Jerome Powell Semiannual Monetary Policy Testimony Transcript

Chairman Crapo: (00:44) This hearing will come to order. This hearing is another remote hearing by video. A few video conferencing reminders, you're probably all used to these. Once you start speaking, there will be a slight delay before you're displayed on screen. To minimize the background noise, please click the mute button until it is your turn to speak or ask questions. If there's a technology issue, we will move to the next Senator until that's resolved. And again, I remind all senators that there is a five minute clock that still applies, and it should be on your screen. At 30 seconds remaining, I'll gently tap the gavel. I sometimes forget to do that, but I'm going to try to do that better today and try to remind you that your time has almost expired. Chairman Crapo: (01:31) To simplify the speaking order process, Senator Brown and I have, again, agreed to go by seniority for this hearing. Today, the Federal Reserve chairman Jerome Powell will update the committee on monetary policy developments and the state of the US economy. It's only been four months since the last Humphrey Hawkins hearing, but we're seeing a significantly different economy today. One that has been racked by the physical and economic impact of the COVID-19 pandemic and ensuing shutdowns. Chairman Powell, you have stated that the Federal Reserve is strongly committed to using our tools to do whatever we can and for as long as it takes to provide some relief and stability to ensure the recovery is as strong as possible. Additionally, the Fed has purchased more than $2 trillion in treasury and mortgage securities since the pandemics sparked a massive flight for safe cash like assets in mid March. Chairman Crapo: (02:29) Because of this, the Fed's balance sheet has expanded to more than $7 trillion. Congress, the administration and regulatory agencies have taken extreme actions to protect and stabilize the infrastructure of our economic system. The Cares Act has been central to that effort and recent statistics indicate that our efforts are working. In fact, the Bureau of Labor Statistics announced on June 5, encouraging signs for jobs and the economy that non farm payroll employment rose by two and a half million in May and the unemployment rate declined to 13.3%. According to the report, these improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain it. Chairman Crapo: (03:20) Title four of the act provided a $500 billion infusion into the exchange stabilization fund, up to 454 billion of which can be used to support federal reserves, emergency lending facilities, such as the main street lending facilities and the municipal lending facility. The Fed has set up facilities funded both under and outside of the Cares Act and there is evidence that the mere announcement of some of those facilities has had a positive and stabilizing effect on markets even before they have become fully operational. Although any positive effect of these facilities is welcome, getting them fully operational ensures that they achieve their full effect. Chairman Crapo: (04:04) The Federal Reserve recently announced positive changes to the term sheets of the main street facilities that will allow additional smaller and medium sized businesses to access the facilities and announced that the facilities opened for lender registration, and have encouraged lenders to start lending as soon as possible. These are important first steps in the facilities becoming fully operational. In addition to emergency lending facilities, the Fed can continue to rightsize regulations to increase lending and access to credit in the economy. In response to a letter that I sent to the federal banking regulators on April 8, Vice Chairman Quarles noted that Congress should consider modifying section 171 of the Dodd-Frank Act, the Collins Amendment to allow regulators to provide flexibility under tier 1 leverage requirements as banks respond to increase credit demand. Chairman Crapo: (04:57) There are also several proposed rules that the agencies have been working on since before COVID-19. And I encourage the agencies to finalize these rules as soon as possible, such as the Volcker Covered Funds Rule and the Inter-Affiliate Margin Rule. During this hearing, I look forward to hearing more on the state of the economy, including its response to the Cares Act and update on the status of the 13(3) emergency lending facilities, how the facilities have provided or stand to provide necessary credit to households, businesses, States, and local governments and additional regulatory and legislative changes that can increase credit and liquidity in the marketplace and further support the economy. Chairman Powell, again, I thank you for joining us today. Senator Brown. Senator Brown: (05:45) Thank you Mr. Chairman for holding this virtual hearing. Thanks to Chair Powell for participating in this hearing remotely to practice social distancing and to prevent the potential spread of Coronavirus. We know the virus is still spreading, is still taking the lives of hundreds of Americans every single day. Across the country in big cities and small towns alike, Americans are calling for their government to respond to the help and the economic impact of the pandemic. They're outraged over the killings of Breonna Taylor and George Floyd and Ahmaud Arbery and Rayshard Brooks and so many other black Americans. They are demanding justice and an end to the systemic racism that pervades every aspect of American society, including our economy. Your job, and our job on this committee is to oversee our economic system to be good stewards of our economy. That requires seeing our economy as it actually is. Senator Brown: (06:41) You're not overseeing some theoretical academic model of a perfect market. The evils of racism have been woven into the fabric of our nation's history since its very beginning. Look at housing, we see how it works from Jim Crow to redlining, to today's OCC dismantling an important civil rights law. We can't rely on the market to sort itself out, it never has, and it never will. We know black workers earn less than their white peers who do the same jobs and have the same education levels. We know black families are far less likely to own their own homes than white families. We know black students borrow more and pay more for college. We know black retirees have less money for retirement and less wealth to pass to their children. Many, Mr. Chairman, including some members of the House and Senate suggest both in their statements and then their policies that black Americans are uneducated, don't work hard, don't want to start businesses or buy homes or save or invest. Senator Brown: (07:44) That's a false racist narrative. The real reason behind the disparities is that we have centuries of systemic oppression that denies black Americans the opportunity to fully participate in our economy. And whenever we try to fix it, the people who created and perpetuated that system, people who have no problem intervening in the market to save corporations and the white men who run them say, "Oh, no. We can't have government meddling in the economy." Let's be clear, governments always intervene in the economy. It's only been a question of who it's intervening on behalf of; corporations, the wealthy, the privileged, or the people who make this country work. That contrast has never been clearer than it is today. Workers are the people who make this economy run. It's not the CEOs and other top executives, but the people who stock our shelves, deliver our packages, operate our subways and buses, and care for our health. Senator Brown: (08:41) We finally started calling these workers, mostly women, disproportionately black and brown workers. We've finally started calling these workers what they are, essential. But our companies and our government have not started treating them that way. Even before the pandemic, this economy wasn't working for working Americans. Our essential workers faced barriers to housing and healthcare, wages were stagnant, wealth inequality continue to rise. Corporations making record profits rewarded their executives with huge bonuses, increased dividends, stock holdings juiced by buybacks. They weren't using those record profits to pay their essential workers what they're actually worth. Now, these same companies that have been lining the pockets of their investors and executives at the expense of their workers, now want the government to cushion the landing during this crisis and Congress asked the Treasury and the Federal Reserve to serve as a life raft, to lend trillions of dollars to support our economy during this unprecedented time. Senator Brown: (09:44) But while Treasury and the Fed help financial markets and corporations, you are not holding up the other end of the deal. We ask you to make sure that working Americans remain employed and safe. Big corporations are staying afloat, just look at the stock market, but the number of Americans out of a job number into the tens of millions. We saw how this played out in the 2008 financial crisis, government intervened to help banks and corporations. They were all too happy to take the bailouts, no complaints of government handouts there. In fact, it was considered patriotic, but millions of Americans were left behind losing their jobs, their homes, getting paid less. Many of us fought for more help, more stimulus for the people who make the economy work and Wall Street and its allies in Washington called that a bail out, government meddling market interference. History repeats itself. Senator Brown: (10:34) As COVID-19 spread across the country earlier this year, many workers, mostly black and brown found themselves thrown from one crisis into the next. As it currently stands with no steps taken to actually ensure the money they're lending goes to workers, Treasury and the Fed are only reinforcing the inequities between workers and Wall Street and between black and brown Americans and white Americans. Chair Powell, you said that Congress needs to do more to help our state and local governments put money directly in people's pockets and I agree. Democrats have a plan to get more help directly to working Americans but Mitch McConnell is in no rush to help people. He said he sees no urgency. His words, no urgency. Leader McConnell's administration want to pretend like we're not in the middle of a pandemic and an economic recession. They want to force people back to work without real safety protections at the same low wages while they shield their Wall Street friends from liability if any of their workers get sick on the job. Senator Brown: (11:37) We want people to go back to work too, of course, but they want us to return to business as usual. We know what business as usual means. Government intervention to put its thumb on the scale for corporations and their wealthy shareholders and the free market for everyone else. We can't return to that business as usual. The economy and justice are not separate issues. The Americans who protest across the country are demanding more from their government. They want an end to police violence that takes black lives with impunity. They want to know their voices are heard and their votes won't be suppressed. They want economic security. They want a safe place to live. They want a president who acts in his citizen's interest, not his own. They want to, again, have faith in their government. Congress and the Fed can help restore some of that trust, it's clear the White House isn't going to. Senator Brown: (12:28) Both of us, Congress and the Fed alike, must take action now to support the workers who make this economy run. That means providing help for immediate needs. It means addressing systemic racism and economic injustice. If we fail to act, it will hurt many people, will make inequality worse. The Fed can make sure companies that get bailed out, keep paying their workers, that companies stop stock buybacks, get dividends on Wall Street and actually adopt policies that combat inequality rather than supercharge it. The Fed cannot lend to big businesses and leave workers behind like we saw during the last crisis, we need to be better stewards of the economy. Chair Powell, I thank you for your service and your leadership. I'd urge you to redouble your efforts to make sure that you and the thousands of talented men and women who work with you are dedicated to taking steps to ensure that this economy works for all Americans. Thank you. Chairman Crapo: (13:25) Thank you Senator Brown. Chairman Powell, we will now move to you, your full testimony is a part of the record and you may begin. Chairman Jerome Powell: (13:34) Thank you Chairman Crapo, ranking member Brown and other members of the committee. Thank you for the opportunity to present the Federal Reserve's Semiannual Monetary Policy Report. Our country continues to face a difficult and challenging time as the pandemic is causing tremendous hardship here in the United States and around the world. The coronavirus outbreak is first and foremost, a public health crisis. The most important response has come from our health care workers. And on behalf of the Federal Reserve, I want to express our sincere gratitude to these dedicated individuals who put themselves at risk day after day in service to others and to our nation. Beginning in mid March, economic activity fell at an unprecedented speed in response to the outbreak of the virus and the measures taken to control its spread. Chairman Jerome Powell: (14:23) Even after the unexpectedly positive May Employment Report, nearly 20 million jobs have been lost on net since February and the reported unemployment rate has risen about 10 percentage points to 13.3%. The decline in real GDP this quarter is likely to be the most severe on record. The burden of a downturn has not fallen equally on all Americans, instead those least able to withstand the downturn have been affected most. As discussed the June Monetary Policy Report, low income households have experienced by far the sharpest drop in employment while job losses of African Americans, Hispanics and women have been greater than that of other groups. If not contained and reversed the down turn could further widen gaps in economic wellbeing that the long expansion had made some progress in closing. Chairman Jerome Powell: (15:12) Recently, some indicators have pointed to a stabilization and in some areas of modest rebound in economic activity. With an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up while stimulus checks and unemployment benefits or supporting household incomes and spending. As a result, employment moved higher in May. That said, the levels of output and employment remain far below their pre pandemic levels and significant uncertainty remains about the timing and [inaudible 00:15:46] recovery. Much of that uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that this disease is contained, a full recovery is unlikely. Moreover, the longer the downturn lasts, the greater the potential for longer- Chairman Jerome Powell: (16:03) Moreover, the longer the downturn lasts the greater the potential for longer term damage from permanent job loss and business closures. Long periods of unemployment can erode worker skills and hurt their future job prospects. Persistent unemployment can also negate the gains made by many disadvantaged Americans during the long expansion. And as described to us at our Fed Listens Events. The pandemic is presenting acute risks to small businesses as discussed in the monetary policy report in a box at page 24. If a small or medium sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business. These businesses are the heart of our economy, and often embody the work generations. Chairman Jerome Powell: (16:46) With weak demand and large price declines for some goods and services, such as apparel, gasoline, air travel and hotels. Consumer price inflation has dropped noticeably in recent months, but indicators of longer term inflation expectations have remained fairly steady. As output stabilizes and the recovery moves ahead, inflation should stabilize and then gradually move back up over time, closer to our symmetric two percent objective. Inflation is nonetheless likely to remain below our objective for some time. Chairman Jerome Powell: (17:21) The Feds the response to this extraordinary period is guided by our mandate to promote maximum employment and stable prices for the American people. Along with our responsibilities to promote the stability of the financial system. We are committed to using our full range of tools to support the economy in this challenging time. In March, we quickly lowered the policy interest rate to near zero, reflecting the effects of COVID-19 on economic activity, employment, and inflation, and the heightened risks to the outlook. We expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals. We have also been taking broad and forceful actions to support the flow of credit in the economy. Since March, we have been purchasing sizable quantities of treasury securities and agency mortgage backed securities in order to support the smooth functioning of these markets, which are vital to the flow of credit and the economy. As described in the monetary policy report, these purchases have helped restore orderly market conditions and have fostered more accommodative financial conditions. As market functioning has improved since the strains experienced in March, we have gradually reduced the pace of these purchases, to sustain smooth market functioning and thereby foster the effect of transmission of monetary policy. For broader financial conditions, we will increase our holdings of treasury securities and agency MBS over coming months, at least at the current pace. Chairman Jerome Powell: (18:54) We will closely monitor developments and are prepared to adjust our plans as appropriate to support our goals. To provide stability to the financial system and support the flow of credit to households, businesses, and state and local governments. The Fed with the approval of the Secretary of the Treasury established 11 credit and liquidity facilities under section 13:3 of the Federal Reserve Act. The report provides details on these facilities, which fall into two broad categories. Stabilizing short term funding markets and providing more direct support for credit across the economy. To help stabilized short term funding markets. The Fed set up the Commercial Paper Funding Facility and the Money Market Liquidity Facility to help stem outflows from prime money market funds. The Fed also established the Primary Dealer Credit Facility, which provides loans against good collateral to primary dealers that are critical intermediaries in short term funding markets. To more directly support the flow of credit to households, businesses, and state and local governments. We established a number of facilities. To support the small business sector, we established the Paycheck Protection Program Liquidity Facility. In order to bolster the effectiveness of the CARES Act PPP. Chairman Jerome Powell: (20:07) Our Main Street Lending Program, which has launched this week. Supports lending to both small and midsize businesses. The Term Asset-Backed Loan Facility, or TALF supports lending to both businesses and consumers. To support employment and spending of investment grade businesses, we established two corporate credit facilities and to help US state and local governments manage cashflow pressures and serve their communities. We set up the Municipal Liquidity Facility. The tools that we're using under section 13:3 authority. Are appropriately reserved for times of emergency. When this crisis is behind us, we will put them away. Chairman Jerome Powell: (20:47) In the June report, we review the implications of these tools for the Fed's balance sheet. Many of these facilities have been supported by funding from the CARES Act and we will be disclosing on a monthly basis names and details of participants in each such facility. Amounts borrowed and interest rate charge, and overall costs, revenues, and fees for each facility. We embrace our responsibility to the American people to be as transparent as possible. And we appreciate that the need for transparency is heightened. When we are called upon to use our emergency powers. We recognize that our actions are only part of a broader public sector response. Congress' passage of the CARES Act was critical in enabling the Fed and the Treasury Department to establish many of the lending programs. The CARES Act and other legislation provide direct help to people, businesses, and communities. This direct support can make a critical difference, not just in helping families and businesses in a time of need, but also in limiting long lasting damage to our economy. Chairman Jerome Powell: (21:50) I want to end by acknowledging the tragic events that have again, put a spotlight on the pain of racial injustice in this country. The Fed serves the entire nation. We operate in and are part of many of the communities across the country where Americans are grappling with and expressing themselves on issues of racial equality. I speak for my colleagues throughout the Federal Reserve system, when I say, "There's no place at the Fed for racism, and there should be no place for it in our society." Everyone deserves the opportunity to participate fully in our society. And in our economy. We understand that our work touches communities, families, and businesses across the nation and everything we do is in service to our public mission. We're committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible. Thank you. Chairman Crapo: (22:44) Thank you, Chairman Powell. Last week, the Fed announced positive changes to increase access of the municipal facility and the main street facilities. And yesterday the Federal Reserve announced that the Main Street Lending Program open for lender registration and requested feedback on loan terms for nonprofit organizations. Can you provide me a timeline when for when the Main Street Facilities, the Municipal Facility and the nonprofit loans will be fully operational? Chairman Jerome Powell: (23:16) Sure. So the main, sorry, the Municipal Facility is up and operating. It's available to be approached by the eligible municipal entities and one has done so far. We've done one financing and we're open to others. So that facility is fully open. As you mentioned, Mr. Chairman, the Main Street Facility opened for lender registration yesterday. We expect that process to take a couple of days and we encourage lenders who have completed that process to begin immediately making loans to eligible borrowers. And we expect and hope that will happen. Chairman Jerome Powell: (23:54) And I would say in a week or so, the Liquidity Facility itself will be available to purchase 95% interest in those loans. So that is effectively up and running. In terms of nonprofits, what we did as you saw yesterday, was to put out a proposal to include nonprofits in the Main Street Facility. And we've asked for comment on it. So there are two facilities in the nonprofit part of Main Street that have essentially the same terms as the for profit part of Main Street. But the requirements to be an eligible borrower are different and are more tailored to the financial characteristics of nonprofits. The ratio of liquid assets to get the amount of liquidity on hand, the operating statistics of the nonprofit. Chairman Jerome Powell: (24:51) So this is something we're very much looking forward to getting feedback from the public on. And when we turn that around, it'll take some time to get it right, but I expect we'll move pretty expeditiously on it over the next month or so. Chairman Crapo: (25:08) All right. Thank you. And I appreciate your attention to these. Obviously these are very critical and hope to see them moving aggressively as quickly as possible. I'd like to turn to the economy itself right now. You've made some comments in recent days. On June 10th, the Fed released economic projections of the Federal Reserve board members and the Federal Reserve Bank presidents under their individual assessments of the projected monetary policy. Most of the Fed's economic projections forecast, the unemployment rate falling to around 9 or 10% later this year, from a high of 14.7% in April. Could you just elaborate a bit on your projections for what the economic outlook is right now? And could you take into consideration, whether there's a differential between the short term outlook versus the longer term outlook and how you approach this? Chairman Jerome Powell: (26:04) To me anyway, it's helpful to think of it in sort of three stages. The first stage was the shutdown, and we've seen what that would produce, which is very sharp declines in economic activity, and very large increases in unemployment. And that was Q2, and we may be reaching a bottom on that now. After that, it's reasonable to expect and this does assume by the way, all of this assumes that the virus remains reasonably well under control and doesn't experience an event where the virus rises widely across the nation. Let's just assume that that doesn't happen. Okay. Chairman Jerome Powell: (26:41) So, first part is the shutdown. The second part will be the bounce back, and you should see during that period, the economy opening, stores opening, all kinds of different economic entities opening, and people going back to work. We're seeing apparently the beginning of that with the employment report, and we would expect to see large numbers of people during this period coming back to work during the second period of the call it the bounce back or the beginning of a recovery. Then we think and I think most, if not all forecasters think that, that will leave us well short of where we were in February. Full employment with the economy, really working broadly across all of its areas. And the reason for that, is just that there are parts of the economy that will struggle to return to their old ways of activity, because they involve getting people together closely in large groups. And so it's going to take some time to rebuild confidence in that kind of thing. Chairman Jerome Powell: (27:38) So those are the three stages I would see. So right now, we seem to be in the beginning, we may be in the beginning of that second stage. And I would say this morning's retail sales number is more evidence that first of all, that the legislation that you passed, both the PPP and the unemployment insurance and the checks that were sent out. All of that is supporting demand and reopening and economic activity, including retail sales. We had quite a positive report this morning. [inaudible 00:28:10]. The last thing I'll say is, it's all quite uncertain, but we appear to be entering that second phase of the economy reopening and businesses reopening and spending increasing. Chairman Crapo: (28:25) All right, thank you. My time has expired. Senator Brown. Senator Brown: (28:29) Thank you, Mr. Chairman and Chair Powell, thank you for your comments at the end of your remarks about racism. I appreciate that. I think we all do. A prominent black economist and professor of economics at Howard William Spriggs recently wrote a letter criticizing how most economists treat race in their models and assumptions. We provided that letter for you yesterday. Have you had a chance to read it yet? Chairman Jerome Powell: (28:54) I did. Yes. Senator Brown: (28:55) Okay, good. Thank you. And do you think he's ... In his letter for those watching, he makes the point that many economic outcomes are the direct result of racism. Yet we hear from so many other economists and policy makers that racial disparities and economic outcomes are explained by other factors, education, for example. But we know that black Americans, even with the same levels or better levels of education as their white peers still make less money at the same jobs. Do you think Dr. Spriggs is correct that the US has failed to grapple with the fact that much of the economic inequality is a direct result of institutional racism? Chairman Jerome Powell: (29:32) So Professor Spriggs, Bill Spriggs is a well known scholar. Whose really built his career around issues of economic justice. He's somebody who is very well known and widely liked and admired here at the Federal Reserve. We actually have a relationship that we highly value with Howard University, their economic department. So I'll just say a couple of things. First, the economics discipline, like every other aspect of our society. It does have a troubled history when it comes to issues of race and equality. And his letter, as I read it, really calls on the profession to examine whether systemic racism is reflected in the empirical work of economists. And it's particularly in an area called stratification economics, which he refers to, which is a relatively new sub field in economics. Which focuses on the failure of conventional economics to recognize and explain persistent racial inequality. So that's really what the letter's about. Chairman Jerome Powell: (30:28) And I think it's thought provoking, and I would just agree that there's a lot of work left to do both in the economics profession on these issues. And I hope recent events are pushing all of us to try to do better. Senator Brown: (30:44) Thanks for that thoughtful response. As chair of the Federal Reserve. You lead the most influential economic institution in the United States, of course. Would you commit to us to a thoughtful and open-minded study of how the Fed's policies, whether with regard to monetary policy or the Feds failure to regulate subprime lending or the various assumptions underlying our systems contribute to systematic racism in our country. Would you commit to a thoughtful and open ended and open-minded study of doing that with us? Chairman Jerome Powell: (31:16) I'll take that away and think about it and talk about my colleagues with it, about it, and come back to you. Before we commit to a big study. I want to carefully think about it. As you know, as an institution, we're very focused on diversity inclusion. And we try to make that a very, very high principle for us here at the Fed. And we do consider racial disparities and things like that as a routine matter in our work, now. Let me talk to my colleagues and come back to you on that. Senator Brown: (31:51) Well, one of the reasons I voted for your confirmation for chair was that, before you were chair, but you were governor of the Fed that you helped to lead the way on dealing with issues of race. Senator Brown: (32:03) ... help to lead the way on dealing with issues of race, the Fed has a long way to go. We all have a long way to go, but thank you for that. Senator Brown: (32:07) Let me talk about something, somebody else at the Fed, the president of the Atlanta Fed, Raphael Bostic, as you know, the first and amazingly still the only ever African-American Federal Reserve Bank President in the Fed's history of 10 decades, recently stated that many Americans endure the burden of unjust exploitative and abusive treatment by institutions in this country. He's called for the Fed to help reduce social inequities and bring about a more inclusive economy. Would you say Mr. Chairman, is the Fed one of the institutions responsible for the unequal outcomes black and brown workers face in this country? Chairman Jerome Powell: (32:46) First, let me say, I do recommend President Bostic's letter or message that he put up on the Atlanta website. It's really excellent and very well said. Chairman Jerome Powell: (32:57) Are we responsible? I would sort of answer the question this way. There's no doubt more that all of us can do to address these issues. This feels like a time when people are going to be looking for ways to do more, and we certainly are going to be doing that. Senator Brown: (33:14) Have you talked to Dr. Bostic about whether he was suggesting the Fed now, or is it some time, unjust, exploitative or abusive institutions, have you had these conversations personally with him? Chairman Jerome Powell: (33:27) I haven't spoken to him since he published that message. I did send him an email thanking him for it. Senator Brown: (33:35) Implicit in its comments and your response is the Fed can do better. Thank you. What are you doing to make sure the Fed's response does not make the existing inequality in this country even worse? Chairman Jerome Powell: (33:50) What we learned during the last long expansion is that a tight job market is probably the best single thing that the Fed can do to support gains by all low and moderate income communities and particularly for minority communities who are heavily represented in these groups. We saw in the last couple of years before the coronavirus arrived, that wage increases were the largest for people at the low end of the income spectrum. We met with many, many groups and people in low and moderate income communities as part of our Fed listens event, as part of our long-standing meetings we have with people. What we heard over and over again was this is the best labor market we've seen in our lifetime. Please don't change what you're doing. This is really working. We are all highly motivated to get back to that. Chairman Jerome Powell: (34:44) Everything we're doing is to try to get the labor market back to where it was in February of 2020. We want to get back to a tight labor market. We learned that inflation did not move up really noticeably at all with almost two years of unemployment between 3 1/2 to 4%. We learned that there were tremendous benefits to those communities, but also to the country, because we were pulling people into the labor force. Labor force participation was going up. That's what we can contribute, as well as all the other things we do. We try to model diversity inclusion. We try to model those values, but we're very focused on maximum employment and getting back there as fast as we can. Senator Brown: (35:27) Thank you, Mr. Chairman. Mike Crapo: (35:29) Thank you. Senator Shelby. Richard Shelby: (35:33) Thank you, Mr. Chairman. [inaudible 00:35:34]. Richard Shelby: (35:38) Chairman Powell? Chairman Powell? Is he on? Chairman Jerome Powell: (35:46) Yes, I'm on Senator. Richard Shelby: (35:47) Okay. Richard Shelby: (35:49) I'd like to pick up on what Senator Crapo was into earlier, and that is the economy, how it's going. I think you're spot on as far as a lot of it is predicated on how the coronavirus is contained, where it goes and so forth because that's what's on people's minds. But a lot of people now are wanting to go back to work. I see a little more activity. We saw the jobs report. We all referred to [inaudible 00:04:17]. Do you see in your models or your forecast the next month jobs report being up or a little down or about the same, or is it going to be progress all along, including the third quarter? Have you got models on that? Chairman Jerome Powell: (36:39) Yes. I would start by saying that there's a tremendous amount of volatility in the labor market reports month to month, so they'll move around even if the economy isn't really moving around. They'll move around just because it's a survey. I think it's particularly difficult to conduct a survey when you can't really do it in person. Richard Shelby: (36:56) Absolutely. Chairman Jerome Powell: (36:56) But with that caveat, the answer to your question really is that, yes, I think our expectation generally, and the expectation of other forecasters is that we will now see unemployment decline and employment increase. That's just a function of lifting the social distancing measures, the shutdown and moving back in large parts of the economy to reopened businesses and resumption of normal business activities. That should result in significant amount of job gains and an increase in activity from where we were at the beginning, but it will leave us well short of where we were. Richard Shelby: (37:36) But it's all predicated on us containing the coronavirus, it not coming back [inaudible 00:37:41] Chairman Jerome Powell: (37:43) Yes. I think the public wants to have confidence ... Richard Shelby: (37:48) Absolutely. Chairman Jerome Powell: (37:49) ... to be able to return to these kinds of activities. In fact, I think the return to investments that create that confidence will be extremely high from an economics standpoint. Richard Shelby: (37:59) I'd like to now shift to the balance sheet of the Fed. You've been on the Fed a number of years, you have been an investor in past life and so forth. Does it bother you as the Fed chairman to see that the balance sheet has grown so fast? I know these extraordinary times, we've got to have extraordinary measures, but to de-leverage the balance sheet as it's growing and probably continue to grow is going to be a thing for the future, but it's going to be a real challenge for somebody. Is it not? Chairman Jerome Powell: (38:37) Well, so, first I don't think that the balance sheet at anything like its current size presents any real threat to either inflation or to financial stability. Richard Shelby: (38:48) Currently. Chairman Jerome Powell: (38:49) Currently. Our principle is we don't want the balance sheet to be any bigger than it needs to be for us to do our job, to achieve maximum employment and price stability. I'm not concerned about the balance sheet and the plans I see for it going forward at this point. Chairman Jerome Powell: (39:09) Over time, I think what we did learn, I was here for the whole last cycle of balance sheet, first to last QE, and then the decline in the balance sheet, and I think it's just something that has to be taken very carefully and very slowly. It's not something we're thinking about now. We're not at all thinking about. What we're thinking about now is providing the accommodation that this economy needs for as long as it needs it, that's all we're thinking about. When the time comes, what we did from 2014, as you'll recall, from 2014 to 2017, we just froze the size of the balance sheet, and as the economy grows, the balance sheet shrinks as a percent of the economy. That's a very passive way that, and that didn't cause any reaction in the market. I think there have been market reactions when we try to actually shrink the size of the balance sheet. Richard Shelby: (40:04) Thank you, Mr. [inaudible 00:40:04]. Chairman Jerome Powell: (40:06) Thank you, Senator. Mike Crapo: (40:10) Thank you. Senator Reed. Jack Reed: (40:12) Oh, thank you very much, Mr. Chairman. Thank you Chairman Powell, and not only for your testimony, but for your innovative and I think very thoughtful leadership and also for your personal integrity and decency. Thank you very much for that. Jack Reed: (40:29) If state and local governments are not able to provide essential services, what impact will this have on the economy? Without additional resource from the federal government, how will they even be able to provide these adequate services? Chairman Jerome Powell: (40:44) State and local governments do provide a lot of the critical services that people rely on day to day, police, fire, public safety, all of the things that they deal with day to that the government does tend to be provided for the most part by state and local governments. Essentially all the states have a balanced-budget requirement, so what you see when revenues turn down and expenses turn up, as they have, is you see layoffs. Chairman Jerome Powell: (41:08) State and local governments amount to something like 13% of the labor force. They're one of the largest employers. It can really weigh on the economy if the States are in tight financial straights, very tight. What happens is, first of all, they will cut essential services. Secondly, the lay people off. All of that will weigh on the economy. Jack Reed: (41:31) Essentially that could be the biggest drag on the economy going forward, the states being forced by their constitutions to contract, literally. That's a view that's a fair view? Chairman Jerome Powell: (41:43) It can be a drag. In fact, it was after the global financial crisis and during the Great Recession for a number of years. It's pretty well-documented now that it wasn't drag on growth. Jack Reed: (41:55) Now, one of the other issues, and Senator Brown has just echoed this, is that looking at statistics, 14% of state and local employees are African-American, that's compared to 11.7% in the private workforce. Once again, we'll see a situation institutionally, maybe not intentionally, institutionally, that probably the bulk or a significant portion of this distress will be laid on the shoulders of African-American workers because they're the state worker that will be laid off. Is that adequate? Or accurate, I should say. Chairman Jerome Powell: (42:30) I don't know the exact number, but it's certainly right in. Of course, we know that people who have lost their jobs so far in the private sector come from parts of the service industry that are directly affected by coronavirus. They're heavily lower income people, minorities are over-represented, women are over-represented. Jack Reed: (42:52) Let me turn to the May jobs report. I mean, it was encouraging, but did it represent that turning of the corner, that the labor market is fine, that we're going to go forward? I think your previous comments suggested that's encouraging news, but going forward, still significant unemployment figures will be confronting us for years, perhaps. Is that accurate? Chairman Jerome Powell: (43:17) Yeah. Look, it was definitely, definitely good news, and maybe the biggest data surprise that anybody can remember. People thought it would be. They were looking at the claims data and other things. But the larger context, though, as you point out, is something like close to 25 million people have been displaced in the workforce, either partially or through unemployment. We have a long road ahead of us to get those people back to work. It's really a good thing that we're starting. We're starting earlier than we thought. That's nothing but a positive thing, but we just have to just acknowledge that it's a lot of people. As I mentioned earlier, there is a broad expectation that we'll see big numbers of people coming back this summer. We certainly hope that turns out to be right, but also that those people who work in those service industries that are going to take longer to recover, there'll be a lot of them and they'll find it hard to get back to work as quickly as the others. Jack Reed: (44:20) One of my concerns in having served through the, we thought then, Great Recession of 2008, '09 and '10, is that unemployment rates will stay high and our unemployment extended benefits will expire. In fact, what happens, as you know, in different areas of the country, they will lag, and you can have states that have very high unemployment rates. The point of my comments are, we do need in your view to have extended unemployment benefits, much greater than the present law allows. Also, would it make sense to index those benefits to a certain unemployment rate so that we don't find certain states or certain areas who are well behind and they lose their benefits? Chairman Jerome Powell: (45:12) I think there are going to be a large number of people who will not be able to immediately go back to work at their old job, or even in their old industry. There'll be a significant group that's left over even after we get the employment bounce. The details of this are entirely a matter of fiscal policy. There are a lot of really interesting ideas bouncing around about how to do that, but I do think they'll be hard pressed to find work. They're going to need support. They'll have regular state unemployment insurance for a period, but that's something I would be looking at is what kind of support will they need. Also, really, some of them are going to need to find new paths through the economy. Are there ways we can help them do that? Jack Reed: (46:02) Thank you, Mr. Chairman. Thank you, Chairman Crapo. Mike Crapo: (46:06) Thank you. Senator Toomey. Pat Toomey: (46:08) Thank you, Mr. Chairman. Good morning, Chairman Powell. Thanks for joining us. I do want to stress how encouraging the recent economic data has been actually for a little while now. We had a tremendous increase in personal income in the month of April, which is not terribly surprising, but the May employment number was very surprising and very encouraging. Retail sales today was really good news. I'm not for a minute suggesting that we're out of the woods, but the anecdotal evidence has been very, very encouraging. I would just remind my colleagues, there's no such thing as a free lunch, and we have authorized several trillion dollars of government spending in a variety of ways and much of it has not yet even been spent. I think we should be very, very careful in evaluating what's necessary before we go forward. Pat Toomey: (47:05) Mr. Chairman, I want to talk about corporate bond buying because when we put together the Cares Act, the concept of funding SPVs so that they could go out and buy corporate bonds, whether through ETFs or whether through a new Fed created index or directly, there were always two reasons for having this capacity. One was to ensure the smooth functioning of the markets. For that, the mere existence of these programs has been remarkably successful. We've seen record volumes of corporate debt issuance. Clearly, the corporate bond market is functioning and functioning very, very well. The second possibility was to provide liquidity to a company that's fundamentally solvent, but facing a serious liquidity problem because of the nature of the moment. Pat Toomey: (47:58) It seems to me that continuing broad-based corporate buying of bonds now- Pat Toomey: (48:03) Continuing broad-based corporate buying of bonds now and including setting up yet a new index for doing so doesn't serve either of those purposes. Those needs are being met. And I worry that it starts to look a lot like fiscal policy, or it starts to look a lot like the goal is to lower spreads, despite the fact that nominal rates are incredibly low. And it certainly seems to me that this kind of activity at a time when the markets are already functioning smoothly and we're not addressing individual borrower needs, but rather making these broad based purchases, we run the risk that we diminish price signals that we get from the corporate bond market, which can be extremely important in enabling us to detect problems. So I'm wondering why we need to be continuing a broad based corporate bond buying program now. And what's the exit strategy on this? Chairman Jerome Powell: (49:04) So I certainly hope it doesn't have those negative effects you mentioned. So this is something we said we would do at the beginning. And you pointed out that markets reacted very strongly to the announcement. That's because they believe that we'll do what we say we're going to do. So one reason I wouldn't say, it's the main reason, one reason is though we feel that we need to follow through and do what we said we were going to do so that- Pat Toomey: (49:29) Can I, on that my impression had always been that it was a contingent thing, that this would be there as needed and would be used as needed. But if it's not needed, it's not clear to me that you have to use it anyway to show that you're willing to use it. I don't think anybody doubts your willingness to use it. Chairman Jerome Powell: (49:52) We're not actually increasing the dollar volume of things we're buying. We're just shifting away from ETFs toward this other form of index. And as we've said, and if you look at the FAQs, frequently asked questions, we published associated with this change, it's really going to depend on the level of market function. If market function continues to improve, then we're happy to slow or even stop the purchases. If it goes the other way, we'll increase. Pat Toomey: (50:15) Is there a problem with market functioning now in the corporate market? Chairman Jerome Powell: (50:20) Market function has improved really substantially. And that's why you see very little demand, in fact, so far, no demand at the primary market. We originally thought that was where the demand would show up. So it was out of an excess of caution to preserve these gains for market function by following through. Chairman Jerome Powell: (50:40) And I don't see us as wanting to run through the bond market like an elephant doing things and snuffing out price signals and things like that. We want to be there things, if things turn bad in the economy or if things go in a negative direction, we want to make sure that we're there. Also with the ETFs, remember it's a very small part of the market. The actual bonds give us a better purchase should we need it. We clearly don't need it now. Pat Toomey: (51:12) That's my real point. I get the argument for creating a broader index than a given ETF, but it's not clear to me that that needs to be intervening actively in the corporate bond market right now. But let me move on to another issue. Last week my understanding is you suggested that the Fed might be considering whether to adopt yield targets, which really means let's face it, yield caps. Pat Toomey: (51:41) I wanted to discuss that a little bit. I'm very concerned about that. First of all, the idea of manipulating treasury yields to keep them lower than they otherwise would be involves lots of potential problems. It's clearly picking borrowers over lenders. It creates problems for insurance funds and pension funds, distorts price signaling. And I don't know how you'd get out of that. So, do you have any more thoughts on the idea of establishing yield targets on the treasury curve? Chairman Jerome Powell: (52:18) Sure. So this is something that we've never done. Actually, that's not true. We did it during World War II and into the early '50s. We haven't done it in the modern era, a couple of central banks, Bank of Japan, the Reserve Bank of Australia have done it. So it's a tool other central banks have chosen to use now. Chairman Jerome Powell: (52:36) And what we did at the last meeting was just brief people up on the history of it and how it works, so that people understand the technology and that sort of thing. We've made absolutely no decision to go forward on it, as you've seen some of my colleagues have given speeches lately, raising questions about it. So it's not a decision that we've made. The sense of it is that if the market, if rates were to move up a lot for whatever reason, and we wanted to keep them low to keep monetary policy accommodative, you might think about using it, not on the whole curve, but on some part of the curve. And it's not a decision that we've made. It's sort of an early stage thing we're evaluating. Pat Toomey: (53:25) Thank you. Thank you, Mr. Chairman. Chairman Jerome Powell: (53:26) Thank you, Senator Menendez. Senator Menendez: (53:30) Thank you, Mr. Chairman. The tragic deaths of George Floyd and Breonna Taylor and Rashad Brooks have galvanized millions across the nation to stand up and peacefully march in protest against systemic racism, inequality, and injustice that has plagued our country since its founding. Minority communities have suffered systemic racial, social, and economic indignity. Also being disproportionately impacted by the crisis, gripping our nation, which is the COVID-19 pandemic. A Chair Powell, will there be a longterm negative economic impact if 40% of black owned small businesses permanently shut their doors as a result of the coronavirus pandemic? Chairman Jerome Powell: (54:16) Well, small businesses are under a lot of pressure. And the answer to your question would be, yes, certainly those were important businesses in our communities. Senator Menendez: (54:23) Will there be a longterm negative economic impact if 44% of black households and 41% of Latino households are unable to make their next rent payment and are evicted? Chairman Jerome Powell: (54:39) Evictions and foreclosures and things like that can be very bad, not just for the individuals involved, they're very bad for the individuals involved, but also they can certainly weigh on economic activity as well. Senator Menendez: (54:51) Will there be a longterm negative economic impact if African American and Hispanic families wealth, which is currently eight to 10 times smaller than the medium net worth of white families is further depleted? Chairman Jerome Powell: (55:08) I would say there would. Senator Menendez: (55:10) Considering the longterm economic impacts of the racial disparities exacerbated by COVID-19 pandemic, what are the consequences of Congress failing to account for these pernicious racial disparities in the next COVID-19 relief bill? Would the economy be better off if Congress took action to mitigate these inequalities and COVID relief legislation? Chairman Jerome Powell: (55:36) Senator, I just would say fiscal policy is really for you. And I do think what you've done so far has been by far the largest of any fiscal response. And I think it's really, you're starting to see that in some of the economic numbers we're seeing. Senator Menendez: (55:54) Well, I appreciate that. My point that I'm driving at here is that we cannot ignore the reality that when one segment of our society, African Americans and Hispanics, disproportionately affected by COVID, disproportionately affected in their income, disproportionately affected in their business potential closures, you cannot have that whole segment of the economy ultimately doing so worse than everybody else and believe that the economy is going to do well when you look at the population that they have. So it's certainly cries out for all of us, for the Fed, the Congress to be dealing with these realities, not just in terms of justice, but in terms of the national interest as well. Senator Menendez: (56:43) Let me turn to another question. As our country navigates this economic crisis that flows from the pandemic, I hope we remember the lessons we've learned from past downturns. One of the most obvious lessons we learned during the Great Recession is that cuts to the state and local sector make recessions deeper, delay economic recovery, and are completely preventable if Congress provides relief. Chair Powell, isn't it true that according to the Federal Reserve inflation adjusted data state and local investments continue to fall for a full five years after the recession officially ended in June of 2009? Chairman Jerome Powell: (57:22) I don't know the number, but I wouldn't doubt it, Senator. Senator Menendez: (57:26) I can commend it to you because I looked it up. Isn't it also true that Fed researchers found that stayed in local austerity adopted after the Great Recession was a drag on economic growth for 23 out of 26 quarters between 2008 and mid 2014, and that without that austerity GDP would have been roughly 3.5% larger by the end of 2015? Chairman Jerome Powell: (57:53) I Know the finding, I can't swear to those numbers. I'll take your word for it. Senator Menendez: (57:57) Okay. Well, I commend them to you and I if you send me back an answer in writing, I'd appreciate it. And didn't state and local governments cut more than 750,000 jobs after the Great Recession? Chairman Jerome Powell: (58:12) Yes. And they didn't hire. The other thing is they didn't do much hiring for quite a long time. Senator Menendez: (58:18) So that's exactly where we're at right now. And given that current budget projections are far worse than even during the Great Recession, isn't it fair to say that unless Congress provides federal assistance to state and local governments to stem the shortfalls, that it will be significantly worse than they were during the Great Recession? Chairman Jerome Powell: (58:39) I think there are already a million and a half layoffs, most of which are at state and local. Senator Menendez: (58:43) Well, the Bureau of Labor statistics solicited nearly a million layoffs so far. Moody's Analytics says that you need the $500 billion that Senator Cassidy and I, and along with other colleagues have recommended for state and local governments. The absence of that, of any of that type of assistance, it means six to eight million more public service jobs. Senator Menendez: (59:05) And it would be the irony of the pandemic that those who we need the most police firefighters, paramedics, healthcare professionals during the course of the pandemic, and maybe a rebound would be the ones who would lose their jobs. So I hope that the Congress does respond. Thank you very much. Chairman Jerome Powell: (59:21) Thank you, Senator Cotton.

Part 2

Senator Cotton: (00:00) We spoke a couple of times last month about giving more companies access to the Fed's primary market corporate credit facility, by allowing the Fed to purchase debt rated by the National Association of Insurance Commissioners or NAIC. It's very expensive for a company to get rated as an issuer by one of the public ratings firms like S&P and Moody's, but at the moment only companies that can afford that expensive and sometimes cumbersome process can access the primary market facility or indirectly access the secondary market facility. But there are many companies that issue investment grade debt that's been rated by NAIC and the Fed could purchase debt rated one or two by NAIC, without sacrificing any credit quality. Chairman Powell, in May when we spoke about this issue you had said that we, meaning you and Secretary Mnuchin, we're working on the problem. Can you give us an update on where that work is and whether the Fed is going to allow NAIC issued debt to be bought using these credit facilities? Chairman Jerome Powell: (01:05) Sure. So we did open up the ratings to three additional firms that had significant business in particular sectors. So it's not just the three majors, it's three others who were also considered majors for some purposes. But we understand that that does leave some companies that don't have a rating. And as we open these facilities, they're just in the process of opening, we're looking for an answer there. NAIC, of course, is not an NRSRO and it hasn't traditionally been used in this way. So we're looking at some options for what to do there. I wish I could tell you, we had an answer yet, but we're working on it. Senator Cotton: (01:51) So you haven't opened it yet, but you haven't foreclosed the possibility of trying to find some solution for this challenge? Chairman Jerome Powell: (01:57) We're still looking for a solution, yes. Senator Cotton: (02:00) Any kind of timeframe you can put on that? Chairman Jerome Powell: (02:04) Well, we actually talked about it yesterday, so we're working on it. I think soon let's say. Senator Cotton: (02:12) I just want to stress again that there are dozens of companies had very strong balance sheets and employ tens of thousands of people across all of our States who for one reason or another, choose not to go to a public rating agency, but are in many ways in the same position as a publicly traded company who would use these facilities. And I really hope that the Federal Reserve and the Treasury can find a way to treat everyone in an equitable fashion and protect as many of those jobs as possible as we try to open up our economy and get back to something more like normal. Mr. Chairman, I think I will yield back the balance of my time now because I know we have a lot of people in the queue for questions. Chairman Crapo: (03:00) Thank you, Senator Cotton. Senator Tester. Senator Tester: (03:03) Well, thank you Chairman Crapo and ranking member Brown. I want to thank you, Chairman Powell for your good work. I very much appreciate your steady hand at the wheel. I want to step back a little bit. The unemployment rate right now is 13.3%. I believe that's correct. Just nod your head if it is. Yes, that's good. And refresh my memory, at the peak of the great recession when folks were bouncing off the walls around here because of the total worldwide financial meltdown, potentially, we were at 10.6%, right? Chairman Jerome Powell: (03:38) Something like that, yeah. It was in the 10. Senator Tester: (03:41) So and if you consider the fact that has been pointed out several times during this hearing that the low wage workers are the ones that are really severely... and I think you pointed it out in your testimony. And since we've got a lot of poverty in rural America, can you just give me a quick assessment if the programs that the Fed is doing is working in the areas that it's really needed. And, look, it's needed across the country, of course. The 13.3%, and that may be a very conservative figure by the way and you know that. But with unemployment where it's at, it's needed everywhere, but are we getting it to rural America? Chairman Jerome Powell: (04:22) I like to think that we are first through our support of the Paycheck Protection Program. Through the Paycheck Protection Program liquidity facility, we've made that easier for small banks to use because they can then transfer their ownership interest in the loan fully to our facility. And it's off their balance sheet that gives them balance sheet capacity and it's gone and they still get to keep the [inaudible 00:04:49]. So that should help. And it should also help borrowers because of that. Also Main Street, Main Street is for larger companies and some of those will be in rural areas. Senator Tester: (05:00) So what about in particular, the ones that are really got trashed in my state are restaurants, bars, workout facilities, motels. Are we able to focus this money at any way to, say, the hospitality industry? Because that's what they are, to really make sure that the money is going there. Because those folks are really, really, really in tough shape. I mean, tougher shape than... I mean, in agriculture, I can claim I've had impacts by COVID, but it has been nothing compared to the folks that are in the hospitality business. Chairman Jerome Powell: (05:34) No, and that's true across the country. So if they have fewer than 500 employees, they would have been eligible for the PPP program and there's still money left in that program as I'm sure you know. In terms of what we do, any company that's eligible can borrow. We said terms of broad eligibility and we're looking back to your financials the way they were pre pandemic. So we're looking at 2019 financials. Senator Tester: (06:00) Yeah. Is there any to do any oversight to make a determination whether the people that actually have been impacted are getting the money? I mean, I've been told by several businesses, "Hey look, the money's there. I haven't really been impacted by COVID, but the money's there and it's literally free. I'm going to go get it." Chairman Jerome Powell: (06:18) Well, so it's interesting. So we haven't made any [inaudible 00:06:22] we're just starting to do that, but we will certainly be looking carefully at what the population of loans is. And we haven't made any of the investment grade loans either because the market opened up wide open and lots and lots of companies borrowed, including the ones who had become so called fallen angels and dropped below investment grade. Senator Tester: (06:42) So let me approach something else that... and I know you don't concern yourself with debt as much in times of economic slowdowns as we're in today, especially as one significant as this. But when Obama left office, the debt was $19.9 trillion. Three and a half years later into the Trump administration, we're over $26 trillion. Can you tell me, and you got to be able to forecast this out a bit. Can you tell me what that debt's impact is going to be on inflation and unemployment moving forward? Chairman Jerome Powell: (07:26) It's hard to say very specifically what it would be, but the United States federal budget has been on an unsustainable path for years now. That just means that the debt's growing faster than the economy. So debt to GDP is rising. That is by definition unsustainable. And what really happens is over time, future generations, our kids and our grandkids, their tax dollars will be going to servicing the debt that we incurred to buy the stuff we wanted when we were in charge or when we were adults in America these days. And every generation is entitled to spend what it wants to spend on the things that thinks it needs, but it really ought to pay for it in some sense, rather than passing the bills onto the kids. It just in very simple terms. The longer run issue is one of generational equity. Chairman Jerome Powell: (08:15) The US has a lot of fiscal and borrowing power, we're the world's reserve currency, we have the world's best economy, the most vibrant economy, best institutions. So we can borrow a lot, but I think we need to get back on a sustainable path. I will close up by saying that the time to work on that hard is when the economy is strong, unemployment is low, there's growth. That's when you want to work on that. Those concerns are always going to be there, but I wouldn't prioritize them at a time like this when the spending is... what it's doing is it's giving us a better economy going forward, which will really help service the debt. Senator Tester: (08:55) I agree with you and just a statement, we should've been prioritizing that before the economy collapsed like 2017, 18 and 19 when we were borrowing [inaudible 00:09:04]. Thank you, Mr. Chairman. Chairman Crapo: (09:07) Thank you. Senator Rounds. Senator Rounds: (09:10) Hey, good morning Mr. Chairman. I want to go back a little bit, earlier in the pandemic I joined a letter with Senator Warner to the Treasury regarding mortgage forbearance and liquidity that were concerns for mortgage servicers. Thankfully, the uptake on the forbearance programs has been modest, though there is still some concern about an increase in mortgage forbearances and a need for the Fed to establish a liquidity facility for mortgage servicers if economic growth stagnates in the coming months. My question is, do you foresee the need for a service or liquidity facility in the near term and what kind of warning signs would you be looking out for to indicate that need, if you have an interest? Chairman Jerome Powell: (10:00) So the housing regulators and the treasurer really have the lead on that. I'd say we were more worried a couple of months ago about stresses building up just as you described than we are now. The stresses have moved down a little bit. Of course, we'll be monitoring that carefully. But as of right now, it doesn't look like there's a need for such a facility. Senator Rounds: (10:23) Thank you. The Fed has said that results of both the CCAR review and the DFAST stress tests will be released on the 25th of June. Considering the importance of understanding how the Fed views the responses of banks to the COVID-19 pandemic, this is highly anticipated. This is one that we're looking forward to and I think there's some anticipation with release of that information. I've also been closely tracking the Fed's integration of stress test results with non-stress capital requirements in the stress capital buffer. My question is, can you tell us more about what the Fed will be releasing on the 25th and whether or not that will include a disclosure of the Fed's COVID analysis and stress capital buffer requirements? Chairman Jerome Powell: (11:12) Yes, I believe it will. And of course, we're just in the process. That's nine days away, so we're just working on it. Senator Rounds: (11:19) Okay. And after the release of the CCAR and the DFAST results on the 25th, what comes next? Will banks have to resubmit their capital plans or conduct additional stress tests? Is that the anticipated response that you're looking at or have you gotten that far yet? Chairman Jerome Powell: (11:38) Again, we're making that announcement on the 25th and it's something we're actively... of course, nine days before that, we're actively engaged in considering those issues right now. Senator Rounds: (11:52) Okay. Let me run along just a little bit different route here, Mr. Chairman. Given the length of time that will be in a low interest rate environment, I think it's worth it for the federal government to consider issuing some long duration bonds with maturities that are beyond the 10 or 30 years that is typical for today. In the past few years, the UK, Canada and Italy have sold 50 year bonds and Austria, Belgium, and even Ireland have sold some sovereign bonds with 100 year maturities. Is this something the United States should consider and would the Fed consider buying ultra long treasuries? Chairman Jerome Powell: (12:28) That is an issue that is squarely in the province of the Treasury secretary and his colleagues at Treasury Department. And as you know, secretary, Mnuchin looked very carefully at longer and longer maturities earlier in this administration. So again, it's not something that the Fed really plays a role in deciding. Senator Rounds: (12:53) Very good. Thank you, Mr. Chairman, I yield back. Chairman Crapo: (12:59) Thank you, Senator Warner. Senator Warner: (13:01) Thank you, Mr. Chairman and it's good to see you Chair Powell. I don't know if you saw, but former chairman of the Fed Ben Bernanke and 130 other economists wrote the congressional leadership today, released a letter pointing out one additional need for stimulus. Pointing out that we've got a $16 trillion toll in our economy that needs to be dealt with. Mr. Bernanke's letter also pointed out how enormously damaging the COVID-19 crisis has been to communities of color. I think we saw that as well. We all applauded the May unemployment numbers, but as you well know them, unemployment numbers for black Americans actually still went up in May. And if there's, again, I think a common point of evidence is that the great recession indicated that a prolonged economic downturn will seriously damage economic opportunities and wealth accumulation for all Americans but again, particularly for families of color. Senator Warner: (14:11) A subject that you and I've talked about, Chairman Powell, a number of times is the important resource for these communities that CDFIs and minority [inaudible 00:14:23] institutions provide, and that they provide patient longterm investments in these LMI low and moderate disadvantaged neighborhoods. But as we look at MBIs and CDFIs, many of these institutions are held back from boosting investment because of lack of capital or limited access to liquidity and certain other operational limitations. Would you agree, Mr. Chairman, that building capacity at these institutions could provide a significant response to the downturn by boosting access to credit for so many of the small minority owned businesses that otherwise, I think, by third or fourth quarter, were going to be in really tough shape? Chairman Jerome Powell: (15:12) So as you suggest, I think the CDFIs and the MBIS are very important in their communities. And we have strong relationships with those institutions and we do what we can to foster their successful conduct of their business. And we're heavily engaged with CDFIs and MBIs. Senator Warner: (15:35) Well, I think if we could really lean in and be creative at this moment and if we could provide these institutions with the proper resources, they could not only be an important component of fighting the economic inequality. Then again, I appreciate you making your comments about racism at the end of your opening comments, but also about seeing the kind of economic renewal that we so desperately need in this part of America. Now, I've been working on a proposal with Senator Booker and a number of other of my colleagues that would provide direct private and public money in the CDFIs and MDIs as part of a longer term strategy to rebuild the LMI communities and foster economic growth. Senator Warner: (16:27) And while the direct equity infusions we're talking about would be more a Treasury directed investment, we're also looking at a TALF like facility that would have a Fed role, not to have loans forgiven, but a TALF like facility where there would still be investment from Treasury, there would still be retention of some of the obligations from these institutions. But by helping to clean up the balance sheet of some of these entities, that would dramatically increase liquidity, which again, we could do equity and then also clean up some of the balance sheets, I think there'd be enormous value here. And I think this is completely consistent with the Fed's mission to achieve maximum stable employment. Senator Warner: (17:22) And that maximum stable employment is obviously a mandate that extends to all communities. And as so many of my colleagues and you have acknowledged, the persistent economic disparities that we have in our country, this has to be dealt with. There's protests on the street about criminal justice, but they are about longterm chronic economic disparity. So I would just ask you, Mr. Chairman is as we roll out this plan that you and the Fed within the bounds of your authority would really lean in, let's expand the envelope a little bit, because I think we really have an opportunity and an obligation to make sure that these institutions are better able to be part of a recovery. And if you make a quick comment on that, I'd appreciate it. Chairman Jerome Powell: (18:10) Be happy to [inaudible 00:00:18:12]. As you know and as we've discussed on other occasions that 13(3) facilities are supposed to be programs of broad eligibility. We don't tend to target particular beneficiaries but rather broad institutions and anyone who meets the sort of requirements can take part in the facility. But subject to that, I'm very happy to take a look at this idea. Senator Warner: (18:35) And I just, again, I know my time's out, but I just point out when we've got 40% of Americans who are making less than $40,000 a year out of work disproportionately in LMI communities, I think that is a broad based problem that the country has to address. Thank you, Mr. Chairman. Chairman Crapo: (18:52) Thank you. Senator Perdue. Is Senator Perdue with us? We'll move on until he gets back, then to Senator Tillis. Senator Tillis: (19:08) Thank you, Mr. Chairman. Can you hear me? Chairman Crapo: (19:10) Yes. Yes. Senator Tillis: (19:13) And thank you, Chairman Powell for being here. I just heard an echo, I think I've corrected it. I'm kind of curious, I know that Vice Chair Quarles a while back talked about adding additional elements to CCAR stress testing. And some of that I'm sure is just a natural evolution of what you're learning about, what works and what doesn't work within CCAR. But I've heard more recently that they're going to add on another layer that's specifically focused on the circumstances we found ourselves with, with COVID-19. And one of the concerns that I have with that is; number one, I think that the banking institutions with about twice as much capital as they had after the financial crisis, that we could arrive at a point with the results of these stress test, to where we're actually going to increase their capital requirements and that seems to me to be at odds with us relying on the banks, to get out there help families and businesses provide capital and support financial intermediation. Senator Tillis: (20:25) So a part of what I'm asking is if we're going down this path, are we working with the banks to really think through the cost benefit of this particular additional regimen added to the stress testing and are we potentially at risk of increasing capital requirements at the worst possible time? Chairman Jerome Powell: (20:46) Senator as I mentioned we're just in the middle of making those decisions and carefully reviewing all the materials. So I'm just going to have to say, I hear your comment loud and clear and probably a discussion for us to have after we make the announcement we're going to make on the 25th. As we mentioned publicly, were doing sensitivity analysis, which seems like the right thing to do. And you're also right that we're not looking to have our capital requirements be procyclical, but in terms of the actual results of the test and things like that and what we're doing, I think I should just leave it at that. Senator Tillis: (21:31) Okay. Thank you. And by the way on looking forward to future announcements, like Chairman Crapo, I'm looking forward to a future announcement on Inter-Affiliate Margin. I understand that the regulators are on board. Do we have any idea of when we do expect action on that? I've been expecting it. I understand that it's eminent. Do you have any read on when we're going to see that Chairman Jerome Powell: (21:57) Soon. That's all I know is that it's soon. I wish I could be more specific, but that's what I know of is soon. Senator Tillis: (22:05) Well, to be fair, I know that, that's cuts across several lanes, but it's been soon since about September of last year. So I hope it's getting to be sooner. Chairman Jerome Powell: (22:14) Yes, I do too. Senator Tillis: (22:14) I have another question. And thank you. I know you agree. I think it was last week, Mr. Chairman, that you said the FOMC is not even thinking about raising rates. I think you went on to say that they're likely to stay at zero between now and through 2022. That feels like forward guidance that, that's policy is anchored in the calendar rather than FMOC goals. So I'm curious and I think it was in that setting that you didn't make any mention of yield curve control. And I was curious, was that just not right for that particular discussion or do you believe there's not a place for yield curve control- Senator Tillis: (23:03) Do you believe there's not a place for yield curve control in this dialogue? Chairman Jerome Powell: (23:06) So, I did say that we're not only not thinking about raising rates, we're not thinking about thinking about raising rates. That's what I said. I did mention the end of '22. What that came out of, Senator, was the Summary of Economic Projections showed that overwhelmingly committee members didn't see the likelihood under the current expected path of raising rates, at least through the end of '22. And I did mention yield curve. I talked about yield curve control in the press conference, but I would just echo what I said earlier to Senator Toomey, which was, this was a briefing on the historical use of yield curve control by the United States actually during World War II and then after, which led to the Fed Treasury Accord. And also on some current usage by the Bank of Japan and the Reserve Bank of Australia. Chairman Jerome Powell: (23:54) It really was just to acquaint the committee with what it is and why some other central banks have used it. We haven't made any decision to go forward on that. It's a tool... The same way we've looked at negative rates, repeatedly, we look at negative rates. In the case of negative rates, we've pretty much decided that it's not something we think is attractive for us here in the United States. And yield curve control is more just let's educate everyone on what it is and then decide whether we think it might under some circumstances be useful. Senator Tillis: (24:27) Thank you. Mr. Chair, I'm going to submit, maybe a question for the record about what financial policy we should be pursuing for what I consider to be the donut hole. Travel, leisure, hotels that were first into the crisis, they're going to be the last out. I don't believe the Treasury has the authority that it needs to come up with a facility for them, but I think it's critically important. Thank you, Chairman Powell. Thank you Chair Crapo. Chairman Crapo: (24:54) Thank you. Senator Warren. Senator Warren: (24:57) Thank you, Mr. Chairman, and thank you Chairman Powell for being here with us today. We're facing an economic crisis that has devastated millions of families and small businesses across this country. Two weeks ago, many people celebrated the latest job numbers, which showed a dip in the overall unemployment rate. But we're not going to be able to build a successful recovery if we don't understand the scope of the problem. So, I wanted to dig into the numbers just a little bit today. Chairman Powell, are jobs coming back at the same rate for both black and white Americans? Chairman Jerome Powell: (25:34) Are they coming back at the same rate? No. Actually, I think the answer to that is no. I'd want to check that, but I believe that the black unemployment rate did not come down as much as the white unemployment rate. Senator Warren: (25:48) In fact, Chairman Powell, you might want to [crosstalk 00:02:53]. I was going to say as I understand it, white unemployment fell to 12.4% while black unemployment actually rose 16.8%. Is that right, Mr. Chairman? Chairman Jerome Powell: (26:05) You know the tenths numbers. I would've known that the day after the report, but yes, in principle that's right. Senator Warren: (26:12) [crosstalk 00:26:12] direction. That is, it came down for white Americans and it went up slightly for black Americans. Chairman Jerome Powell: (26:16) That is correct in the May report. Senator Warren: (26:18) So back in March, Congress passed a temporary expansion of the unemployment insurance program. Now we're only a few weeks out from that help just running out. Some people in Congress want to let that help expire. They're saying mission accomplished. So Mr. Chairman, you noted that the unemployment rate is higher for black Americans. And now we've just said it's actually increasing. If Congress lets unemployment insurance benefits expire, which families are going to find it hardest to pay their bills, to make rent or to afford groceries? Chairman Jerome Powell: (26:56) Well, the unemployed, which consists of... People who have lost their jobs lately here are... Minorities are well over represented in that group, as are women. Senator Warren: (27:07) So let me just ask Mr. Chairman. This crisis has been hard on millions and millions of Americans. And I know you've been thinking a lot about this issue. So I just want to ask you directly. Is it accurate to say that our economy is healthy when there are serious racial gaps in how Americans are doing? Chairman Jerome Powell: (27:29) I think that's a longer run weakness in our economy. Even when our economy is healthy, we have longer run issues. And that is one that has been with us for a very long time. Senator Warren: (27:43) So I take it you would describe this as not a healthy economy. Chairman Jerome Powell: (27:46) That is not a healthy feature of our economy, now or ever. Senator Warren: (27:51) Thank you, Mr. Chairman. I appreciate your focusing on this issue. This crisis has hit communities of color the hardest. They have faced the biggest decline in employment, and they have faced the largest proportion of deaths from COVID-19. The minute jobs start recovering for white Americans, we can't just say that the problem is fixed and start cutting off help for people who are out of work. Senate Republicans are eager to let this help expire when we still have more than 20 million people out of work, and the unemployment rate is going up for black Americans. Inequality is not something that happens on its own. It is the result of policy choices, who we decide to help and whose pain matters. Congress can help those who need it most by reauthorizing expanded unemployment and by doing it now. Thank you very much, Mr. Chairman. I appreciate your being here today. Chairman Crapo: (28:57) Thank you. Senator McSally. Senator McSally: (29:03) Thank you, Mr. Chairman, and thanks Chairman Powell for your testimony today. I'd like to talk about real estate back in Arizona. We're seeing the economy is starting to recover somewhat, but there is concern for businesses in every sector with revenues down, rent not being paid, then mortgages not being paid, and this really crosses many sectors. And in the 2008 crisis, Arizona really was hurt deeply in this area, and very concerned and monitoring what's happening in the sector. So since real estate pretty much goes across many industries, you mentioned you were monitoring this, but you're not as concerned as before. Could you elaborate on that? And is there any discussion or consideration about a real estate focused facility in order to be able to help out in this area? Chairman Jerome Powell: (29:56) So I would say that like other companies, real estate related companies are eligible to take part in our facilities. I'd also point to the fact that commercial mortgage backed securities are eligible assets for the term asset loan facility. So just we open up these facilities to companies, and any company from any industry that meets the financial requirements of the facility and is otherwise eligible can take part. We don't target facilities toward individual industries so much. Senator McSally: (30:33) Okay. But you mentioned earlier I think in response to Senator Rounds that you were kind of monitoring this element of the economy and you had some concerns a few months ago, but less concerns now. Could you elaborate a little bit more on that? Chairman Jerome Powell: (30:46) Yeah, I was talking about residential mortgages there. So when forbearance happened in the CARES Act and the mortgage servicers were looking at very large liquidity requirements, and the question was, are they going to be able to address that problem? And so steps were taken by the housing regulators, and then there was a heavy wave of refinancing with lower mortgage rates. So those concerns that we had a couple of months ago have sort of been alleviated a little bit, I would say. We're still monitoring the situation carefully. That's very much about residential mortgage backed securities, residential money. Senator McSally: (31:28) Thanks for that clarification. The followup on what Senator Tillis touched on at the very end. In Arizona, the travel, the lodging, tourism, all that has been really hit hard from this, and really concerned about their slow recovery. So what are you seeing in this sector and unemployment and consumer spending, and is there anything within your agency's authority to help this, or are you going to go back to just the overall facilities or anything? This is a very specific sector that's been hit hard, the lack of tourism and travel. Chairman Jerome Powell: (31:57) Yeah. Very, very hard. It's airlines, any kind of travel. It's hotels. It's really it's any business that depends on getting people together in tight groups and either feeding them or flying them around or putting them in rooms and things like that. All of those companies, bars, restaurants, to retail, they're all really feeling this. And there's no question about it. And by the way, that's where a lot of the layoffs are in those service industry companies. And so, what we've done is we've created these facilities, and they look back to the financial performance of the potential borrower before the pandemic. So if you were in reasonable financial shape before the pandemic, then in principle, you can be an eligible borrower. We're not going to look at what happened to you because of the pandemic. And that's really the way we've approached that. Senator McSally: (32:48) Great. Thanks. Okay. On a different note, on page six of the Federal Reserve's monetary policy report, there's a graph that shows unemployment rates among several demographics. So it includes African American, Hispanic, white, and Asian. We have 22 Native American tribes in Arizona that have been in many cases very hard hit by the pandemic. It's about 300,000 individuals. It's a pretty significant percent of Arizona. Is your agency tracking any data specifically on Native Americans? And if so, what are you finding? And if not, will you commit to helping with this important community that needs help right now as well? Chairman Jerome Powell: (33:28) So, we do keep very good track of all that. And particularly the Federal Reserve Bank of Minneapolis has a real specialty in that area. And we'll be happy to work with you on that. It's something... I don't have the numbers on the tip of my tongue, but it's very much a focus for us. Senator McSally: (33:46) Okay, great. Thank you. And just to wrap up, Chairman Powell, what's your level of optimism? Arizonans are struggling. They're getting back to work safely. We're still having to manage this pandemic. What's your level of optimism of the recovery going forward? Chairman Jerome Powell: (34:02) I would just say long run, don't sell the US economy short. Long run, I am confident that we will have a full recovery. I'm confident of that. I think that the fact is we've had the largest economic shock in living memory, and the economy's going to recover from that, but we just have to be a little patient with it. You'll see people moving back. I think over coming months, a lot of people will come back to work, but there will be a number of people who, significant number of people, who don't go back to work because they're in those industries that we talked about. And that's where there will be less employment. So those people are going to need help going forward to get back to work. But over time, we'll get back. And I just think it's, as most forecasters believe, it's going to take some time to get all the way back to where we were. Will we get there? Absolutely. Senator McSally: (34:52) Great. Thank you. Thank you, Mr. Chairman. Chairman Crapo: (34:54) Thank you. Senator Schatz. Senator Schatz: (34:56) Thank you, Chairman Crapo. And thank you, Chairman Powell for all the work you're doing. I want to go back to the letter that Senator Warner referred to from Chairman Ben Bernanki and Janet Yellen and many other economists that say, quote, that the fiscal stimulus from Congress, the next stimulus, quote, "must be large commensurate with the nearly $16 trillion nominal output gap our economy faces over the next decade, according to the CBO estimates." Without asking you to commit to a specific dollar amount, let me frame the question this way. Is there a bigger risk for our economy that we provide too little support or that we do too much? Chairman Jerome Powell: (35:39) First I saw the headline, I haven't seen the letter. I don't know what's in the letter that the former Chairs Bernanki and Yellen wrote. So, I would say this. The shock that we received, the economy received, is the largest and living memory. And the fiscal response was the largest, and the FED response was the largest. So, 14% of GDP, $ 3 trillion in these programs, it's a great deal. And the question we all will have to answer over time is, is it enough? And I would say there's a reasonable probability that more will be needed, both from you and from the FED. And I would also say though that the things that you've already passed are really having a very positive effect now, and we should see a lot more of that going forward Senator Schatz: (36:24) In light of that, are you starting to reconsider, is the FED starting to reconsider its understanding of the relationship between deficits, inflation and growth? Chairman Jerome Powell: (36:41) Are we reconsidering it? I don't think this has really changed thinking on that. Inflation, the thing about inflation is that there's been sort of downward pressure on inflation around the world for a couple of decades. And so what the models would have called for with big deficits, they would have called for higher inflation, would have called for higher interest rates. We don't see either of those things. So I think we're not working on the hypothesis that higher inflation is a likely outcome. Of course we know what to do if there's higher inflation, but really, at least in the near term and as far as we can see, what we see is a short run inflation. Senator Schatz: (37:27) Thank you. In your modeling, what assumptions are you making about COVID rates over the next several months? Chairman Jerome Powell: (37:38) I look at different scenarios. We look at a wide range of different scenarios. So we model a scenario where there's a second wave and we model a scenario where, kind of the baseline scenario, which is that essentially COVID rates come down over time and there may be regional outbreaks and that kind of thing, but we don't have a sort of second national level. We look at different scenarios. Senator Schatz: (38:07) Can we drill down on that? We can take this offline, and I'll issue a question for the record, but it seems to me that the data changes day by day. And one of the things that you said in earlier testimony was that a lot depends on COVID rates. I mean, we can tweak fiscal and monetary policy, but a lot of this does depend on what's happening with the virus. And I'd like to understand what are your inputs, just as we consider our fiscal policy. And finally, I wrote you a letter asking you to suspend dividends. And you said you're conducting sensitivity analysis of current conditions to decide whether to suspend dividends. And I'm wondering why you're conducting an analysis only of current conditions and not testing whether banks can handle a serious adverse scenario going forward since that's quite likely. Chairman Jerome Powell: (38:59) Actually, that's exactly what we're doing. And that question is one that's at the heart of our stress testing, which is about future highly stressful scenarios. And so that's precisely what we're in the middle of doing. Senator Schatz: (39:11) And what's your timeframe for a decision on the suspension of dividends? Chairman Jerome Powell: (39:18) So, we will be announcing the results of the stress tests on the 25th of June. Senator Schatz: (39:25) Thank you. Chairman Crapo: (39:27) Thank you. Is Senator Kennedy back with us? Senator Moran. Are you with us, Senator Moran. Senator Cramer. Senator Cramer: (39:47) Hi Mr. Chairman. Thank you. I'm happy to step in. And Chairman Powell, thank you for being with us today. You and I in the past have talked a couple of times about my concerns about BlackRock having such a central role in facilitating the financial support in businesses that are approved as part of the CARES Act. And specifically, the concerns I had raised of course were relevant to the potential of investment in energy industry, particularly the oil and gas industry, of my state of North Dakota, and what it seems to me to be an excessive standard that they've applied in terms of climate and whatnot. And that's just one factor, and you and I have had a good discussion. You've of course assured me of their limited role in all of that. However, in recent days or weeks, I've become even more concerned about that standard, their standard of climate investment, with a different standard for foreign investment, particularly Chinese companies, and companies that don't meet the same enforcement demands, that don't have the same accountability and transparency, particularly with the PCAOB for the public companies. Senator Cramer: (41:07) And it's an issue that caused Senator McSally and I to send a letter yesterday to the CEO, Larry Fink, to get a better understanding of their strategy as a company in light of what appears to be what I think again is a double standard in the way they treat investment Chinese companies versus Americans. And so in light of the deference that BlackRock appears to provide the Chinese communist party as well as the radical environmentalist active investors, should I be concerned about their role in the CARES Act? And can you give me some assurances that this part of BlackRock won't impact the public's funds and the public's interest in keeping our particularly oil and gas industry vibrant and the important national security that they provide? Chairman Jerome Powell: (42:01) Senator, I would say there's no reason for you to be concerned. They play an administrative role. We set all the policy decisions, and our facilities lend only to US companies. So they're just our agent in this, and they bring particular skills that we don't have and that they do have. And so that's really what this is about. Senator Cramer: (42:20) Well, I appreciate that assurance. I'm sure they're listening as well and I hope that the regulators are paying attention. We have obviously a lot of work to do as well on our side to make sure that we create a standard that protects America's investment in those same companies. So I appreciate again your assurances. With that, I'll yield the rest of my time, Mr. Chairman. Senator Kennedy: (42:41) Mr. Chairman, this is John Kennedy. I'm on now. Chairman Crapo: (42:45) Thank you, John. We're going to go to Senator Van Hollen next, and then you will be next after that. Senator Kennedy: (42:49) Thank you, sir. Senator Warren: (42:51) Senator Van Hollen. If he's not on, then we will go to Senator Cortez Masto, and then to you Senator Kennedy. Senator Kennedy: (43:01) Yes, sir. Senator Cortez Masto: (43:03) Thank you. Thank you, Mr. Chairman. Chairman Powell, it's great to see you again. Thank you for all of your good work. And I really appreciate your quick and thoughtful actions by the Fed Reserve to respond to the COVID-19 pandemic that has, as we have seen, infected more than a million Americans and taken the lives of more for than 90,000 people. I also agree with you that Congress and the president must continue to act. Our work is not done. We have to continue to invest in our families and businesses and our local governments. So let me talk to you. I'm from Nevada. And I think we've had this conversation before. But let me give you the statistics that I know you're aware of because you deal with it all the time. Senator Cortez Masto: (43:46) The travel industry, which includes hospitality, restaurants, entertainment, attractions, conventions, and more has been one of the hardest hit. You said that already today. And I know we've had this conversation. Travel is our nation's seventh largest industry in terms of employment for this crisis. Nearly four in 10 of all job losses caused by this crisis have been in the travel industry. And more than eight million workers are unemployed. Travel industry's unemployment rate is 51%, which is twice the national unemployment rate during the Great Depression. Senator Cortez Masto: (44:20) In sum, this is nine times worse than the economic impacts following 9/11. In Nevada, 25% of our workforce is employed in the hospitality and entertainment industry. We've had more than 400,000 people file for unemployment. We are at 28% unemployment. Nevada has the highest percentage of unemployment in the country. And the ability of people to go back to work is limited. Travel spending is forecast to decline by half a trillion dollars in 2020. So, I've heard you address this issue, but let me ask you, is there more that the Federal Reserve can do within its existing authority to help the travel tourism and hospitality sectors? What else can be done? What else should we be thinking about? Because we are going to be the last to come out and spring back in this economy. Chairman Jerome Powell: (45:13) Yeah. So, obviously Nevada is ground zero for this really with its both entertainment, its travel, all the things that are, restaurants, bars. It's all the things that are most directly hit, many of them anyway. So what we can do, other than to support the economy in a general matter, our 13 three facilities, that's the tool that we have. So, any Nevada company that meets the eligibility requirements for our facilities is welcome to borrow. And that's really the tool that we have. We do, as I like to say, we do lending not spending. We can lend to solvent borrowers who can service a loan, and the servicing requirements are not terribly strict. We look back to last year's pre pandemic- Chairman Jerome Powell: (46:03) Fairly strict. We look back to last year's pre-pandemic financials to see if you're qualified. We don't look at the ... We're not going to disqualify companies because they've been affected by the pandemic. So that's really what we have to offer. Senator Cortez Masto: (46:18) And I've heard this before, and I'm just curious because this is something I'm hearing also in my state, could the Federal Reserve take a stake in a company to mitigate potential solvency problems? Chairman Jerome Powell: (46:28) No, we can't do that. Senator Cortez Masto: (46:29) Okay. Thank you. That helps clarify. Let me ask you this. We also know that government job loss has totaled about 1.5 million in the past two months. And there are more on the way. The National Governors Association requested 500 billion in aid to state and local government. They sent it to Congress requesting that aid. And without aid to state, what levels of unemployment would the Fed predict? Chairman Jerome Powell: (46:51) I don't have a specific projection, but states effectively, all states, have a balances budget requirement. So what they do when they see revenues drop and costs rise, which is what we're seeing now, what they do is they lay people off, they cut essential services. And both of those things can weigh on economic activity in addition to the human cost of those things. And we don't play a role in advising Congress on specific fiscal policy, but I do think that state and local governments are their major employers and they provide essential services. And that's certainly an area that's worthy of your interest. Senator Cortez Masto: (47:35) And I know my time is running out. Let me ask you this one final question and the rest I'll submit for the record. But would the Fed consider making changes to the Municipal Liquidity Facility that make it more like a grant that would be able, then, to provide more assistance to local governments? Chairman Jerome Powell: (47:52) You went out for a second there, but on the Municipal Facility, we've repeatedly made adjustments. If you've had a specific adjustment in mind I missed it. Senator Cortez Masto: (48:02) Yeah. Turn it into a grant. Can you turn it more- Chairman Jerome Powell: (48:04) We can't do that. No, we can't make grants. That's the one thing we can't do. We can only lend. The law is extremely clear on that. It's you who can make the grants, it's Congress that can do that, as you did with the PPP program. Senator Cortez Masto: (48:16) And if Congress were to go down that route, would you have concerns about that? Chairman Jerome Powell: (48:21) If Congress wants to make grants, that's entirely Congress's business. Senator Cortez Masto: (48:26) Okay. Thank you very much. Chairman Crapo: (48:28) Thank you. Senator Kennedy. You need to unmute, Senator Kennedy. Senator Kennedy: (48:35) Okay. Chairman Crapo: (48:36) There you go. We've got you. Senator Kennedy: (48:38) You got me? Okay. Mr. Chairman, both Mr. Chairmen, I apologize for being late, but I was on another hearing. And if these questions have been asked and answered, if you could just give me short answers, I'd appreciate it because I don't want to belabor this. When will the Main Street Lending Program be ready, Mr. Chairman? Chairman Jerome Powell: (49:04) It's open now for lenders to register. And then once they're registered, they can start making loans and we encourage them to do so. And then the facility will be within a week or so, we'll be open to receive those loans. Senator Kennedy: (49:18) In terms of demonstrating credit worthiness, have you made a decision about using rating agencies other than the big three or four? Chairman Jerome Powell: (49:31) Yes, we have, Senator. We've looked carefully at all of the rating agencies, the NRSROs, we've admitted three additional ones to the ... And the criterion really was that do they have a record of significant experience and usage in the private sector so that investors rely on them? And the answer is there were three in different areas who had that. So we added them. Senator Kennedy: (49:55) Have you made a decision about the minimum amount of the loan? Chairman Jerome Powell: (50:03) We have. In Main street, we've lowered it to 250,000. Yes. And we're carrying that over into the nonprofit part of Main Street. Senator Kennedy: (50:15) Okay. I think that's a positive development. How big is the Federal Reserve balance sheet right now, Mr. Jeremy? Chairman Jerome Powell: (50:21) Just a touch over 7 trillion, I believe. Senator Kennedy: (50:26) How big was it at the end of December? Chairman Jerome Powell: (50:30) Low fours. Low four trillions. Senator Kennedy: (50:35) Okay. How long do you think it'll take to reduce the size of that balance sheet to something, some amount that's not otherworldly? Chairman Jerome Powell: (50:49) That's an interesting standard. So I think when the time comes and the crisis is over and we're not purchasing assets at this kind of pace, what we'll do probably, and that'll be some time out, but what we'll do is we'll ... What we did in 2014 to '17 that really worked is we just stopped, we just froze the size of the balance sheet. And then as the economy grows, the balance sheet shrinks as a percentage of the economy. And that was a very peaceful period during which people weren't worried about the size of the balance sheet, but it declined from 25% to 17% or something like that. That's some years away, but that's probably the way we start. Senator Kennedy: (51:31) Chairman Crapo, I can't see the clock. How much time do I have left? Chairman Crapo: (51:37) You have two minutes. Senator Kennedy: (51:39) Okay. Mr. Chairman, none of us can predict the future, of course, and our economy is estimated to take a real hit this year, as you well know. The intelligence unit of The Economist says that we're going to have a GDP drop to a share of about 4%. But they're projecting Europe's going to be even worse. They're projecting about 9% for Great Britain, 9% for France, I think 6% for Germany. Can we recover if the European Union, one of our biggest trading partners, takes much longer for themselves to recover? Chairman Jerome Powell: (52:36) So a weak global economy, a weak European economy will certainly weigh on US activity. They're a great area for exports and trade of all kinds. And also Europeans come and spend money here on tourism, a lot. Being here in Washington, we see that all the time. So yes, weakness around the globe actually does hurt the US economy. Senator Kennedy: (53:00) Okay. Thank you, Mr. Chairman. I want to yield back my time since I went way over at the last hearing. Chairman Crapo: (53:09) You're a gentleman and a scholar. Senator Van Hollen, are you here? How about Senator Jones? Senator Jones: (53:21) Thank you, Mr. Chairman. Thank you very much. And Chairman Powell, thank you again for being with us and thank you for your service and that all that you and the Fed have done over the last few months. It's been really extraordinary. And I want to echo my appreciation for your comments about the systemic racism that we see in America. Today on the floor, by the way, you may have some interest, five of my colleagues, three Republicans and three Democrats, at 3:00 today will be reading Dr. King's letter from a Birmingham jail in its entirety. And I believe his message of 1963 is as important today as it was then. And I know we focused a lot on the data and how it has affected minorities in this country, particularly our black population. Latest data showing the black unemployment rate at just under 17%, Hispanic unemployment rate at almost 19%, while the white unemployment rate hovering around 14. Bloomberg has reported that the African-American owned businesses declined by 41% from February to April, representing 440,000 businesses, a stark contrast to the 17% drop we've seen for white owners. CNBC declared that we have a housing apocalypse coming before us. Alabama Legal Services, who does so much for the poor and needy in Alabama, particularly within housing, has said that the avalanche of evictions is here and foreclosures aren't far behind. So I want to focus my questions really on our minority communities and underserved communities instead of the overall economy. What downside risk do minority communities see if unemployment benefits are not extended? Chairman Jerome Powell: (55:19) So minorities are substantially overrepresented in the unemployed, particularly the unemployed since that's something like 25 million people have had their employment disrupted as a consequence of the pandemic. And in that group, minorities are very much overrepresented. So all measures that help that group, help them. And all measures that don't help them, make life tougher for them. Senator Jones: (55:46) So measures that we can keep people on the payroll, make sure that they have, and I know this has been a concern from folks that there is no incentive to stay off the payroll, but some transition to where we can provide incentives to get back on payrolls, to get back to work. You would favor that, I assume. Chairman Jerome Powell: (56:08) We don't take position on particular aspects of fiscal policy, but I would say this. There's going to be a lot of people going back to work in the coming months, but there are going to be a lot of people who can't because if they work in Nevada, for example, we were just discussing, in the travel and entertainment industry, this aren't going to be jobs. So it's going to be a while. I think some form of support for those people going forward, in my view, is likely to be appropriate. During the Great Recession, I think employment, unemployment assistance was reauthorized on a number of occasions. And it just is not only can they not go back to their old job, but there are no jobs in that industry. And it's just really tough for them, at least for a period of time to give them support. And balance that with incentives to get back to work. Senator Jones: (57:03) Thank you. Similar question with regard to the minority communities with regard to businesses. Minority business owners face enormous risk as it is even before this pandemic started. So the same question, what are the downside risks for our minority businesses if overall business aid is not extended by Congress? Chairman Jerome Powell: (57:24) I think we, as I mentioned during my opening remarks, the small businesses of America, that's where the jobs are created on net. And we don't want to ... There are business people going in and out of business all the time, but what you don't want is a wave of avoidable insolvencies, which will really will weigh on the economy for years. And that's all the more so true of minority businesses because of the important role they play in our economy and in their communities. Senator Jones: (57:54) All right. And finally, again, focusing on minority communities, if renters and homeowners are not helped with extended eviction moratoriums, what effect will that have on our minority communities in America? Chairman Jerome Powell: (58:07) So evictions and foreclosures and things like that have well-documented negative impacts on people's lives. I think during a pandemic, which is still ongoing, it's particularly important because you wind up sleeping in somebody else's basement or in a shelter or something when that happens. So it's not a good time for people to be ... There are ways to avoid that. Keep people in their homes while the economy recovers and while the pandemic is dealt with. I think those are things well worth looking at. Senator Jones: (58:45) Great. Thank you, Mr. Chairman Powell. And thank you, Chairman Crapo. Chairman Crapo: (58:52) Thank you. Senator Perdue. Senator Perdue: (58:52) Thank you, Mr. Chairman. And Chairman Powell, thank you for being here again. Seems like you were just here. Oh, you were. And thank you for your leadership. I think what the Fed has done to provide liquidity has been absolutely historic and has helped us avoid a major meltdown. Senator Perdue: (59:10) I've got a question, just simply the followup on the question I asked you the last time you were here about the balance sheet. Treasury debt has increased about 2.9 trillion. And a lot of that's just in the last few months, mostly due to the CARES Act. And I'm concerned about who's buying it and how we're financing it. For example, in the month of April, the Treasury issued 1.4 trillion of new debt, 430 billion was absorbed by the domestic market only. And the foreign markets held pretty steady. But the balance of that was taken up by the Fed, as I understand it. And so I don't know how long we can do that. And the question is, are we not effectively, I hate to use the term, but I don't know a better one, monetizing the debt? I mean, at this current pace, will demand ever catch up? Or are we going to have to think about a rebalancing at this point? Chairman Jerome Powell: (01:00:01) That's certainly not our intention. The very high level of both Treasury and MBS purchases that we affected in March and April was really because the markets had stopped working. And Treasury Market's the most important financial market in the world. And the primary dealers in the bank's balance sheets were full and everybody wanted ... They wanted very short term cash or treasury obligations. So they didn't want treasury bonds. There were no buyers, and it was just, it was a very difficult situation. And so we went in and we bought a lot. It wasn't in any way about meeting Treasury's supply. And it continues not to be. We really don't think about that. They're also, US Treasury debt is an attractive asset around the world. There's a lot of demand for our paper. But really, it was about market function. It does actually have a positive effect on financial conditions too, because you're taking long duration assets out of people's hands and they buy other things. So it has positive effects at this time, and those are good too. Senator Perdue: (01:01:09) If demand for that paper from the Treasury doesn't come back though in coming months, what's the longer term implication for interest rates? I know you're reticent to give any forecasts on interest rates, which I understand, but just give us a tone about the impact of correlation there. Chairman Jerome Powell: (01:01:27) Yeah. I mean, there seems to be plenty of demand for our paper. I wouldn't want to speculate about what interest rates might do, but we are the world's reserve currency. And particularly in times of stress, people want to own US Treasury obligations. And so that's been the way that is for a long time. Even if some of the problems, as in the last crisis, a lot of the problems originated here. Not withstanding that, people wanted US Treasury. And that's because we have the strongest economy and the best institutions, most liquid markets. Senator Perdue: (01:02:01) I have one last question, I'll yield my time back. You've been very gracious with your candor and your time today. I've heard a conversation here in this hearing about labor. And I hear all over my state right now, our state was one of the first ones to reopen. And one of the inhibitors to supplying the demand that I think is out there, and I think we're proving that, is getting people to come back into the workforce. And so we know that the premium on the unemployment structure is creating a disincentive. And I want to make sure that we protect the people that need to be protected, but how do we incent, in your opinion, the people that need to come back to the jobs that are sitting there? I mean, we have a number of, in Georgia anyway, a number of job openings that are just going unfilled because people aren't coming back yet. Chairman Jerome Powell: (01:02:50) I know that's something you're going to be considering as the enhanced unemployment insurance program runs out at the end of July. I wouldn't presume to tell you what the Fed thinks you should do, because it's really not our role. I do think you'll want to continue support for workers in some form. I think there are going to be an awful lot of unemployed people for some time, even though we have 25 million newly unemployed or partially employed people. And even if we start putting people back to work really fast, which may happen here, there's still going to be plenty of people who just don't have jobs and they may not have them for awhile because there are no jobs in travel, accommodation, various places. So I think it's, and I know there are a lot of interesting ideas being thrown around out there. But I think something will likely wind up being appropriate there. Senator Perdue: (01:03:49) Thank you, Mr. Chairman. Thank you, Chairman Crapo. Chairman Crapo: (01:03:53) Thank you. Senator Smith. Senator Smith: (01:03:56) Thank you, Mr. Chair. And thank you, Chair Powell for being with us today. It's nice to see you again. So we are more than three months into the economic crisis that was caused by coronavirus and more than two months through the passage of the CARES Act which provides urgent and emergency support for families and for businesses and for healthcare systems. And I think we all know as, and you've acknowledged yourself in your opening statement, that COVID is not the great equalizer. In fact, it hits hardest those who are already struggling because they don't have a safe, affordable place to live, because of lack of access to healthcare, because of low wages and chronic poverty, and especially, I think, the generational impacts on black and brown and indigenous people for the systemic racism that limits their freedom and their opportunities and even their lives. Senator Smith: (01:04:51) So I think that in this moment, it is essential that Congress takes up this challenge and fulfills the promise of America for equal for racial and economic justice. And I want to just have a chance to talk with you a little bit about this, because I think there's a rising narrative we hear from some, including the President, that things are improving, we need to reopen the economy, and before we know it, we can all get back to normal. But what I am so worried about is that we're burying our heads in the sand when it comes to, one, the virus's continuing spread, but also that we're looking away from the disparate impacts that COVID is having. And that, in fact, if we're not careful, if we don't change the way we're doing things, we won't get back to normal, we'll get back to a worse normal, a normal that exacerbates these inequities. Senator Smith: (01:05:40) So let me just focus, if I can, on the question of housing, and rental housing in particular, because this is something that I see bad trends on in Minnesota. The Star Tribune, my hometown newspaper, recently published an article analyzing what is happening with rent collections in the Twin Cities. And it found that 95% of class A apartment buildings, so the expensive ones where the people who have a lot of money can live, 95% of those renters are making their rent payments. But only about 88% of renters in the affordable apartment buildings, the older ones, are able to make their rent payments. So I think we can see that, of course it always helps if you have more money, we're seeing the impact of this on low income people. And also, I think we're probably seeing the impact of extended unemployment insurance and other help that we've provided to make that 88% number not be even higher. Senator Smith: (01:06:42) So let me ask you, Chair Powell, about this. I know you don't want to comment on specific proposals, but what would be the impact on the housing market, especially the rental market, if Congress doesn't provide some sort of long term rental assistance to people? What would be the impact of that, do you think? Chairman Jerome Powell: (01:07:04) Well, I think if people, for example, get evicted or foreclosed upon and things like that, even their ability to get back in the labor market becomes very challenged. And just from a human, there's a sort of a moral issue and also a economic issue at this particular time because of the likelihood that we'll have fairly large population of people who are not able to go back to their old jobs, or even to find a new job in their own industry. So I just think those are things for worth considering as you think about what support to provide. Senator Smith: (01:07:40) Yeah. And Chair Powell, would you expect that if that were to happen, that would also put incredible pressure on the landlords, sometimes public private partnerships that own these affordable housing units, because they then lose their revenue stream in order to keep those buildings up and running, would you agree with that? Chairman Jerome Powell: (01:07:58) Yes. And you could see pressure on the ownership as well. Senator Smith: (01:08:05) And would you see also that given ... This is, I think, sort of a stunning statistic for my home state, only 25% of black families in Minnesota on their own home. The number is 76% of white families. So would you agree that if we did see a surge of evictions, if eviction forbearance, for example, expires, we don't take additional action, that this would end up exacerbating the racial inequities that we see in our economy right now? Chairman Jerome Powell: (01:08:40) Yes, it would. And I think this pandemic, the way it hits our economy, the way it hits the service economy particularly, has been a real inequality increaser for the reasons we discussed earlier, that those are the people ... People losing their jobs are, to a large extent, service economy employees with relatively low wages and relative- Chairman Jerome Powell: (01:09:03) ... With relatively low wages and relatively high percentages of minorities. And also... That's who's bearing the brunt of this. Speaker 3: (01:09:09) Right. Well, I think this makes the case for why it's important that we continue to send rental for eviction forbearance. But also it makes the case, I think, for why the bill that Senator Brown and many others of us are working on to provide $100 billion dollars in emergency rental assistance so that these families don't have to lose their housing, therefore making it so much more difficult for us to recover. And also exacerbating these fundamental and systemic inequities that we see in our economy overall. Thank you, Chair Powell. Chairman Jerome Powell: (01:09:46) Thank you. Senator Moran. Senator Moran: (01:09:48) Mr. Chairman, thank you I appreciate that. You're putting your intellect and expertise so diligently to work, to repair our economy. I very much appreciate what you're doing, Mr. Powell. Let me tell you that I'm concerned. I think PPP worked pretty well for our smallest employers. It's been my hope that main street lending program will be a similar kind of solution for larger companies in Kansas. It doesn't really matter if you've lost your job, whether you work for a company that employs 9,000 people or employs 900, you're still out of a job. And we have a lot of work to do in that regard. But Chairman I'm, I'm really concerned, genuinely concerned that we may see Main Street Lending Program, not have a material impact in helping small and medium sized businesses in Kansas and across the country. Senator Moran: (01:10:43) And the end result of that is certainly a failure to recover quickly, continuing unemployment, but perhaps a result in which larger companies that have been able to raise cash in recent weeks will consolidate their market share at the expense of those smaller businesses that were unable to do so in the commercial market. So I have a lot of hope for the Main street program, and I need to be assured that it's going to accomplish what it needs to accomplish. But I think the Main Street program is essentially saying that it will stand by a syndicate partner for a fairly narrow class of credit agreements. Senator Moran: (01:11:24) But as far as I can tell banks don't need help in syndicating profitable loans and neither do they want any part of, even 5%, of unprofitable loans. So to me it appears there's little in the program that actually incentivize banks to originate these loans for new customers. So I'm nervous, especially because if we have to make changes to it, the changes come so late, months from now, it will be too late for many of my constituent businesses who employ lots of people in Kansas. Can you give me your thoughts concerning my concerns and try to reassure me that I that my concerns are unfounded? Chairman Jerome Powell: (01:12:09) Sure. So you do put your finger on some of the, some of the challenges with, with approaching the very broad, diverse, main street space, which has different appetites for credit. It's a heavily bank dominated financing sector of the economy, or a series of sectors of the economy. And that means bank credit agreement, which are all individually negotiated. It's not like the bond market where there's quite a lot of standardization. Chairman Jerome Powell: (01:12:36) So it's a challenge and we really had no choice but to go through the banking system to meet those borrowers, that's really where they borrow is through banks. And also we can't do due diligence on literally millions of companies. We're not set up to do that whereas the banking system is exactly what they're set up to do. So, that's what we're doing. And the banks do have incentives. They get to serve their customers a little better. They also get a generous origination fee. So we feel there's substantial interest on the part of bankers for this. Chairman Jerome Powell: (01:13:08) It's also the case though, as it was with, with, with other facilities that the, the amount of funding stress overall in the aggregate, I know companies that don't fit this, but is lower than it was in, in March and April. So we realized there's still plenty of companies out there. So the main street facility is now open to lenders. The lenders are registering. They can make loans right away and within a week or two, those loans will be bought by the facility itself for 95% interest in them will be bought. The banks will be left with 5% origination fee. And we'll know a lot more about the level of demand. Chairman Jerome Powell: (01:13:52) We do have, it's not just joining an existing syndicate, we do have a new loan facility. And so we have three different facilities and we're opening one soon enough for nonprofits. And as we have been since then, the very beginning, we're very open to learning and adapting. We've made repeated changes to these facilities to try to make them better, structured to achieve their goals. And we'll continue to be that and to do that. Senator Moran: (01:14:24) Chairman Powell, I appreciate your optimism and I'm reluctant to be the pessimist and I hope that you are correct. Is there a plan B or that's something would just work out as we react to the markets, the demand? Chairman Jerome Powell: (01:14:40) So I think for all these facilities we will be watching. And if we are hearing about companies for whom a loan is the right answer, who do not, for some reason qualify for the Main Street loan facilities, and should, then we'll be adapting to that. We will certainly be adapting. Senator Moran: (01:15:00) Let me raise one other topic. I can't see Chairman [inaudible 01:15:01], the clock. So the next time we need a bigger square for me to at least read. [crosstalk 01:15:08] Let me talk about.- Chairman Crapo: (01:15:09) ... quick. Senator Moran: (01:15:10) Yes, sir. EBIDTA, earnings before interest taxes, depreciation and amortization, that's a component of the Main Street program. I'm worried that there will be industries and businesses in which that is a detriment and perhaps disqualifying for them. I particularly raise this in the hotel industry where it would be more advantageous to them to be able to rely up on their 2019 net earnings. I am interested in your thoughts in that regard. And then I'm also worried about the indication by Treasury and Fed is that we will operate under the CARES philosophy of the spirit and purpose of CARES... I didn't say that right. That will operate in the Main Street program under the spirit of CARES, which is, I guess, a pretty uncertain term. And I'm looking, I think our businesses are looking for more certainty as to the nature of how this program is going to work. Can you help alleviate business's concerns, the uncertainty that surrounds and any thoughts about EBIDTA? Chairman Crapo: (01:16:24) And if you can brief on this answer, please, Mr. Chairman. Chairman Jerome Powell: (01:16:27) I will. Thank you, Mr. Chairman. In terms of EBITDA, we're looking at last year's EBIDTA. We do appreciate that for some industries, there may be a better way to approach that. And we're looking at that particularly, for example, an asset based approach. So that's something that we're looking at. our big focus has been on getting the facility open, frankly. That's been the main focus for now. And we're looking at past, pre-pandemic earnings, in any case. We're not taking into account the effects of the pandemic for that purpose. Senator Moran: (01:17:04) Thank you, Chairman Powell. Thank you. Chairman Crapo: (01:17:06) Senator Van Hollen. Senator Chris Van Hollen, Jr.: (01:17:08) Thank you, Mr. Chairman, and ranking member [inaudible 01:17:11] and welcome Chairman Powell. I'm a little late to the hearing. I was just on the floor of the Senate calling for us to take up Justice in Policing Act and address in an urgent way issues of systemic racism. I'm glad you made the statement you did in your opening remarks. I want to ask you about a statement made by Raphael Bostic, the president of the Atlanta Fed, where he wrote on Friday, "Systemic racism is a yoke that drags on the American economy. And that a commitment to an inclusive society also means a commitment to an inclusive economy." Do you agree with that statement? Chairman Jerome Powell: (01:17:54) I do, absolutely. Senator Chris Van Hollen, Jr.: (01:17:56) And it's urgent that we use all the tools at our disposal to address that issue. I saw President Trump celebrating the other day that the unemployment rate in May ended up around 15%. It's nothing really to celebrate, but in that same unemployment report and data, we actually saw black American's unemployment rate go up compared to the previous month, did we not? Chairman Jerome Powell: (01:18:26) We did. And over the longer term we see African-American unemployment running at approximately two times white unemployment. And that's a feature of all different parts of the business cycle. Senator Chris Van Hollen, Jr.: (01:18:41) And also these ingrained issues in all aspects of our society from schools to financial systems. Let me ask you this. I saw that Wall Street has responded favorably to some of the most recent actions that the Fed just took. When it comes to helping those people who are most hurt economically by this downturn and you've spoken about them, the fact that 40% of individuals with incomes under $40,000 found themselves out of a job. When it comes to those individuals who are hardest hit, would you agree that a fiscal policy is probably a more effective tool in addressing those issues than the instruments that the Fed has at its disposal? Chairman Jerome Powell: (01:19:31) In the short and medium term, yes, fiscal policy. In the longterm maximum employment is a great thing. What we had the last couple of years, 50 year low unemployment, was really making a difference in those communities. And we were very pleased to see that we were hearing that from people in those communities, but for now fiscal policy's critical. Senator Chris Van Hollen, Jr.: (01:19:51) Right. But in the short term, and of course, a lot of those gains were erased in a very short time. And our goal has to be, does it not, to try to get back to where we were as soon as possible and then start improving again. Would you agree that that should be the goal? Chairman Jerome Powell: (01:20:08) Very much so. Absolutely. Certainly is for us. Senator Chris Van Hollen, Jr.: (01:20:11) Do you agree with the letter, I'm not sure what your testimony is as to whether or not you saw letter, but we have a letter we received this morning from Ben Bernanke, Janet Yellen, and over 120 other very respected economists about the urgent need to take more fiscal action. Given what you just said about the short term and fiscal policy as a tool, do you agree with their statements that we need to do more? Chairman Jerome Powell: (01:20:40) So I saw the headline, saw the first two sentences of the story. I have not had a chance to read it. It went across the tape just before I walked in here. So I will look at it. In fiscal policy, what I would say is, we're not in a position of giving you advice, and you've reacted, Congress has done the most it's ever done. 14% of GDP, $ 3 trillion. We've done the most we've ever done. As this plays out, it's likely that there will be a group that struggles to regain employment because they were working in those industries that are so strongly effected. It's likely that they will need help and they may need help from the Fed and they may need help from you too. Senator Chris Van Hollen, Jr.: (01:21:20) Well, I take it from your previous response that especially when it comes to short term downturns, that fiscal policy is the most effective instrument to deal with the short term impacts. We've lost 1.5 million jobs, state and local government levels, over the last two months. That's a drag on the economy, isn't it? Chairman Jerome Powell: (01:21:41) Yes, it is. [crosstalk 01:21:47] employers, well, state and local governments, one of the largest employers, I think 13 million people. Senator Chris Van Hollen, Jr.: (01:21:52) So shouldn't all of us, using the tools at our disposal, try to stop the continued loss of jobs at the state and local level? Chairman Jerome Powell: (01:22:01) So we did discuss this and earlier, and I would say it's certainly an area where I would be looking if I were you. State and local governments provide those critical services and they have balanced budget requirements. So the layoffs come very quickly when revenues go down and expenses go up. And that's going to weigh on the economy, so. Senator Chris Van Hollen, Jr.: (01:22:25) And are you aware of the fact that in many cases, state and local governments are making their fiscal decisions as of July 1st as to whether or not to cut back on their budgets and lay people off? Chairman Jerome Powell: (01:22:38) Yes. [crosstalk 01:22:40]. Senator Chris Van Hollen, Jr.: (01:22:41) Mr. Chairman, and just in closing it would seem to be given all those facts that Congress would be negligent in leaving town before the 4th of July for the 4th of July break, without providing this additional relief to state and local government employees, but to also others. So thank you. Thank you to both chairmans and ranking member Brown. Chairman Crapo: (01:23:04) Thank you. And do we have Senator Sinema on- Senator Kyrsten Sinema: (01:23:08) Yes, Mr. Chairman. I'm here. Chairman Crapo: (01:23:10) Go ahead. Senator Kyrsten Sinema: (01:23:11) Well, thank you, Mr. Chairman, and thank you to Chairman Powell for joining us again today. We appreciate it. Chairman Powell, immediate economic stabilization, as we saw with the PPP program and other coronavirus relief funds, will continue to be necessary as we shield the economy from the worst effects of this pandemic and work to save lives. Disease experts, and other health officials, warn of a harsher second wave of the virus in the fall. I recently urged the Administration to implement a national testing and infection tracking strategy to help stop the spread of coronavirus and protect Arizonan's from future waves. Would you agree that a robust infection tracking regime that enables U.S. businesses to reopen and operate safely would have a positive effect on economic growth? Chairman Jerome Powell: (01:24:00) I absolutely would. I think anything that enhances the public's confidence and ability to become evermore confident that it's safe to go out and take part in the economy will have very high returns for the economy. Senator Kyrsten Sinema: (01:24:12) Thank you. The Federal Reserve projects, the U S economic output will decrease by six and a half percent at the end of this year, compared to 2019. Does this projection assume a potential second wave of coronavirus and the accompanying economic impacts? Chairman Jerome Powell: (01:24:28) That number is actually just, I should say, that's just the median of the 17 projections by the 17 participants in the [inaudible 00:15:38]. So it isn't an official projection of the Fed or anything like that. And it will be based on different assumptions made by different people. Each of the 17 will have probably made a somewhat different assumption. I would think the answer to your question though, largely, will be no. Largely, that is not a number in our, my colleagues will not principally have assumed that there will be a substantial second wave. Senator Kyrsten Sinema: (01:25:05) Oh, that's concerning. Congress will need to find the best path forward as we navigate an unprecedented and evolving pandemic Arizona's that Americans count on our leaders to follow the science and the fence to protect public health and rebuild our economy. Businesses and families will need immediate economic relief. If case counts worsen and further restrictions are warranted, would you agree given the possibility of several future waves of the virus that identifying nimble, flexible economic stabilizers to quickly make impacted businesses and families stable would be beneficial for our economic growth? Chairman Jerome Powell: (01:25:41) So I think the question of automatic stabilizers is a classic fiscal policy question, and one that you and your colleagues will have to sort out. I do think that I think that the response that Congress has made so far, particularly in the PPP program, the checks and the enhanced unemployment insurance has made it made a big difference in where the economy is now. Senator Kyrsten Sinema: (01:26:07) Thanks. And finally, I want to briefly discuss relief to state and local governments. I appreciate your efforts to provide our state and local governments greater access to the municipal liquidity facility. And I'd encourage you to take further action to allow smaller Arizona cities, towns, and counties to access this financing. Economic studies show that the 2008 recession was significantly prolonged due to shortfalls in state and local government funding. Do you agree with that analysis? And would you agree that addressing state and local funding shortfalls will have a meaningful effect on the overall economic outlook? Speaker 3: (01:26:41) So we do know, or the research does show that in the aftermath of the global financial crisis during what we call the Great Recession, that state and local government did weigh on economic activity. There were a lot of layoffs and not much hiring. I think state and local government had an even higher percentage of the labor force back then. In terms of what Congress should do, I do think that's an area that's worth some attention because of what we discussed. Senator Kyrsten Sinema: (01:27:16) Thank you, Mr. Chairman and thank you to ranking member Brown. I look forward to working together on a path to recovery and Mr. Chairman, I yield back. Chairman Crapo: (01:27:26) Senator Sinema, Senator Brown has asked for one more question, and then we will conclude our questioning Senator Brown. Senator Sherrod Brown: (01:27:32) Thank you, Mr. Chairman, always for your indulgence. One question, and then a brief comment. Thank you Chair Powell, I know your fiscal policy is not within your province, as you say many times, but I've been impressed by your thoughtful answers, particularly on state and local government assistance, and on preventing evictions on rental assistance. And those are such important issues. My question is pretty simple. Will Congress make inequality worse if we're not as thoughtful as you have been in our fiscal response? Chairman Jerome Powell: (01:28:09) That's a hard form of the question. I think this whole episode with the pandemic is very tough on low and moderate income communities. And, again, I think Congress has done a lot compared to other downturns here and it's having a real effect. And I think there may well be a need to do more and for us as well. Senator Sherrod Brown: (01:28:39) Thank you. And I've heard your public statements. I appreciate that. I would just add Mr. Chairman. I'm going to join, Senator Jones mentioned reading the one of the most extraordinary pieces of writing in American history. I'm joining him with, I believe four other senators, there'll be three in each party, maybe four in each party, and to read from Dr. King's letter from the Birmingham jail. Senator Sherrod Brown: (01:29:01) And he reminds us that we always make excuses to wait to address racism. I know there's a lot going on, but what we do now matters. I want you to take that seriously. I think you do. I appreciate it, as I said, your thoughtful comments. We can't ignore how our institutions and our policies, and the Fed is central to that, have contributed to inequality in this country. And my question about your working with us on this is a serious one, I appreciated you're saying you talked to other Fed governors about that. I hope you'll lead the Fed, as I hope Congress will step up as well to address this most basic of American problems. So Mr. Chairman, Chairman Crapo thank you and Chair Powell, Thank you. Chairman Jerome Powell: (01:29:46) Thank you. Chairman Crapo: (01:29:46) Thank you, Senator Brown. And that does conclude today's testimony, the testimony and the questioning Senator. Chairman Powell, I would like to join with those who have commended you on the service that you and our Federal Reserve has given to the country in dealing with this pandemic and appreciate you being here with us today as well. We look forward to continuing to work with you as you implement the various 13(3) facilities and the other responses that fall within your purview to this crisis. Chairman Crapo: (01:30:21) And once again, thank you for taking your time to give us your wisdom today in the hearing. For senators who wish to submit questions for the record, those questions are due on Tuesday, June 23rd. I asked that Chairman Powell, you respond to those questions as quickly as you can. This hearing is adjourned. Chairman Jerome Powell: (01:30:43) Thank you, Senator Crapo. Thank you Senator Brown. Pleasure. Chairman Crapo: (01:30:46) Thank you. The rest of the hearing is currently being transcribed, thank you for your patience