[Senate Hearing 117-18]
[From the U.S. Government Publishing Office]
S. Hrg. 117-18
THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS
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HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
OVERSIGHT ON THE MONETARY POLICY REPORT TO CONGRESS PURSU-
ANT TO THE FULL EMPLOYMENT AND BALANCED GROWTH ACT OF 1978
__________
FEBRUARY 23, 2021
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
44-741 PDF WASHINGTON : 2021
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Tanya Otsuka, Counsel
Dan Sullivan, Republican Chief Counsel
John Crews, Republican Policy Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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TUESDAY, FEBRUARY 23, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 44
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 4
WITNESS
Jerome H. Powell, Chairman, Board of Governors of the Federal
Reserve System................................................. 5
Prepared statement........................................... 45
Responses to written questions of:
Chairman Brown........................................... 48
Senator Toomey........................................... 52
Senator Warren........................................... 56
Senator Cortez Masto..................................... 66
Senator Scott............................................ 68
Senator Rounds........................................... 69
Additional Material Supplied for the Record
Monetary Policy Report to the Congress dated February 19, 2021... 71
(iii)
THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS
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TUESDAY, FEBRUARY 23, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex, Hon. Sherrod
Brown, Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. This hearing is in the virtual format, as
we have done in the past. For those joining remotely, a few
reminders.
Once you start speaking, there will be a slight delay
before you are displayed on the screen. To minimize background
noise, please click the mute button until it is your turn to
speak or to ask questions.
You should all have one box on your screens labeled
``Clock'' that will show you how much time is remaining. For
all Senators, the 5-minute clock still applies for your
questions. At 30 seconds remaining, you will hear a bell ring
to remind you your time has almost expired. It will ring again
when your time has expired.
If there is a technology issue, Cameron and Charlie, who
are very good at this, will fix it, but we will move to the
next Senator until any technology issue is resolved.
To simplify the speaking order process, Senator Toomey and
I have agreed to go by seniority for this hearing, as we have
in the past.
At this Committee's first hearing, we heard from our
witnesses the challenges and struggles Americans have faced
over the past year.
Anyone who has been doing their jobs has heard these
stories. Frontline workers, like transit workers--whom we heard
from last week--go to work every day worried they will get the
virus on the job and bring it home to their families. Mayors
and county commissioners and community leaders wonder how long
they can hold on without starting layoffs. Renters see their
bills pile up, watching their bank balances dwindle lower and
lower, wondering if this will be the month that an eviction
notice is posted on their door.
Today more than 4 million people are out of a job. That
number keeps climbing. We are still fighting the battle against
the coronavirus. Nearly 500,000 of our fellow Americans have
died from COVID-19.
We know we are facing two crises: a public health crisis
and an economic crisis. We have to be clear about that. We
cannot solve one without solving the other.
We know getting our economy back to full strength requires
a massive, wartime-level mobilization to get all Americans
vaccinated.
We also know that vaccines alone will not put most workers
and their families back to where they were a year ago.
We want people back to work, we want kids back in school,
and we want to see Main Streets thriving and humming with life
again. That requires real Federal leadership on a level we have
not seen in this country since World War II.
As Bill Spriggs alluded to when testifying before this
Committee, before D-Day, General Eisenhower did not call up
President Roosevelt and ask, ``Can we afford to storm the
beaches at Normandy? Do we have the money in our accounts?''
Most people that I talk to in Ohio and around the country
are not worried about doing too much in the battle against this
virus; they are worried about doing too little. They want us to
do whatever it takes.
Eighty-five percent of Americans still need a vaccine. Our
front-line workers still need PPE. Small businesses still need
assistance to keep their doors open. States and cities and
towns still need resources and support to open schools safely
and keep buses running and libraries open and firefighters on
the job.
Experts agree the best thing we can do, the best thing we
can for the country right now, is to get resources out the door
as quickly as possible to tackle these interconnected problems.
Former Fed Chair, now our Treasury Secretary, Janet Yellen
said if we do not do more, we risk a permanent, her word,
``scarring'' of the economy into the future.
Economists from across the political spectrum--including
many who have testified before this Committee--tell us that
without strong fiscal support, our economy could spiral even
further out of control and take even longer--years--to recover.
Our witness today, Federal Reserve Board Chair Jerome
Powell, has expressed some of those same concerns. Just a few
weeks ago--after we passed the COVID-19 relief bill in
December--Chair Powell said that ``support from fiscal policy
will help households and businesses weather the downturn as
well as limit lasting damage to the economy that could
otherwise impede the recovery.''
Chair Powell has talked to all of us about the risk of
falling short of a complete recovery, the damage it will do to
people's lives and to the ``productive capacity of the
economy.'' Those were his words: ``productive capacity of the
economy.''
President Biden understands this moment; he has risen to
meet it with his bold American Rescue package. It is a plan to
both rescue the economy and save American lives.
Workers and their families need to see their Government
work for them now, and this rescue plan must be the beginning
of our work to deliver the results that empower people and make
their lives better. We need to rethink how our economy
operates. When a hard day's work does not pay the bills for
tens and tens of millions of workers, and even middle-class
families do not feel stable, something in the system is broken.
We know that.
Workers' wages have been stagnant for decades; CEO pay has
soared. Corporations get huge tax breaks. Instead of investing
in their employees and the communities they serve, management
too often rewards itself and its shareholders through stock
buybacks and dividends.
The wealth and income gaps for women and for Black and
Brown workers are getting worse, not better. Many families
still had not recovered from the Great Recession when the
pandemic hit.
This did not happen by accident. It is the result of
choices made by corporations and their loyal allies in
Washington.
They have spent years rolling back consumer protections in
our financial system, cutting corporate tax rates, and using
Wall Street to measure the economy instead of the condition of
workers.
And the same people that have been advocating for these
rollbacks, pushing this stock market-centered view of the
economy, are the same people who say we should not go big on a
rescue plan. They say that there is no need for the Government
to help people, that the market should decide who wins and who
loses.
But we all know that the market does not work when the game
is rigged. Corporations that have been lining their own pockets
have done so with plenty of Government help and intervention.
We know that for them short-term profits are more important
too often than their workers. That is why we have to stop
letting them run things.
Look at what has happened in Texas, where a deregulated
energy grid failed, leaving millions without power in frigid
winter temperatures. People are literally freezing to death in
their own homes--in the United States of America.
Without any rules, energy companies can charge consumers
sky-high prices. They even use automatic debits, taking
thousands of dollars directly out of people's bank accounts. We
know climate change causes severe weather patterns across this
country. We need more investment in public infrastructure, not
less. We cannot let corporate greed continue to stand in the
way.
Our Nation's central bank plays a critical role in all of
this.
The Federal Reserve can ensure that the biggest banks use
their capital to invest in their workers and lend in their
communities, instead of ginning up stock prices with buybacks
and dividends.
The Fed can make sure the response to economic and
financial crises does not just help Wall Street, but helps
everyone.
It can require that financial institutions take into
account the serious risks posed by the climate crisis.
It can help ensure that everyone in this country has a bank
account and access to their own hard-earned money. It can start
to undo the systemic racism in the financial system, from black
codes to Jim Crow to redlining to locking in discriminatory
practices during the last Administration. It can make workers
the central focus of our economy.
Chair Powell, you said just a few weeks ago that the
``benefits of investing in our Nation's workforce are immense.
Steady employment provides more than a regular paycheck. It
also bestows a sense of purpose, improves mental health,
increases life spans, and benefits workers and their
families.''
What that boils down to is the dignity of work. It means
that hard work should pay off, no matter who you are, no matter
what kind of work you do, whether you punch a clock or work for
tips or work on a salary or taking care of aging parents. It
means we need to start measuring the success of our economy by
the success of the people who make our economy work.
Chair Powell, thank you. I look forward to your testimony.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman, and thank you,
Chairman Powell. Welcome back to the Banking Committee. I look
forward to your testimony.
About a year ago, the U.S. economy was entering an
unprecedented economic contraction as a result of the shutdowns
that followed the spread of COVID-19. We all remember credit
markets seizing up. Second quarter GDP last year fell by over
30 percent. The unemployment rate reached about 15 percent in
April, the highest it had been since the 1930s. The economy was
in very desperate straits, to say the least.
Thankfully, the worries about a long, drawn-out depression
appear to have been unfounded. In response to the economic
collapse, Congress and the Fed took very, very bold,
unprecedented, and decisive action. The Fed quickly lowered
interest rates, launched a quantitative easing program on an
unprecedented scale, and helped facilitate market functioning
through a variety of emergency programs that were funded
through congressional legislation, and we in Congress passed
over $4 trillion in relief over five overwhelmingly bipartisan
bills.
Fortunately, today we are in nothing like the situation we
were in last spring. Today the unemployment rate is now 6.3
percent, about where it was in July of 2014. Eighteen States
have unemployment rates below 5 percent. The average household
in America is in a better financial position today than it was
in before the pandemic. Personal savings rates are up by over
$1.6 trillion. Consumer credit is down by over $100 billion.
There is no question there are some subsets of our economy and
our society that have been hit much harder than others, but in
the aggregate, the fact is Americans have more disposable
income now than they had before the crisis. And yet Congress is
in deliberations to spend another $1.9 trillion with universal
payments to people who have never had as much income as they
do, to entities such as State and local governments, which in
the aggregate have taken in more revenue in 2020 than they did
ever before.
We are well past the point where our economy is collapsing.
And, in fact, our economy is growing very powerfully. The last
thing we need is a massive multi- trillion-dollar universal
spending bill. And we should recognize that all of this
spending comes at a cost. It all gets funded with Government
debt, which is either monetized, which has its own dangers, or
it is a burden that gets passed on to future generations that
have to service that debt.
In 2020, debt held by the public reached 100 percent of our
total economic output, and CBO projects that over the next 10
years, net interest costs will amount to $4.5 trillion, and
that is without another $1.9 trillion bill.
There is also a real danger that we have overheating in
places that lead to unwanted inflation, and I think the data is
increasingly pointing in that direction. Keep in mind, we have
$11 trillion in personal savings deposits. The country is in an
accelerating reopening as the number of COVID cases is
declining very, very rapidly on a daily basis. The economy is
poised for very substantial growth in the near term, and yet
the Fed continues to purchase $120 billion of securities per
month, maintain short-term interest rates at basically zero,
and Congress is considering, as I said, another enormous bill.
On another matter, I want to make the point that I do think
it is very important for the Fed to continue to focus on the
mandate it has and not to seek to broaden that mandate. As
noble as the goals might be, issues such as climate change and
racial inequality are simply not the purview of our central
bank. So during this hearing, I look forward to hearing about
your views, Mr. Chairman, on the economy, on monetary policy,
and the state of our markets.
And with that, I yield.
Chairman Brown. Thank you, Senator Toomey.
Today we will hear from Federal Reserve Chair Jerome Powell
the Fed's monetary policy and the state of the U.S. economy. It
is nearly 1 year since the coronavirus pandemic first wreaked
havoc in our country. We know the Federal Reserve plays a key
role in making sure that our economy recovers for all
Americans.
Chair Powell, thank you for your service. Thank you for
being in front of our Committee today and for your testimony.
Proceed.
STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you, and good morning, Chairman Brown,
Ranking Member Toomey, and other Members of the Committee. I am
pleased to present the Federal Reserve's semiannual Monetary
Policy Report.
At the Federal Reserve, we are strongly committed to
achieving the monetary policy goals that Congress has given us:
maximum employment and price stability. Since the beginning of
the pandemic, we have taken forceful actions to provide support
and stability, to ensure that the recovery will be as strong as
possible, and to limit lasting damage to households,
businesses, and communities. Today I will review the current
economic situation before turning to monetary policy.
The path of the economy continues to depend significantly
on the course of the virus and the measures undertaken to
control its spread. The resurgence in COVID-19 cases,
hospitalizations, and deaths in recent months is causing great
hardship for millions of Americans and is weighing on economic
activity and job creation.
Following a sharp rebound in economic activity last summer,
momentum slowed substantially, with the weakness concentrated
in the sectors most adversely affected by the resurgence of the
virus. In recent weeks, the number of new cases in
hospitalizations has been falling, and ongoing vaccinations
offer hope for a return to more normal conditions later this
year. However, the economic recovery remains uneven and far
from complete, and the path ahead is highly uncertain.
Household spending on services remains low, especially in
sectors that typically require people to gather closely,
including leisure and hospitality. In contrast, household
spending on goods picked up encouragingly in January after
moderating late last year. The housing sector has more than
fully recovered from the downturn, while business investment
and manufacturing production have also picked up. The overall
recovery in economic activity since last spring is due in part
to unprecedented fiscal and monetary actions, which have
provided essential support to many households, businesses, and
communities.
As with overall economic activity, the pace of improvement
in the labor market has slowed. Over the 3 months ending in
January, employment rose at an average monthly rate of only
29,000. Continued progress in many industries has been tempered
by significant losses in industries such as leisure and
hospitality, where the resurgence in the virus and increased
social distancing have weighed further on activity. The
unemployment rate remained elevated at 6.3 percent in January,
and participation in the labor market is notably below
prepandemic levels. Although there has been much progress in
the labor markets since the spring, millions of Americans
remain out of work. As discussed in the February Monetary
Policy Report, the economic downturn has not fallen equally on
all Americans, and those least able to shoulder the burden have
been hardest hit. In particular, the high level of joblessness
has been especially severe for lower-wage workers and for
African Americans, Hispanics, and other minority groups. The
economic dislocation has upended many lives and created great
uncertainty about the future.
The pandemic has also left a significant imprint on
inflation. Following large declines in the spring, consumer
prices partially rebounded over the rest of last year. However,
for some of the sectors that have been most adversely affected
by the pandemic, prices remain particularly soft. Overall, on a
12-month basis, inflation remains below our 2-percent longer-
run objective.
While we should not underestimate the challenges we
currently face, developments point to an improved outlook for
later this year. In particular, ongoing progress in
vaccinations should help speed the return to normal activities.
In the meantime, we should continue to follow the advice of
health experts to observe social distancing measures and wear
masks.
I will turn now to monetary policy. In the second half of
the year, the Federal Open Market Committee completed our first
ever public review of our monetary policy, strategy tools, and
communication practices. We undertook this review because the
U.S. economy has changed in ways that matter for monetary
policy. The review's purpose was to identify improvements to
our policy framework that could enhance our ability to achieve
our maximum employment and price stability objectives. The
review involved extensive outreach to a broad range of people
and groups, including through a series of Fed Listens events.
As described in the February Monetary Policy Report, in
August, the Committee unanimously adopted its revised statement
on longer-run goals and monetary policy strategy. A revised
statement shares many features with its predecessor. For
example, we have not changed our 2-percent longer-run inflation
goal. However, we did make some key changes. Regarding our
employment goal, we emphasized that maximum employment is a
broad and inclusive goal. This change reflects our appreciation
for the benefits of a strong labor market, particularly for
low- and moderate-income communities. In addition, we state
that our policy decisions will be informed by our assessments
of shortfalls of employment from its maximum level rather than
by deviations from its maximum level. This change means that we
will not tighten monetary policy solely in response to a strong
labor market. Regarding our price stability goal, we state that
we will seek to achieve inflation that averages 2 percent over
time. This means that following periods when inflation has been
running below 2 percent, appropriate monetary policy will
likely aim to achieve inflation moderately above 2 percent for
some time. With this change, we aim to keep longer-term
inflation expectations well anchored at our 2-percent goal.
Well-anchored inflation expectations enhance our ability to
meet both our employment and inflation goals, particularly in
the current low interest rate environment in which our main
policy tool is likely to be more frequently constrained by the
lower bound.
We have implemented our new framework by forcefully
deploying our policy tools. As noted in our January policy
statement, we expect that it will be appropriate to maintain
the current accommodative target range of the federal funds
rate until labor market conditions have reached levels
consistent with the Committee's assessment of maximum
employment, and inflation has risen to 2 percent and is on
track to moderately exceed 2 percent for some time. In
addition, we will continue to increase our holdings of Treasury
securities and agency mortgage-backed securities, at least at
their current pace, until substantial further progress has been
made toward our goals. These purchases and the associated
increase in the Federal Reserve's balance sheet have materially
eased financial conditions and are providing substantial
support to the economy. The economy is a long way from our
employment and inflation goals, and it is likely to take some
time for substantial further progress to be achieved. We will
continue to clearly communicate our assessment of progress
toward our goals well in advance of any change in the pace of
purchases.
Since the onset of the pandemic, the Federal Reserve has
been taking actions to more directly support the flow of credit
in the economy, deploying our emergency lending powers to an
unprecedented extent, enabled in large part by financial
backing and support from Congress and the Treasury. Although
the CARES Act facilities are no longer open to new activity,
our other facilities are in place.
We understand that our actions affect households,
businesses, and communities across the country. Everything we
do is in service to our public mission. We are committed to
using our full range of tools to support the economy and to
help ensure that the recovery from this difficult period will
be as robust as possible.
Thank you. I am happy to take your questions.
Chairman Brown. Thank you, Chair Powell.
First, just a yes or no question. Do you agree the most
important thing we can do for the economy right now is get
people vaccinated?
Mr. Powell. I would say that, yes, that is the single best
policy to return the economy to its potential growth.
Chairman Brown. Thank you. Researchers in Minneapolis say
the pandemic is forcing mothers of young children out of the
workforce. Some 3 million women have been forced out of the
paid labor market in the past year. Every day families face
impossible choices between their paychecks and caring for their
children. The Biden Rescue Plan, as you know, provides the
funding we need to get Americans vaccinated, as you suggest is
the right policy. And that will help kids go back to school, to
help working moms get back to work safely.
What can the Fed do to make sure women, especially those
with young children, can return to the workforce so that we do
not end up with an even bigger lasting gender gap in the labor
market?
Mr. Powell. So the tools that can really address specific
groups, for example, women who have perhaps temporarily dropped
out of the labor force, those are really fiscal policy tools.
Obviously, those are not tools that we have, and I today will,
you know, stay away from fiscal policy and really talk about
what we can do. And I think the main thing that we can do is
continue to support the economy, give it the support that it
needs. We are still 10 million jobs below the level of payroll
jobs before the crisis. There is still a long way to go to full
recovery, and we intend to keep our policy supportive of that
recovery.
Chairman Brown. Thank you for acknowledging in your opening
statement and your comments to many of us, and your public
comments, frankly, about how much we need to do to fight racism
and increase diversity. Yet we know historically the Fed's
monetary policy has benefited wealthy savers and homeowners.
Decades of discrimination in the financial system we talked
about earlier, from redlining to the subprime mortgage crisis,
specifically targeted Black, Brown, and other vulnerable
communities. It is clear the Fed's policy and failure to
regulate predatory actions in the banking sector have
contributed to the racial wealth, income, and home ownership
gaps. You have said that the Fed's tools cannot address the
underlying causes of racial injustice or income and wealth
inequality in our economy. I think you give up a little too
easily when you say that.
So how can the Fed use its supervision authority to enforce
antidiscrimination laws and fight racial injustice and income
inequality?
Mr. Powell. We do have responsibilities and authorities for
fair lending, for example, under a number of statutes, and we
take those responsibilities very seriously and, I think, carry
them out robustly, and that is an important part of our
mandate. And so that is something that we could do, and I think
we do aggressively.
In addition, through our Consumer and Community Affairs
Division and through the Federal Reserve Banks, we do not
spend, you know, public resources, but we try to attract
private resources around, for example, initiatives that will
address economic issues of low- and moderate-income communities
and racial minorities.
Chairman Brown. I think we could do more, but we will
discuss that later.
Chair Powell, in the middle of the pandemic, bank
regulators have loosened capital requirements at the biggest
banks. In one of its changes for the capital rules, the Fed
stated the rule was meant, and I quote, ``to allow banking
organizations to expand their balance sheets as appropriate, to
continue to serve as financial intermediaries rather than to
allow banking organizations to increase capital
distributions.''
In other words, the Fed reduced capital standards so banks
would lend more, not so they would pay dividends. But as you
know, it is not what is happening. The biggest banks have
gotten larger. They have gotten more profitable, but they have
not increased lending. Dividends, however, have remained
steady.
My question is: Mr. Chair, will you promise to the
Committee that you will not extend any exemptions for capital
requirements for banks and bank holding companies that have
continued to pay dividends rather than invest in the real
economy?
Mr. Powell. So we are talking here really about the
temporary measures we took with respect to the supplementary
leverage ratio, and those expire at the end of March. We have
not decided what to do there yet, and we are actually looking
into that right now. I am not going to commit to connecting
that decision to the payment of dividends. As a separate
matter, as you know, we intervene to require the banks to limit
their dividend growth to zero and also to limit their share
buybacks, and the result of what you see now is a banking
system that has higher capital than it did going into the
pandemic, and particularly for the largest banks, and one where
the banks have taken very large reserves against losses and so
have proven themselves pretty resilient.
Chairman Brown. Perhaps, but we also understand that they
have not been supporting the real economy to the degree that we
hoped they would, and we will continue that conversation. And I
will send a written question to you on climate that we wanted
to talk about.
Chairman Brown. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
Just on this topic, let me just say I certainly hope that,
to the extent that banks have adequate capital for the
circumstances that they face at any point in time, any capital
beyond that should absolutely be available to be returned to
the people who own those banks in the form of dividends or
stock buybacks, or whatever mechanism is suitable. And anything
to the contrary is a terrible constraint on our economy and on
economic freedom.
I also want to just observe briefly--and I am not asking
for a comment on this, Chairman Powell, but if I could
summarize and characterize your opening comments about the
economy, I think it is fair to say that we have many areas,
sectors of our economy that are performing extremely well--
housing in the goods sector I think you referred to. And then
we have very concentrated problems in certain relatively narrow
sectors like hospitality and travel and entertainment, which
are extremely depressed because of the circumstances. I think
that clearly makes a very strong case that if there were to be
further fiscal policy, it should address where the problem is
and not where the problem is not.
But to address monetary policy for a moment or so, I think
the Fed's current forecast for growth for this year is over 4
percent. I think the consensus is well over 5 percent, with
some thinking it could be considerably higher than that. The
unemployment rate is now at 6.3, which is about where it was in
2014 when we were not contemplating multi-trillion-dollar
bills, and I do not think we were buying $120 billion worth of
securities per month.
My concern is that the last two recessions were, I think,
caused by asset bubbles that burst. In 2001 it was the stock
market. In 2008 it was the mortgage credit market. In both
cases, in my view, monetary policy contributed a great deal to
the formation of those bubbles.
The Dallas Fed President, Robert Kaplan, recently
acknowledged that there is a link between the record amount of
liquidity being pushed into the system and these unprecedented
asset valuations that we are seeing in a whole range of assets,
be it GameStop or Bitcoin or real estate commodities. Across
the board we are seeing quite elevated asset prices and signs
of emerging inflation.
So I guess my question is: Do you believe that there is a
link between the liquidity that the Fed has been providing and
some of these unprecedented asset prices?
Mr. Powell. So there is certainly a link. I would say,
though, that if you look at what the market is looking at, what
markets are looking at, it is a reopening economy with
vaccinations; it is fiscal stimulus; it is highly accommodative
monetary policy; it is savings accumulated on people's balance
sheets. It is the expectations of much higher corporate
profits, which matters a lot for the equity markets. So there
are many factors that are contributing to what is happening in
markets right now. Monetary policy I would certainly agree is
one of them.
Senator Toomey. Yeah, I would just suggest that--right, I
agree all of those things are happening, all of those
indicators of growth and increasingly indicators of rising
inflation. As you know, the TIPS 10-year break-even on
inflation is now over 2 percent, up from six-tenths of 1
percent.
My point is that at some point we have got too much
liquidity going into the system. The economy is recovering
very, very well. Problems are isolated and should be addressed
narrowly. And I hope that $120 billion a month of bond buying
does not become a permanent situation.
One of the things I am concerned about, I wonder if you
could comment on the risk that we would have an increase in
inflation, an increase in bond deals that would correspond to
that, but without being back at full employment, what would
that imply--which I think is a very plausible scenario for
later this year. What does that imply for the bond-buying
program?
Mr. Powell. Well, so what we have said about the bond-
buying program is that it will continue at the current pace, at
least at the current pace, until we make substantial further
progress toward our goals. And we have also said that as we
monitor that progress, we will communicate well in advance of
any actual decisions on purchases. And so what it will take for
us to begin to moderate the level of purchases, is substantial
further progress toward our goals, which we have not really
been making for the last 3 months, but expectations are that
will pick up as the pandemic subsides.
Senator Toomey. Well, thank you, Mr. Chairman. I would just
suggest that there are a lot of warning signs that have not
been worrisome in the past but now are certainly blinking
yellow. With that, I will yield.
Chairman Brown. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Powell, at the end of this pandemic, we need to
ensure that we have a more equal society. Unfortunately, we are
not on a path to an equal recovery. As of January, the Black
unemployment rate is 9.2 percent, the Hispanic unemployment
rate is 8.6 percent, compared to 5.7 percent for White workers.
According to the New York Fed, over the course of the
pandemic the black labor force exit rate has increased
dramatically while the White labor force exit rate has returned
to prepandemic levels. Doesn't this mean that the Black
unemployment rate is likely misleadingly low compared to the
White rate?
Mr. Powell. Well, as you point out, this pandemic was
particularly bad for these long-standing disparities that we
have in our economy. The job losses were heavily concentrated
in public-facing service sector jobs. Those job losses tend to
be more skewed toward lower-paid jobs and, in many cases,
minorities and women, and so that is really where the big
pockets of unemployment remain. And so you are right, so the
burden really has fallen more in the low- and moderate-income
communities than would typically be the case. It is always the
case to some extent. This particular event, though, is somehow
very precisely aimed at those people, and we are well aware of
that.
Senator Menendez. Well, I appreciate that acknowledgment.
We know from the Bureau of Labor Statistics over the course of
2020, the labor force participation rate for Black men and
women fell nearly twice as much as it did for White men and
women. So do you agree that minority families are bearing the
brunt of the damage caused by the pandemic?
Mr. Powell. Yes, along with others at the lower end of the
income spectrum, the bottom quartile.
Senator Menendez. Would you agree then that addressing this
disproportionate damage needs to be a central priority in
relief efforts?
Mr. Powell. I would have thought so.
Senator Menendez. Yeah, so would I. Now, as part of the
Federal Reserve's mission to ensure maximum employment, what is
the Federal Reserve's plan for maximizing employment for low-
income and minority workers?
Mr. Powell. So when we say that maximum employment is a
broad and inclusive goal, that means we look not just at the
headline numbers; we also look at different groups and we try
to take all of that into account in making our assessments. So
we will take into account the headline numbers, but also those
for other groups as we think about reaching maximum employment.
Senator Menendez. Well, I hope that in your mission that
the Federal Reserve looks at this because Federal Reserve
studies show that while high-income jobs mostly recovered to
prepandemic levels, unemployment among low-wage workers remains
14 percent below prepandemic levels. And this is in spite of
the fact that almost half of all low-wage workers are essential
workers, the people who actually let us stay home when we were
told to stay home to avoid the spread of the pandemic and to be
infected; but they were risking their lives in the jobs that
they did. And so I believe we have the tools to try to make
this an equitable recovery.
So would you commit to working with Congress and the
Treasury to help low-wage workers and minority workers be able
to recover just as strongly as others?
Mr. Powell. We will do that. I will say, though, that
monetary policy as a tool is famously a broad--it is a broadly
effective tool. It does not enable us to target particular
groups. It lifts the entire economy. But we are going to be
mindful, though, of the disparities that exist as we make our
decisions.
Senator Menendez. Then, finally, as of February 1st, an
estimated 13 million adults were not caught up on their rent;
another 10 million adults were not caught up on their mortgage
payments. Our country is very clearly in the midst of a housing
crisis. What would be the effect on the housing market and our
overall economy if Congress does not provide additional
resources to help families struggling to pay their rent and
mortgages?
Mr. Powell. Well, if it were to get to the point at which
people were evicted--and you are talking about people's lives
being disrupted in ways that are sometimes quite hard to
recover from, both for renters and owners, so it is important.
I think the single best thing we can do about that, of course,
is to keep monetary policy accommodative to do what we can to
speed the recovery so that it will be robust and complete as
soon as possible.
Senator Menendez. Well, millions of people losing their
homes would not only affect rateable bases and their most
single aspect of wealth, so I hope you will keep your eye on
that.
Thank you, Mr. Chairman.
Mr. Powell. Thank you.
Chairman Brown. Senator Shelby.
Senator Shelby. Good morning. Chairman Powell, thank you
for your service of a number of years and how you, I believe,
have done an outstanding job as Chairman of the Federal
Reserve. I would like to associate myself this morning with a
lot of the questions that have been asked already by Senator
Toomey--the concern of inflation, the concern of the balance
sheet, of where is the economy going when we get over this
COVID, which we all hope and pray will be sooner than later.
And I would like to add to that, Mr. Chairman, what is your
view of the world economy tying into ours? Because it is an
important factor as we go forward, assuming in the next, say, 6
months that we get a handle around COVID in the country, and
Europe, for example, does the same thing.
Mr. Powell. So I will take those one at a time. On
inflation, let me say a couple of things. First, as the very
low readings of last March and April drop out of the 12-month
calculation as we move forward this year, we expect readings on
inflation to move up. That is called ``base effects.'' That
will be a temporary effect, and it will not really signal
anything.
More importantly, though, with all the factors we have been
discussing, you could see spending pick up pretty substantially
in the second half of the year. And that would be a good thing,
of course, but it could also put upward pressure on prices. And
I would just say that essentially it does not seem likely that
would result in very large increases or that they would be
persistent.
We have all been living in a world for a quarter of a
century and more where all of the pressures were
disinflationary, you know, pushing downward on inflation. We
have averaged less than 2 percent inflation for more than the
last 25 years. Inflation dynamics do change over time, but they
do not change on a dime, and so we do not really see how a
burst of fiscal support or spending that does not last for many
years would actually change those inflation dynamics.
I will also say forecasters need to be humble and have a
great deal to be humble about, frankly, so if it does turn out
that unwanted inflation pressures arise and they are
persistent, then we have the tools to deal with that, and we
will.
Shall I continue? So on the balance sheet, you know, we are
going to continue to--we are at a stage where with 10 million
people--payroll employment is 10 million below where it was
before the pandemic. You know, we are a long way from maximum
employment. We are going to keep--the balance sheet is going to
continue to provide the support that we think the economy
needs. Over time, it will--the growth of it will slow, but that
decision is the one that we talked about earlier, where asset
purchases will continue until we make significant further
progress toward our goals.
You asked about the U.S. economy and the world economy. I
do think--and many forecasters agree--that once we get this
pandemic under control, you know, we could be getting through
this much more quickly than we had feared, and that would be
terrific. But it is not done yet. That job is not done. That is
the thing I keep coming back to. We have got to finish the job
with the pandemic, get it under control so that the U.S.
economy could really reopen. Other countries around the world
have the same set of issues, but there is--if people will get
vaccinated and we can get the disease under control properly,
the second half of this year and thereafter, the economy could
be very good, and it could be good elsewhere in the world as
well.
Senator Shelby. And the fact that the savings rate has gone
up tremendously in America, does that bode well in the future
as far as perhaps economic activity?
Mr. Powell. So a lot of that just is that people have not
been able to spend. They have not been able to travel and go to
restaurants, so it is forced savings in a way. So they will
spend some of that going forward.
You are really thinking, I think, about the fact that, you
know, the U.S. needs more savings so that it will have more
investment and more productivity. It would be nice if we had a
higher savings rate, and it would be also nice if we did not
have a lot of dissavings at the Federal level. A lot of it is
that budget deficits require a lot of assets, not that we
need--that is something we need to turn to again, but I think
this is not the time to be thinking about that. But that time
will certainly come.
Senator Shelby. Thank you, sir.
Mr. Powell. Thank you, Senator.
Chairman Brown. Thank you, Senator Shelby.
Senator Tester.
Senator Tester. Yes, thank you, Mr. Chairman. And I want to
start by thanking Chairman Powell. I very much appreciate your
frankness. I very much appreciate your fight to keep the Fed
independent. I know that has been difficult over the past
number of years, but you have stepped up. You certainly do not
want a bunch of politicians to determine monetary policy, so I
am glad you are at the helm.
I also think that we are going to have a debate over this
$1.9 trillion package in front of you on probably every damn
Committee that I am on and a bunch of others. Some of that is--
well, all of it is necessary, but I do want to talk to you,
because everybody makes points and I go, ``Yeah, that is a good
point.'' And it is true. The housing market in a place like
Montana is hotter than hot. It is, quite frankly, booming, and
there is another problem that I want to talk to you a little
bit about with the housing thing. But there are other
industries and there are folks out there who, quite frankly, do
not have the job they used to have and may never get that job
back. And there are business people out there that are up
against it. Some of those businesses will go broke and never
reopen. Others will.
I just kind of want to get your perspective on if you were
not the head of the Fed but in the U.S. Senate, where would you
pay most of your attention to? Because I agree, any money we
spend needs to be focused where it will do the most good. There
is no doubt about that. Where is your focus? Where would your
focus be? Would it be on employment? Would it be hospitality
businesses? Or would it be something more global than that?
Mr. Powell. That is an interesting question. Maybe the
grass is always greener, but our work really relates to
managing the business cycle in a way. But what I always think I
would focus on is more what we call the ``supply side,'' which
is really investing in things that will increase the potential
growth rate of the United States economy over time and make
that prosperity as broadly spread as possible.
Let me be more specific. It amounts to investing in people,
and that means education, it means training. It means all those
things. And that enables those people to take part fully in our
great economy, and I really do think in a global economy people
who are able to use and benefit from technology, there is no
limit on the amount of those people who can be working in the
United States because it is such a global economy.
I also think it is important for businesses as well that
they have a climate where they can trust, you know, that
inflation is going to be under control and that business
conditions are going to be good and that they can invest, and I
think the Federal Government investing in basic science over
time has produced a lot of productivity-enhancing things.
But, more generally, Senator, I think focusing on things
that will make a longer-run difference to our economy is what I
would do.
Senator Tester. OK. I appreciate that.
Now I want to go to housing because I do not--you know, I
talk about Montana, but I think this is true all over. We do
not have enough affordable housing. We do not have enough
workforce housing. I think that short term and long term, by
the way, this is going to be a drag on the economy.
Do you see the Fed playing any role or do you think they
could have a role in increasing the amount of affordable
housing that is out there? And if you do think the Fed plays a
role, what would that role be?
Mr. Powell. I do not really think we do. When it comes to a
set of policies like that, that is targeting, you know, the
fiscal power of the Federal Government to what is seen as a
worthy cause. It is not really something we can do. We can
combat housing discrimination and things like that in lending,
but I do not think we are in a position of being able to
allocate credit to worthy beneficiaries. That is really fiscal
policy.
Senator Tester. Getting back to the pandemic, you have
implemented a lot of monetary tools during this crisis. In your
opinion, have they been sufficient? And if they have--yeah,
that is the first question. Have they been sufficient?
Mr. Powell. I think they have. I think the difference
really this time is that fiscal policy has really come to the
table, and that is making a difference.
Senator Tester. OK. Moving forward, have you looked at any
changes to the policies, the monetary policy, the monetary and
fiscal tools that we use moving forward?
Mr. Powell. Not yet. I mean, we are looking into that. Of
course, we will do--right now our focus is on providing the
economy the support it needs. We will be turning to an
evaluation of everything that happened in the crisis and
answering that question.
Senator Tester. OK. Thank you, Mr. Chairman. Thank you,
Chairman Powell.
Mr. Powell. Thank you, Senator.
Chairman Brown. Thank you, Senator Tester.
Senator Scott.
Senator Scott. Thank you, Chairman Brown, and thank you,
Chair Powell, for being here with us this morning. It is
certainly an important time for us to engage in a conversation
about the future of employment in our Nation, and one of the
core responsibilities of the Fed, of course, has to do with
unemployment.
There seems to be so few issues right now, Chairman Powell,
that actually unite the left and the right. I am always stunned
in Washington when we find something that unites both sides
and, frankly, the minimum wage issue is an issue that has
united both Republicans and Democrats on opposing having the
$15 minimum wage as a part of the COVID-19 relief package. It
is good to see my friends on the left coming to the conclusion
that in the middle of a pandemic that, according to the
Congressional Budget Office, has already shuttered--the $15
minimum wage would shutter another 1.4 million jobs. The
earlier estimate went as high as 3.7 million jobs in the middle
of a pandemic that has eliminated 10.7 million jobs. This seems
to be common sense from my perspective, from the perspective of
Democrats and the Congressional Budget Office.
My question for you, sir, is: Have the Fed's economists
conducted research on the potential impacts of raising the
minimum wage to $15 an hour?
Mr. Powell. I do not know that we have looked at that
question particularly. We have great labor economists who have
done a lot of work on the broad area.
Senator Scott. Yes, sir. Are their conclusions similar to
the conclusions of the Congressional Budget Office as it
relates to the negative impact of raising the minimum wage
during the pandemic?
Mr. Powell. Let me say, as I must, that this is a classic
issue that the Fed never takes a position on, and I am not
going to take a position on it here today. It is fiscal policy.
Most of the research still says that there is some tradeoff
between job loss and those whose wages go up. But, actually,
you know, the sort of unanimity of that finding of 30 or 40
years ago is no longer in place. There is a much more nuanced
understanding of it. But, in any case, it is just an issue
where we do not play a role or express a view. I can share with
you the research that we have done. I would be happy to do
that.
Senator Scott. That would be----
Mr. Powell. That our staff has done.
Senator Scott. That would be very important, especially as
you think of the Fed's responsibility as it relates to
providing a sustainable economy that includes keeping
unemployment as low as possible. The fact that the Fed is not
taking a position on an increase of the minimum wage that is
obviously, according to the Congressional Budget Office, going
to eliminate the minimum of 1.4 million jobs I think is an
important engagement from the Fed on that issue.
I will ask you a different question as it relates to the
COVID relief package of $1.9 trillion. It seems to me that over
the last fiscal year, we spent right around $6.5 trillion
addressing the pandemic. My question for you is: As we see
another $1.9 trillion on top of the $6.5 trillion that we have
already spent, what is the impact on the issue of rising
inflation in excess of the Fed's longer-run objective of 2
percent?
Mr. Powell. So, of course, as I said at the beginning, I am
not going to comment today on the proposal that you mentioned,
the fiscal package that you mentioned, at all. Not our role.
I will say on inflation there perhaps once was a strong
connection between budget deficits and inflation. There really
has not been lately. That does not mean it will not return.
But, again, my expectation will be that inflation will probably
be a bit volatile over the next year or so due in significant
amount to particular things to do with the pandemic. For
example, we will see a slight increase in inflation in a few
months because of the base effects that I mentioned. We will
also see perhaps--we do not know this, but we may see upward
pressure on prices as the economy fully reopens. A good problem
to have.
I do not think that those effects should either be large or
persistent, and the real reason for that is that we have had
decades of well-anchored inflation expectations, meaning that
we have had a very volatile economy for the last 15 years, and
inflation has just kind of done what it was going to do. It did
not go up.
Senator Scott. Thank you very much, sir. I appreciate your
answer. The fact that you are unwilling and unable to answer
the questions as it relates to the minimum wage is certainly
you do not want to get into the politics of the $1.9 trillion
package. I do not blame you. If I were you, I would not want to
get into the politics of it at all, frankly, and I certainly
understand your reticence to do so.
I will use my few seconds here to simply say that the
Congressional Budget Office, some Democrats, all Republicans
all agree that raising the minimum wage is a way to destroy
jobs and an economy that is looking forward to a fragile
recovery.
Thank you, Chair Brown.
Chairman Brown. Thank you, Senator Scott.
Senator Warner. Thank you, Mr. Chairman, and thank you for
holding this hearing. Chair Powell, it is great to see you
again. Thank you for the good work you are doing.
I think in response to Senator Tester's questions, when you
were talking about the kind of investments we ought to be
making that are long term, thinking about infrastructure, one
of the areas--and understanding what my friend Senator Scott
just said in your answer, that you do not want to weigh in on
the President's most recent plan, I would like you, though, to
comment whether you believe that broadband investments fall
into that category of the kind of long-term structural change
we need. I would argue over the last 11 months we have seen
that broadband is a necessity. I think it is absolutely COVID-
related. I hope that the current package can be changed to
actually include a sizable investment in broadband. As good as
our four packages, bipartisan packages, have been to date, the
broadband investment has been meager or nonexistent. Experts
like Tom Wheeler and Blair Levin have said somewhere in the $40
to $50 billion range, we could get about 97 percent coverage
along with better affordability.
So I guess I am asking, would you agree that immediate
efforts to close the broadband gap not only represent long-term
investments, but also have some direct relationship to the
current health care crisis?
Mr. Powell. So as you and I have discussed on a number of
occasions, I would agree that broadband is kind of a classic
21st century infrastructure and one of those things that can
support growth. But I, of course, cannot go anywhere near--do
not want to go anywhere near the question of what should be
included in the package, if that is OK.
Senator Warner. What about the question, though, you know,
from a macroeconomic standpoint, broadband and trying to close
the digital divide if we are going to have a fulsome recovery
across socioeconomic groups? Could you speak to the question of
the necessity for broadband to be ubiquitous if we are going to
have that kind of robust recovery and comments about whether
broadband is at this point a ``nice to have'' or an ``economic
necessity,'' whether it is telework, telehealth, or tele-
education?
Mr. Powell. So, again, as you and I have discussed on a
number of occasions, I would agree that it is a classic piece
of infrastructure for the modern economy, for the service
economy, for the technologically advanced economy, and having
it broadly available just could mean--as broadly available as
possible could be a significant benefit economically.
Senator Warner. If not broadly available, are we going to
be able to see the kind of broad-based recovery that I think we
are all looking for?
Mr. Powell. Well, I think we have longer--we have a bunch
of issues to deal with that relate to these persistent
disparities that we see to do with education and training and
all those things. But that would certainly be one of those
things.
Senator Warner. Senator Scott in his previous line of
questioning raised the inflation issues, and I know we have
seen about a 41-basis-point increase on some of our 10-year
benchmarks. It is still relatively small. I tend to agree I
think we do need to make a sizable investment right now. I am
not sure--the inflation risks, I agree with you, are not as
high as they potentially might be.
Could you just briefly give some of the tools you have got
available as Federal Reserve Chair if you started to see
inflation rise at a level that you did not feel comfortable
with?
Mr. Powell. Well, those are the classic tools that we have,
and, again, I really do not expect that we will be in a
situation where inflation rises to troubling levels. At this
point the Federal Open Market Committee is seeking inflation
running moderately above 2 percent for some time. So the real
question is: As we go through this, are we going to find
ourselves in a situation where inflation expectations are de-
anchored and inflation is moving up and it is persistent? I
think we are all very, you know, acquainted with the history of
how we got into that situation in the 1970s. We did that in the
1960s. And we have no intention of repeating that.
So central banks and the Fed learned how to keep--the
centrality of keeping inflation under control, and we know how
to do that. That is just by not allowing the economy to just
ignore constraints over time. But I think this is not a problem
for this time, as near as I can figure, and if it does turn out
to be, then we do have the tools we need.
Senator Warner. We are down to my last 20 seconds, and let
me just--if you want to make some general comments, I would
argue that the pandemic was the first major real-world stress
test we have had on our fiscal system since 2009. How do you
think overall that the system has responded? And recognizing,
Mr. Chairman, that will be my last question. You may want to
take that one for the record, but if you want to make some
general comments quickly.
Mr. Powell. You meant financial system, I think, right?
Senator Warner. Right, yes.
Mr. Powell. Well, I think that the large financial
institutions that are at the heart of our financial system
proved resilient. They did. And they have been able to keep
lending, and their capital levels have actually gone up during
this period. As I mentioned, their liquidity levels are at
highs. So I think the work that we did over the course of the
last decade and then some has held up pretty well so far, and I
expect it will continue to.
Senator Warner. Thank you, Mr. Chairman. Thank you,
Chairman Powell.
Chairman Brown. Thank you, Senator Warner.
Senator Rounds of South Dakota.
Senator Rounds. Thank you, Mr. Chairman. Chairman Powell,
first of all, it is good to see you again, and I appreciate
your service to our country as well. Thanks for being with us
today.
I would first like to ask about the SLR exclusion which is
set to expire on March 31st. My colleagues have mentioned it
earlier, but did not really get into the heart of the matter.
The temporary patch allowed banks to exclude ultra-safe assets,
U.S. Treasurys and deposits to the Fed from their balance
sheets. This was important in preserving bank liquidity during
last spring's flight to cash and was a commonsense move since
the Fed cannot go bankrupt and the Treasury has never failed to
meet its obligations.
We all agree that the economy is still in need of fiscal
and monetary support. The Chairman himself said that banks
should be doing more to help their workers and our broader
society, but they cannot do that when we are tying their hands
with excessive and challenging capital requirements. It would
appear Congress is going to create even more bottlenecks in our
financial plumbing by flooding the economy with about $1.9
trillion in new money that banks will have to hold capital
against as soon as the Treasury starts writing the checks.
My question is: Would you agree that it makes sense to
seriously consider extending the SLR exclusion given the other
measures the Fed and Congress are taking to facilitate our
economy's recovery?
Mr. Powell. So I do think that the SLR exclusion--I know it
expires at the end of March, and we actually have not made a
decision on what to do. It is something we are in the middle of
thinking about right now, and so I am just going to have to say
that we will be making a decision and announcing it pretty soon
here.
Senator Rounds. The reason for my question is that I think
last time around and in the past, we have had challenges with
banks that have come in and said, look, we have got folks that
want to bring their assets in, they have got to have a place to
put it, it is liquid, it is what we are going to have. Most
certainly that has impacted our ability and the reason for the
SLR in the first place, and it just seems to reason that as you
talk about it and as you continue to discuss it, I hope that we
really do keep an open mind and I presume you are keeping an
open mind on the need for that, as this amount apparently will
be put into the economy in very short order. And so I simply
bring it up saying I think there are a lot of us that think
that that is going to be an important part of the discussion to
have.
Let me lead into another question with you, sir. We have
been monitoring the increase in Treasury yields from about
nine-tenths of 1 percent at the start of 2021 to approximately
1.37 percent when the market closed yesterday. I understand
this reflects a view of an improving economy, but also comes
with increased borrowing costs, increased inflation, and
potentially a move by the Fed to increase interest rates down
the line.
How do you view the increase in Treasury yields in the
broader context of our economy at this point?
Mr. Powell. So, first, we look at a broad range of
financial conditions, and that is one. It is an important one.
But, really, we look at the whole range of financial
conditions, and it is very important to ask why are rates
moving up. And so if you look at why they are moving up, it is
to do with expectations of a return to more normal levels, more
mandate-consistent levels of inflation, higher growth, an
opening economy. In a way it is a statement of confidence on
the part of markets that we will have a robust and ultimately
complete recovery. So those are the reasons that are behind
that, I would say.
Senator Rounds. Great. Well, thanks. Look, we follow the
markets. We follow on a regular basis whether the markets are
moving up or moving down and so forth, and I think in
anticipation of what your thoughts were going to be today, I
think the market was rather volatile.
I am just curious. When you walk into an opportunity like
this where you are sharing your thoughts, I know that you want
to be very careful in terms of the message that you send, and I
think you do a very good job of being very careful in the way
that you send the message, but let me just ask. In your
opinion, when you prepare for this type of a discussion,
knowing the markets are literally watching everything you say,
what is the message that you would like to send? Are you
talking we are going to have stability, it is going to be
steady as she goes, we do not see changes coming up with regard
to the availability of capital, we do not see changes that are
going to impact inflation? What is the message that you really
want to send as you share with us today and you are expected to
be in front of our Committees?
Mr. Powell. So I guess I will say a couple of things.
First, the starting point is that we are 10 million jobs below
where we were in February of 2020, 10 million payroll jobs. So
there is a long way to go, and many of those jobs are
concentrated in the lower end of the income spectrum, as I
mentioned.
Many parts of the economy have recovered, but in the bottom
quartile, the unemployment rate is probably in excess of 20
percent, we think. So there is a long way to go. Monetary
policy is accommodative, and it needs to continue to be
accommodative. We have put forward guidance out both on our
asset purchases and our rates. We think that forward guidance
is appropriate, and you can expect us to move patiently over
time as we see better data coming in. You know, right now, we
have had 3 months of 29,000 jobs a month. It is not very much
progress. We expect that such progress, which we had earlier
last year--we had very fast progress. We expect that will begin
to return in coming months and expect us to move carefully and
patiently and with a lot of advanced warning.
Senator Rounds. Thank you, Mr. Chairman.
Thank you, Mr. Chairman. I apologize for going over on my
time.
Chairman Brown. Thank you, Senator Rounds.
Senator Warren of Massachusetts.
Senator Warren. Thank you, Mr. Chairman.
So our economy is suffering through a K-shaped recovery
where the wealthy are doing better and better while working
people are doing worse and worse. Chair Powell, you have been
pretty vocal about inequality over the past few years. You have
noted--I think I have got a quote here from you-- that it has
been a growing issue in our country and in our economy for four
decades. You have talked a lot about how inequality undermines
opportunity and mobility, and you have described it as
something that holds our economy back.
So I take it from these comments that you believe that
inequality weighs our economy down and stunts economic growth.
Is that a fair statement?
Mr. Powell. Yes, it is.
Senator Warren. Good, and I agree with you on this, and the
Fed's own data spell out the problem. I think you were just
talking about it. You know, the top 1 percent of families last
year received 20 percent of all the income in this country, and
you think that is not good for our economic growth overall. Is
that fair?
Mr. Powell. Well, I would say that the stagnation of
incomes in the lower-income area and also the low mobility that
we have seen emerge, those to me are the two most important
things that I focus on when I talk about inequality--stagnation
of incomes and low mobility.
Senator Warren. Right, but we are talking here about income
inequality, how much people earn each year to be able to pay
the rent and to be able to put food on the table. But
inequality also shows up in wealth, which is what families
build over time, money in the bank, home, stock. Wealth
inequality is even more extreme in our Nation than income
inequality. While the top 1 percent of families, this tiny
slice, got 20 percent of all the income earned in the U.S. last
year, the top 1 percent held 33 percent of the total wealth in
this Nation. And now this pandemic is making inequality worse.
Unemployment, as you just noted, is now at about 20 percent
for the bottom quartile in this country, meaning that there are
a lot of folks out there who are making choices about keeping
the heat on or putting food on the table. Meanwhile, the wealth
of America's 660 billionaires increased by $1.1 trillion over
this past year.
Inequality is felt in another way. It is felt in how people
pay taxes. The 99 percent in America pay on average about 7.2
percent of their total wealth in taxes in a given year, but the
top one-tenth of 1 percent pay only about 3.2 percent. That is
less than half as much.
Chair Powell, does it increase inequality when the
wealthiest Americans pay total taxes at less than half the rate
of nearly all other American family?
Mr. Powell. You are getting farther and farther from the
kinds of inequality that we focus on and, frankly, the ones
that we can do anything about with our tools. We cannot affect
wealth inequality, certainly in the short term. We can affect
indirectly income inequality by doing what we can to support
job creation at the lower end of the market. So I would leave
to you--those are really fiscal policy issues that I would
not--I cannot relate those to our mandate. That is all.
Senator Warren. I appreciate that you are trying to move
sideways on this, but you have pointed out that inequality is a
problem in our country, that it holds back mobility, that it
holds back opportunity, and I am simply pointing out that
inequality is felt not just in income. It is also felt in
wealth even more so, and that our tax structure makes that
inequality worse over time.
Extreme wealth inequality undermines our economy, as you
have said. It undermines justice. It undermines our democracy,
and our Tax Code focuses almost entirely on income and lets
most of the wealth that the ultra-rich families have
accumulated just slip right on through, and that just seems to
me not right.
You know, it is time for a wealth tax in America, a 2-cent
tax on fortunes worth more than $50 million. If your fortune is
over a billion, pay a few more cents. This wealth tax will let
us address the inequality that you have been very worried about
as Chair of the Federal Reserve. It is how we have a chance to
level the playing field and build an economy that works for
everyone.
So thank you for being here, Mr. Chairman, and thank you,
Chairman Brown.
Chairman Brown. Thank you, Senator Warren.
Senator Tillis of North Carolina.
[No response.]
Chairman Brown. If not, Senator Kennedy of Louisiana.
Senator Kennedy. Yes, sir. Can you hear me, Mr. Chairman?
Mr. Powell. I can, Senator. You have two ``Mr. Chairman's''
here.
Senator Kennedy. Yes, sir. Mr. Chairman, the witness, what
was our fourth quarter GDP growth?
Mr. Powell. I am reluctant to guess, but it was in the--I
want to say 4 percent.
Senator Kennedy. Right. That is what my numbers show, too.
What are you and your economists estimating that our GDP growth
will be for 2021?
Mr. Powell. So we will be updating our forecasting. The
last forecast the staff did was in January. My guess is that
the data have been a little more positive, but it will be a
good number. We would be in the range that you see in the
public forecast.
Senator Kennedy. How about 6 percent?
Mr. Powell. Could be. Could be in that range. In the range
of 6 to 7 percent.
Senator Kennedy. OK. At what point in 2021 will the level
of GDP equal prepandemic levels?
Mr. Powell. Sometime during the year. It depends on the
growth rate. Could be second half of the year.
Senator Kennedy. How about the end of January--or the end
of February, rather?
Mr. Powell. I do not know that. Are you asking the
question--the prepandemic level or the prepandemic trend?
Senator Kennedy. The prepandemic level. If you froze the
GDP, the economy, in February a year ago, at what point would
we be back to where we were February a year ago?
Mr. Powell. In the first half of the year.
Senator Kennedy. Yeah, I mean, I see a lot of economists
saying at the end of February. Do you disagree with that?
Mr. Powell. I cannot be that specific. I was answering the
question about the precrisis trend, which is what we are trying
to get back to.
Senator Kennedy. Well, here is what I am getting at. You
have strongly encouraged Congress to pass another coronavirus
bill, $2 trillion. And I guess tell me, if you could, in just a
couple of sentences why you think we need to do that if we are
looking at 6 percent GDP growth this year, and as soon as the
end of this month, we will be back where we were in February
2020?
Mr. Powell. Actually, Senator, I have consistently not
taken a position on this bill.
Senator Kennedy. So you do not have an opinion about
whether we ought to pass President Biden's bill?
Mr. Powell. As I have said since the December press
conference, I think, on every public occasion when I have been
asked about it, I have said that it is not appropriate for the
Fed to be playing a role in these fiscal discussions about
particular provisions in particular laws. We did not comment on
the Tax Cuts and Jobs Act. We did not comment on the CARES Act.
You know, it is not our role to do that.
Senator Kennedy. OK. So your opinion is if we do not pass
the bill, you are cool with that?
Mr. Powell. Well, that would be expressing an opinion, so
that is what I am not doing, is expressing an opinion.
Senator Kennedy. Well, would you be uncool with that?
Mr. Powell. I think by being either cool or uncool, I would
have to be expressing an opinion.
Senator Kennedy. OK. How do you think we ought to pay all
this money back that we are going to borrow and that we already
have borrowed?
Mr. Powell. I think that we will need to get back on a
sustainable fiscal path, and the way that has worked when it is
successful is you just get the economy growing faster than the
debt. I think that we are going to need to do that, and that is
going to need to happen, but it does not need to happen now.
Now is the wrong time to be doing that.
Senator Kennedy. Do you think we ought to go Catwoman on
the budget and actually look for savings there?
Mr. Powell. ``Go Catwoman''? I do not know that reference.
I think in the fullness of time, we will need to right-size our
budget relative to our--so that the economy is growing faster
in nominal terms than the debt. We will have to eventually on
the path we are on.
Senator Kennedy. Well, do you think that deficits matter?
Mr. Powell. Certainly in the long run, I do believe they
do.
Senator Kennedy. You do not think they matter in the short
run?
Mr. Powell. Again, I think we will need to return to----
Chairman Brown. I am going to call on Hagerty because he
has waited so long.
Mr. Powell. We will need to return to this issue, but I
would not return to it now, and the way to get after this issue
is to get a situation where the economy is growing faster in
nominal terms than the debt is.
Senator Kennedy. What if that becomes the case, but your
spending is also growing faster than your economy?
Mr. Powell. Well, no, that is the deficit. I mean, the
question really is--the deficit is the difference between
intake and spending, so it depends. It is the net of those two.
Senator Kennedy. Let me stop you, Mr. Chairman, because I
am going to have one last question quickly. M2, the money
supply, is up I think about $4 trillion over the past year, or
$6 trillion. Four trillion, 6 trillion, what is a few trillion?
It is up 26 percent, the highest amount since 1943. What does
that tell you?
Mr. Powell. Well, when you and I studied economics a
million years ago, M2 and monetary aggregates generally seemed
to have a relationship to economic growth. Right now, I would
say the growth of M2, which is quite substantial, does not
really have important implications for the economic outlook. M2
was removed some years ago from the standard list of leading
indicators, and just that classic relationship between monetary
aggregates and economic growth and the size of the economy, it
just no longer holds. We have had big growth of monetary
aggregates at various times without inflation, so something we
have to unlearn, I guess.
Chairman Brown. Thank you, Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman.
Chairman Brown. Senator Cortez Masto from Nevada.
Senator Cortez Masto. Mr. Chairman, thank you. Thank you,
Chairman and Ranking Member. And, Chairman Powell, thank you
again for being here as usual. I so enjoy listening to you in
the conversation so far.
Let me bring up a subject that you and I quite often talk
about, which is Nevada, and the tourism and service industry as
we all know has been so hard hit. We have the second highest
unemployment rate in the Nation. In this type of labor market,
there is no upward pressure on wages because when people are
desperate for work, they are willing to take lower-paying jobs.
But when the unemployment rate is low, employers are more
willing to both raise wages to find workers as well as invest
more in in-house training and retraining.
Can I just ask a question? How does a tight labor market
encourage employers to invest in in-house training? Do you have
any thoughts or answers to that at all?
Mr. Powell. I do. And as we have discussed, in that last
couple of years when unemployment was routinely below 4
percent, as low as 3.5 percent, and where labor force
participation was high, had moved up actually, despite
expectations that it would not, we saw lots of virtuous effects
in the labor market. I actually talked about those a couple of
weeks ago. One of them was--and I did not focus too much on
it--you saw employers investing more in training. You saw
employers looking for people at the margins of the labor force.
You know, employers were going to prisons and getting to know
people before they came out and giving them jobs as they came
out. Great things happening from a tight labor market, and I
just think we saw that, and that is one of the reasons we are
so eager to get back to that, you know, consistent with also
maintaining price stability. But we really do think--and others
saw the same thing we did, which is the broad societal benefits
of a tight labor market.
Senator Cortez Masto. And, in particular, wouldn't you
agree that Congress' investment in workforce and workforce
development and helping developing those skills for that
workforce would be important?
Mr. Powell. I do. Again, I do not want to comment on any--I
am not entirely sure if what you mentioned is in the current
proposal, but I would say that the kinds of investment in
people that enable them to be more effective in the labor force
and policies that enable people to take part in the labor
force, those are big things that can increase the productive
capacity of our economy over time.
Senator Cortez Masto. Yeah, I agree. And that is why I have
introduced the Workers Act, the Pathways Act. Many of my
colleagues are really focused on this investment, particularly
now when we have an opportunity to have a long-term impact on
jobs, so thank you for that.
Let me jump to just the unemployment in the service
industry now. This is an area that I know we have been really
hard hit, and we have to do more to turn this economy around in
our hospitality industry. But let me ask you this: If the
Congress does not extend and bolster unemployment insurance,
what is the Federal Reserve's economic forecast for the impact
on communities like Las Vegas that are dependent on travel and
hospitality?
Mr. Powell. So, again, I am not going to comment on--
unemployment insurance is part of the bill, so I am just going
to stay away from the current fiscal discussions. I really have
to do that. I mean, the single most important thing for your
service sector employees is to get the pandemic behind us so
people can get on airplanes and go to Nevada again and take
vacations. That is the single most important economic growth
thing that we have.
After that, I think there will be--and it is possible that
that will begin to happen relatively soon, if we can get the
vaccines out and get people vaccinated and people do the right
things with social distancing and masks and that kind of thing.
You could see that happening relatively soon, which would be
great.
Senator Cortez Masto. I agree, but you would agree there is
an investment that still needs to be made? I mean, we are not
done here at the Federal level with our monetary and fiscal
policy in addressing the economic crisis we have. It is one
thing to get the pandemic under control. It is another to
understand how we turn this economy around as well. Wouldn't
you agree?
Mr. Powell. I would agree, and, you know, as I have said,
we will keep our policy accommodative. We think we have
significant ground to cover before we get even close to maximum
employment, and we hope to do everything we can to speed that
process.
Senator Cortez Masto [presiding]. Yeah, and let me just say
one final thing, because, as you just said, it is the pandemic
that has hit State after State and individual communities after
individual communities, I hope we do not shift gears here about
making investments when some States turn around much quicker
and their economy turns around much quicker than ours,
particularly in the service industry. No State should be left
behind, and I hope that we would all agree to that, that we
need to pull everybody with us as we address this pandemic and
start to turn the economy around.
So I know my time is up. I will submit the rest of my
questions for the record. I also think that Chairman Brown has
had to get over to Senate Finance to ask a question. He will
return. So I am going to sit in his chair temporarily, and I am
going to go ahead and turn the gavel over to Senator Hagerty.
Thank you.
Senator Hagerty. Well, thank you, Senator Cortez Masto, and
I want to say thank you to Chairman Brown and to Ranking Member
Toomey as well for holding this hearing today as we work toward
full economic recovery. And as noted, this is an important part
of Congress' oversight of the Federal Reserve System.
And, Chairman Powell, I want to thank you for your time and
your participation today. More generally, I want to thank you
for your leadership of the Fed as we work our way through this
crisis. And I want to say this, Mr. Chairman: I am very
encouraged by the indications from the Monetary Policy Report
of the progress that we are making as we come out of this
downturn. We are looking at potentially north of 4 percent
economic recovery, or as you and Senator Kennedy were just
discussing, maybe even 6 percent growth for 2021. I find that
very encouraging. Albeit an uneven recovery, I feel that it is
very good news that we are on the way.
That also raises concerns that I have, and I am sure it has
been discussed many, many times about the amount of liquidity
that we are going to continue to pump into this economy. We
have already allocated $4 trillion in coronavirus recovery
relief, $1 trillion yet to be spent, and now we are talking
about putting close to an additional $2 trillion into the
economy. I will not belabor this anymore. It has been discussed
by my colleagues, but I share their concerns about injecting
that much liquidity into the economy at a time when we are in
the process of recovering, particularly noting our tough and
slow recovery after the 2008 recession, given the amount of
funding that was injected into the economy then.
Chairman Powell, I would like to shift gears for a minute.
Yesterday Treasury Secretary Yellen talked about the digital
dollar, the digital dollar that is overseen by the Fed. It is
tied to blockchain technology, something that she said could
result in faster, safer, and cheaper payments. You and I have
discussed the importance of the dollar as the world's reserve
currency on previous occasions. It is a vital asset for us as
Americans. I would very much appreciate, Chairman Powell, your
perspective on whether the Fed should develop a digital dollar,
a digital dollar that will be held directly by households,
directly by businesses, and not intermediated by commercial
financial institutions.
Mr. Powell. Thank you. So we are looking carefully, very
carefully, at the question of whether we should issue a digital
dollar, and it is something that central banks around the world
are looking at and doing so appropriately because the
technology now enables us to do that, and it also enables
private sector actors to create their own kind of digital
quasi-money type of instruments.
So there are significant both technical and policy
questions to do with how we would go about doing that. I would
say that we are committed to solving the technology problems
and to consulting very broadly with the public and very
transparently with all interested constituencies as to whether
we should do this.
I would also say we are the world's reserve currency, and
we have a responsibility to get this right. We do not need to
be the first. We need to get it right, but this is something we
are investing time and labor in right across the Federal
Reserve System. You may know that the Federal Reserve Bank of
Boston has a partnership with MIT looking at one particular
thing. We are doing research here at the Board. It does hold
out the prospect of the things that you mentioned, very
positive. It could help with financial inclusion as well. At
the same time, you want to avoid creating things that might be
destabilizing or that might draw funds away from the banking
system. We have a banking system which intermediates between
savers and borrowers. We want to be careful about what the
implications are of what we do, so it is a very high priority
project for us.
Senator Hagerty. I share your concerns on the need to be
careful. I also appreciate the fact that you are going to stay
at the leading edge of looking at this and making certain that
America does not fall behind in any respect in terms of
maintaining our status as the world's leader in reserve
currency.
With just a moment of time left, I want to follow up on a
more technical comment that Senator Rounds made regarding the
importance of looking hard at the SLR exemptions as we continue
to move forward this year. I know they are coming to expiration
at the end of March, but I very much appreciate your taking a
hard look at that as we move forward, because there is a
tremendous amount of liquidity coming in.
And on inflation, you and I have talked before about the
experience in Japan of disinflation. At the same time, I share
Senator Toomey's concerns about the asset price bubbles that we
are seeing already occur here in America, and, again, I
appreciate your role in taking a very steady hand in monitoring
inflation and making sure we stay on top of it. Thank you very
much, Mr. Chairman.
Mr. Powell. Thank you, Senator.
Senator Cortez Masto. Thank you.
Next I am going to call on Senator Van Hollen. I know
Senator Brown is asking a question at Finance. I am going to
ask a question at ENR. So I am going to also pass the gavel to
Senator Van Hollen. Thank you.
Senator Van Hollen [presiding]. Thank you, Senator Cortez
Masto, and welcome, Mr. Chairman. Thank you for your service.
At the outset here, I just want to underscore the
importance of the Fed continuing to move ahead with the FedNow
Service. As we have discussed in previous hearings, the United
States' outdated payment system is inflicting large and
unnecessary costs on millions of American consumers, leading to
billions of dollars of unnecessary funds spent. And this does
not impact people with big bank accounts who are not close to
overdrawing. It impacts those who are living paycheck to
paycheck. So I see that the Fed has accelerated its timetable a
little bit to 2023. If you can move even faster, all the
better. You will be saving millions of Americans lots of money
in unnecessary costs.
I want to focus my questioning on the issue of long-term
unemployment. In a speech you gave on February 10th, you
pointed out that the unemployment rate would be close to 10
percent if you adjust for the Bureau of Labor Statistics, its
clarifications and people who dropped out of the labor force
since the pandemic. This includes over 4 million Americans who
are counted in the unemployment figures, but are long-term
unemployed, and millions more who have dropped out of the labor
force during the pandemic, but would like to get back into the
workforce. And you noted in that speech the concerns and damage
from persistent long-term unemployment, what it inflicts on
workers personally and their families and the negative impact
on productive capacity for our entire economy. And you stressed
that monetary policy alone cannot do this. It requires a fiscal
response.
So here is my question: Beyond the overall impacts that the
bill before us or other fiscal responses will make in terms of
increasing overall economic growth, based on your experience,
would you agree that it is important to very intentionally
develop policies to help the long-term unemployed, individuals
who even during good economic times were unable get into the
workforce?
Mr. Powell. I do, and this really is a longer-run thing, I
would say, but it is particularly relevant now. As I also
mentioned in those remarks, industries are always growing and
shrinking, and workers are moving from one industry to another.
That is just a market-based economy working. In this situation,
you have that accelerated in a big way. So we may find that
many of the people who are not going back to work, are not back
at work now, may really struggle to find jobs because
businesses are being automated. We hear that all the time, that
computers and automated answers are becoming more and more
common. So I think those people are really going to need help
to get back into the labor force and get their lives back. That
will take, I think, the kind of investments you are talking
about.
Senator Van Hollen. No, I appreciate that, and we are
talking about a focus and an intentional investment beyond the
investments that we are making for overall economic growth,
right?
Mr. Powell. Yes.
Senator Van Hollen. Yeah. And I also wanted to turn really
quickly to the importance of using the right kind of economic
measurements to determine the well-being of American workers
and families. As you noted in that same speech, unemployment
among low-wage workers is 17 percent, where it was at the start
of the pandemic; whereas, among high-wage workers it is only
down 4 percent. So if you take the average, you are not seeing
the impact, the disproportionate impact on low-wage workers.
I often give the example that if Jeff Bezos had moved to
Baltimore City last year, the per capita income of Baltimore
City would have gone from $53,000 per person to $175,000 per
person, even though nobody was better off individually.
So what should we be doing and what is the Fed going to be
doing to make sure that as our economy improves, which we all
want it to do quickly, we do not overlook the continuing pain
people are feeling because we are looking at averages and not
looking beneath those averages?
Mr. Powell. These people who are struggling in that way are
doing so because they were employed in public-facing jobs in
the service industries. So, clearly, the number one thing we
can do to get them back to work is to get the pandemic behind
us, and that is not something we can work on here at the Fed,
but that is the top thing.
Beyond that, I just think it is up to us to continue what
we can do to support the economy, really, with some patience in
order so that they will have time to get across. We have talked
about a bridge. Most Americans will have a bridge in the end,
but there is a group that will really struggle. I think we need
to be mindful of them, because, really, they did nothing wrong.
This was a natural disaster. And, you know, as a country, we
set out to provide support.
Senator Van Hollen. I appreciate that. My hope is the Fed
releases its numbers going forward. In addition to the
aggregate average numbers, you also continue to provide us with
the impact on lower-wage individuals. Thank you, Mr. Chairman.
Senator Tillis.
And if Senator Tillis is not with us, Senator Lummis.
And if Senator Lummis is not with us, Mr. Chairman, is
Senator Tillis--I am told may be joining us soon?
Senator Moran.
Senator Moran. Thank you, Mr. Chairman, Mr. Chairman pro
tem, and, Chairman Powell, thank you for the opportunity to
visit with you today, and thank you for your work at the Fed.
I just have a broad question. How do you view your job in
relationship to an Administration? So a change in
Administration from one President to the next, what does that
mean at the Federal Reserve from your perspective? Anything? Or
a lot?
Mr. Powell. Well, our job does not change, and at the very
beginning of the Administration, the personnel do not change.
Of course, the one way that Administrations really do interact
importantly with the Fed is with appointments, and so those
will happen over time.
The second thing is, you know, it is a different group of
people. We have ongoing relationships by a longstanding
practice with various parts of the Treasury Department mainly,
but also to a much more limited extent with the White House,
and we make new relationships and continue to have the same
sorts of discussions that we have. But, ultimately, the answer
to your question is nothing really changes because of the
election other than meeting new people.
Senator Moran. Chairman, thank you, and thank you for your
answer. During my time on the Senate Banking Committee, I have
been an advocate for an independent Fed and want the Fed to
make decisions based upon best policy without significant
political interference, other than perhaps the Senate Banking
Committee, anytime that we can take that opportunity.
Let me ask a specific question. In the most recent Monetary
Policy Report to Congress, the central bank indicated that, and
I quote here, ``Commercial real estate prices remain at
historically high levels despite high vacancy rates and appear
susceptible to sharp declines, particularly if the pace of
distressed transactions picks up or, in the longer term, the
pandemic leads to permanent changes in demand.''
I have great concern for the commercial property markets
and would like to hear what your thoughts are. Is this
something we need to wait out? Is it something that needs more
attention than we have been able to provide in CARES or COVID
relief before? And what does it mean to CMBS borrowers with
this market?
Mr. Powell. Well, some parts of commercial real estate--
office, hotel, and some maybe retail to some extent--are under
real pressure because of the pandemic. Those changes may be
lasting or they may be temporary, or they may be somewhere in
the middle. So this is something that we are keeping a close
eye on. There is exposure to the banking system, and as you
pointed out, there is significant exposure in CMBS to, I think,
the hotel space in particular. So we watch these things.
Of course, as I think you also mentioned, the single best
thing that can happen is to have the economy recover quickly so
that offices and hotels, you know, can be filled up again.
Where it relates to offices, are more people going to work
remotely, and so will the demand for office space feel some
downward pressure for a while or even for the long run? That is
very possible. We do not really know that, but if you talk to--
we had a presentation a couple weeks ago from someone who had
done a survey that suggested that there may be sort of
sustained lower demand for office space in particular.
So those are things we watch very carefully. We watch it
through the banking system and to see whether--most banks are
OK on that, although some of the smaller banks do have a
concentration in CRE. So we watch that carefully.
Senator Moran. Mr. Chairman, thank you very much. I yield
the balance of my time.
Senator Van Hollen. Thank you, Senator Moran.
Senator Smith.
Senator Smith. Thank you, Mr. Chair. Can you all hear me? I
know, of course, Senator Tillis was having a hard time with his
audio.
Senator Van Hollen. We can hear you.
Senator Smith. Yes, great. Thank you.
Chair Powell, it is great to see you today, and I want to
start by asking you a question around climate risk and
disclosing climate risk. You and I have discussed before that
climate change remains one of the most pressing challenges that
we face. It is an economic issue. It is a health issue. I mean,
it really cuts across our entire economy. I think in some ways
it is like a slow-moving pandemic, and, of course, it poses a
real risk to the banks that the Fed regulates.
So I know that in December--and I think it was a great
idea--that the Fed joined the Network of Central Banks and
Supervisors for Greening the Financial System. I think that is
a step in the right direction. But my question gets to this: A
lot of public disclosure on climate risks is mostly voluntary.
It varies a lot from company to company, which makes it really
hard to compare risks or interpret what those disclosures mean.
So could you talk to us about whether or not you think that
climate risk disclosures should be standardized? Or should we
continue to allow firms to sort of make their disclosures, if
they make them at all, in whatever form they choose?
Mr. Powell. I will. If you would permit me, I would first
like to say that, of course, the overall response of society to
climate change, which I agree with you is a very important
problem, has to come from elected officials in Congress and
also in executive branch under existing law. So that is really
where this comes from.
Senator Smith. I would agree with you.
Mr. Powell. We have a specific role on climate change,
which only extends to the scope of our mandate, which is really
to assure the resilience of the institutions that we regulate
and supervise.
But on disclosure--and this is really an SEC issue, but I
would just say in general financial institutions everywhere,
particularly the larger and medium-sized ones, are working hard
on this question. There has been a lot of work done with the
Task Force on Climate-Related Financial Disclosure, and other
groups, you know, are struggling with this question of
different kinds of disclosure that varies by jurisdiction and
by institution. And I do think that it is appropriate to allow
some of that difference to persist for now.
In the long run, clearly we ought to be going to kind of a
template and more standardized, but it seems to me we can let
this process--which is very much ongoing now among our own
financial institutions, we can let it bear fruit for a while.
But I think in the long run that we have to be going in the
direction of more standardization.
Senator Smith. So moving toward a more standardized,
reliable, comparable kind of standard of disclosure makes sense
to you?
Mr. Powell. Yes, it does, over time.
Senator Smith. Thank you. Thank you. And I just want to
also just loudly agree with you that this is primarily an
opportunity where Congress and the executive need to step up
and take the steps that we need to take from a policy
perspective. So I agree with you on that.
I have one other thing I would like to ask you about. There
has been a lot of conversation today about the unevenness of
the economic recovery and how that is affecting different
people differently, and I would like to hit on one point about
this.
Last week, I think it was, the Minneapolis Fed came out
with a report looking at recovery, people recovering their
employment, and it revealed in Minnesota and in the Minneapolis
Fed district a dramatic difference in women rejoining the
workforce or, in this case, not rejoining the workforce, a
dramatic difference between women and men and even particularly
a difference between lower-wage women workers and higher-wage
women workers. This is a huge challenge because in many parts
of my State, we actually have a workforce shortage. So it is an
economic challenge as well as, of course, a challenge for
families that have lost that really significant wage earner.
So, Chair Powell, could you just talk a little bit about
this unevenness, the challenges of women returning to the
workforce as we move through the pandemic, and then how you see
that affecting our economic recovery?
Mr. Powell. Sure. So we know that with the closure of
schools and with home schooling, you know, parents have had to
stay home, and that burden has fallen significantly more on
women than on men. So women in effect have had to involuntarily
withdraw from the workforce. Hopefully, that will be temporary,
to the extent people want to return to the workforce, but that
interrupts your career. It may be difficult to get back to
where you were in the workforce and replace that work life that
you had and sort of limit your ability to contribute to the
economy. So it is important. And, again, it is not really our
policies that can accelerate that, but policies that bring the
pandemic to an end as soon as possible would help and allow us
to open the schools up again would certainly help. But you are
right, though, that there have been disproportionate impacts,
and that is one of them.
Senator Smith. Well, I know I am out of time, but I want to
just toss in there that one of the key pieces of infrastructure
for our economy to work, and especially to work for women, is a
child care system that is there so that their young children
have a safe, affordable place to go. This has been a big really
kind of collapse in the child care system during the pandemic
and something that I hope to be able to work with, continue to
work with my colleagues on in Congress.
Thank you.
Mr. Powell. Thank you.
Senator Van Hollen. Thank you, Senator Smith.
Senator Tillis.
Senator Tillis. Senator Van Hollen, can you hear me?
Senator Van Hollen. I can hear you. We can hear you.
Senator Tillis. I had to reboot my PC. Sorry about that,
but thank you for your indulgence.
Chairman Powell, thank you for being here, and thank you
for the time that we spent on the phone a few weeks back.
We have 210 million adults, Americans over the age of 18 in
this country, and now we are at a run rate of about 1.7 million
vaccinations a day now that we have had the lag in January.
That is the first and second vaccination. So I think in answer
to Chairman Brown's question, you said the most important thing
we can do is accelerate the vaccine. Now we are on pace for
having well over half of the country for people who want to
take the vaccine vaccinated by, let us say, June, early July
timeframe.
Back when you and Treasurer Mnuchin were before us, when we
were debating what a follow-up package should look like, we
ultimately passed one that was over $900 billion. We were
talking about a bridge. In your opening statement, you also
talked about an optimistic outlook in the second half if we
continue to make progress on the vaccine. I am not going to ask
you questions about the fiscal policy that we are debating in a
$1.9 trillion package. But I am curious if, at least at a high
level, you think it would be prudent to make sure that the
additional money that we expend to continue to provide that
bridge or build that bridge to recovery, should it be spent on
things that are truly stimulative? Do you see any stimulative
value, for example, in money coming from the Federal Government
that ultimately makes it into bank accounts and not back into
the economy on a short-term basis?
Mr. Powell. Again, I do not want to comment on the
particulars of the bill. Clearly, some kinds of support have
higher multiplier effects, and the people who get the money
have different marginal propensities to consume.
Senator Tillis. I want to follow up on a question that
Senator Moran asked about CMBSs in particular. With the
eviction and foreclosure moratoriums ultimately sunsetting and
with the CMBSs also being linked in many cases to pension plans
and their potentially being volatile, what specific proactive
steps should we consider as a matter of policy or can you take
to avoid what may be some tough waters for that space of
investments in probably the coming year?
Mr. Powell. You know, the kind of tools that we have are
not really appropriate for addressing those kinds of situations
unless they become extremely broad, and I would not expect
that. So I think it would come down to whether you want to
direct specific assistance.
Senator Tillis. Well, let me go back to one other thing on
asset bubbles. I am sure you are familiar with President
Bullard's comments about his belief that he does not see any
potential risk of bubbles. Do you share that view?
Mr. Powell. I would not comment on what one of my
colleagues said. So I guess what I would say is this: We look
at a really broad range of things when we talk about financial
stability. We have got how much leverage is there in the
banking system, households, nonfinancial corporates. We look at
funding risks, and we look at asset prices. The thing we always
get asked about is asset prices, but they are only one thing.
Ultimately, what you want is a situation where movements in
asset prices do not disrupt the broader financial system. I
think we have highly capitalized banks, and we have done a lot
to shore up the parts of the financial system that did not hold
up during the prior crisis.
You know, I would not comment on any particular--on
bubbles. You know, we are not--no one can really identify them.
For any particular asset, even now, people have different
perspectives. For example, in the equity market, there are some
who say there is a bubble. Others say if you look at it this
way, there is a lot of--I do not have an opinion on that for
this purpose.
Senator Tillis. Final question. I cannot see the timer, so
I do not know if I am out of time. I know I am close, but I
think Senator Van Hollen mentioned the payment system. What is
the current status of the implementation relative to the
original timelines for implementation and pricing?
Mr. Powell. So we are right on track and feeling like we
will be up and running in 2023, and that is good. We said it
would be 2023 or 2024. So now we are thinking 2023. That is
really good, and I just think it is a project that overall is
very much on track. I do not have anything for you, any news on
pricing, but it is on track.
Senator Tillis. OK. Well, I look forward to reaching out
and maybe speaking with you all about the implementation and
some of the issues on pricing, which have been a concern of
mine. Thank you, Chairman Powell.
Mr. Powell. Thank you, Senator.
Chairman Brown [presiding]. Thank you, Senator Tillis. And
thanks to Senator Van Hollen for, while I was voting, taking
over the Committee.
Senator Sinema from Arizona.
Senator Sinema. Well, thank you, Chairman Brown, and thank
you to Ranking Member Toomey for holding this hearing. Chairman
Powell, it is good to see you. Thank you for joining us today.
Now, I will admit that when I hear from Arizonans, the
first question or concern they have for me is not usually about
the federal funds rate. It is not about the Fed's dual mandate
or the money supply curve, because right now Arizonans are
concerned about getting the coronavirus under control and
getting our economy back on track. We want to ramp up vaccine
production and distribution, support small businesses, deliver
relief to struggling Arizonans, and reopen our schools safely.
So my hope is that we will get critical relief [inaudible] to
think about the future, not just the present crisis. We want a
strong economic recovery, and that means ensuring the Fed's
work complements our legislative efforts.
On December 16th, the Federal Open Market Committee stated
that it will be ``appropriate to maintain the current
accommodative target range of the federal funds rate until
labor market conditions have reached levels consistent with
maximum employment and inflation has risen to 2 percent and is
on track to moderately exceed 2 percent for some time.'' So the
FOMC summary of economic projections from December show that
most members' projections of the longer-run unemployment rate
lie between 3.9 and 4.3 percent. So, Chairman, does that mean
that the FOMC will not view the U.S. as having reached
conditions that are consistent with maximum employment until
the unemployment rate is 4.3 percent or less?
Mr. Powell. Yes, and it means more than that, too. When we
say maximum employment, we do not just mean the unemployment
rate. We mean the employment rate, which is the inverse, and we
mean it as a percentage of the population, employment to
population, which also takes onboard relatively high levels of
participation. We look at wages. We look at many things, a
broad range of indicators on maximum employment.
Senator Sinema. I see. Now, the statement lists three
conditions for raising rates: full employment, 2 percent
inflation, and projections of 2 percent-plus inflation. Are all
three of these conditions necessary for the FOMC to consider
raising its target for the federal funds rate?
Mr. Powell. Yes, they are.
Senator Sinema. Oh. Well, thank you. That is very helpful,
and I appreciate you clarifying that for all of us.
You know, as we work to rebuild the economy and reopen
safely, we will likely see pent-up demand in the hardest-hit
sectors--hotels, tourism, and restaurants. And as you know,
excessive pent-up demand can cause temporary sector-specific
price inflation. But temporary sector-specific price inflation
is very different than persistent economywide inflation. So
taking overly aggressive action on a short-term limited problem
risks cutting off relief before it reaches Arizona families,
and that is because such action would increase interest rates
on student loans, mortgages, and other household debts when
families can least afford it.
So what tools would the Fed utilize to ensure that you
effectively distinguish between temporary sector-specific
inflation and the real deal?
Mr. Powell. So as I mentioned earlier, we are very aware of
the history of inflation and how it was gotten under control
and how it got out from under control. I would just say looking
at the current situation, we do expect that inflation will move
up, in part because of what you mentioned, which is
enthusiastic spending as the economy reopens, but we do not
expect that the effects on inflation will be particularly large
or persistent, particularly from sort of a one-time amount of
spending due to the current situation. So we will be watching
that carefully to make sure that is right, but we will be doing
that patiently. And we would expect that the longer-run
inflation dynamics that we have seen for more than a quarter
century, where inflation expectations are grounded and
inflation does not move up very much or it does not move down
in bad times, does not move up that much in good times, we
think those will not go away overnight. We think they will
persist. They may well evolve, but, again, we would expect
inflation to perform somewhat in keeping with the history of
the last few decades.
Senator Sinema. Thank you, Chairman Powell. Again, I
appreciate you being here today. Mr. Chairman, let us work
together to get the economy back on track and ensure that
everyone benefits from this recovery.
Thank you, and I yield back.
Mr. Powell. Thank you.
Chairman Brown. All right. Thank you, Senator Sinema.
Senator Lummis from Wyoming is next.
Senator Lummis. Well, thank you, Mr. Chairman, and,
Chairman Powell, thanks so much for appearing before the
Committee today.
I have two questions. The first one centers on energy. As
you know, demand has dropped for energy since the pandemic
started, but economists are projecting greater demand later
this year and into 2022, even while production declines under
the current Administration's actions to restrict oil, gas, and
coal development.
My question is this: Are inflationary risks weighted to the
upside or downside if a demand shock occurs and reduced
production cannot keep up?
Mr. Powell. The downside for a long time. The situation you
described, let us say hypothetically that it does push up
energy prices in the near term. That would move through
headline inflation, but it would not necessarily--it would
raise prices. It would not necessarily change the rate of
underlying inflation.
Senator Lummis. Would a balanced energy approach, more
balanced than we are looking at right now, be appropriate until
the supply demand curve returns to normal?
Mr. Powell. You know, we do not really take positions on
energy supply. Those are really issues for our elected
representatives, notably including you, and I know you are an
expert in the energy space.
Senator Lummis. Well, I will switch my questions then to
innovative payment instruments. FedNow and other instruments
like stablecoins and central bank digital currencies have the
potential for much higher monetary velocities. So how will this
impact the monetary transmission mechanism and collateral
availability in the markets?
Mr. Powell. Well, we do not think they will have much of an
effect on monetary transmission, actually. We have had a
tremendous amount of payment sector innovation for a long time,
really, and monetary policy transmission continues to be about
what it is. We change interest rates, and that works its way
through the economy, and that supports economic activity or
restrains it, depending on where interest rates are. So we do
not actually think there is going to be a tight connection
between the FedNows and the stablecoins of the world. And I
would agree with you it is important to have collateral, and,
you know, what we see in the markets is far from a shortage of
collateral. There seems to be ample collateral, if you just
look at the rates that are being paid.
Senator Lummis. Could higher velocities from innovative
payment instruments lead to a refocusing of the monetary
transmission mechanism away from the securities markets and
toward more of a bank-focused transmission mechanism based on
demand deposits?
Mr. Powell. Again, we do not see--the premise is--that
might be right. We do not actually think, though, that there is
much reason or evidence to expect, or showing that these
innovations will have much of an effect on velocity, or on
transmission for that matter. So we should talk about this
offline. It is a very interesting question, actually. But we do
not really see the premise, but I would love to hear more.
Senator Lummis. I will look forward to those conversations.
One more question. Do we need a central counterparty for the
clearing of Treasuries?
Mr. Powell. Interesting question, and that is a proposal.
We are doing a lot of thinking these days, along with
colleagues from other agencies, about the structure of the
Treasury market, given what happened during the acute phase of
the pandemic when there was so much selling pressure and there
was not the capacity to handle it. And one way to do that would
be to have central clearing. It certainly has benefits, and I
have been a big fan of central clearing in other parts of the
economy. It is something that we are looking at. I do not know
that it will wind up being part of the solution, but it is
certainly worth looking into. So, again, another very
interesting analysis and question.
Senator Lummis. Well, thank you. Senator Sinema, who
previously spoke, and I have founded a Financial Innovations
Caucus in the Senate, and these are some of the things that we
want to explore, plus many other things. So we will look
forward to addressing some of these questions through the
Financial Innovations Caucus and through this Committee. So
thank you so much, Chairman Powell, for being with us today and
for your insights. I yield back.
Chairman Brown. Thank you, Senator Lummis.
Senator Ossoff from Georgia, you are recognized.
Senator Ossoff. Thank you, Mr. Chairman, and thank you,
Chairman Powell, for joining us this morning and this
afternoon, and for the discussion that we had several days ago.
Chairman Powell, it may not be widely known that the Fed's
retail payment office, or RPO, is based in Atlanta, and the RPO
is responsible for most transactions involving Americans'
checking accounts, ACH transactions, direct debit. This is
critical financial infrastructure vital to the functioning of
our economy. Do you have concerns that cybersecurity threats to
the RPO could pose a systemic risk to the U.S. economy? And
will you commit to working with my office to review the
cybersecurity of the Atlanta-based RPO and to improve it if
necessary?
Mr. Powell. I would agree with you that those are very
important issues. I do think that the Atlanta Fed is very
focused on those issues, but I would be, of course, delighted
to work with your office in that respect.
Senator Ossoff. Thank you so much. There is no doubt,
Chairman Powell, that the COVID-19 pandemic is the most
significant drag on economic growth and job creation, but could
you step back please and comment on what you assess to be the
most significant systemic threats to global or national
financial stability?
Mr. Powell. Well, you know, clearly, bringing the pandemic
to an end in the United States and globally, a real decisive
end, would take so much risk to the financial system end of the
economy and to the people we serve off the table. So you really
cannot overestimate the importance of getting that done
quickly, and we can do it, but just remember--we have not done
it yet, but we really can do it as a country. And it has to
happen all around the world, or we will keep getting echoes of
this, you know, possibly next winter, but this is where we do
not want to be. We want to get this done and have it be
decisive.
Beyond that, I think the advanced economies have issues
around growth, around an aging population and low interest
rates, low inflation, low growth, low productivity worldwide,
the United States to a lesser extent than many other advanced
economies. But those are issues that we face that threaten
different kinds of stability. Those are big, big issues that we
think about and we have to address to some extent with our
policies. So I could go on.
Senator Ossoff. Thank you, Chairman Powell. I appreciate
that. And recognizing that you are, as a matter of policy, not
commenting on the specific fiscal measures that Congress is
considering, can you please guide us through what your thinking
would be, if Congress were to engage in more ambitious fiscal
expansion, with more significant or more sustained fiscal
support for low- or middle-income households, without
commenting on any specific legislation, how might that change
the Fed's policy outlook?
Mr. Powell. So we take fiscal policy into account. It is
completely--we take it as a given, whatever fiscal policy is.
And it is one of many, many factors that will affect the path
of the economy. We are focused entirely on the state of the
economy and the path to maximum employment and price stability.
That is our focus. Anything that affects that can affect what
we see. But we will be looking at the actual data in our
forecast. We will not be reacting to specific policies, if that
is what you mean. Again, I would say over the longer term----
Senator Ossoff. Chairman Powell, you have acknowledged the
extreme difficulty of economic conditions for low-income and
low-wealth households in this hearing. Which provides more
direct economic relief to low-income households who may not own
stocks or hold mortgages or run businesses: direct fiscal
relief or monetary expansion whose effects are mediated by
money markets and the banking system?
Mr. Powell. Well, I would just say again, without
commenting on a particular bill, fiscal policy, if we are
talking about targeting specific groups within society for
support, that is the work of fiscal policy. Monetary policy is
really not designed to do that.
Senator Ossoff. That is right. So if trying to relieve the
suffering of people who are in economically precarious
situations in their household, who, again, do not own stocks,
do not own businesses, do not have mortgages, direct fiscal
relief will be a more effective means of relieving their
suffering than the broader macroeconomic intervention of the
Fed through monetary policy. Is that a correct paraphrasing of
your statement?
Mr. Powell. Yes, and that is really been the story of this
recovery, is fiscal policy has really stepped up and done that.
We have done what we can, too, but fiscal policy----
Senator Ossoff. OK. I have just 20 seconds. Chairman, I
want to return to systemic risk. The provision of massive
liquidity to the financial system, not just since COVID but
since the 2007-08 crisis, risks the emergence, as the Ranking
Member noted, of asset bubbles that could pose a systemic risk
to the banking system. Do you believe that we have sufficient
surveillance and risk management capacity right now to identify
those risks before they threaten financial stability?
Mr. Powell. I do. We monitor financial markets very
carefully and so do many others. It is not a question of lack
of monitoring capacity.
Senator Ossoff. OK. Thank you so much, Chairman Powell.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Ossoff.
Senator Daines from Montana is recognized. Or perhaps he is
not here. Senator Cramer from North Dakota has not spoken yet.
He had checked in earlier. Is he here?
Senator Warnock from Georgia is recognized.
I understand people are voting. Let me ask one question. I
wanted to ask--hang on a second. I apologize. I wanted to ask
the Chairman a question about climate, and I had mentioned, I
will do this question in writing. I would rather obviously do
it now while we are waiting, and I will not keep you long if
the other Members do not show up.
Chairman Brown. We know that low- and moderate-income
communities and Black and Brown communities suffer the effects
of climate change disproportionately. When a hurricane hits--
and always have suffered weather disasters, way out of
proportion to their numbers. When a hurricane hits, when
wildfires ravage an entire town and regions, entire spring
planting washes down the Mississippi, local residents need
Government agencies to be agile and flexible in response.
What policy changes, Mr. Chair, will the Fed implement to
promote consumer protection in community development and do
things like ensuring access to cash or other means of payment
when these more frequent extreme weather events devastate
already distressed communities or whole regions? Are you
coordinating on this with the Federal Reserve Banks, among the
12 banks?
Mr. Powell. Yes. So that is a good example, really, of the
way--to the extent climate change leads to increased episodes
of severe weather, we need the banking institutions that we
supervise to be in a position to perform really critical
functions in the aftermath of this, those of us who see that.
By the way, the Federal Reserve System itself, our Reserve
Banks get the cash. They take the actual physical cash and get
it to those affected areas. It is something they do very well,
and we need to be resilient and available to do that--able to
do that, rather. And then we need the banks to be able to
perform the function that they perform with their ATMs and
their branches to get that cash out to people who may be in
pretty dire circumstances in the wake of a natural disaster.
Chairman Brown. Senator Daines from Montana is recognized
for 5 minutes.
Senator Daines. All right. Thanks, Mr. Chairman.
Chairman Powell, it is good to have you here. I just was
looking at the T-bill chart and noticing since the 1st of
February, the 1-month rates have dropped in half, from 0.06 to
today 0.03; 2 months went from 0.07 to 0.02. We are starting to
get into that realm here of possibly negative rates, which we
saw, of course, briefly a year ago March.
I just want to get your thoughts on that. Is there any
issues here of shortage collateral? What is driving this as you
are watching some of these short-term rates approaching zero?
Mr. Powell. So with T-bills in particular, this would
really be a Treasury issue, but I would say, you know, it is a
lot of demand for short term--there is a lot of liquidity and
people want to store it to some extent in T-bills, and there is
demand and, therefore, that drives down the rates that people
are being paid--or are receiving for buying those assets.
From our standpoint, our policy rate is the federal funds
rate. And to the extent there were to be downward pressure on
that because of, for example, the Treasury general account
shrinking in size, then we have tools that we can use to keep
that rate in our intended policy range, and we will do that.
And that should also limit the extent to which other money
market instruments like T-bills would go even lower or perhaps
negative.
Senator Daines. So do you have a concern? Many of us were
surprised when we saw negative rates here a year ago. These
rates are getting awfully low in the short term. Is that a
concern of yours then or not?
Mr. Powell. Well, again, our principal concern is that the
federal funds rate be in its intended range, the range intended
by the Federal Open Market Committee. We do see that there is
the possibility that other money market rates could move down.
And I think to the extent we are able to keep the federal funds
rate in its range, that should ameliorate some of that downward
pressure. And that would be appropriate.
Senator Daines. To follow up on that same point, Mr.
Chairman, the last couple of weeks, we have seen a lot of
volatility, for example, in the Texas gas markets that to a
degree spread out to other markets. If there were several of
these other kind of special circumstances all happening at the
same time, might this lead to a shortage of collateral from T-
bills, as seemed to be in the case that we saw here last March?
Mr. Powell. It is possible. I do not really see that
happening, but it is true that there is tremendous demand. And,
again, the issue of supplying the demand across the curve is
really one for the issuer, which is Treasury.
Senator Daines. Is there any merit or might it be a good
idea to waive the supplementary leverage ratio for, say, a year
until some of these special circumstances we are seeing
regarding the recovery from the pandemic in the past and when
perhaps we will have less possible need for some of the dealer
intermediation in the repo market and some of the other short-
term markets?
Mr. Powell. As you I am sure know, the temporary relief
that we granted regarding the SLR expires at the end of March.
Senator Daines. Right.
Mr. Powell. And we are right in the middle of thinking
about what to do about that. I do not have any news for you on
that today, but we do expect to make a decision on what to do
about that exemption, that change we made to SLR back last
year.
Senator Daines. Let me shift gears in looking at some of
the prospects of these asset bubbles here. We are seeing signs
of speculation across various portions of the economy. Stocks,
of course, are trading at very high prices to earnings ratios;
ag commodities moving up, economically sensitive materials,
such as copper, nickel, they are soaring; Bitcoin is up 80
percent this year alone.
Mr. Chairman, how do we know when, I guess to quote--I
think it was Mr. Greenspan talked about ``irrational
exuberance'' has unduly escalated asset values, which then
might become subject to unexpected and perhaps prolonged
contractions?
Mr. Powell. So as we look at those things that you cited,
what many of them have in common is that they are related to
expectations of and greater confidence in a stronger recovery.
So that is the metals. It is not so much Bitcoin, but it is the
metals that you mentioned and inflation expectations and other
securities. Prices are really related to--you know, because of
all the factors that are out there right now, an expectation
that the recovery is going to be stronger, sooner, and more
complete. And so that is OK. We saw commodity prices moved up a
lot in 2008 and 2009, and people were worried about inflation.
The Inflation never came. So it is a healthy sign, I think,
there.
Honestly, we are focused on making sure that we are
providing the support that the economy needs to get back to
maximum employment and stable prices. We have still got 10
million people, fewer working now, according to the payroll
statistics. And it is much worse than that among the workers in
the lower quartile. So that is really our focus. Our focus in
financial stability generally has been to have a banking system
and financial sector that is highly resilient to shocks and----
Chairman Brown. I am going to change the order of this.
Senator Daines. All right, Mr. Chairman, I am over my time
at the moment. So thank you. I yield back.
Chairman Brown. Thank you, Senator Daines.
Senator Warnock from Georgia is recognized for 5 minutes.
Senator Warnock.
Senator Warnock. Thank you so very much, Chairman Brown,
and I look forward to working with you and also with Ranking
Member Toomey and other Members of this Committee. I am
grateful to Chairman Powell. Thank you so much for taking the
time to talk to me 2 weeks ago. I look forward to working with
you as we work on a recovery that embraces our whole country.
And I especially look forward to working with you and Atlanta
Fed President Raphael Bostic to help Georgians over the next 2
years.
Some have suggested that our COVID-19 challenges with
unemployment, with homelessness, and poverty will be solved if
we simply lift all local restrictions and open up the economy.
But since the beginning of this crisis, I have heard you stress
time and time again, and something along this order even today
as you offered your testimony, that the path of the economy,
you said on one occasion, continues to depend significantly on
the course of the virus.
Would you mind elaborating on why this is the case? Will
the economy fully recover if people do not feel safe and
comfortable that the virus is contained?
Mr. Powell. I would answer your question in the negative.
It would not. We know that actually at the beginning of the
pandemic, if you look at the plummeting levels of travel and
going to restaurants through OpenTable, all that data, it shows
that people stopped doing those things because of the
coronavirus before there were governmental restrictions at the
State and local level to do it, to do those things. So it
really is to a significant extent just people wanting to avoid
catching the coronavirus.
It is also, you know, the restrictions that are in place in
some cases on the part of governments. It is not a role for us
to express views on whether they should be lifted or not. That
is really something for State and local governments. But, you
know, clearly, if you look at the 10 million people who are out
of work, a great number of them are in those sectors of the
economy that have been so badly affected by COVID. And those
are the ones where they gather closely and where people are
still--not every person, but many people are still reluctant to
go to indoor restaurants, for example. And you see sporting
events, they are not having crowds. The people who worked in
those areas, those are the ones who were affected, and it is
going to be hard for them to go back to work until people are
confident, as you say.
Senator Warnock. So we want the economy to fully recover,
but we have got to get the virus under control, and those
things work together, which is why I am glad to see $20 billion
in the vaccine rollout funds and the COVID-19 stimulus package.
And I am going to do everything I can to make sure that we get
those funds approved and out the door so that we can reopen and
do so safely and permanently.
You are tasked primarily with looking at the whole economy
and with the big picture in guiding our country forward. And
one of the things that you have to look at as you do that is
systemic risks. You and the other Governors over at the Fed
Board have to ask, well, what risks are systemic? And in that
regard, I am curious how broad is your definition of systemic
risk? My definition of systemic risk includes a cycle of
poverty. It includes things like disparities in wages that mean
women make less than men, people of color make less than their
White sisters and brothers. It includes food insecurity,
housing insecurity, lack of access to health care. These things
feed a cycle that limits opportunity, limits upward mobility,
and people's ability to reach their full potential, which then
has implications for the whole economy.
How do you factor these kinds of things in as you take
stock of whether the economy is working or not and for whom is
the economy working?
Mr. Powell. So you have heard us increasingly in recent
years talking about these longer-run disparities and why do we
feel that we can do that? It is because they weigh on the
economy in the sense that if not everyone has the opportunity
to participate in the economy and contribute as much as that
person can contribute, given his or her talents and abilities
and willingness to work and all those different things, then
the economy is going to be less than it can be. And in our
country, of course--and every country faces challenges. We are
not alone in this, but we do face persistent, very persistent
differentials that are hard to account for and that weigh on
the economy. And those are along racial lines, along gender
lines and other lines. And I just think it is--I would say it
is widely understood now that we need to do everything we can
to bring people into the economy and let them contribute and
let them share in the broader prosperity.
Senator Warnock. Thank you, Chairman Powell. It is clear
that the bottom line is that poverty, systemic inequality,
wealth inequality are risks to the entire economy and have
implications for all of us; that these issues cannot be siloed,
which is why we have got to take this into consideration as we
push forward COVID relief, and then pivot to address
longstanding issues of wealth inequality in our country.
Thank you so very much.
Chairman Brown. Thank you, Senator Warnock.
For Senators who wish to submit questions for the record,
these questions are due 1 week from today, Tuesday, March 2nd.
Chair Powell, based on the change we made to our Committee
rules bipartisanly, you have 45 days to respond to any
questions.
I appreciated the dose of reality we heard from Chair
Powell today: 10 million fewer jobs. We are only creating
29,000 new jobs a month. That is unacceptable. As you said, Mr.
Chairman, when it comes to our recovery, the job is not done.
Talk to any mother or essential worker or mayor. Talk to the
people who own barber shops and diners and drycleaners.
Everything is not fine.
Much of what we heard from my Republican colleagues today
sounds pretty out of touch with the reality that the great
majority of American families are living in. It is the same
message we heard all last summer, last fall, the stock market
is up, everything is fine. We heard it again today.
Certainly the wealthiest sliver of Americans are doing just
fine, just like they were before the pandemic, but our job is
not to work for them; it is to work for everyone, as you and I
have discussed, Chair Powell. The Fed has multiple tools to
increase employment, fight wealth inequality, create an economy
that Senator Warnock just spoke about, that works for the vast
majority of people who get their income from a paycheck, not an
investment portfolio. You, Mr. Chair, have a responsibility to
use all of those tools toward that goal. I continue and look
forward to continuing to work with you to do all of that.
With that, the hearing is adjourned. Thank you so much.
[Whereupon, at 12:22 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
At this Committee's first hearing, we heard from our witnesses the
challenges and struggles Americans have faced over the past year.
Anyone who has been doing their jobs has heard these stories. Front
line workers--like our transit workers--go to work every day worried
they'll get the virus on the job, and bring it home to their families.
Mayors and county commissioners and community leaders wonder how long
they can hold on without starting layoffs. Renters see the bills pile
up, watching their bank balance dwindle lower and lower, and wondering
if this will be the month an eviction notice comes.
Today more than 4 million people are out of a job--and the trend
continues upward. Last week jobless claims rose again. We are still
fighting the battle against the coronavirus--nearly 500,000 of our
fellow Americans have died from COVID-19.
We all know that we are facing two crises--a public health crisis,
and an economic crisis. We have to be clear about that--we can't solve
one without solving the other.
We know getting our economy back to full strength requires a
massive, wartime level mobilization to get all Americans vaccinated.
We also know that vaccines alone will not put most workers and
their families back to where they were a year ago.
We want people back to work and we want kids back in school and we
want to see main streets thriving and humming with life again. That
requires real Federal leadership on a level we have not seen in this
country since World War II.
As Bill Spriggs alluded to when testifying before this Committee,
before D-Day, General Eisenhower didn't call up the president or the
Treasury Secretary and ask, can we afford to storm the beaches at
Normandy? Do we have the money in our accounts?
Most people that I talk to in Ohio and around the country aren't
worried about doing too much in the battle against coronavirus; they're
worried about doing too little. They want us to do whatever it takes.
85 percent of Americans still need a vaccine.
Our front line workers still need PPE. Small businesses still need
assistance to keep their doors open. States and cities and towns still
need resources and support to open schools safely and keep buses
running and libraries open and firefighters on the job.
And the experts agree that the best thing we can do for the country
right now is to get resources out the door as quickly as possible, to
tackle all of these interconnected problems.
Former Fed Chair, now our Treasury Secretary, Janet Yellen said
that if we don't do more, we risk a permanent ``scarring'' of the
economy into the future.
Economists from across the political spectrum--including many who
have testified before this Committee--tell us that without strong
fiscal support, our economy could spiral even further out of control
and take years to recover.
Our witness today, Federal Reserve Board Chair Jerome Powell, has
expressed some of those same concerns. Just a few weeks ago--after we
passed the COVID-19 relief bill in December--he said that ``support
from fiscal policy will help households and businesses weather the
downturn as well as limit lasting damage to the economy that could
otherwise impede the recovery.''
Chair Powell has talked to all of us about the risk of falling
short of a complete recovery, and the damage it will do to peoples'
lives and to the ``productive capacity of the economy''--his words.
President Biden understands this moment, and he's risen to meet it
with his bold American Rescue package. It's a plan to both rescue the
economy and to save American lives.
Workers and their families need to see their Government work for
them, now.
And this rescue plan must be the beginning of our work to deliver
results that empower people and make their lives better, not the end.
We need to rethink how our economy operates. When a hard day's work
doesn't pay the bills for tens of millions of workers, and even middle
class families don't feel stable, something in that system is broken.
Workers' wages have been stagnant for decades, while CEO pay has
soared. Corporations get huge tax breaks, and instead of investing in
their employees and communities they serve, management reward
themselves and shareholders through stock buybacks and dividends.
The wealth and income gaps for women, and for Black and brown
workers, are getting worse, not better. Many families still had not
recovered from the Great Recession when the pandemic hit.
This didn't happen by accident. It's the result of choices made by
corporations and their allies in Washington.
They've spent years rolling back consumer protections in our
financial system, cutting corporate tax rates, and using Wall Street to
measure the economy instead of workers.
And the same people that have been advocating for these roll backs,
pushing this stock market-centered view of the economy, are the same
people who say we shouldn't go big on a rescue plan. They say that
there's no need for the Government to help people--the market should
decide who wins and who loses.
But we all know that the market doesn't work when the game is
rigged. And the corporations that have been lining their own pockets
have done so with plenty of Government help and intervention.
We know that for them, short-term profits are more important than
their workers. That's why we have to stop letting them run things.
Just look at what's happening in Texas, where a deregulated energy
grid failed, leaving millions without power in frigid winter
temperatures. People are literally freezing to death in their own
homes--in the United States of America.
And without any rules, energy companies can charge consumers sky
high prices. They even use automatic debits, taking thousands of
dollars directly out of people's bank accounts. We know climate change
is causing severe weather across our country. We need more investment
in public infrastructure, not less, and we can't let corporate greed
continue to stand in the way.
Our Nation's central bank plays a critical role in all of this.
The Federal Reserve can ensure that the biggest banks use their
capital to invest in their workers and lend in their communities,
instead of ginning up their stock prices with buybacks and dividends.
The Fed can make sure the response to economic and financial crises
doesn't just help Wall Street, it helps everyone else.
It can require that financial institutions take into account the
serious risks posed by the climate crisis.
It can help ensure that everyone in this country has a bank account
and access to their own hard earned money. And it can start to undo the
systemic racism in the financial system, and make workers the central
focus of our economy.
Chair Powell, you said just a few weeks ago that, quote, the
``benefits of investing in our Nation's workforce are immense. Steady
employment provides more than a regular paycheck. It also bestows a
sense of purpose, improves mental health, increases lifespans, and
benefits workers and their families.''
What that boils down to is the Dignity of Work. It means that hard
work should pay off, no matter who you are or what kind of work you do.
It means that we need to start measuring the success of our economy by
the success of the people who make our economy work.
Chair Powell, thank you and I look forward to your testimony.
______
PREPARED STATEMENT OF JEROME H. POWELL
Chairman, Board of Governors of the Federal Reserve System
February 23, 2021
Chairman Brown, Ranking Member Toomey, and other Members of the
Committee, I am pleased to present the Federal Reserve's semiannual
Monetary Policy Report.
At the Federal Reserve, we are strongly committed to achieving the
monetary policy goals that Congress has given us: maximum employment
and price stability. Since the beginning of the pandemic, we have taken
forceful actions to provide support and stability, to ensure that the
recovery will be as strong as possible, and to limit lasting damage to
households, businesses, and communities. Today I will review the
current economic situation before turning to monetary policy.
Current Economic Situation and Outlook
The path of the economy continues to depend significantly on the
course of the virus and the measures undertaken to control its spread.
The resurgence in COVID-19 cases, hospitalizations, and deaths in
recent months is causing great hardship for millions of Americans and
is weighing on economic activity and job creation. Following a sharp
rebound in economic activity last summer, momentum slowed
substantially, with the weakness concentrated in the sectors most
adversely affected by the resurgence of the virus. In recent weeks, the
number of new cases and hospitalizations has been falling, and ongoing
vaccinations offer hope for a return to more normal conditions later
this year. However, the economic recovery remains uneven and far from
complete, and the path ahead is highly uncertain.
Household spending on services remains low, especially in sectors
that typically require people to gather closely, including leisure and
hospitality. In contrast, household spending on goods picked up
encouragingly in January after moderating late last year. The housing
sector has more than fully recovered from the downturn, while business
investment and manufacturing production have also picked up. The
overall recovery in economic activity since last spring is due in part
to unprecedented fiscal and monetary actions, which have provided
essential support to many households, businesses, and communities.
As with overall economic activity, the pace of improvement in the
labor market has slowed. Over the 3 months ending in January,
employment rose at an average monthly rate of only 29,000. Continued
progress in many industries has been tempered by significant losses in
industries such as leisure and hospitality, where the resurgence in the
virus and increased social distancing have weighed further on activity.
The unemployment rate remained elevated at 6.3 percent in January, and
participation in the labor market is notably below prepandemic levels.
Although there has been much progress in the labor market since the
spring, millions of Americans remain out of work. As discussed in the
February Monetary Policy Report, the economic downturn has not fallen
equally on all Americans, and those least able to shoulder the burden
have been the hardest hit. In particular, the high level of joblessness
has been especially severe for lower-wage workers and for African
Americans, Hispanics, and other minority groups. The economic
dislocation has upended many lives and created great uncertainty about
the future.
The pandemic has also left a significant imprint on inflation.
Following large declines in the spring, consumer prices partially
rebounded over the rest of last year. However, for some of the sectors
that have been most adversely affected by the pandemic, prices remain
particularly soft. Overall, on a 12-month basis, inflation remains
below our 2 percent longer-run objective.
While we should not underestimate the challenges we currently face,
developments point to an improved outlook for later this year. In
particular, ongoing progress in vaccinations should help speed the
return to normal activities. In the meantime, we should continue to
follow the advice of health experts to observe social-distancing
measures and wear masks.
Monetary Policy
I will now turn to monetary policy. In the second half of last
year, the Federal Open Market Committee completed our first-ever public
review of our monetary policy strategy, tools, and communication
practices. We undertook this review because the U.S. economy has
changed in ways that matter for monetary policy. The review's purpose
was to identify improvements to our policy framework that could enhance
our ability to achieve our maximum-employment and price-stability
objectives. The review involved extensive outreach to a broad range of
people and groups through a series of Fed Listens events.
As described in the February Monetary Policy Report, in August, the
Committee unanimously adopted its revised Statement on Longer-Run Goals
and Monetary Policy Strategy. Our revised statement shares many
features with its predecessor. For example, we have not changed our 2
percent longer-run inflation goal. However, we did make some key
changes. Regarding our employment goal, we emphasize that maximum
employment is a broad and inclusive goal. This change reflects our
appreciation for the benefits of a strong labor market, particularly
for low- and moderate-income communities. In addition, we state that
our policy decisions will be informed by our ``assessments of
shortfalls of employment from its maximum level'' rather than by
``deviations from its maximum level.'' \1\ This change means that we
will not tighten monetary policy solely in response to a strong labor
market. Regarding our pricestability goal, we state that we will seek
to achieve inflation that averages 2 percent over time. This means
that, following periods when inflation has been running below 2
percent, appropriate monetary policy will likely aim to achieve
inflation moderately above 2 percent for some time. With this change,
we aim to keep longer-term inflation expectations well anchored at our
2 percent goal. Well-anchored inflation expectations enhance our
ability to meet both our employment and inflation goals, particularly
in the current low interest rate environment in which our main policy
tool is likely to be more frequently constrained by the lower bound.
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\1\ Italics have been added for emphasis.
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We have implemented our new framework by forcefully deploying our
policy tools. As noted in our January policy statement, we expect that
it will be appropriate to maintain the current accommodative target
range of the federal funds rate until labor market conditions have
reached levels consistent with the Committee's assessments of maximum
employment and inflation has risen to 2 percent and is on track to
moderately exceed 2 percent for some time. In addition, we will
continue to increase our holdings of Treasury securities and agency
mortgage-backed securities at least at their current pace until
substantial further progress has been made toward our goals. These
purchases, and the associated increase in the Federal Reserve's balance
sheet, have materially eased financial conditions and are providing
substantial support to the economy. The economy is a long way from our
employment and inflation goals, and it is likely to take some time for
substantial further progress to be achieved. We will continue to
clearly communicate our assessment of progress toward our goals well in
advance of any change in the pace of purchases.
Since the onset of the pandemic, the Federal Reserve has been
taking actions to support more directly the flow of credit in the
economy, deploying our emergency lending powers to an unprecedented
extent, enabled in large part by financial backing and support from
Congress and the Treasury. Although the CARES Act (Coronavirus Aid,
Relief, and Economic Security Act) facilities are no longer open to new
activity, our other facilities remain in place.
We understand that our actions affect households, businesses, and
communities across the country. Everything we do is in service to our
public mission. We are committed to using our full range of tools to
support the economy and to help ensure that the recovery from this
difficult period will be as robust as possible.
Thank you, I am happy to take your questions.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM JEROME H. POWELL
Q.1. The Supervisory Climate Committee (SCC) will look at two
of the Fed's core functions through the lens of climate risk:
promoting the stability of the financial system; and promoting
the safety and soundness of financial institutions and
evaluating their impact on the financial system. As we have
seen recently in Texas, and over the last couple of years with
catastrophic wildfires in California or historic spring
flooding in the Plains Sates, both in the wake of years of
persistent droughts, climate change exacerbated extreme weather
events can dramatically affect Americans' jobs and businesses.
How will the Fed take into account climate change as part of
its mandate to ensure maximum employment?
A.1. As you note, earlier this year we announced the formation
of our Supervision Climate Committee (SCC), which brings
together senior staff from the Federal Reserve Board (Board)
and the Reserve Banks as we work to better understand potential
climate-related financial risks to supervised institutions. The
formation of the SCC is part of the Federal Reserve's ongoing
work to help ensure the resilience of supervised firms to
climate-related risks.
To best pursue our mandated monetary policy goals of
maximum employment and price stability, the Federal Reserve
must, and does, assess any factor that can materially affect
the dynamics of the job market and inflation. While climate
change is not a current consideration for monetary policy, we
recognize that climate change, and the policies governments
implement in response, could alter the behavior of employment
and inflation over time. Researchers throughout the Federal
Reserve System are actively examining the longer-run
implications of climate change for the economy, financial
institutions, and financial stability, and if we find important
changes in these areas, we will take account of them in our
analysis.
Q.2. I applaud your efforts to establish the SCC, but I am
concerned that waiting for the SCC to make reports on its
agenda before acting to consider climate risk in the Feds other
core functions may be too late. What is your timeline to
incorporate climate change as a national and global factor to
be considered in carrying out all Federal Reserve functions?
A.2. Congress has assigned the Federal Reserve narrow but
important mandates around monetary policy, financial stability,
and supervision of financial firms, and our current work is
directed at enabling us to consider the potential effects of
climate change in relation to the achievement of those
statutory mandates. For example, our most recent Financial
Stability Report and Supervision and Regulation Report discuss
at a high level how climate change may create or change risks
to the financial system or to individual supervised
institutions. \1\
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\1\ See https://www.federalreserve.gov/publications/2020-november-
financial-stability-report-purpose.htm and https://
www.federalreserve.gov/publications/2020-november-supervision-and-
regulation-report.htm.
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In addition, we have been participating in climate-related
projects in a number of multilateral groups, including the
Financial Stability Board and the Basel Committee on Banking
Supervision, and the Federal Reserve recently became a member
of the Network for Greening the Financial System. We are taking
a careful, thoughtful, and transparent approach to this work,
and we will engage with Congress and the public along the way.
Q.3. In your testimony, you reiterated the Federal Open Market
Committee's position that maximum employment is a broad and
inclusive goal. Even before the pandemic, many workers in the
United States were facing pervasive underemployment, including
workers who are working part time but want to work full time.
Nearly 6 million Americans are working part time for economic
reasons, meaning they would normally be working full-time but
are forced to work fewer hours than they would like. \2\ To
what extent does the Federal Reserve take into account the
number of part-time underemployed workers in its assessment of
the health of the economy and conduct of monetary policy? How
does the number of workers who work part-time for economic
reasons contribute to the racial and gender wealth and income
gaps?
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\2\ ``Labor Market Weaker Than Headline Numbers Suggest Center on
Budget and Policy Priorities'' (cbpp.org); ``Unemployment Rates During
the COVID-19 Pandemic: In Brief'', Congressional Research Service,
February 15, 2021, available at: https://crsreports.congress.gov/
product/pdf/R/R46554.
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The Federal Open Market Committee's (FOMC) goal of maximum
employment tries to capture the labor market experiences of all
Americans and to account for a broad range of labor market
outcomes (as opposed to simply counting how many people have
jobs). Underemployment is one of the outcomes that we are
concerned with. It can come in many forms, ranging from
discouraged workers who no longer seek work, to those who are
actively looking for work but have not found a job (the usual
definition of unemployment), to those who are working part
time, but would prefer a full-time job. Workers in this third
category are said to be working part time for economic reasons.
The number of people working part time for economic reasons is
quite cyclical and surged to over 10 million during the initial
stage of the pandemic. Since then, the number of those working
part time for economic reasons has shrunk to about 6 million,
which is still nearly 2 million above the level that prevailed
prior to the onset of the pandemic. Those working part time for
economic reasons tend to be disproportionately women, Blacks,
or Hispanics, which means that an increase in the size of this
group can contribute to greater income inequality. We consider
this dimension of underemployment, along with others, in
putting together our overall assessment of the health of the
labor market and in determining how close we are to meeting our
maximum employment goal.
Aside from the overall unemployment rate, what labor market
indicators and statistics do you look at in determining full
employment? Do you agree that the Federal Reserve's
responsibility to ensure maximum employment means full-time
employment for every worker?
A.3. To gauge the performance of the labor market we look at a
wide range of aggregate measures as well as more granular and
disaggregated statistics. Importantly, though, we do not think
there is one single measure that captures the overall
performance of the labor market. Among the data at the
aggregate level, we examine the standard unemployment rate
along with broader measures of underemployment that capture
discouraged workers and those working part time who would
prefer to work full time if they could find a full-time job. We
also look at labor force participation and the reasons why
people are not in the labor force. In addition, we monitor job
openings and job-finding rates, as well as layoffs and
unemployment insurance claims. Many of these same measures are
available for less aggregated groups of the population; in
particular, these statistics can be broken down by gender, race
or ethnic identity, education level, and across rural and urban
areas.
Unlike price stability, the FOMC does not have a numerical
target for its maximum employment goal. This reflects the
complexity of the labor market, which in turn implies that one
summary statistic will not be able to capture every important
element of the state of the labor market. In addition, changes
over time in various features of the labor market may result in
changes to the level of employment that is consistent with our
maximum employment goal. For example, the labor market has been
importantly affected in recent decades as the population has
aged and average educational attainment has increased. In
addition, technological shifts have changed the supply and
demand for different types of workers. More recently, the
pandemic could leave a lasting imprint on labor market
performance in coming years, and we will have to use the
indicators described above to assess when we reach full
employment in the context of price stability.
Finally, even at maximum employment there will still be
some amount of unemployment, both voluntary (as workers search
for jobs that best match their skills), and involuntary
(because in a dynamic economy, business downsizing or business
closures will result in temporary periods of unemployment for
some workers). We are committed to using our full range of
tools to support the economy and to help ensure that the
economy's return to maximum employment is as robust as
possible.
Q.4. During the June 16, 2020, Monetary Policy Report hearing,
I asked you if you would commit to a study about how the
Federal Reserve's policies have contributed to systemic racism
in this country. What progress, if any, have you made on this
request since then?
A.4. Discrimination has no place in our society. Moreover, it
is a weight on the economy that restricts opportunity for those
who want to contribute and share in the prosperity of a robust
economy. The Federal Reserve devotes considerable time and
attention to analyzing disparities in income, wealth,
employment, and other economic outcomes for demographic groups
and geographic areas. Understanding these disparities, and
their implications for the functioning of the economy, is a key
input to effective policymaking. The importance the Federal
Reserve places on identifying, reporting, analyzing, and
engaging with the public on these important issues is evident
in the body of work that is posted on our public website. \3\
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\3\ https://www.federalreserve.gov/newsevents/economic-
disparities-work.htm
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In addition to consideration of economic disparities in our
monetary policy, research, and outreach efforts, the Federal
Reserve also has supervisory authority for consumer protection
and fair lending laws. We have a rigorous fair lending
supervision program and evaluate fair lending risk at every
consumer compliance examination, reviewing banks' practices to
ensure that financial institutions under our jurisdiction fully
comply with applicable Federal consumer protection laws and
regulations. Further, with the increased presence of FinTech
and artificial intelligence (AI) in underwriting and lending,
we have been studying the benefits and challenges of the
advancement of these technologies, including the potential
risks of amplifying bias and inequitable outcomes. It is
important that we understand how complex data interactions may
skew the outcomes of algorithms in ways that undermine fairness
and transparency. We also regularly discuss these issues with
the other agencies and plan to issue an interagency request for
information on risk management of AI in financial services to
help obtain more insight into the application of various
technologies in lending and other financial services
activities.
Q.5. Historically, the Federal Reserve has a poor track record
when it comes to a diverse workforce--one that reflects the
population of the United States. What steps have you taken to
diversify the workplace at the Fed? Are there specific
mechanisms that you have in place to support people of color
who work at the Fed?
A.5. The Board is dedicated to developing and sustaining a
diverse and inclusive workforce. In support of its commitment,
the Board has in place strategic objectives to attract, hire,
develop, promote, and retain a highly skilled and diverse
workforce. We continue to strengthen a diverse, equitable and
inclusive culture and workplace through our policies and
practices. We strive to learn from our experiences and adhere
to best practices.
Through these and other intentional and coordinated actions
we ensure our continued commitment:
Frequent engagements and activities for the entire
Board staff and for smaller groups that encourage and
enable employees' sharing of experiences addressing
diversity, equity, and inclusion.
Promotion and support for Employee Resource Groups.
\4\ These groups hold educational events and
activities, and help identify and drive talent
acquisition, on-boarding, career development and
culture change initiatives.
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\4\ The Federal Reserve--Diversity (https://
www.federalreserve.gov/careers-diversity.htm).
Professional development programs, including
mentoring, rotation assignments, coaching, and
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leadership training.
Ongoing focus on succession and workforce planning
to address future workforce needs and strengthen the
diversity of the managerial pipeline and progression to
leadership positions.
Intensive recruiting to ensure diverse candidates
for job vacancies. This includes outreach to diverse
professional networks, usage of diversity job boards,
and attendance at job fairs at Hispanic-Serving
Institutions (HSIs) and Historically Black Colleges and
Universities (HBCUs).
Required training for hiring managers focused on
hiring without bias.
Q.6. The lack of diversity among economists at the Federal
Reserve is even starker. Only 1 percent of economists at the
Federal Reserve are Black. \5\ Why are there so few Black
economists at the Fed, particularly as compared to the
percentage of Black economists in the field as a whole? What
concrete actions are you taking to address this disparity?
---------------------------------------------------------------------------
\5\ https://www.nytimes.com/2021/02/02/business/economy/federal-
reserve-diversity.html
A.6. We are fully committed to strengthening diversity across
all areas of our workforce. This is a high priority for me and
our staff, and we have a tremendous amount of work going on at
the Board.
We engage in extensive outreach to recruit diverse
candidates, and despite challenges related to the pandemic, our
engagement has continued during the past year as well. This
includes participating in minority recruitment events at HBCUs,
HSIs, and Hispanic professional conferences and career fairs.
More specifically, we have taken a number of targeted
actions to increase diversity among our economist positions,
and to strengthen the pipeline of economists from under-
represented groups. Some of these actions include our
collaboration with the American Economic Association (AEA) to
address the state of diversity and importance of diversity and
inclusion in the field of economics and in the workplace. We
have an ongoing teaching and mentoring partnership with Howard
University's Department of Economics, and Howard University
will host the AEA Summer Program over the next five years with
Board staff teaching a research methods course each year.
Nearly three dozen Board staff have volunteered as instructors,
teaching assistants, and research mentors for the financial
literacy course offered at the Board and virtually through
Howard's Department of Economics.
In addition, since 2018, the Board has hosted ``Exploring
Careers in Economics'', an event that welcomed more than 200
students to the Board and many more virtually to discuss career
opportunities and diversity in economics. And last, we are
supporting research on and awareness of the factors that are
holding back diversity and inclusion in economics. In November,
we are hosting a conference on Diversity and Inclusion in
Economics, Finance, and Central Banking, along with three other
central banks. We look forward to a dynamic program and
rigorous discussion on what has been done and what more can be
done to increase diversity and inclusion in the economics
profession.
We welcome your suggestions for how we can expand on our
outreach efforts to increase diversity in our workforce,
including among leadership roles.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM JEROME H. POWELL
Q.1. Climate Change--In the past several months, the Federal
Reserve has taken steps that appear to be part of a broader
effort to use financial regulators to address environmental
policy like climate change.
Mindful of the Fed's limited statutory authority, can you
explain what the Fed is doing in this area?
A.1. Climate change is an important issue, and Congress has
entrusted the job of addressing the problem of climate change
itself to Federal agencies other than the Federal Reserve. As
you note, Congress has given the Federal Reserve narrow but
important mandates around monetary policy, financial stability,
and supervision of financial firms, and we consider the
potential effects of climate change to the extent such effects
have an impact on the achievement of our statutory mandates.
Analysis of climate-related risk to the financial system is
a relatively new and evolving field. At the Federal Reserve,
our work is still developing and involves investment in
research and data to better understand how climate change may
affect financial institutions, infrastructure, and markets. We
also have been participating in climate-related projects in a
number of multilateral groups, including the Financial
Stability Board and the Basel Committee on Banking Supervision,
and the Federal Reserve recently became a member of the Network
for Greening the Financial System. We are taking a careful,
thoughtful, and transparent approach to this work, and we will
engage with Congress and the public along the way.
Q.2. Do you believe the Fed's financial stability
responsibilities authorize you to pursue regulatory policies
with the explicit goal or practical effect of reducing carbon
emissions?
A.2. It has long been the policy of the Federal Reserve to not
dictate to banks what lawful industries they can and cannot
serve, as those business decisions should be made solely by
each institution. Moreover, as I wrote in response to your
first question, Congress has entrusted the job of addressing
the problem of climate change itself to Federal agencies other
than the Federal Reserve. Climate-related risks--like any other
risk--can have implications for financial stability, and we
consider those risks to the extent they have an impact on the
achievement of our statutory mandates.
Q.3. Continued Accommodative Monetary Policy--Given that the
economy has largely recovered and is on pace to reach
prepandemic levels this summer, what is the rationale for
continuing to inject $120 billion a month of liquidity via
asset purchases?
A.3. In December 2020, the Federal Open Market Committee (FOMC)
put in place outcome-based guidance on asset purchases. We
reaffirmed that guidance at our January and March meetings. The
guidance states that we will continue to increase our holdings
of Treasury securities by at least $80 billion per month and of
agency mortgage-backed securities (MBS) by at least $40 billion
per month until substantial further progress has been made
toward the FOMC's maximum employment and price stability goals.
This guidance reinforces our strong commitment to using our
full range of tools to achieve these mandates.
The increase in our balance sheet since last March has
materially eased financial conditions and is providing
substantial support to the economy. We see the current stance
of monetary policy--including our policy regarding asset
purchases--as appropriate to continue to move the economy
toward our statutory goals. As always, the FOMC will closely
monitor economic developments and continue to assess how our
ongoing policy actions can best support achievement of maximum
employment and price stability.
Q.4. Has the Fed's forward guidance created a structural speed
limit to ceasing asset purchases? What is the shortest
plausible timeframe in which the Fed could completely stop
expanding the Fed's asset holdings?
A.4. As noted in the previous response, the guidance on asset
purchases states that the FOMC will continue to increase our
holdings of Treasury securities and agency MBS at least at the
current pace until substantial further progress has been made
toward the FOMC's maximum employment and price stability goals.
This guidance embodies the point that the accommodation the
FOMC intends to provide through its securities holdings depends
on the progress made toward our goals. If substantial further
progress toward our objectives occurs relatively quickly, the
length of time over which our asset purchases would continue at
the current pace would be shorter, and our securities holdings
would rise by less. Conversely, if this progress happens more
slowly, then our asset purchases would continue for longer, and
we would correspondingly increase our securities holdings by a
greater amount--thereby providing greater support to the
economy.
It is important that the FOMC be transparent about our
policy actions. The FOMC intends to clearly communicate its
assessment of actual and expected progress toward its goals
well in advance of the time when we would judge it appropriate
to make a change in the pace of purchases.
Q.5. School Reopening--Has the Fed conducted any research on
the long-term damage being done to the labor force by the
school closures? If so, please provide.
A.5. Most K-12 schools were closed to in-person education at
the start of the pandemic, and many schools remained closed to
in-person education last fall and winter. \1\ Staff research
done within the Federal Reserve System suggests that the
closure of in-person education had substantial effects on
parents' labor force participation--especially mothers'
participation--although the longer-term consequences are
uncertain.
---------------------------------------------------------------------------
\1\ Using information on virtual learning in public school
districts compiled by Education Week, Board staff estimated that
roughly two-thirds of public school students started the Fall 2020
school year with full or partial virtual learning.
---------------------------------------------------------------------------
For example, analysis by Board staff finds that since March
2020, the number of parents who report being out of the labor
force due to caregiving reasons has been elevated relative to
previous years, especially in the fall of 2020 and thereafter.
Figure 1 (below) shows the change in the fraction of parents
aged 25 to 54 years with children 6 to 17 years of age who
responded to the Current Population Survey (CPS) that they are
not in the labor force due to caregiving reasons, for the
indicated month relative to the same month in the previous
year. \2\ In particular, since September 2020 the fraction of
mothers out of the labor force for caregiving reasons has been
2 percentage points or more higher than it was in the same
months of the previous year, while the fraction of fathers out
of the labor force for caregiving reasons has been elevated by
about half a percentage point. Furthermore, over this period,
the increase relative to previous years has been especially
large for Black and Hispanic mothers (respectively, a 5
percentage point and 3 percentage point average increase
relative to the previous year, compared to a 1\1/2\ percentage
point average increase for White mothers). \3\
---------------------------------------------------------------------------
\2\ These estimates are based on calculations from publicly
available CPS microdata, and are similar to those described in the box
titled ``Disparities in Job Loss During the Pandemic'' in the February
2021 Monetary Policy Report. Similarly, other research across the
Federal Reserve System has noted that employment and labor force
participation have declined relatively more for parents, especially
mothers. For example, see: ``Parents in a Pandemic Labor Market'',
Federal Reserve Bank of San Francisco, Working Paper 2021-04, https://
www.frbsf.org/economic-research/publications/working-papers/2021/04/
and ``Did COVID-19 Disproportionately Affect Mothers' Labor Market
Activity?'' Federal Reserve Bank of Chicago, Chicago Fed Letter No.
450, https://www.chicagofed.org/publications/chicago-fed-letter/2021/
450.
\3\ In addition to the CPS, a number of real-time household
surveys during the pandemic have specifically asked respondents whether
their employment decisions have been affected by child care
responsibilities (for example, Household Pulse Survey, conducted by the
Census Bureau, and the COVID Impact Survey, conducted by the National
Opinion Research Center at the University of Chicago for the Data
Foundation). However, these surveys' limited histories make it
difficult to infer whether the responses reflect child care
difficulties during the pandemic as opposed to what would be typical
during normal times.
---------------------------------------------------------------------------
Looking ahead, it is difficult to predict the long-term
consequences of this extended disruption to parental labor
supply (and at present there has been little research that
attempts to quantify these effects). The eventual magnitude of
the effect on the labor force will depend on a number of
difficult-to-predict factors, including how quickly in-person
education reopens for all students; the prevalence of job
opportunities after children return to school; and the extent
to which remaining pandemic-related health concerns might
affect parents' ability to safely reenter the labor force,
along with their interest in doing so.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM JEROME H. POWELL
Q.1. Bank Capital Requirements--In response to questioning, you
indicated that the Federal Reserve was ``in the middle of
thinking about'' a decision on extending interim final rules
that provided institutions with relief from the supplementary
leverage ratio by allowing the exclusion of U.S. Treasuries and
Central Bank deposits. These rules are currently scheduled to
expire on March 31, 2021.
At what point did the Federal Reserve begin deliberations
regarding a possible extension of these policies? Please
provide, at a minimum, the month in which you began considering
a potential extension or modification of temporary SLR relief
at either the holding company or the depository institution
level.
A.1. The Federal Reserve Board (Board) sought comment on the
interim final rules issued in April 2020 \1\ and May 2020 \2\
to modify temporarily the supplementary leverage ratio (SLR),
including specific questions for public feedback on whether the
modifications from the interim final rules should be shorter or
longer to achieve their intended purpose. The Board received
and considered several comments from the public on this issue.
---------------------------------------------------------------------------
\1\ 85 FR 20578 (April 14, 2020).
\2\ 85 FR 32980 (June 1, 2020).
Q.2. Have any alternatives to extending the date of the SLR
relief been discussed? If so, please describe them and provide
---------------------------------------------------------------------------
any reasons why they were not chosen.
A.2. The Board announced recently that the temporary exclusions
to the SLR requirement announced in April and May of 2020 would
expire as scheduled on March 31, 2021. In that announcement,
the Board also stated that it plans soon to seek public comment
on potential measures to adjust the SLR.
Q.3. How many banks opted-in for the SLR relief at either the
holding company or depository institution level?
A.3. The prior approval requirements related to the May 2020
interim final rule issued by the Board, the Office of the
Comptroller of the Currency (OCC), and the Federal Deposit
Insurance Corporation (FDIC) only applied to depository
institutions that opted into the relief. \3\ There are no
similar prior approval requirements that apply to holding
companies subject to the SLR. Holding companies are subject to
other pandemic-related restrictions on their capital
distributions. \4\ The only State member bank that opted into
the SLR relief was Goldman Sachs Bank USA. The OCC and FDIC
would be in the best position to provide information about any
State nonmember bank or national bank that opted into the SLR
relief.
---------------------------------------------------------------------------
\3\ 12 CFR 217.303(g).
\4\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20201218b.htm
---------------------------------------------------------------------------
For each institution that did opt-in, please provide the
following for each quarter starting in 2019 Q1:
1. The institution's total leverage exposure
2. The institution's total amount of U.S. Treasuries
3. The institution's total amount of Central Bank Deposits
4. The institution's total amount of capital distributions
5. The institution's supplementary leverage ratio
Q.4. Can you commit to not finalizing any additional proposals
that would reduce capital requirements for the Globally
Systemically Important Banks (GSIBs) during the remainder of
your term?
---------------------------------------------------------------------------
\5\ The data included in Table 1 are based on public filings by
Goldman Sachs Bank USA in its FFIEC 041 (Call Report) regulatory report
submissions.
A.4. Consistent with previous statements, I believe the current
levels of capital and of overall loss absorbency in the banking
system are generally appropriate. Strengthened by a decade of
improvements in capital, liquidity, and risk management, banks
have continued to be a source of strength during the past year.
Consistent with their systemic importance, globally
systemically important banks (GSIBs) are subject to the most
stringent standards, including additional capital requirements
---------------------------------------------------------------------------
such as the GSIB surcharge.
Q.5. Monetary Policy--The pandemic has disproportionately
affected marginalized Americans working low-income jobs.
Please describe how the Fed will use its monetary policy
tools to ensure a broad-based recovery.
A.5. The dual mandate assigned to the Federal Reserve monetary
policy is to achieve maximum employment and price stability.
The highly accommodative monetary policy stance that the
Federal Open Market Committee (FOMC) has put in place since the
outbreak of the pandemic and the guidance that it is currently
providing on its interest rate and balance sheet policies are
designed to provide support to economic activity in order to
achieve these goals. Improvement in the labor market should
contribute to diminishing economic inequalities, as the
recovery would benefit many in low- and moderate-income (LMI)
communities. Accordingly, pursuing our congressional mandate
assists in promoting a broad-based recovery.
In our revised Statement on Longer-Run Goals and Monetary
Policy Strategy, issued in August 2020 and reaffirmed in
January 2021, the FOMC indicated that ``maximum employment'' is
a broad and inclusive goal. Among other things, this means that
we will be monitoring a broad range of indicators in assessing
our progress toward maximum employment. We will remain highly
attentive to disparities in the labor market of various kinds--
rather than focus solely on the ``headline'' aggregate data.
Our revised statement also indicates that our policy decisions
will be informed by the FOMC's assessments of the shortfalls of
employment from its maximum level. This implies that we will
not tighten monetary policy solely in response to a strong
labor market. Our adoption of this position reflects the
widespread acceptance that a robust job market potentially can
be sustained without causing an outbreak in inflation, together
with our recognition of the considerable benefits brought by
strong labor markets, particularly for LMI communities.
Q.6. How will the Fed react in the event that inflation starts
to trend higher, but millions of Americans remain left with
limited opportunities to be employed at an adequate, livable
wage?
A.6. In pursuing its dual mandate, the FOMC seeks to achieve
maximum employment and inflation at the rate of 2 percent over
the longer run. Our experience is that the goals of maximum
employment and price stability are generally complementary--so
that pursuing maximum employment is typically consistent with
achieving our price stability goal of a longer-run inflation
rate of 2 percent.
When occasions arise on which the FOMC's judgment is that
the objectives are not complementary, the FOMC takes both
employment shortfalls and inflation deviations into account in
its decisions, as well as the potentially different time
horizons over which employment and inflation are projected to
return to levels judged consistent with the Federal Reserve's
mandate.
With regard to the present situation, the FOMC has
indicated that, as inflation has been running persistently
below our longer-run 2 percent goal, we will aim to achieve
inflation moderately above 2 percent for some time, so that
inflation averages 2 percent over time and longer-term
inflation expectations remain well anchored at 2 percent. The
FOMC expects to maintain an accommodative stance of monetary
policy until these outcomes are achieved. More specifically, we
have indicated that we would not expect to raise the target
range for the federal funds rate from its effective lower bound
until we see labor market conditions that are consistent with
our assessment of maximum employment, inflation has risen to 2
percent--and durably so, not on a transitory basis--and
inflation is on track to run moderately above 2 percent for
some time.
Q.7. What data or metrics will the Fed use to ensure that the
recovery reaches low-wage, marginalized workers? How will these
data and metrics guide your decision-making?
A.7. We will look at a large variety of indicators to assess
the economy's progress toward our broad and inclusive goal of
maximum employment. For example, in addition to aggregate data
on the labor market, we will also be looking at labor market
measures by race and ethnicity, education, and income. We
recognize that in the recovery from the Great Recession, many
groups only started to experience the benefits of the recovery
after the aggregate unemployment rate had reached relatively
low levels. In particular, it was not until 2015 and later that
the labor force participation rate began to recover (with much
of that recovery concentrated among individuals with less than
a college degree); wage gains for low-income workers started to
match and then exceed wage gains for other workers; and the
unemployment rate for African Americans moved below 9 percent.
Q.8. Are there steps that Congress, the White House, or the Fed
can take to get a more detailed and representative assessment
of the economic conditions that working-class Americans face on
a daily basis?
A.8. Collecting high-quality data that can describe the full
distribution of economic experiences--not simply the average
experience--is key. Two surveys conducted by the Federal
Reserve help us do that. The Survey of Household and Economic
Decision-Making asks individuals about important economic
events and decisions in their lives. It is the source of the
often-cited statistic on the share of households that do not
have enough liquid savings to cover an unexpected $400 expense.
The Survey of Consumer Finances (SCF) provides household-level,
high-quality data on wealth, income, and consumption and is the
basis of much of the recent research on increases in wealth and
income inequality in the United States. We have combined data
from the SCF with data from the Financial Accounts of the
United States, which are published by the Federal Reserve
Board, to produce the Distributional Financial Accounts (DFAs),
which provide quarterly updates on the wealth of low- and
middle-income households, along with that for high-income
households. The DFAs also provide quarterly data on household
wealth by age, education, and race or ethnicity. In addition,
research by our economists uses microdata on households and
individuals from the Census and other sources to describe and
interpret the economic experiences of different groups of
Americans. We continue to look for ways to improve and better
use the data we collect ourselves or obtain from outside
sources, and to sharpen our analyses of these data to create a
detailed, accurate, and timely description of the economic
experiences of all Americans.
Q.9. According to the Congressional Budget Office, the U.S.
economy was operating above its maximum sustainable level prior
to the pandemic, despite inflation remaining below the Federal
Reserve's target level. What would your estimate be for the
output gap in January 2020? How far from potential output do
you believe the economy was at that point?
A.9. Real-time estimates of potential output, like those for
the natural rate of unemployment, are highly uncertain. Indeed,
this uncertainty was one of the reasons our revised Statement
on Longer-Run Goals and Monetary Policy Strategy says that our
policy decision will be informed by our ``assessments of the
shortfalls of employment from its maximum level'' rather than
by ``deviations from its maximum level'' as in our previous
statement.
Regardless, I think it is fair to say that the economy was
in a good place in January 2020. The economic expansion was
well into its 11th year, the longest on record. The overall
unemployment rate had declined to 3.5 percent, the lowest level
in a half-century. The unemployment rate for African Americans,
at 6 percent, had also reached historical lows. Prime-age labor
force participation was the highest in over a decade, and job
openings were plentiful. And while overall wage growth was
moderate, wages were rising more rapidly for earners on the
lower end of the scale. These encouraging statistics were
reaffirmed and given voice by those we met and conferred with,
including the community, labor, and business leaders; retirees;
students; and others we met with during the 14 ``Fed Listens''
events we conducted in 2019.
Importantly, however, the strength in the labor market in
2019 and early 2020 did not result in unwanted upward pressures
on inflation: In January 2020, the 12-month change in PCE
inflation was 1.9 percent, a little below the FOMC's 2 percent
objective. Indeed, there was every reason to expect that, had
it not been for the onset of the pandemic, the labor market
could have strengthened even further without causing a
worrisome increase in inflation.
Of course, the situation is very different today. Despite
the improvement in economic activity in recent quarters
following the deep contraction caused by the pandemic, the
economic recovery remains uneven and far from complete, and the
path ahead is highly uncertain. And while the future path of
the economy continues to depend significantly on the course of
the virus and the measures undertaken to control its spread, we
at the Federal Reserve are committed to using our full range of
tools to support the economy and to help ensure that the
recovery from this difficult period will be as robust as
possible.
Q.10. Economist Larry Summers recently claimed that if
President Biden's $1.9 trillion American Rescue Plan spending
package was approved, we would have ``an economy that is
literally on fire.'' \6\ Are you concerned that enactment of
this package would cause dangerous overheating? Would the
Federal Reserve likely raise interest rates if the package is
passed at its current level?
---------------------------------------------------------------------------
\6\ Bloomberg, ``Biden Urges Fast Virus Relief as Minimum-Wage
Hike Hopes Fade'', Justin Sink, February 5, 2021, https://
www.bloomberg.com/news/articles/2021-02-05/biden-s-go-big-push-on-
stimulus-gets-help-from-weak-jobs-senate.
A.10. With COVID-19 vaccinations becoming more widespread and
good prospects for people's lives and activities to start
returning to normal before long, I am hopeful that we can
achieve a strong economic recovery this year. The additional
fiscal support from the recently enacted American Rescue Plan
(ARP) will contribute to the strength of that recovery.
Professor Summers and some other respected economists have
questioned whether the amount of additional fiscal support
provided in the ARP might overheat the economy and generate a
problematic rise in inflation. While I agree that very strong
growth this year could create some upward pressure on inflation
for a time, I do not believe that sustained higher inflation
will become a longer-lived problem.
The economy is still a long way from a full recovery, with
payrolls some 9\1/2\ million below their prepandemic level. So
even with the very strong economic growth that we all hope for,
it will take some time to return to maximum employment. And, of
course, the path ahead is still highly uncertain with
considerable downside risks--including those related to
emerging new variants of the virus. Moreover, the previous
expansion demonstrated that a strong labor market can be
sustained without inducing an unwanted increase in inflation.
Rapid growth with a reopening economy could well lead to
prices moving up this year, as firms see a large increase in
demand and as some production bottlenecks emerge. But I would
anticipate that any such higher inflation would be temporary.
Inflation has averaged less than 2 percent for a quarter of a
century, and low inflation has been the norm globally as well
as in the U.S. That inflation performance has become ingrained
in consumer inflation expectations and psychology. We are far
from the situation of the 1970s, when higher inflation could
boost expectations of future inflation and become built into
wage and price setting. Inflation dynamics do evolve over time,
but they have not tended to change rapidly.
To be sure, no one has perfect foresight about how the
economy will evolve. If, contrary to expectations, inflation
were to persistently rise to unwelcome levels, we have the
tools to address such a situation and will use them as needed.
Q.11. Climate Finance--Following the May 19, 2020, hearing of
the Committee on Banking, Housing, and Urban Affairs, I
submitted questions for the record, including several on
climate-related financial risks, to which you responded in
August 2020. \7\ In your response, you wrote ``Economic
research to understand the specific transmission channels
between climate-related risks and the financial system is
essential to understanding the impact of those risks on the
Federal Reserve's mission,'' and though the ``research
remain[ed] at an early stage,'' efforts were ``active and
ongoing.'' \8\
---------------------------------------------------------------------------
\7\ Letter from Federal Reserve System Board of Governors Chair
Jerome Powell to Senator Elizabeth Warren, August 27, 2020.
\8\ Id.
---------------------------------------------------------------------------
Please describe the efforts the Fed has taken to better
inform decisions regarding the incorporation of climate-related
risks into the Board's mission since your August 2020 letter
and since the Fed joined the Network for Greening the Financial
System in December 2020. \9\
---------------------------------------------------------------------------
\9\ Board of Governors of the Federal Reserve System, ``Federal
Reserve Board Announces It Has Formally Joined the Network of Central
Banks and Supervisors for Greening the Financial System, or NGFS, as a
Member'', press release, December 15, 2020, https://
www.federalreserve.gov/newsevents/pressreleases/bcreg20201215a.htm.
A.11. Climate change is an important issue, and Congress has
entrusted the job of addressing the problem of climate change
itself to Federal agencies other than the Federal Reserve.
Congress has given the Federal Reserve narrow but important
mandates around monetary policy, financial stability, and
supervision of financial firms, and we consider the potential
effects of climate change to the extent such effects have an
impact on the achievement of our statutory mandates.
Since August 2020, we have released a Financial Stability
Report and a Supervision and Regulation Report (both published
in November 2020) that include high-level discussion and
analysis on how climate change may create or change risks to
financial institutions or the financial system. \10\
---------------------------------------------------------------------------
\10\ See https://www.federalreserve.gov/publications/2020-
november-financial-stability-report-purpose.htm and https://
www.federalreserve.gov/publications/2020-november-supervision-and-
regulation-report.htm.
---------------------------------------------------------------------------
As you note, on December 15, 2020, the Board announced that
we have formally joined the Network for Greening the Financial
System (NGFS). We had been attending NGFS meetings as a guest
and participating in NGFS activities for more than a year prior
to officially joining. Through this forum, we look forward to
deepening our discussions with more than 80 central banks and
supervisory authorities from around the world, sharing research
and identifying best practices to ensure the financial system
is resilient to climate-related risks.
In January 2021, we announced the formation of our
Supervision Climate Committee (SCC), which brings together
senior staff from the Board and Reserve Banks to facilitate the
better understanding of potential climate-related risks to our
supervised institutions. Additionally, in March, we announced
the formation of our Financial Stability Climate Committee
(FSCC), a Federal Reserve Systemwide committee composed of
Board and System staff that works to facilitate the better
understanding of climate-related risks to our financial system.
Our goal is to incorporate climate risk into our forward-
looking monitoring of financial stability through the FSCC.
We also continue to participate in climate-related projects
in a number of multilateral groups, including the Financial
Stability Board (FSB) and the Basel Committee on Banking
Supervision (BCBS). With respect to the FSB, a report on the
financial stability implications of climate change was released
in November 2020. \11\ Federal Reserve staff is also cochairing
the BCBS's Task Force on Climate-Related Financial Risks.
---------------------------------------------------------------------------
\11\ www.fsb.org/2020/11/the-implications-of-climate-change-for-
financial-stability/
---------------------------------------------------------------------------
We are taking a careful, thoughtful, and transparent
approach to this work, and we will engage with Congress and the
public along the way.
Q.12. Please describe in detail additional steps that the Fed
plans to take to address climate-related risks throughout the
financial system?
A.12. As noted above, we have established the SCC, which brings
together senior staff from across the Federal Reserve System to
facilitate the better understanding of potential climate-
related risks to our supervised institutions. In this area, we
are investing in analysis to better understand the transmission
channels through which climate change impacts the banking
sector and are engaging with supervised institutions to
strengthen our understanding of how they are currently
assessing climate risks. We have also established the FSCC,
which will undertake work to facilitate the better
understanding of climate-related risks to our financial system.
We are in the early stages of identifying and assessing these
risks and how to incorporate them into our financial stability
framework.
More broadly, we remain focused on investing in research
and data to better understand how climate change may affect
financial institutions, infrastructure, and markets. Robust
data and rigorous analyses are essential to informing all our
actions.
Q.13. In your correspondence, you also mentioned that ``the
Federal Reserve has considerable expertise in understanding the
impact of severe weather events, ranging from economic
forecasting, to financial stability monitoring, to prudential
supervision, to continuity of operations.'' \12\ News reports
regarding recent extreme weather events, however, state that
``As climate change worsens, severe conditions that go beyond
historical norms are becoming ever more common.'' \13\
---------------------------------------------------------------------------
\12\ Letter from Federal Reserve System Board of Governors Chair
Jerome Powell to Senator Elizabeth Warren, August 27, 2020.
\13\ Associated Press, ``U.S. Needs To Brace Itself for More
Deadly Storms, Experts Say'', Matthew Daly and Ellen Knickmeyer,
February 18, 2021, https://apnews.com/article/us-deadly-winter-storms-
2021-df7d37d12ef13633bb5666e1151bcf9e.
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How has or how will the Fed work to incorporate research on
climate change's impact on extreme weather events and other
significant climate impacts on the economy into its work? [Sic]
ensure that financial institutions are equipped to manage and
address climate-related risks?
A.13. For the Federal Reserve's near-term analysis, we already
take into account information on the severity of weather
events. When a severe weather event occurs, we closely monitor
the effects on local economies, assess the implications for
broader measures of economic production and employment, and
adjust our economic forecasts accordingly.
For example, our staff regularly uses daily measures of
temperatures and snowfall from National Oceanic and Atmospheric
Administration weather stations to better understand how severe
weather may be affecting measured and real economic activity in
specific areas.
More generally, to best pursue our mandated monetary policy
goals of maximum employment and price stability, the Federal
Reserve must, and does, assess any factor that can materially
affect the dynamics of the job market and inflation. While
climate change is not a current consideration for monetary
policy, we recognize that climate change, and the policies
governments implement in response, could alter the behavior of
employment and inflation over time. Researchers throughout the
Federal Reserve System are actively examining the longer-run
implications of climate change for the economy, financial
institutions, and financial stability, and if we find important
changes in these areas, we will take account of them in our
analysis.
Q.14. How will you ensure that financial institutions are
equipped to manage and address climate-related risks?
A.14. As noted above, we recently announced the formation of
the SCC, which will bring together senior staff from the
Federal Reserve Board and the Reserve Banks to facilitate the
better understanding of potential climate-related risks to our
supervised institutions. Our approach has been to invest in
research and data to understand how climate change and the
financial system interact.
We also welcome and benefit from engagement with
international colleagues from other central banks, supervisory
authorities, and standard-setting bodies. For example, we are
engaged in climate-related work through the FSB, the Basel
Committee's Task Force on Climate-Related Financial Risks, and
the NGFS.
Q.15. Increased calls for financial regulators to tackle the
issue of the climate crisis are coming from current Federal
Reserve Bank leaders, top officials at the Treasury Department,
and current and former members of the Federal Reserve Board of
Governors. \14\
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\14\ New York Times, ``As Winter Sweeps the South, Fed Officials
Focus on Climate Change'', Jeanna Smialek, February 18, 2021, https://
www.nytimes.com/2021/02/18/business/economy/federal-reserve-climate-
change-banks.html.
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Last year, former Federal Reserve Board Governor and former
Deputy Treasury Secretary Sarah Bloom Raskin stated, ``when it
comes to curbing the effects that climate risk will have on the
economy, particularly the heightened chance that such risks
will bring about economic catastrophe, leadership must exist
and concerted action must be taken.'' \15\ Do you believe that
the Fed during your tenure has shown the leadership and
concerted action on climate risk to the economy, as described
by former Deputy Treasury Secretary Raskin?
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\15\ Ceres, ``Addressing Climate as a Systemic Risk: A Call to
Action for U.S. Financial Regulators'', June 2020, https://
www.ceres.org/sites/default/files/reports/2020-06/
Financial%20Regulators%20FULL%20FINAL.pdf.
A.15. Within the bounds of the Federal Reserve's statutory
mandate, we have undertaken important new initiatives and
increased our overall program of work on climate-related topics
in recent years. This work, which is ongoing, includes the
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following:
Establishment of the SCC;
Establishment of the FSCC;
Cochairing the Basel Committee's Task Force on
Climate-Related Financial Risks;
Joining the NGFS as a member;
Participating in the ongoing FSB work to assess the
implications of climate change for financial stability;
Incorporating analysis and discussion of climate-
related risks into our Financial Stability Report and
Supervision and Regulation Report;
Extensive ongoing economic research, including
published papers on climate-related topics in areas
such as asset pricing, consumer spending and savings
behavior, industrial production, credit availability,
and fiscal outcomes;
Organizing and hosting multiple conferences on
climate-related economic research and policy analysis;
and \16\
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\16\ For example, see ``Economic Risks of Climate Change:
Implications for Financial Regulators'', Federal Reserve Bank of San
Francisco, last modified on December 4, 2020; Federal Reserve Bank of
New York, ``Reducing Climate Risk for Low-Income Communities'', press
release, November 19, 2020; ``Virtual Seminar on Climate Economics'',
Federal Reserve Bank of Richmond; ``Climate Change Economics'', Federal
Reserve Bank of Richmond, last modified on November 20, 2020; and
Galina B. Hale, Oscar Jorda, and Glenn D. Rudebusch, ``The Economics of
Climate Change: A First Fed Conference'' (December 2019).
Collaborating and sharing information across the
Federal Reserve System through our System Climate
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Network and other forums.
Q.16. Earlier this year, current Treasury Secretary and your
predecessor as Federal Reserve Chair Janet Yellen stated,
``Both the impact of climate change itself and policies to
address it could have major impacts, creating stranded assets,
generating large changes in asset prices, credit risks and so
forth that could affect the financial system. These are very
real risks.'' \17\ Do you believe that the Fed during your
tenure has sufficiently or adequately worked to address the
impacts of climate change and policies to address it on our
economy, as described by Secretary Yellen?
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\17\ POLITICO, ``Yellen Vows To Set Up Treasury Team To Focus on
Climate, in Victory for Advocates'', Zachary Warmbrodt, January 19,
2021, https://www.politico.com/news/2021/01/19/yellen-treasury-
department-climate-change-460408.
A.16. To appropriately address the impacts of climate change on
our economy and financial system, we must first understand the
risks. The Federal Reserve has made and continues to make
strides in better understanding climate-related economic and
financial risks. Researchers throughout the Federal Reserve
System are examining the implications of climate change for the
economy, financial institutions, and financial stability. The
Federal Reserve is investing in data and empirical work to
analyze the transmission of climate-related risks to the
economy and developing methodologies to measure these risks.
Our staff is also engaging with colleagues from other
regulatory agencies, central banks, and standard-setting
bodies. Please see the answer to 15 above for a more detailed
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list of activities.
Q.17. Last month, President and CEO of the Federal Reserve Bank
of San Francisco stated that ``[i]t is a fact that severe
weather events are increasing,'' that ``[w]e have to understand
what the risks are, and think about how those risks can be
mitigated,'' and that ``[o]ur responsibility is to look
forward, and ask not just what is happening today, but what are
the risks.'' \18\ Do you believe that the Fed during your
tenure has worked to understand the risks of climate change and
how those risks can be mitigated, as described by Dr. Daly?
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\18\ New York Times, ``As Winter Sweeps the South, Fed Officials
Focus on Climate Change'', Jeanna Smialek, February 18, 2021, https://
www.nytimes.com/2021/02/18/business/economy/federal-reserve-climate-
change-banks.html.
A.17. As noted in the answers to the previous questions, the
Federal Reserve has made and continues to make strides in
better understanding climate-related economic and financial
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risks.
Q.18. Last month, Federal Reserve Board Governor Lael Brainard
stated, ``Climate change and the transition to a low-carbon
economy create both risks and opportunities for the financial
sector. Financial institutions that do not put in place
frameworks to measure, monitor, and manage climate-related
risks could face outsized losses on climate-sensitive assets
caused by environmental shifts, by a disorderly transition to a
low-carbon economy, or by a combination of both.'' \19\ Do you
believe that the Fed during your tenure has sufficiently or
adequately worked to describe the frameworks to measure,
monitor, and manage climate-related risks on our economy, as
described by Governor Brainard?
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\19\ Board of Governors of the Federal Reserve System, ``The Role
of Financial Institutions in Tackling the Challenges of Climate
Change'', Lael Brainard, February 18, 2021, https://
www.federalreserve.gov/newsevents/speech/brainard20210218a.htm.
A.18. We continue to prioritize our work to better understand
and measure climate-related financial risks, including through
analysis of transmission channels of climate change risk to the
banking sector, measurement methodologies, and data gaps and
challenges. In pursuing this work, we are actively cooperating
on an ongoing basis with other agencies and authorities,
including through the BCBS's Task Force on Climate-Related
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Financial Risks, the FSB, and the NGFS.
Q.19. Main Street Lending Program--What share of loans under
the Main Street Lending Program have been made to nonprofit
organizations? Does the Federal Reserve have up-to-date data on
the financial condition of nonprofit organizations that
received loans under the Program?
A.19. The total principal amount of the loan participations
purchased under the Main Street Lending Program (Main Street)
as of the time of its closure on January 8, 2021, was $16.586
billion. Of that amount, the total principal amount of the loan
participations purchased by the Nonprofit Organization New Loan
Facility or the Nonprofit Organization Expanded Loan Facility,
the Main Street facilities that made loans to nonprofit
organizations, was $40 million.
Main Street relied on eligible lenders (including, for
example, banks, savings associations, and credit unions) to
underwrite the loans whose participations were purchased by the
Main Street special purpose vehicle. Under Main Street's terms,
a for-profit business or nonprofit organization that received a
loan must provide quarterly and annual financial data, which is
used to assess borrowers' credit risk on an ongoing basis.
For more details, see the full transaction-specific
disclosures on the Board's public website. \20\
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\20\ http://www.federalreserve.gov/reports-to-congress-COVID-
19.htm
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM JEROME H. POWELL
Q.1. In the last few months, the Federal Reserve has joined the
Network for Greening the Financial System, started discussing
climate risk in their financial stability reports, and formed a
Supervision Climate Committee. What is the specific mandate and
scope of work for the Supervision Climate Committee?
A.1. Climate change is an important issue, and Congress has
entrusted the job of addressing the problem of climate change
itself to Federal agencies other than the Federal Reserve.
Congress has given the Federal Reserve narrow but important
mandates around financial stability and supervision of
financial firms, and we consider the potential effects of
climate change to the extent such effects have an impact on the
achievement of our statutory mandates.
The Supervision Climate Committee (SCC) brings together
senior staff from the Federal Reserve Board (Board) and the
Reserve Banks to facilitate the better understanding of
potential climate-related risks to our supervised institutions.
The SCC's work is in the early stages. The SCC is focused on
engaging with a wide variety of stakeholders, including large
banks, to strengthen its understanding of how banks incorporate
physical and transition risks into their risk management
frameworks; working to identify best practices for measuring
and potentially addressing climate-related risks at banks; and
investing in analysis to better understand the transmission
channels through which climate change impacts individual banks
and the banking sector.
Q.2. On page 30 of the Monetary Policy Report, the report notes
that prior to the pandemic business debt levels were already
high. Now, business leverage stands near historical highs.
Can you expand on the indicators the Federal Reserve
considers to measure stress on businesses, business leverage,
insolvency risk, commercial real estate vacancies and sales?
What indicators should local elected leaders, business
owners, and the Government consider?
A.2. The Board produces the quarterly Z.1 statistical release,
``Financial Accounts of the United States'', which includes
data on transactions and levels of financial assets and
liabilities, by sector and financial instrument. It also
includes balance sheets, including net worth, for nonprofit
organizations, nonfinancial corporate businesses, and
nonfinancial noncorporate businesses.
The Board's Financial Stability Report (FSR) has regularly
included a snapshot of key statistics from the Z.1 release for
the level of business credit. The FSR has focused on the ratio
of nonfinancial business credit to GDP as a key measure of
business leverage and has also reported statistics on gross
leverage of public nonfinancial businesses--the ratio of firms'
book value of total debt to the book value of total assets. The
latest report is available on the Board's public website. \1\
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\1\ https://www.federalreserve.gov/publications/financial-
stability-report.htm
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A key measure of insolvency risk for businesses is the
interest coverage ratio, the ratio of earnings before interest
and taxes to interest payments. \2\
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\2\ See Figures 2-6 for the November 2020 FSR.
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Additional indicators that Board staff consider when
measuring stress on businesses, business leverage, and
insolvency risk include net leverage and aggregate debt growth
of nonfinancial businesses, the share of nonfinancial business
debt with low interest coverage ratios, outstanding amounts of
BBB- and high yield nonfinancial corporate bonds, and
downgrades and expected defaults of nonfinancial businesses.
For commercial real estate vacancies and sales, we consider
vacancy rates, growth rates of price indexes by property type,
and changes in lending standards.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM JEROME H. POWELL
Q.1. Chair Powell, you are familiar with my concerns around
protecting the U.S. system of insurance regulation that has
worked so well for policyholders and the market for over 150
years in terms of access and affordability. The insurance
market we have here at home is the largest and most diverse in
the world and supports products and services in the retirement
and health space that do not exist in other jurisdictions
around the world.
Protecting this system should be an apolitical objective.
Despite the change in Administration and new leadership at the
Treasury Department, I expect that the Federal Reserve will
continue its work in ongoing negotiations at the International
Association of Insurance Supervisors on the development of an
Insurance Capital Standard (ICS) that does not compromise the
U.S. insurance market.
Will the Federal Reserve continue fighting to ensure that
U.S. insurance capital standards are recognized as outcome-
comparable to the ICS?
A.1. Yes. The Federal Reserve Board (Board) advocates for the
U.S. approach to insurance regulation at the International
Association of Insurance Supervisors (IAIS). To assess group
capital, U.S. regulators have proposed aggregating existing
legal entity capital requirements. The Board proposed such an
approach, termed the Building Block Approach, for depository
institution holding companies significantly engaged in
insurance activities. The National Association of Insurance
Commissioners (NAIC) and States have proposed a similar
approach, the Group Capital Calculation. The Federal Reserve
will continue to advocate for these approaches to be deemed
outcome comparable to the Insurance Capital Standard.
Q.2. Has the Federal Reserve communicated and coordinated with
the Biden administration's Treasury Department on this
important work?
A.2. We have communicated and coordinated with the Treasury
Department on this issue since the change in Administration. We
work closely together with U.S. Treasury's Federal Insurance
Office, as well as with the State insurance regulators and the
NAIC, as part of our participation at the IAIS.
Q.3. I have been closely monitoring the Federal Reserve's
consideration of how to modernize the regulatory and
supervisory framework for the Community Reinvestment Act (CRA).
Now that the comment period has closed on the Federal Reserve's
CRA ANPR, I would like to request an update the process and
planned next steps.
In issuing the CRA ANPR, the Federal Reserve said that it
aims to build consensus and ultimately issue a modernized CRA
rule on an interagency basis. Is the Federal Reserve
coordinating with the other banking regulators to develop a
unified rule? When can the public expect to see a proposed
rule? Historically, CRA has been very geographically focused.
How can the Federal Reserve update CRA in a way that makes
sense for both digital banks and traditional, branch-focused
banks?
A.3. Community Reinvestment Act (CRA) modernization is a high
priority for the Board. Our goal is to strengthen
implementation of the law's core purpose of meeting the credit
needs of low- and moderate-income (LMI) communities. We have
taken several significant steps to achieve our goal of getting
CRA modernization right and providing a foundation for the
Federal banking agencies to develop a common approach,
including issuing an Advanced Notice of Proposed Rulemaking
(ANPR) and holding more than 50 listening session across the
country to gather additional input.
With the benefit of input from the public and now with the
Board's ANPR comment period complete, we believe there is an
opportunity for a harmonized rule among the agencies. The Board
remains committed to working toward a consistent approach
across the agencies, and we look forward to arriving at a
common approach that meets the law's intended purpose, to
ensure that banks are meeting the credit needs of LMI
communities. We have also sought input on how to reduce
inequities in credit access and to strengthen banking services
and investment in LMI communities.
We believe that putting forward a proposal that reflects
extensive stakeholder feedback and provides a long comment
period builds a foundation for the agencies to ultimately
develop a consistent approach that has broad support.
The Board's ANPR seeks input on ways to strengthen the CRA
while increasing clarity, consistency, and transparency. In
addition, we would like to see a set of rules that tailors CRA
evaluations to reflect differences in bank sizes and business
models; uses metrics that account for changes in business
conditions across economic cycles; and considers the credit
needs and opportunities of local communities, accounting for
factors such as the unique needs of small banks and rural
areas. The ANPR specifically proposes policy approaches that
recognize how banking is evolving to ensure that CRA
modernization of assessment areas take into account how banks
serve their customers through mobile and internet banking,
while still maintaining a focus on branches, given their
importance to individuals and communities.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM JEROME H. POWELL
Q.1. In 2019, the Fed, OCC, and FDIC took steps mandated by
Congress to tailor banks' prudential regulations.
Now we're almost a year into the COVID-19 crisis and banks
have been a critical component of the recovery of the U.S.
economy. Furthermore, they have been stress tested twice in
recent months. In addition, as we discussed at our recent
hearing, their dividends and buybacks have been restricted.
Despite the severe economic challenges of the pandemic banks
have passed these rigorous tests while maintaining strong
capital and liquidity reserves. There is also more liquidity in
our financial system than ever before.
Do you agree that tailoring of capital and liquidity
requirements to the systemic footprint of particular banking
institutions is still appropriate? Are you aware of any
negative impact to the U.S. economy because of regulatory
tailoring?
A.1. The Federal Reserve Board's (Board) tailoring rule \1\
better aligns regulatory requirements with the risk profile of
an institution and implements aspects of the Economic Growth,
Regulatory Relief, and Consumer Protection Act. By creating a
more risk-sensitive regulatory framework, the tailoring rule
ensures that prudential standards, including those for capital
and liquidity, are appropriately stringent for large banking
organizations.
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\1\ See 84 FR 59032.
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Tailoring financial regulation to risk is good public
policy and a long-standing aspect of the Board's regulatory
framework. The Federal Reserve conducts periodic reviews of its
rules to update them, reduce unnecessary costs, address
unintended consequences, and streamline regulatory
requirements, consistent with the statutory provisions
underlying such rules. These efforts include considering the
costs and benefits of regulations as well as exploring
alternative approaches that would achieve the intended result
with greater simplicity, transparency, and efficiency.
The Federal Reserve continues to closely monitor evolving
risks and the potential impact of those risks on the broader
financial system and assess the capital and liquidity adequacy
of large banking organizations subject to the regulatory
tailoring framework. Because large U.S. banking organizations
are subject to robust stress testing and enhanced supervision
of their capital planning processes, they currently have
significant capital buffers over their existing requirements.
U.S. banking organizations more generally remain well
positioned to continue to lend to borrowers during the current
economic conditions. In addition to encouraging banking
organizations to use their capital buffers to support lending
to households and businesses, the Federal Reserve is
encouraging banking organizations to work constructively with
borrowers in the context of the COVID-19 pandemic. We will
continue to evaluate whether adjustments to the capital and
liquidity frameworks are warranted as the situation progresses.
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