator Tillis is recognized from his office, perhaps. He may have turned his camera off. Senator Kennedy from Louisiana is recognized.

Sen. Kennedy: (01:07:29)
Madam Secretary, welcome. Mr. Chairman, welcome. Congratulations. Mr. Chairman, I want to start with you. I realize that no one is clairvoyant, but I think it’s fair to say that the experts who have been advising you about the future rate of inflation have pretty much the same credibility as those late night, psychic hotlines you see on TV. Is the Fed considering increasing the pace of its tapering? We’ve got to get control of inflation. It’s ravaging our people.

So I think what we missed about inflation was, we didn’t predict the supply side problems, and those are highly unusual and very difficult, very nonlinear. And it’s really hard to predict those things, but that’s really what we missed. And that’s why all of the professional forecasters had much lower inflation projections.

You ask about the taper, so yes. As I mentioned earlier, since the last meeting, we’ve seen basically elevated inflation pressures. We’ve seen very strong labor market data without any improvement in labor supply. And we’ve seen strong spending data too. And remembering that every dollar of asset purchases does increase accommodation. We now look at an economy that’s very strong and inflationary pressures that are high. That means it’s appropriate, I think, for us to discuss at our next meeting, which is in a couple weeks, whether it will be appropriate to wrap up our purchases a few months earlier, as I mentioned.

All right, thank you.

But in those two weeks, we’re going to get more data and we’re going to learn more about the new variant.

Okay. Thank you, Mr. Chairman. Madam Secretary, you and I don’t agree on everything, but I have great respect for your intellect and your experience. And I understand you have a job to do, but I would be remiss if I didn’t point out that in my opinion, there is no fair minded person in the milky way who believes the Infrastructure Bill and the Build Back Better Bill are not going to require the American people to incur substantial debt.

Now, here’s my question. And I’m looking for a number. How much in the Biden administration’s opinion is too much debt? At what point as you incur debt, will the Biden administration say, “Okay, that’s it. We can’t borrow anymore, or it’s going to hurt the American people?”

Well, first of all, I want to say that I disagree with your assessment of Build Back Better. It is fully paid for, or even more than fully paid for. And CBO just completed a comprehensive review of it in which they found essentially the same thing. And I believe it was important that it be fully paid for.

Now, I think no single metric is appropriate for evaluating whether or not the level of debt in an economy is reasonable and sustainable. We used to, we’re accustomed to looking at debt to GDP ratios and using those metrics and looking around the world, many economists have found that debt to GDP ratios of a hundred or more tend to be associated with significant problems.

Are we at a hundred and more?

We are. But we are in very different times. And that’s why it’s important to recognize there’s no single metric that’s right. And especially in a world of very low interest rates, it’s appropriate to look at the burden of that debt on society, which is better measured by the real interest burden of the debt. And that is exceptionally low, negative currently, but projected as interest rates normalize to rise to-

I’m going to run out of time. [crosstalk 01:12:35] I’m going to ask you this, Madam Chair, quickly. You gave a great speech back in September of 2019. it was actually an interview and I ordered a copy at the time. I’m trying to find my copy here. You said, this is what you said. I’m going to quote. I thought this was such a wise statement. You said, “The former Fed chair said she is not worried about the debt to gross domestic product ratio in the United States right now,” but added. And I quote, “I’m worried about the trajectory of where it’s going. It’s not stable. We’re not living within our means right now. Debt’s going to escalate and that’s going to create problems down the road. But then most important is the demographic wave that lies ahead of us is going to essentially, over the next 30 years, double spending on three programs, social security, Medicare and Medicaid is a shared GDP. And the increases both because of the aging population and on the healthcare side, medical expenses, those things put us on a trajectory of a completely sustainable budget path.”

Now that was when the debt was 17 trillion. It’s 29 trillion. You’re going to add trillions more through the Build Back Better. Why is that not true today?

Well, I want to repeat again, Build Back Better is fully paid for and will not add to the debt or to deficits. In fact- [crosstalk 01:14:12].

You and I just don’t agree on that.

CBO certainly agrees with what I said. And we do have problems eventually in financing Medicare and social security, which need to be addressed.

Thank you, Mr. Chairman.

Mr. Brown: (01:14:33)
Senator Van Hollen is recognized for five minutes from Maryland.

Sen. Van Hollen: (01:14:36)
Thank you, Mr. Chairman. Thank both of you for your service. Chairman Powell, congratulations on your renomination. And Secretary Yellen, I really want to pick up just where you left off. I remember three years ago in both this committee and the budget committee talking about the Republican tax breaks for big corporations. At that time, the congressional budget office did assess that it would add $2 trillion to the deficit. Is that not true?

That is my recollection that that was the kind of number that-

That was the CBO score. So it’s interesting to hear so many of my colleagues who three years ago, didn’t give a damn about adding $2 trillion to the debt, now talking about the Build Back Better Bill, which as you said, doesn’t add to the debt at the end of the 10 years. In fact, the Congressional Budget Office has already done its analysis. And one of the ways that it does not add to the debt is that we close some of those big tax breaks from multinational corporations who like to park their profits in tax havens. And we got rid of some of the incentives in that bill that actually encouraged US companies to ship jobs and equipment overseas. Isn’t that the case?

That is the case.

And can you talk also about out your efforts, your successful efforts to establish a sort of 15% global minimum rate in order to prevent the race to the bottom?

Yes. Over decades, what we have seen is that countries have been engaged in a race to try to attract more multinational firms, to do business in their countries, by cutting corporate tax rates. If you look at the pattern across the globe, you see the corporate tax rates have simply been trending down. The consequence of that is that corporations have paid less and less tax in the United States and elsewhere. They have won from this competition and countries like the United States and other countries are raising less and less money through taxation on corporations.

In the United States, corporate taxes have fallen to around 1% of GDP as a consequence of this. And this international tax agreement that’s been endorsed by, I think 137 countries, countries have agreed to hold hands and say, “Enough is enough. We need to raise taxes to support infrastructure spending, to support investment in people, to make our economies productive to grow over time. And corporations that are profitable and successful need to pay their fair share.” So we want to be able to tax companies at a reasonable rate and to stop this race to the bottom. And that’s what the 15% global minimum tax achieves.

From our point of view, the difference, we are the only country right now that has a global minimum tax and our tax is 10 1/2 percent. It’s half what companies that operate only in the United States or multinationals pay on their US income. And that big differential really encourages multinational companies based in the US to shift their profits abroad. So, by raising our own rate from 10 1/2 to 15, we narrow that differential. We help just purely domestic firms that right now are on an unfair, un-level playing field versus multinationals that can shift their activities abroad in the global agreement, boost-

Thank you, Madam Secretary. I think it makes common sense and it’s important for US businesses. There’s also a provision in the bill that says folks who are making more than $10 million every year, should pay a little bit more in US taxes. I think that makes sense to most people around the country in order to help the whole country succeed. And you mentioned some of the items that we’re going to then invest those funds in. It’s fully paid for, including lowering childcare costs saying that no families should pay more than 8% on childcare costs. That’s one of the items, right?

Yes.

And there’s also, as you mentioned, the provision with respect to the child tax credit. This is one of the largest tax cuts for middle and lower income families ever. Is it not? And we’re talking about up to $3,600 per year, per child, per family, which will expire on December 31st if we don’t extend it as part of the Build Back Better legislation. Isn’t that the case?

That is true.

So we’re talking about closing corporate tax loopholes, asking folks who are making more than $10 million a year to pay a little bit more, so that we can lower costs and financial squeeze on American families, and it’s all paid for. Isn’t that right?

That is correct.

Thank you, Madam Secretary. Thank you, Mr. Chairman.

Mr. Brown: (01:20:06)
Thanks Senator Van Hollen. Senator Tillis is recognized.

Sen. Tillis: (01:20:10)
Thank you, Mr. Chair, Secretary Yellen, Chair Powell. Thank you for being here, Chair Powell. I’m glad to see your nomination’s been sent forth. I look forward to supporting your confirmation. This may actually be a legitimate, yes, no question. It’s on LIBOR transition. Do you all both agree that Congress needs to provide a solution to affect the LIBOR transfer, possibly use and so forth for legacy contracts, but optionality moving forward?

Yes.

Yes.

Sen. Tillis: (01:20:38)
Great. Chair Powell, you noted the PC was risen by 5% of the last year with energy and rent prices pushing inflation upward in particular. I want to make sure I understand your perspective on inflation and how it’s calculated by the Fed. If the federal government provides subsidies to every American renter so their out of pocket rent was the same as it was 12 months ago, even though the sticker price on the rental unit has gone up, would that mean the Fed would see no inflation of rents?

I’m not sure exactly how they collect the data, but I think the question would be, what is the landlord receiving would be my guess.

Sen. Tillis: (01:21:26)
Right. So [crosstalk 01:21:27] the landlord is receiving more in spite of the fact that that rent payment would have been subsidized-

I don’t know the answer. I’ll come back to you. I don’t know the answer on that. Yeah.

Sen. Tillis: (01:21:36)
Chair Powell, what would be… I’m sorry, Secretary Yellen, what would be your position?

I would agree with Chair Powell’s comments on that.

Sen. Tillis: (01:21:47)
I think it would be interesting to get that, we were going to use another example. If turkey prices went up for 14 percent, I think that’s roughly the number at Thanksgiving and we subsidize the cost of the turkey. Is the Turkey cheaper or is it 14% more expensive? So I would like for you to get back with me on that, Chair Powell.

Sen. Tillis: (01:22:03)
Chair Powell, I’ve got another question for you. We had the original COVID virus. We’ve had Delta. We’ve had some variants have not been designated as a variant of concern. We’ve got the Omicron now, which is being viewed as a variant of concern. And after that, we’ll have maybe a Pi variant, but I’m a bit worried that the administration has a policy of just zeroing out COVID, that the goal here is to remove a virus that’s likely to be around for as long as we’re alive. It’s going to be like a flu season. But I feel like we’re still in this mode where monetary policy or Fed policy is heavily instructed by the risk of another onslaught of a virus.

Sen. Tillis: (01:22:53)
We took the first wave. Now we’re dealing with subsequent waves that are variants. So at what point do we just get back to a more normal execution of Fed policy that’s not influenced by maybe the next threat, as if it’s suggesting we’re going to go back to where we were last year. I don’t believe that most people think that we would treat a variant the way we had to treat this new virus that’s among us. So at what point can we get away from seeing the market, seeing the Fed appear to react based on, and implement policy that looks more like what we had to do last year with something new affecting our economy?

So we’re not thinking, and I’m not thinking, that the effects on the economy will be remotely comparable to what happened last March with the shutdowns or that there will be additional shutdowns. We’ve tried to adapt. We’re focused on maximum employment and price stability. And we’ve tried to adapt our policy as we’ve moved along. We’ll continue to do that. And part of the world is, I agree with you. We’re going to see this disease being around probably for a long time. I think the economic effects over time will diminish. We have to be humble about our ability to predict this or to really understand, but we’re not at all thinking that we haven’t made progress on the economy as you suggest.

Sen. Tillis: (01:24:13)
Well, I think it would be helpful for the administration to maybe be more specific to the American people to understand that COVID’s going to be among us. It’s a new virus. It’s going to be here. We have to deal with it. We can’t have talk or expectations that we would in any way react the way we did last year. Last year, rightfully, but now we have to deal with the fact that it’s among us.

Sen. Tillis: (01:24:36)
Secretary Yellen, I’ll have to… First, I’d like unanimous consent for a Washington Post fact check on the economists, that Nobel winners, that President Biden has cited as the Build Back Better plan actually being non-inflationary. I think if you read further into the letter and you hear other comments by those economists, they say that longer term, it may reduce inflation, but shorter term, it may increase inflation.

Sen. Tillis: (01:25:05)
And so rather than drilling down on a question, my time is expired, I’d like unanimous consent to submit the fact check. And just to say, Secretary Yellen, I think that there are laudable goals in some of what’s put into the Build Back Better plan, but I don’t think that they’re sustainable. I think the way that they’ve been passed out of the house are problematic. And I tend to agree with Senator Kennedy that we’ve got other pressing problems. Promises that we’ve already made to the American people with respect to Medicare, Medicaid, social security that are promises that we’ve already made. That if we continue to add more and more stressors on our debt and our deficit, those are going to be promises that are broken. And then once we get that on sound footing, maybe we should consider other ways to help others.

Mr. Brown: (01:25:55)
That objection’s so ordered. Senator Warren from Massachusetts is recognized.

Sen. Warren: (01:25:59)
Thank you, Mr. Chairman. So as you know, in the early 2000s, the Fed stood by and failed to use its authorities to regulate and supervise the biggest banks in this country. And the result was a financial crash that cost millions of families their jobs, millions their homes, millions their savings. That’s why I believe that vigilant regulation is an essential part of the Fed’s job. Chair Powell, you recently stated that it would be appropriate ” for a new person to come in and look at the current state of regulation and supervision and suggest appropriate changes.” Is that still your position?

Yes, it is.

Sen. Warren: (01:26:47)
The press also reported this as your agreement to defer to the Vice Chair for Supervision. So I want to ask you a specific example of how that deference would work in practice. If you are confirmed and if the new Vice Chair for Supervision suggests the regulatory action that you disagree with, will you bring that matter before the full Federal Reserve board for consideration?

So let me just say that what the law does is the law gives the Vice Chair for Supervision the authority to set the regulatory and supervisory agenda. And I would expect to have a perfectly normal, good, constructive working relationship with a new Vice Chair for Supervision. I would not see myself as stopping those kind of proposals from reaching the board since the law seems to indicate that that’s the job of the Vice Chair for Supervision.

Sen. Warren: (01:27:44)
Good. I’m just trying to be clear on your understanding of it. So you would bring that before the full board for consideration, even if you personally disagree?

That would be my general intent, yes.

Sen. Warren: (01:27:57)
Okay.

I can’t cover every possible conceivable situation, but yes. That’s my understanding of how… This is the only other office that has specific legislative grant is the Vice Chair for Supervision and that’s what the job is.

Sen. Warren: (01:28:11)
Okay. I appreciate that. So you’re saying you would do it and you would actually feel like you were legally bound to do it.

I’d say that’s how I read the law.

Sen. Warren: (01:28:20)
Okay. If the Vice Chair for Supervision recommends a regulatory action with which you disagree, such as undoing a rule that Vice Chair [Koral’s 01:28:31] brought forth and that you voted in favor of it, what does it mean to defer under such circumstances? I just want to understand your thinking.

I don’t think I used the term defer. You mentioned that was a press report.

Sen. Warren: (01:28:45)
Yeah.

We’re a commission structure. The person is not the controller of the currency where they’re the sole voice. Every Vice Chair for Supervision and those who held the job before there was a formal job, they have to convince the other members of the board and that’s how it works. And that’s how I would expect it to work going forward.

Sen. Warren: (01:29:05)
And I appreciate that. But your specific language was that you would respect that authority, which is, I believe why many, many in the press interpreted that as defer. That’s why I’m trying to understand what respect that authority. Those were your words.

I would say a couple things. First, respect the authority to bring these proposals. I also think a person who arrives, nominated by the president, confirmed by this body with particular views. I would say that that person is entitled to a degree of deference, but I wouldn’t overstate that. The person still will have to convince the members of the board to vote for whatever that person is proposing.

Sen. Warren: (01:29:48)
Okay. And then if I can, just one more example. If the person in this role proposed new capital requirements to incorporate banks’ exposure to climate risks, would you vote for that?

Would I vote for that? I’d have to see what you’re really specifically talking about.

Sen. Warren: (01:30:08)
All right. It’s very helpful. I appreciate your answers here. During the last four years, while the Fed was chipping away at regulations piece by piece, new and emerging threats to our financial system continued to grow. I just think about the list right now. Climate change, right now, climate change is on pace to depress the global economic output by as much as $23 trillion annually by 2050. Crypto, the market cap of cryptocurrency market is now $3 trillion, six times bigger than it was just a year ago. And this is explosive growth that is coupled with almost no regulation and no guardrails to protect either investors or our financial system. The crash scenario here writes itself. Non-bank financial institutions grow bigger by the day. BlackRock alone manages nearly twice as much money as the entire economy of Japan while the Fed refuses to work to declare them a systemically significant financial institution. Growth and collateralized loan obligations, a new COVID variant, the list goes on. This is why I believe that the Fed must take a much more active role on regulation. Failure to do so puts our entire economy at risk. Thank you, Mr. Chairman.

Mr. Brown: (01:31:27)
Senator Warren. Senator Hagerty of Tennessee is recognized.

Sen. Hagerty: (01:31:31)
Thank you, Chairman Brown, ranking member to me. I appreciate your holding the hearing today. Secretary Yellen, Chair Powell, thank you for your testimony. Chair Powell, I want to congratulate you on your recent renomination. I look forward to the hearing that’s coming up. I also appreciate that we’re going to be seeing the Fed’s report on the digital dollar soon. We’ve been long awaiting that. I think it’s an opportunity for America to take a real lead in innovation. So thank you for that.

Secretary Yellen, I’d like to pose my first question to you. Every move that President Biden has taken so far has seemingly improved Russia and Vladimir Putin’s strategic position. From capitulating on the new start treaties unconditional extension to not fully enforcing mandatory sanctions to halt Nord Stream 2. We see Russia and Putin now with leverage and strength vis-a-vis our partners in Ukraine that they haven’t had since the fall of the Soviet Union. Natural gas prices in Europe have been soaring to Putin’s benefit. And now, in real time, just like watching a fatal car crash in slow motion, we’re seeing Russia build up an unprecedented number of troops on the border of Ukraine. Secretary Yellen, I want to make certain that you have all the authority that you need from Congress to deter, and if necessary, to punish Putin if Russia invades Ukraine. After what happened in 2014, we certainly can’t be caught flatfooted again.

We do have authority to-

We do have authority to impose sanctions. We have imposed sanctions, and the president signed in I believe it was in April a new executive order, expanding Treasury’s authority to impose sanctions. And we’re aware of the true buildup and I believe have adequate authority to-

Good.

… act at least these sanctions.

Madam Secretary, I’m pleased to hear that you have the authorities that you need to pose significant economic and financial pressure. I’m curious to hear what the Biden administration’s strategy is to stop this train wreck that appears to be happening at the border of Ukraine.

Well, we’re very cognizant of what’s happening and are involved in discussions about what the appropriate set of steps will be.

Madam Secretary, with all due respect, I hope that we can talk much more than discussions about real strategy to send a very strong message to Putin. This is the largest buildup that we have seen again since the fall of the Soviet Union. They are taking a very aggressive posture there, and I would encourage you to send a strong message to Vladimir Putin that we are going to … we’re capable of, and you have the authority to do what you need to put significant, biding financial pressure on that regime.

Agreed that that’s appropriate.

Thank you. Secretary Yellen, I’ll turn to another topic that we’ve discussed before back in September. We talked about the leak of confidential taxpayer information to ProPublica that was done in early 2021 for political purposes. You testified then that it’s an illegal act, that it’s being investigated thoroughly, and there can’t be any tolerance for that. You and I agreed on that. So given that testimony, I want to ask you; have the leakers been identified.

There are independent agencies, both within Treasury, the inspector general, also the FBI and DOJ that are conducting investigations. We’re not privy. Nothing has been reported out yet from those investigations that I’m aware of, but I believe those investigations are moving forward.

Well, I take that as no update, but after the Lois Lerner scandal, after the scandal that occurred here in 2021 under this administration’s watch, I appreciate the fact that there’s an investigation underway, but I would say this. Until we have the results of that investigation, until we have true accountability, I cannot imagine how the Biden administration is encouraging what is in effect a 10 times increase in the audit capacity of the IRS when there’s no accountability there. This is the DC swamp at its best.

Sir, we don’t know what the source of the leak of that information was, and I would say it’s premature to indicate that it came from the IRS.

Well, I think that underscores my case. We can’t even determine the source of the leak. We know that was IRS information. There’s zero accountability. Again, this is the swamp and I could not encourage … and certainly my constituents can’t condone this aspect of the Build Back Better plan that would give even more authority and a tenfold increase in the budget to snoop on more Americans, audit more Americans and invade our privacy.

Sir, we have an enormous tax gap. Over the next decade, it’s estimated that actual tax collections will be seven trillion below what’s due. And the IRS has been starved of resources over the last decade, so that they’re not able to conduct meaningful audits of either high income individuals or complex partnerships or corporations. And that’s where most of the tax gap laws, these are very important resources that are needed to make sure that the wealthiest individuals in corporations particularly comply with the tax laws and pay their fair share what’s due.

I would just-

Mr. Brown: (01:37:26)
Thank you. Thank you.

… encourage good management here, so we make sure those resources are focused in the direction they should be rather than attacking Conservative groups and ordinary Americans and leaking that information to the public. Thank you.

Mr. Brown: (01:37:36)
Senator Cortez Masto is recognized from Nevada.

Senator Cortez Masto: (01:37:39)
Thank you Mr. Chairman. Secretary Yellen, Chairman Powell, welcome. Chairman Powell, congratulations on your renomination. I also want to express my appreciation to the Treasury Department and Federal Reserve staff because we cannot forget why we’re here. We have passed over the last couple of years several COVID relief packages that were bipartisan support, except maybe for one of them. And the money was immediately put out to help our families, our businesses. And so your staff have taken extraordinary efforts not only to avoid an economic collapse during this deadly COVID-19 pandemic, but getting billions of dollars in relief and loans to help us manage the economy, help our small businesses, help families, is a tremendous feat, and we should not forget that. So, thank you to your staff who have worked so hard as well.

Let me talk about something that is impacting my state is the supply chain disruption. And I know you all are working on this. Secretary Yellen, President Biden announced a plan to address the supply chain disruptions. Now, it’s clear that the low vaccination rates, repeated outbreaks, and an over-reliance on Chinese imports contributes to some delays in shortages, but Secretary Yellen, where has President Biden’s initiatives to address supply chain disruptions been successful? And where are some of the current sticking points that might persist past the second half of next year?

Well, President Biden, the administration created a supply chain disruption task force in June, and it’s been working broadly to identify places where the White House could make a contribution, could be effective. And I think we’re beginning to see progress at the ports. As you know, President Biden worked with the ports of Los Angeles and Long Beach, where there have been long delays in unloading ships, ships waiting for many days to be able to offload their containers. They’ve agreed to remain open 24/7, which they’re now doing. And also, the administration has worked with major retailers that were leaving containers for long periods time on the docks without picking them up, to make sure that they begin to expedite movement of those containers away from the ports. In other areas in Savannah, the president has worked to establish locations away from the ports where containers could be brought, moved, and deposited to create more room at the docks to keep cargo moving. And so there are just a wealth of interventions and working really with private … Because these are private sector participants that are responsible for the supply chain, but bringing together parties. We’re looking at ways that maybe we could work with states and cities to expedite the licensing commercial driver’s license to raise the supply of truck drivers, which are in short supply. And of course, a lot of this is related to the pandemic, and it comes back to increasing vaccinations, boosters, get the pandemic under control so that demand patterns shift back toward more normal towards services and away from goods. But there are wealth of interventions that the White House is involved in.

No, I appreciate that. I think there is also a role for Congress to continue to support not only the administration, but there’s legislation that we could pass to actually help us address this as well, which is why I support the Supply Chain Resiliency Act that has been introduced by me and several of my colleagues. It creates an office of supply chain resiliency at the Commerce Department, charged with monitoring, researching and addressing vulnerable supply chains. The office will provide loans, loan guarantees, and grants to small and medium manufacturers to allow them to address supply chain bottlenecks by expanding production. We should be prepared for this, knowing this has happened for the future short-term and long-term. And so I appreciate your comment.

Long-term is important as well.

Thank you. I know my time is up. I will submit the rest of my questions to you for future response as well. Thank you again.

Mr. Brown: (01:42:53)
Thanks, Senator Cortez. Now, Senator Scott from South Carolina is recognized.

Senator Scott: (01:42:55)
Thank you, Mr. Chairman, and thank you, ranking member, for holding this hearing this morning. Thank you to the guests for being here with us this morning. I was thinking about the conversation I had over Thanksgiving with some South Carolinians about the consequences of elections, and we’ve heard over and over again that elections have consequences. Elections have consequences. Perhaps no finer point that elections have consequences is simply losing a single seat in Georgia, January 5th. The result of one lost seat in Georgia may cost taxpayers just this year $ 5 trillion in additional spending. One single seat, $5 trillion in additional spending. 1.9 trillion on a COVID relief package that had 1% for vaccines and less than 9% for COVID related health. $1.2 trillion for an infrastructure package with only 10% of that 1.2 trillion going to roads and bridges in the next five years, and now we’re talking about overheating the economy with another $2 trillion. Elections have consequences. It’s stunning.

And what I’ve heard this morning is hard to process back at home in South Carolina. What I’ve heard so far is that the administration wants you to believe what they say and not what you see and are experiencing, what you see with your own eyes. They say by putting another $2 trillion in the economy, it will make things more affordable for you. But what you see and are experiencing is inflation in part caused by trillions of dollars of government spending and the anticipation of even more money. In other words, when inflation is over 6% and your wage growth is under 3%, your buying power is going down, not up. And they want you to believe that spending more money is going solve this problem. But South Carolinians on a fixed income like social security averaging around $1,500 per month, they’re spending because of this transitory inflation, I don’t know what the definition of transitory is anymore, a third of their social security income on putting gas in their cars, heating their houses and fixing up the places they live in. Chairman Powell, is it your impression that the Biden administration has a clear understanding that rising prices are hitting people the hardest who are on social security, families struggling paycheck to paycheck, and single moms?

It’s not appropriate for me to comment on what the Biden administration thinks.

What do you [crosstalk 01:46:08]?

I’ll say that we do-

Let me ask you [crosstalk 01:46:09].

I can talk about what I-

What do you think, in 30 seconds or so?

Sure. So, I think that’s right. I think that if you think about families that are living paycheck to paycheck, they’re feeling high gas prices, soon enough heating, oil prices, food prices. They’re certainly feeling that. And you know, this is our job. Our role is to make sure that this higher inflation does not become entrenched.

And part of the challenge that I see … I know that someone else may address this point, but I was trying to figure out the complexity of the labor force participation rate, and the fact of the matter is that since the pandemic, we’ve seen a loss of about 1.7% of the labor force participation rate. We celebrate a 4.6% unemployment rate, but what we sometimes miss is the fact that when you have fewer people looking for work, your unemployment rate goes down because your long-term unemployment goes up, which means that your labor force participation rate also goes down.

Before I run out of time, let me just follow up on Senator Hagerty’s point about expanding the power of the IRS and your response, Secretary Yellen. Giving the IRS more power to catch tax cheats by starting with the IRS bank reporting proposal seems farfetched at best because the original proposal literally said that if you were a successful lemonade stand operator, making 12 bucks a week, putting $600 into your checking or savings account, your checking account would cause that account to be reported to the IRS. So then they revamped that proposal to $10,000, said differently, if you’re making minimum wage, working almost full-time, your accounts would then also be transferred or at least available for heightened inspections by the IRS. If you’re looking to catch complex business partnerships in cheating their taxes, you don’t need the IRS bank reporting proposal. Can you tell the American people today, Secretary Yellen, whether you still support any form of the IRS bank reporting requirements your department proposed earlier this year, which would provide the IRS with currently undisclosed taxpayer information for the purpose of targeting essentially every single working American at minimum wage or higher? Do you still support that or not?

I do support it. I think it’s important that the IRS have visibility into opaque income streams, and that’s an important way of improving tax compliance. And it is not-

Secretary Yellen, let me ask a question. Let me ask you a question. [crosstalk 01:48:55] my time, let me ask you a question. Because if you’re looking to catch tax cheats, why in the world would we start with something as low as $600 and then revamp it to $10,000? If you’re trying to find millionaires and billionaires, they’re not running lemonade stands. I don’t think they are, and they’re certainly not making minimum wage. So when you create a new approach to having the IRS search through our account records at our financial institutions, or [crosstalk 01:49:23]-

I’m sorry, it is not searching through anybody’s-

… or compelling our financial institutions to forward our information to the IRS-

I’m sorry, it is not detailed information about what you’re doing in your bank account. It is too-

Aggregated information going to the IRS is the scariest proposal, and there’s no way that it has to be anywhere near the thresholds that you’ve started with in order to find a way to-

We-

… take accountability for those complex organizations.

We [crosstalk 01:49:59]-

Mr. Brown: (01:49:59)
Senator Scott, your time has expired. Secretary Yellen, please answer the question.

We have worked-

Well, Chairman, if we’re going to have a conversation, we’re going to have the dialogue.

Mr. Brown: (01:50:06)
Well, you’ve had the dialogue. Please [crosstalk 01:50:09].

We’ve worked carefully with Congress to narrow the scope of the reporting and in particular to exempt wage earners and federal beneficiaries. The initial proposal was intended to be comprehensive. The requirement asked for exactly two pieces of information, aggregate inflows and aggregate outflows over the course of a year for each account where financial institutions already report interest income earned if it exceeds $10. The burden on financial institutions was minimal and there was no attempt to target income earners whose actual incomes are below $ 400,000. But the low reporting requirement was meant to make evasion more difficult by open multiple accounts.

Mr. Brown: (01:51:09)
Thank you. Senator Ossoff from Georgia is recognized.

Senator Ossoff: (01:51:13)
Thank you, Mr. Chairman. Thank you to our witnesses. Chair Powell, congratulations on your renomination. The fed, as been noted, is beginning to taper its bond buying program, but the program is scheduled to continue through mid next year. We’re talking about approximately a hundred billion in November, around 90 billion dollars in December according to the current schedule that we’ve seen created by the fed, injected into capital markets via asset purchases. Chair Powell, what specific economic purposes does this bond buying continue to serve?

So, we are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months, and in the intervening time, we’ll see more data on inflation, on employment. And also, we’ll see more about the development of the Omicron variant. You know, the purpose at the very beginning was all about market function, and the purchases did a great job of restoring market function. When we continued the program and said we would continue it until substantial further progress was made, the idea was to continue to support the economy in the way that lower longer-term interest rates do. And it’s served that purpose. Now, the economy is strong and inflationary pressures are high. So we’re looking at a … going to discuss the possibility of a faster conclusion and wrap up those purchases a little earlier.

With aggregate demand quite strong, in fact, demand currently exceeding supply of labor and durable goods in certain markets, as you noted, rates are low, capital markets are highly liquid. So what economic purpose … and I’m not disputing that there is one, but what economic purpose does this continued bond buying serve today and in the months to come, recognizing that as you’ve stated, you and your colleagues will be reassessing the pace of the taper at your December meeting?

So, the purpose it has been serving lately for the most part has just been supporting economic activity. And you’re absolutely … You know, the point I’m making is that the need for that has clearly diminished as the economy has continued to strengthen, as we’ve seen continued significant inflationary pressures, and that’s why we announced that we would taper. And it’s why we’re now saying that we’re going to discuss a somewhat faster taper at our next meeting.

When future crises arise, as they no doubt will, this specific method, quantitative easing bond purchases beyond typical federal open market operations which are targeting interest rates, what have been the cost and benefits of utilizing this technique? Does it not for example, while it provides additional liquidity to capital markets, worsen inequality by driving up equity and asset valuations and shifting more cash under the balance sheets of major financial institutions, high net worth individuals, and investors?

I think the record from this and the last episode is that asset purchases work through much the same channels as regular interest rate changes. Just the difference is when you’re at the effective lower bound, you can’t lower interest rates anymore. What do you do? There are two things you can do, really. You can promise to hold rates lower for longer, and that will affect rates out the curve. And then you can actually go ahead and buy bonds directly, and that lowers long-term rates. That supports economic activity. So it’s part of the toolkit. As long as we’re going to be near the effective lower bound, asset purchases will be part of the toolkit.

You know, the inequality point, I think it does not bear up under scrutiny. Essentially, what’s happening is companies are experiencing lower longer-term rates. That enables them to finance their operations, mortgage rates. The longer-term debts in our economy will benefit from those lower long-term rates and support economic activity through many of the same channels. I think that the idea that they promote inequality is not well-supported. And by the way, we never hear about that from the … We meet with community groups and labor unions. They never come in and complain about quantitative easing.

Thank you for sharing your point of view, Chair Powell. With my remaining time, I’d like to ask you what you currently assess to be the most significant systemic threats to financial stability in the United States.

You know, I would say the banking system is strong. There are some issues to address in the capital markets, but I wouldn’t say they rise to the level of grave systemic importance. We always think about cyber risk as being the one that’s so difficult to quantify and for which it’s hard to have a great playbook. So that’s the one that I tend to lose sleep over.

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

Mr. Brown: (01:56:24)
Senator Daines of Montana is recognized for five minutes.

Senator Daines: (01:56:29)
Chairman, thank you. Secretary Yellen, Chairman Powell, thank you for being here as well. And congratulations, Chairman Powell, on your renomination. I was vocal and out front last August supporting your nomination, and congratulations. You’ll have my support. I’d like to start by expressing my concern with the inflation we’re seeing in the economy. My concern with the administration and my Democrat colleagues are continuing to plow ahead with, I believe, is a very reckless tax and spending proposal as if inflation did not exist. To go back to where we were here earlier this year, Senator Scott made the comment about elections having consequences, and the consequences are then we have policy outcomes here that have consequences. Even though we had nearly a trillion dollars of unspent COVID relief dollars coming into 2021, the Democrats marched forward with a $1.9 trillion purely partisan spending package. Some of my colleagues refer to this as cash cannons shooting across this economy.

So, we created demand by injecting borrowed money into the economy. Now, the Democrats are looking at jamming through this some 1.75, 1.8 trillion dollar reckless spending bill. Many believe the true cost of that bill is somewhere between four and five trillion dollars, because they played games with truncating these massive programs to try to get the number under two trillion. The real number is probably four or five trillion dollars. The point is this. Injecting all this money in the economy, borrowed money, the same time, constricting supplies whether it’s through mandates or government shutdowns, we now have really the perfect storm created by the Biden administration for inflation, not to mention the issues of energy. Montanans expect to see a 47% increase in heating costs this winter with higher energy prices.

The proposal that the Democrats are trying to ram through at the moment will add at least 300 billion dollars of deficit in the first two years, and about 748 billion over the first five years. And with all due respect, Secretary Yellen, you said it’s paid for. I think the CBO has not actually said that, even if you add in the massive tax break they’ll be giving to the coastal elites the Democrats put in there because their donors screamed so loud in places like California, New York. But the bottom line is it’s not fully paid for, and the CBO has stated that.

Also, giving the IRS 80 billion to hire 87,000 more agents should be chilling to the American people. This is a massive expansion of government. It’s funded in part through more than 400 billion dollars in additional taxes on small businesses that I believe will only exacerbate the inflation fire. And it’s why so many Montanans and Americans are experiencing these inflation harms every day. Chairman Powell, core PCE and CPI readings, two main indicators for inflation, jump to 30 year highs of 4.1% and 6.2% respectively. Needless to say, we are seeing much higher inflation rates than the fed projected, but yet the feds continue to predict that inflation is going to come down in the near future. I think many of us here several months ago were very concerned about inflation, probably had a different view of where the inflation forecast was going than the fed did at that time. But given that inflation has consistently run hotter this year than the fed has projected, what in hindsight would you say the fed underestimated in its previous forecast? And second, what economic factors have changed to give you confidence in your projection that inflation will come down the near term?

So, I’d love to be able to blame our models, but it’s a poor craftsman who blames his tools. And I’ll tell you what I think we missed, and what all the forecasters missed. And it’s the same thing. It’s really the collapse of … or call it just the enormous amount of supply side problem we’ve had with semiconductor chips and lumber and all of those things. We saw high demand coming. We saw some higher inflation coming, but what really happened was this demand came and hit a kind of a hard constraint in the form of these supply constraints. And that’s not in the model. So, you know, we live and learn. It’s hard to model something that is nonlinear and that is incredibly infrequent. There’s no precedent really for it.

Yeah. You know, I spent 20 years in business and there’s two rules. The forecast is always wrong. And the further out the forecast, the wronger it is, is generally true. But I guess what have we learned from that? And what has been adjusted in your model now, having learned what’s happened here in the last six months, that gives you confidence that your current forecast of seeing diminishing inflation are accurate?

You know, so we have learned a lot about how to model, for example, a pandemic. We hadn’t thought much about that, but you’ll never hear us say that we have great confidence in our forecast. What you hear us saying is that there’s tremendous uncertainty around our forecasts. And we have been saying that for some time. And also we’ve said that we do see these inflationary pressures as now being sustained well into next year. We do expect them, though, to subside in the second half of next year. And by the way, that is very widely held in the forecasting community, which admittedly has much to be humble about.

Do you think deficits and the rapid increase in debt, given that we’re now projecting 1.2 trillion annual deficits for the foreseeable future, is that going to have an impact on inflation?

Well, I don’t want to comment on fiscal policy. That’s really up to you and-

But you think the rapid rise in debt is a threat as it relates to inflation?

I would just say if I can stay in my role, you know, unfunded spending tends to be stimulative I think in the short-term. It does, but … And I would just say we do need to return to a more sustainable fiscal path, but the timing and the means of doing that are really not up to the fed.

Mr. Chairman, I know. Before I close, I want to quickly touch just one of the banking [crosstalk 02:02:50]-

Mr. Brown: (02:02:49)
Well, [inaudible 02:02:50] did close. You can make a comment. No more questions. We’re already over, and we’re well over time.

Hot a short comment to make. Lot of Americans and Montanans are concerned about this. We’ve seen reports, and some of my colleagues the other side of the aisle have concerns over Professor Omarova, the nominee for Comptroller of the Currency. Concerns are one thing. I would encourage my colleagues to come out publicly opposed to Ms. Omarova’s nomination so we can find a way forward on filling this important nomination. Mr. Chairman, thank you.

Mr. Brown: (02:03:16)
Senator Tester is recognized from this office.

Senator Tester: (02:03:19)
Well, thank you, Mr. Chairman. Hopefully you can hear me. I want to thank Secretary Yellen and Chairman Powell for being on this call. I think it’s interesting though, Mr. Chairman, before I get to the folks who have presented, that when we gave a tax break to billionaires under a Republican administration, there was no talk about debt then. That, you know, this was going to turn around the economy and it was going to move forward. The fact is, debt’s debt, whether it’s created by Democrats or Republicans. And I think it’s more than just a little bit disingenuous to talk about debt when it fits your needs. It doesn’t fit them all. The fact of the matter is that we’ve got-

The fact of the matter is that we’ve got a debt problem in this country and we need to work to fix it. By giving tax breaks to billionaires is not a way to fix the debt problem in this country. That’s just a side comment. I want to talk about housing. First, Secretary Yellen, look, we have housing challenges all over this country. We have particular housing challenges that not a lot of folks are talking about in Indian country and in some of the more rural and frontier areas of our state of Montana, and I believe throughout the country. We’ve done some stuff for housing, but the truth is the impact of COVID-19, the impact of poverty in many areas, particularly the Indian country areas, is a big problem. Could you give me some indications on how we should be addressing this issue and if it’s an issue that is very high up on or radar screen as far as something that needs to be done?

Well, I think the issue of affordable housing is one that has plagued our country for many years. It certainly predates the pandemic, but the pandemic really dramatic impacted the income of many, especially low income workers, that already were tremendously challenged by the affordability or lack thereof of housing. So, in the short term, the Emergency Rental Assistance money that was made available is helping these households, but that those funds can’t be used to solve the longer run problems that we have. But the Build Back Better package, really that’s where the President has proposed policies to address what is really a crisis in housing affordability. And that proposal contains really the most ambitious investments in affordable housing production that this country has ever seen. So I’m hopeful that, that will be helpful. The funds that were made available to state and local governments in the ARP can also be used to address longer term problems with respect to housing affordability.

So one of the headlines in the papers today in Montana at least is that housing inventory has caused an increase in prices. In other words, the inventory is low. Supply is low and it’s driving prices up. That’s pretty basic economics, quite frankly. But with Build Back Better, do you see a significant investment in supply for workforce housing and affordable housing?

Yes. I think it’s mainly directed at affordable housing. In total, I think the housing related provisions amount to almost 150 billion so I think that, that is substantial support to raise the supply of affordable housing in this country.

And maybe this is going to be up to us, but I’ve got to ask you anyway because you’ve been around a bit, Secretary Yellen, have you had a chance to take a look and see how much money that 150 billion, if implemented correctly, could leverage for housing? You there?

I’m sorry, is this for me?

This is for you, Secretary Yellen.

Oh, I’m sorry. The question was, how much?

My question was, have you had a chance to look to see how much $150 billion could leverage for affordable housing?

I don’t have those numbers at my fingertips, but I can get back to you on it. I’m sure there are estimates of that.

Okay. Very good. Well, I just want to thank you both for being here. Secretary Powell, congratulations on the nomination, and we’ll move from there. And thank you, Mr. Chairman.

Chairman Sherrod Brown: (02:08:33)
Thank you. Senator Tester. Senator Cramer of North Dakota is recognized.

Senator Cramer: (02:08:36)
Thank you, Chairman. Thank you both for being here. Congratulations, Chairman Powell. I look forward, as do many of my colleagues, to supporting your confirmation. First thing I want to do, Mr. Chairman, is correct a record that got real fuzzy when Senator Kennedy asked Secretary Yellen a couple of times about debt and deficit and she said that the Build Back Better plan is completely paid for and to prove it, the point she said, the CBO agrees with her. Senator Danes touched on it, but I want to read directly from the Congressional Budget Office’s score. “The CBO estimates that enhancing this legislation would result in a net increase in the deficit totaling 367 billion over the 2022 through 2031 period.” That’s the 10 years.

Now, I’ve got the chart year by year. It’s 155 billion next year alone and it continues for five years, and then in the last four, it shows some turnaround. But, of course, all of that five years of revenue or beyond the first five years is built on the premise that these programs aren’t going to be continued, which we know, any casual observer of American politics knows, once these programs start, they’re never going to be cut again. But even presuming, the presumption’s built in, it’s a $367 billion deficit, according to this Congressional Budget Office’s score on the Build Back Better plan. Now, I want to get back to an earlier question that Senator Menendez asked you, Secretary Yellen. Basically, he said, “A lot of these programs in the Build Back Better plan actually increased workforce participation, things like Child Tax Credit, Child Care Credit.”

You talked a little bit just now about, Senator Tester called it workforce housing, you called it affordable housing. Important distinction, because those words matter a lot. So my question is, if all of those credits, all of those giveaways, all of those incentives are going to help increase workforce participation, is there a work requirement tied to all of those?

I’d like to start by correcting what I believe you said about the CBO.

I didn’t say it. I read the score from the Congressional Budget Office.

I’m sorry, but you didn’t read it completely. It does say 360 billion over 10 year effect on the deficit. It then notes that it did not include the revenue that would come from enhanced resources for tax enforcement. They estimated that at 207 billion and have indicated that their scoring of that does not take account of behavioral changes that would result from a regime of stricter tax enforcement. And Treasury put out its own estimate of that.

And fairy dust creates energy, I understand. But I want to get back to the issue of incentivizing a workforce. Are there workforce incentives, work requirements attached to the Build Back Better plan from the House?

There are places where there are not workforce requirements like the Child Tax Credit. But the vast majority, the overwhelming preponderance of individuals who receive these tax credits, the Child Tax Credit, do work. And, in some cases-

But we’re talking about a workforce participation rate that needs to be increased. Do any of these incentives require people to work to get them or is this just going to be added on to whatever they’re already getting, regardless of their employment situation? They aren’t, just so you know. There aren’t. Earlier, Secretary Yellen, you answered a question from Chairman Brown about why Build Back Better does not increase inflation. Or, actually, his question was, will it bring down costs? And you went on to explain all the ways that it brings down costs, except that you really didn’t. In North Dakota, the inflation rate’s over 7%, over 7% because we appropriately last year stimulated the economy, but the Congress, the President, the Federal Reserve through its policies, we did that appropriately not knowing what the outcome was going to be.

But by the time we got to early this year, the winds of inflation were already blowing, the economy was already expanding, and Democrats added two trillion more dollars to debt and deficit as well as stimulating the economy without any requirement on the other side. Now we’re doing another, whatever it’s going to be, $2 to $4 or $5 trillion that the Democrats are going to push through. And I know that my time is up and I know that Chairman Powell doesn’t answer questions about pending legislation, at least not recently, so I’m going to ask him this. Do you know of any economists or a reputable economic model where more stimulus of money into a situation reduces the cost of a product? To be fair, Secretary Yellen, it may help people pay for some things, but the cost does not come down when there’s more money. So, Chairman Powell, do you know of any economic model where costs come down when people have more money to spend on it?

It’s really hard to answer that in the abstract. I mean, there are forms of, really, investment that create more capacity in the economy.

And I would agree with that, which is why I supported the infrastructure package. I think that invests in the infrastructure that moves an economy and pays people to work to build it and to use it rather than not pay them to work. Thank you, Mr. Chairman.

Thank you. Senator Sinema is recognized from her office.

Senator Sinema: (02:14:47)
Thank you, Mr. Chairman, and thank you to our witnesses for being here today. Secretary Yellen and Chair Powell, it’s good to speak with you both again. Arizonans are increasingly concerned about supply chain disruptions and inflation. As we know, global supply chains were and continue to be fragmented and dysfunctional due to the pandemic. In the bustle of the holiday season, families are frustrated to see delayed shipments and empty shelves. Ongoing disruptions reduce available supplies of goods, which tends to push prices higher, creating inflationary pressures. I’d like have to hear from both of you on my question. Of the inflation that we’re seeing, how much of it do you attribute to global supply chain disruptions? And Secretary Yellen, if you could respond first?

Well, we are seeing inflation all around the developed world. The United States is not alone in seeing an increase in inflation and I think most countries are seeing disruptions that result from the pandemic. We’ve had a huge shift away from spending on services like going out to restaurants, traveling, staying in hotels, and a shift toward goods that need to be produced, many of which are imported. This is true in the United States and in other countries as well. Another impact of the pandemic that we are seeing here and other countries are, are a reduction in labor supply because many people who have jobs that involve face to face contact don’t yet feel comfortable going back to work and childcare is disrupted.

And so labor supply has been constricted and this dramatic shift toward goods away from services combined with reduced labor supply and problems of when it’s suddenly hard because of supply chain problems to get needed components for manufacturing or to stock shelves that tends to incentivize more ordering to build inventories, which adds to the problem. So I think both of these factors play into inflation in the United States and also to other countries.

Thank you. Secretary Powell?

Yes. So I guess I would just say, you’re looking for a number. I don’t really have one close to hand, but if you just took out the inflationary effects around durable goods and other goods, which is really where the main inflation is coming from, certainly in core inflation, you would be at a substantially lower level of inflation. In addition, you are seeing energy prices going up. It’s not really a supply chain issue mostly, but some of it is. But if you look at headline inflation, that’s going to be one of the big factors driving up headline inflation.

Thank you. Now, as you know, government is extremely limited in its ability to resolve supply chain issues, which are fundamentally working relationships between private businesses. Now, that being said, I know the administration has taken steps to address some of the staffing and logistics issues at our ports. Congress also recently acted by passing the Bipartisan Infrastructure Investment and Jobs Act, which makes a historic and necessary investment in our core infrastructure like roads, bridges, transit, ports, and broadband. Republican Senator Rob Portman, my negotiating partner in crafting this deal, has said he believes our new law is crafted in a way that will reduce inflation. Secretary Yellen, do you agree with that assessment that this bipartisan infrastructure deal will reduce inflation?

Well, yes. I think, over time, the Infrastructure Bill will increase the efficiency of our economy, modernize our ports, our rails, improve our roads and bridges, and enhance the potential output of the economy, raise our ability to supply goods and services efficiently, and, in that sense, over time will lower inflationary pressures.

Thank you. And my last question for you, Chair Powell. In February, I asked you if the Fed needed to achieve all three of the goals it set out, full employment, 2% inflation, and an outlook for greater than 2% inflation before raising interest rates, and you said yes. Now, recognizing that the Fed has made some initial moves to begin tapering bond purchases, is the answer that you gave me in February on interest rates still true today?

So there’s still a three part test. That is still true. I would say that, if you look at the one goal was to reach 2% inflation and another was to achieve inflation above 2% for some time, I would say this is a decision for the committee to make. But I think the committee, in coming meetings, we will wind up saying that those inflation conditions have been met.

Thank you. Thank you, Mr. Chairman.

Senator Warnock from Georgia is recognized.

Senator Warnock: (02:20:19)
Thank you so very much, Mr. Chairman. Secretary Yellen, it’s good to see you, and congratulations, Chairman Powell, on your nomination for a second term as Chair of the Fed. I look forward to some supporting your nomination and continuing to work with you to ensure that Georgia families and businesses and workers continue to recover from the pandemic and that working together we can ensure that we have a labor market that includes historically overlooked communities so that we have an economy that works for all Americans. Earlier this month, Georgia’s Department of Labor reported that the state’s unemployment rate is now at 3.1%. This is the lowest rate in the state’s recorded history. This is good news and it indicates that emergency economic relief programs and the Cares Act and the American Rescue Plan have been working. Certainly, working in Georgia.

Still, Georgia’s economy is not out of the woods yet. Small businesses continue to tell me that they’re having difficulty hiring, while the labor force is still not what it was prior to the pandemic. Secretary Yellen, the labor participation rate fell in the outset of the pandemic and it has remained flat over the past year even as aid programs ended and the economy reopen, particularly among women, which is why some called the pandemic a “she-demic”, if you will. Women have been especially hard hit by this, especially women and parents with small children. What else should Congress do to help bring workers back into the labor force?

I would say that in the short run, vaccinations and increasing the number of people who have boosters to get the pandemic under control, to reduce number of cases, that’s the single most important thing we need to do to create an environment in which people feel it’s safe to work. A substantial number of people say that they’re not looking for work for COVID related reasons. In some cases, even people who were fully vaccinated but who engage in face to face contact in their jobs are concerned about exposing themselves to COVID risks. And I think you see that for schools, childcare centers, retail, in food services. Over a medium to longer term, many of the provisions of Build Back Better, particularly those affecting childcare, the availability of elder care and care for the disabled, support for childcare, those things promote labor force participation.

Chairman Powell, would you add your perspective to this?

Yes. I mean, I guess I would just say that, on participation, it has been a bit of a surprise that we haven’t had more of a recovery and I really think the single most important thing is to get past the pandemic. Then we’re really going to know how permanent this is. People get surveyed and they do say substantial numbers of people are concerned about going back to work at a time when the pandemic is still moving around. And so I think that’s the key, which means more vaccination, more boosters.

So getting the pandemic under control through vaccinations, and if I’m understanding you correctly, the care economy, so supporting families with elder care childcare that you think that will actually strengthen labor market participation and not the opposite?

I don’t want to get into any particular legislation.

Sure.

But yes, I think there’s good research, as the Secretary pointed out a while ago earlier in the hearing, there’s good research showing that the U.S. has fallen behind, for example, in female labor force participation. You ask why, you do comparisons to other countries, and one of the differences that shows up that’s statistically significant is the availability of childcare.

Yeah. I believe in the dignity of work and it frustrates me, quite frankly, to hear folks moralize about the importance of work while not supporting workers and their ability to participate in the labor market. I think closing the coverage gap, which is part of Build Back Better, will also help enable and strengthen workers even as they strengthen the American economy. Thank you all so much.

Thank you, Senator Warnock. As we close, Senator Toomey.

Senator Pat Toomey: (02:25:33)
Thank you, Mr. Chairman. Just a few points to wrap up. First, I’d like to respond to my friend and colleague, the senior Senator from Montana, who brought up the issue of the 2017 tax reform and remind him and all of us that in the wake of our 2017 tax reform, we had the strongest economy in 50 years. We had all-time record low unemployment. We had wages growing, growing fastest for the lowest income workers. We had inflation that was modest. And, in fact, we were narrowing the gap between high income and low income people. Oh, and by the way, tax revenue collected by the federal government was growing. I also want to touch on the important point that Senator Cramer correctly made. The CBO has not said that the Build Back Better bill will be fully paid for. He correctly noted that it would result in an increase in the deficit totaling 367 billion over the 10 year period, not counting any additional revenue that would be generated by additional funding for tax enforcement.

Senator Pat Toomey: (02:26:32)
But when you take that number into account as well, which is $207 billion, you are still left with a $160 billion estimated increase in the deficit over the 10 years. But it’s actually much worse than that because, by design, the spending in this bill is heavily front loaded with the expectation that supposedly expiring programs will actually be continued. If you look at CBO’s numbers for the first five years, the deficit increases by $804 billion. That is $804 billion in additional deficits, which means $804 billion increasing in the debt we would take on, which is why our Democratic colleagues need such a big number by which to raise the debt ceiling and why they are so unwilling so far to use the tool that is available to them to pass the debt ceiling increase with a simple majority vote, the Reconciliation Tool, because it also requires that they specify just how much debt they want to run up. So Mr. Chairman, I think it’s important to set the record straight on those matters.

I thank the ranking member. As the ranking member mentioned the debt ceiling, I’d like to make a comment. The last time Congress dealt with the debt ceiling was in the summer of 2019. 27 Senate Republicans voted to raise the debt ceiling. So did I. So did, with a Republican President, a Republican House and a Republican Senate. More than 40 of my democratic colleagues joined me and others to vote to do the right thing for our country. There was such little concern about the debt when my colleagues passed the two trillion tax cut giveaway to the wealthy and corporations in 2017. Senator Toomey and I both sit on the Finance Committee and had those debates. They just weren’t concerned in those days. And I would reiterate, as Secretary Yellen’s in the nonpartisan Congressional Budget Office [inaudible 02:28:31] confirmed that this bill is in fact paid for. Secretary Yellen responded to greatly detailed questions with the answer to that, and we heard it. Now, Republicans would rather hold our full faith and credit hostage than pay the bills that they’ve racked up, perhaps that we’ve all racked up, and that’s not acceptable.

One final point on inflation. Just this morning, Bloomberg released a story where the headline pretty much says it all, “Fattest Profits Since 1950 Debunk Wage Inflation Story Of CEOs.” “Fattest Profits Since 1950 Debunk Wage Inflation Story Of CEOs.” The FDIC also just released its quarterly report. Shocking no one, bank profits are up. The idea that these corporations can’t afford to pay workers higher wages, wages that actually reflect the value of the work they do to make these companies profitable, is ridiculous. They want the Fed to pull back. Let’s be clear, by pull back, by tapering, what they really mean is they want fewer jobs available. That’s what happened after the last crisis. The Fed pulled back its support too soon. Some families never recovered. We can’t make that mistake again. For senators who wish to submit questions for the record, they’re due one week from today, Tuesday, December 7th. Secretary Yellen and Chair Powell, you have 45 days to respond to any of those questions. Thank you again. The committee-

Janet Yellen & Jerome Powell Testimony on Economy Full Hearing Transcript November 30

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