Powell Testifies Before the Senate Banking Committee

Mr. Tim Scott (00:00):

I simply don't understand. We must all address the fact that over the last four years, the Biden administration and Bidenomics have devastated, decimated and destroyed hardworking families' abilities to support themselves. During Joe Biden's time in office, overall prices rose by over 20%, energy prices 34%, transportation costs 31%, groceries 22%, but that's not all. Thanks to Bidenomics, two-thirds of Americans have less than a $1,000, less than a $1,000 in their savings accounts. But there is good news, things are going to get better. During his first term, President Trump kept his promises to the American people. In the first three years of his presidency, president Trump built the most inclusive economy ever. 7 million jobs created and two-thirds went to women, African-Americans and Hispanics. It's time to once again make America's economy work for the folks working paycheck to paycheck. Joe Biden broke our economy and Donald Trump will fix it.

(01:20)
For too long, bank regulators have followed a black box regulatory framework with little to no recourse. The FDIC under President Trump's leadership recently released never-before-seen supervisory documents, which confirmed that Biden's Operation Choke Point 2.0 was real. Despite assurances that these unacceptable practices would end following the Democrat's first Operation Choke Point 1.O. We are seeing an unfair playing field that results in disastrous consequences for legal businesses and law-abiding citizens. On one hand, if you were in the private sector and you do your job poorly, you would face consequences, reprimands, suspensions, or even being fired. But if you are within the walls of the federal government such as a bank regulator, you'll face no consequences for your actions. Even if you pressure a bank to cut off services to digital asset firms, political figures and conservative aligned businesses and individuals. To me that goes against the principles of fairness and market access.

(02:38)
Over the last two years as a ranking member of this committee, I have consistently argued that Basel III Endgame proposal will raise costs and limit credit access for hardworking Americans. And while I'm glad this proposal was not finalized, the uncertainty surrounding Basel III forced banks to put capital on the sidelines, limiting access to that capital for local small businesses across our country. Now as chairman, I plan to work rectify the issues of the Biden administration. Chairman Powell, I look forward to hearing from you on the Federal Reserve's future and the plans that you have are right-sizing the financial regulatory framework specifically around Basel III.

(03:23)
To create jobs here in America, we need to make sure there's capital and liquidity in the market and we also want all Americans, even those growing up in poverty like I did, to know that they can access the capital necessary to start new businesses, grow existing businesses, buy a home, and pursue their American Dream. Chairman, I look forward to your comments and your testimony. I'll simply say that I believe that weaponizing an independent agency like the Fed for Liberal positions from de-banking crypto, bank stress test and the green financing scheme is not calling balls and strikes as a fair referee. And I hope that we are getting ready to clean that slate, start afresh and focus on a healthy economy. Thank member Warren.

Ms. Elizabeth Warren (04:17):

Thank you, Mr. Chairman. Chair Powell, it is no secret that you and I disagree on the need for strong bank regulation, on monetary policy and on the Fed's stock trading scandals. We have sharp differences, but I believe you are a principled public servant who cares about this country. We are at an unprecedented moment, our financial systems are facing huge risks from the economic chaos of President Trump and his co-president, Elon Musk. From on-again off-again tariffs to on-again off-again layoffs for tens of thousands of government workers to on-again off-again cuts in domestic grain purchases to on-again off-again support for medical research. Now, co-president Musk and his OMB director have frozen all work at the Consumer Financial Protection Bureau. There are now zero cops overseeing the $18 trillion consumer lending market, zero cops. Investigations into illegal foreclosures and auto repossessions canceled. Exams of giant credit card issuers to weed out unlawful junk fees, canceled. Probes of illegal debt collection practices, canceled.

(05:44)
Rules to save people billions of dollars, canceled. If Musk and his OMB director succeed in killing the CFPB, it's like putting a sign on every checking account, every credit card, every mortgage application, and every car loan, cops have been fired, let the scams begin. That is not all, Musk and his DOGE crew are also rooting through the Treasury's most important payment systems, the financial plumbing that ensures that billions of payments go through from Social Security checks to grants for community health centers. No one has verified how they got this access or what they are doing with it. No one has checked whether American's financial data has been copied or sold for the personal profit of Mr. Musk. Instead, we've had a series of misleading and conflicting statements by Treasury Secretary Bessent. After receiving public blowback, it appears that Secretary Bessent is now trying to throw the Federal Reserve under the bus.

(06:58)
Secretary Bessent claims that DOGE can't meddle with the Treasury's payment systems because ultimately the Fed is in control. Now, I'm not sure whether Secretary Bessent doesn't understand how the system works or if he's just trying to shift the blame to you, but I know he is wrong. The Fed simply executes the transactions that Treasury instructs. If Elon and his hackers, for example, initiate instructions to choke off payments to their enemies, or if they issue instructions to shut down payment for teachers aids for kids with special needs, the Fed may have no way of knowing that the instructions were manipulated and the Fed may have no legal method to override them. Chair Powell, the next 18 months may define your legacy and the country's trust in the Fed as an institution. I expect that you'll work with Democrats and Republicans and Congress if DOGE's next move is to try to commandeer the Fed's payment system, I also expect that you will not join the conspiracy to shutter the CFPB.

(08:13)
Unlike the Treasury payment instructions, you can see if the CFPB's funding requests have been manipulated. I understand that some extremists have a different view about what the law ought to be, but under the law right now, impoundment is clearly illegal. Do not make the Federal Reserve an accomplice to this illegal act and forever sully the reputation of the Fed. Keep the CFPB funded exactly as the law requires. We are in the middle of a crisis as Elon Musk tries to take over our government. But let's also talk for just a minute about your day-to-day job. Meeting the Fed's dual mandate of promoting maximum employment and stable prices. It's now clear that the Fed acted too late and let inflation get too high and then responded by keeping rates too high for too long. These policies made the big drivers of inflation like housing costs even worse, and they put Americans jobs at risk making it more difficult for them to afford a home, and for small businesses to be able to finance their operations. I urge you to move more rapidly to bring down interest rates beginning with a meaningful rate cut next month. You have proven you can move quickly when it is politically expedient. After President Trump was elected within the space of just a few weeks, you scrubbed seemingly all mention of diversity and inclusion from the Fed's website. You withdrew from an international central bank group that shares information on climate- related risks to the financial system. You instituted a hiring freeze that will limit the number of cops on the Wall Street beat and you announced plans to gut big bank stress tests. I can see the immediate political appeal of your strategy, but ultimately it will fail. You will lose good people. Climate catastrophes will continue to mount and the increasing vulnerability of big banks will threaten our entire economy. Sure, Donald Trump may be happier with you right now, but wading deeper into politics to please him over the long run will burn the reputation and the independence of the Fed and put our entire economy at risk. I urge you don't fall into these traps. Thank you, Mr. Chairman.

Mr. Tim Scott (10:57):

Yes ma'am. Today we'll hear from chair of the Federal Reserve, Jerome Powell on the semi-annual monetary policy report to Congress. Chair Powell, thank you for your testimony today and you are now recognized.

Jerome H. Powell (11:09):

Chairman Scott, ranking member Warren and other members of the committee, I appreciate the opportunity to present the Federal Reserve's semi-annual monetary policy report. The Federal Reserve remains squarely focused on achieving our dual-mandate goals of maximum employment and stable prices for the benefit of the American people. The economy is strong overall and has made significant progress toward our goals over the past two years. Labor market conditions have cooled from their formerly overheated state and remain solid. Inflation has moved much closer to our 2% longer-run goal, though it remains somewhat elevated. We are attentive to the risks on both sides of our mandate. I will review the current economic situation before turning to monetary policy. Recent indicators suggest that economic activity has continued to expand at a solid pace. GDP rose two-and-a-half percent in 2024 bolstered by resilient consumer spending. Investment in equipment and intangibles appears to have declined in the fourth quarter but was solid for the year overall.

(12:19)
Following weakness in the middle of last year, activity in the housing sector seems to have stabilized. In the labor market, conditions remain solid and appear to have stabilized. Payroll job gains averaged 189,000 per month over the past four months. Following earlier increases, the unemployment rate has been steady now since the middle of last year and at 4% in January remains low. Nominal wage growth has eased over the past year and the jobs-to-workers gap has narrowed. Overall, a wide set of indicators suggest that conditions in the labor market are broadly imbalanced. The labor market is not a source of significant inflationary pressures. The strong labor market conditions in recent years have helped narrow long-standing disparities in employment and earnings across demographic groups.

(13:13)
Inflation has eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-term goal. PCE prices rose 2.6% over the 12 months ending in December and excluding the volatile food and energy categories, core PCE prices rose 2.8%. Longer-term inflation expectations appear to remain well anchored as reflected in a broad range of surveys of households, businesses and forecasters, as well as measures from financial markets. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. Since last September, the FOMC lowered the policy rate by a full percentage point from its peak after having maintained the target range for their federal funds rate at five and a quarter to five point a half percent for 14 months. That recalibration of our policy stance was in light of the progress on inflation and the cooling in the labor market.

(14:16)
Meanwhile, we've continued to reduce our securities holdings. With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance. We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC will assess incoming data, evolving outlook in the balance of risks. As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer.

(15:16)
If a labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. We are attentive to the risks on both sides of our dual mandate and policy is well positioned to deal with the risks and uncertainties that we face. This year, we are conducting the second periodic review of our monetary policy strategy, tools and communications. The framework used to pursue our congressionally mandated assigned goals of maximum employment and stable prices. The focus of this review is on the FOMC's statement on longer-run goals and monetary policy strategy, which articulates the committee's approach to monetary policy and on the committee's policy communication tools. The committee's 2% longer-run inflation goal will be retained and will not be a focus of the review.

(16:08)
Our review will include outreach and public events involving a wide range of parties including Fed Listens events around the country and a research conference in May. We will take on board lessons of the past five years and adapt our approach where appropriate to best serve the American people to whom we are accountable. We intend to wrap up the review by late summer. Let me conclude by emphasizing that at the Fed we'll do everything we can to achieve our dual mandate goals that Congress has set for monetary policy. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal and keeping longer-term inflation expectations well-anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our public mission. Thank you, I look forward to your questions.

Mr. Tim Scott (17:05):

Thank you Chair Powell. Certainly your words and your actions have a global impact. You have the opportunity and responsibility of leading this country in the right direction economically, and I thank you for your commitment to having a conversation with all of us about how you do that well. You and I had a conversation yesterday, some of it was frustrating, some of it was illuminating, but in the end, my goal is to make sure that the American people and specifically those working paycheck to paycheck have more opportunities to succeed, not fewer. You have said that the Fed is not against innovation and banks are perfectly able to serve crypto customers as long as they understand and can manage the risks.

(17:45)
Yet you have admitted that the threshold has been a little higher for banks engaging in crypto activities. Last week I held a hearing on de-banking and once again heard that federal banking agencies in particular the Fed used reputational risk as a tool to encourage the de-banking of certain legal industries and law-abiding citizens for political reasons not tied to safety and soundness. De-banking is a top priority for this committee and it certainly is for me and one that I believe is a bipartisan issue. Will you commit to working with this committee to end de-banking, including working with the new vice chair of Supervision once appointed, to revise the Federal Reserve's supervision manuals to remove reputational risk as a tool to weigh in on political topics?

Jerome H. Powell (18:34):

I'm happy to make that commitment.

Mr. Tim Scott (18:36):

Thank you sir. Accountability is very important. I would like to thank Accountability is a priority for everyone, especially the Fed given that failures and fed supervision can result in the loss of billions dollars. Yet following the failure of the Silicon Valley Bank, which was in part due to the failures of its regulators to identify egregious mismanagement of interest rate and liquidity risks, we have yet to see any regulators be held accountable. And as you recall, that was the point of my frustration as a guy who spent a lot of time in the private sector, 15 years running a few businesses, I can tell you that accountability is a necessary part of making the entire organization healthier and perform its job as well as possible.

(19:24)
I'm encouraged that the FDIC has begun the process of holding SVB executives accountable, that's good news, but no Fed employee has been fired, put on probation, put on performance improvement plan, all of which would be expected in the private sector as I just mentioned, for employee failure. Please explain to me why Fed employees are held to a different standard from our perspective than everyone else, and what are you planning to do to take accountability for Fed failures and supervision?

Jerome H. Powell (19:56):

So we've actually done quite a lot in response to the events associated with Silicon Valley Bank, so we've done many, many things. In terms of specific accountability, what we found was this was not a case of malfeasance or nonfeasance so much, it was a case of people were carrying out a specific playbook that failed to cause us to act in time for these things. So it wasn't actually particularly fair to the employees to say you violated our practices in some way, that wasn't really what happened. What happened was, I would say, a lot of focus on process and on governance and controls and not enough focus on basic bread and butter banking, credit risk, liquidity risk, interest rate risk, things like that. So, as we discussed yesterday, we took very substantial steps to avoid further spread of those issues and that was successful, but I understand your point on accountability.

Mr. Tim Scott (20:55):

This is one of the areas where you see the approach of looking at safety and soundness and with the number of MRAs and MRAs that when really documented but no action was taken, that leads me to the conclusion that individual employees, supervisors should have been held account for that, I'll move on though. In the past you've supported tailoring regulations so that we ensure banks of different sizes thrive and to preserve our diverse banking system. Will you commit to working with me as chairman to make sure that financial regulations do not impose more burden than is necessary? I'll say that this comes after a number of conversations with community banks and regional banks that have continued to stress that the cost of the regulatory framework around them isn't just harsh, it's oppressive. Larger banks suggest that the cost per employee for the regulatory framework is $10,000 per employee. I think we can do better and we'd love to hear your thoughts on that.

Jerome H. Powell (21:57):

First of all, I will commit to working with you on that. We do try to avoid excessive burden. Look, I think it's fair to take a fresh look frankly on de-banking. I think we all see both in your hearing and in the one on the house side, we hear a lot of people talking about that and it's time to take a fresh look I think. We don't intentionally do these things, but sometimes regulation leads things to happen and we need to be working on that.

Mr. Tim Scott (22:24):

I appreciate that and I'll turn it over to the ranking member, I'll say this, after having a number of conversations with CEOs of banks around the country, one of the things that was made clear to me with specific statement from the CEOs is that the regulatory OCC and other regulatory agencies said specifically to de-bank certain industries and that is the point that I'm making and one that I think we have to solve. If it's legal in America to do business, we should do our part to make sure that they're banked.

Ms. Elizabeth Warren (22:57):

Thank you Mr. Chairman. So over the weekend, Co-President Musk and acting director Vought actively shut down CFPB. No more cop on the beat looking out for a family of four in South Carolina facing an illegal foreclosure. No more cop on the beat looking out for your grandma whose bank account has just been taken over by a scammer. No more cop on the beat looking out for people getting ripped off by giant credit card companies that are charging illegal junk fees. It also means that the CFPB is no longer doing one of its most important jobs, examining big banks to root out illegal conduct before it happens, or at least stop it before more people get hurt. Chair Powell, if the CFPB isn't on the job right now, then who is administering JP Morgan or Wells Fargo's consumer compliance exams to ensure that they are following the law?

Jerome H. Powell (24:00):

Senator, I believe that and you would know, that Dodd-Frank moved all authority for examinations in the consumer space to the CFPB. We still have some jurisdiction.

Ms. Elizabeth Warren (24:13):

We'll talk about that in a sec. But the answer to my question please, if the CFPB is not there examining these giant banks to make sure they are following the laws, are not cheating consumers, who is doing that job?

Jerome H. Powell (24:29):

I can say no other federal regulator.

Ms. Elizabeth Warren (24:31):

No one, in other words. So thanks to Co-President Musk and CFPB acting director Vought, Wall Street banks no longer have to show the bank examiners that they're not illegally opening accounts people didn't ask for like happened with Wells Fargo or charging illegal junk fees like the Bank of America did. But CFPB has jurisdiction only on banks that have more than $10 billion in assets. So what's happening in thousands of community banks all around the country, those that have less than $10 billion in assets. So Chair Powell, as you know the Fed oversees consumer compliance for state member banks that have less than $10 billion in assets. Has the Fed suspended consumer compliance exams for those smaller banks or is the fed still on the job to make sure that those smaller banks are following consumer financial laws?

Jerome H. Powell (25:35):

Still on the job business as usual.

Ms. Elizabeth Warren (25:37):

All right. By forcing the CFPB not to do its job, President Trump, Elon Musk and the author of Project 2025, Russ Vought are giving Wall Street banks an unlimited get out of jail free card so they can cheat working families even while community banks continue to play by the rules. For any Americans who have money deposited at JP Morgan or Wells Fargo or any other of the giant banks, they should now know that there is no one on the job to make sure that those banks are not scamming you. Only the smaller banks now have a cop on the beat to make sure that they aren't cheating consumers. If I have my money and one of those giant banks, I might think about going to a smaller bank where the protection at least right now, is a whole lot better. Now at the same time that the CFPB is under attack, the Fed is buckling to pressure from Wall Street to erase other safeguards for the two big to fail banks.

(26:50)
During the first Trump administration, under your leadership, the Fed weakened the big bank stress tests including giving the big banks some of the answers to the test in advance. I called you out on it, but you promised right here in this committee that you would not give those banks the whole answer key. I'm going to quote you back. You said, "Complete knowledge of the models could lead to a model monoculture in which all firms have similar internal stress testing models, which could increase the correlation of risk in the system and miskey idiosyncratic risks faced by the firms." I agreed with you, but several weeks ago the Fed announced that it has plans to do exactly that, hand all of the answers over to the giant banks. Chair Powell, why is the Fed about to propose a rule that directly contradicts your own testimony and in your own words would render the stress tests toothless?

Jerome H. Powell (27:55):

Senator in essence, because the [inaudible 00:27:59] has shifted very substantially in administrative law and we actually want the stress test to remain resilient to that. And so we're making changes to accomplish that.

Ms. Elizabeth Warren (28:09):

Well, the changes are changes you've identified earlier as making those tests toothless. Look, the big banks are going to juice shareholder payouts and leave this economy more vulnerable to a crash. The Fed is knuckling under to bank lobbyists, we know how this ends. People will suffer, Wall Street will get bailed out. I urge you Chair Powell to serve Main Street instead of Wall Street, don't weaken these rules.

Mr. Tim Scott (28:40):

Thank you. Senator Rounds.

Senator Mike Rounds (28:42):

Thank you Mr. Chairman. Mr. Chairman, thank you for coming before the committee, I appreciate the opportunity to visit with you. I've got a series of questions but would like to give you an opportunity if you would like. The suggestion that the ranking member has made here is that the big banks can now scam individuals right now. Any change in the laws regarding how they're supposed to be treating the individual consumers out there or anything along that line?

Jerome H. Powell (29:09):

Law changes? No, I'm not aware of any law changes.

Senator Mike Rounds (29:10):

Any changes, any rules that they would have to follow?

Jerome H. Powell (29:14):

Not that I'm aware of.

Senator Mike Rounds (29:15):

Are they still audited and do they still have the regulators in watching all of their businesses just as they did before?

Jerome H. Powell (29:22):

Well, they'd have all the regulators except for the CFPB.

Senator Mike Rounds (29:25):

Very good.

Jerome H. Powell (29:25):

If in fact in the hypothetical the CFPB weren't carrying that out.

Senator Mike Rounds (29:29):

Anything else that you'd like to add before we move on?

Jerome H. Powell (29:32):

No, I'm good. Thank you.

Senator Mike Rounds (29:33):

Thank you, Mr. Chairman. As we continue to prioritize the stability and the resilience of our financial system, the ongoing Basel III rulemaking process has remained front and center in shaping our regulatory framework. I was rather outspoken with my opposition to the original proposal and further work was stalled at the end of the last year. My question for you today sir is, could you provide an update on the Federal Reserve's progress in finalizing the Basel III Endgame rulemaking process?

Jerome H. Powell (30:06):

I'd be glad to. So we remain committed to completing Basel III Endgame. We think it's good for US banks, it's good for our economy that there be a global standard beneath which foreign banks can't fall. And that was one of the big ideas behind the whole Basel committee approach. Where it sits now is we await leadership arriving at the OCC and the FDIC and that seems to be happening and when that happens, we're going to sit down with them and work our way through to a Basel III Endgame proposal and I think we can do this reasonably quickly. One that is compliant, consistent with the Basel requirements and also consistent with what other large jurisdictions are doing. I'm optimistic that we can do that fairly quickly and we're committed to doing that.

Senator Mike Rounds (30:52):

We always wanted our banks to be competitive with European banks. And I'm just curious, the original proposal that was in front of you, and I'd like your thoughts on this, it was estimated to increase our bank's capital by 19%, which I think may very well have created a potential disadvantage within the US institutions versus our European counterparts. With any new proposal, what's your thoughts? Would you make a commitment that this would be a neutral approach with regard to capital?

Jerome H. Powell (31:22):

The main commitment I'll make is we'll work together with new leadership at the other banking agencies to do something. But that's certainly, I've said many times in this committee that I think that the level of capital in the largest banks is about right. And so it'll shake out somewhere in that area I would guess.

Senator Mike Rounds (31:42):

Our expectation would be in the markets would expect that it would be neutral with regard to capital?

Jerome H. Powell (31:48):

In that range, but I want to defer to our new colleagues and get their views as well. But that's a good starting place.

Senator Mike Rounds (31:55):

Okay, thank you. The Federal Reserve's partnership with the US Treasury plays a central role in supporting our nation's payment infrastructure, which processes a vast range of daily transactions from federal benefit disbursements to debt obligations. Could you outline the Federal Reserve's role in supporting and managing the Treasury's payment systems, including how the Fed works to keep these systems secure, efficient and capable of handling the government's high volume of daily transactions?

Jerome H. Powell (32:28):

It's a complicated set of arrangements and I'll try to summarize quickly. Effectively, Congress authorized spending and then the agencies carry out those spending orders and when the way they do that is they send an order to pay a payee, a recipient to the Treasury Department. Upstream before it gets to the Fed, all of these decisions are made about is this an appropriate order? Is this payee on the note don't pay list and all those things. Once all of that is set, it comes to the Fed, and by that I mean four or so of the reserve banks. And we actually make the payment. We take the money out of the Treasury general account and we make the payment. We make no judgments whatsoever, those are all made upstream from us and we are in fact, the fiscal agent of the Treasury.

Senator Mike Rounds (33:17):

Confirm for me today, is the system safe today?

Jerome H. Powell (33:22):

I believe it is, and I will tell you we are very strongly committed to the integrity, efficacy, resilience, and all those things of this system. And people do depend on this in a big way and we're committed to that.

Senator Mike Rounds (33:34):

One last question for you, sir. The failure of Silicon Valley Bank and the chairman brought this up. I'm just curious, recognizing a lot of banks out there look at this, it cost the other banks in the system a lot of money to pick up the costs involved in the losses. Nobody's been fired, but you did indicate that it was a failure in the playbook. Has the playbook been revised or can we expect that it will

Senator Mike Rounds (34:00):

It'll be revised?

Jerome H. Powell (34:01):

In a lot of ways it's been revised, yes. I can go into some details. I mean, one thing that didn't happen was, for example, the supervisors didn't follow through aggressively enough on things that they'd said if they'd done that, that could well have been enough to stop it. But a lot of it was just not focusing enough directly on what was a very large amount of interest rate risk, a large portfolio of long-term securities, matched up with an unstable funding base. And somehow people wrote about that, not the Fed, but others wrote publicly about this, but somehow we don't expect bank runs outside of a crisis in this country. And that's what that was, it was a bank run, and bank runs are incredibly damaging. I think everyone learned a lot from that and is determined to do better.

Senator Mike Rounds (34:50):

Thank you, Mr. Chairman. I think this is one that I think, as you appropriately pointed out, I think this is an area where a lot more questions are out there yet, and I think if it's the playbook that was the problem, I think perhaps a discussion about how that playbook has been revised would be appropriate in the future. Thank you, Mr. Chairman.

Chairman Scott (35:04):

Thank you. Senator Cortez Masto.

Senator Catherine Cortez Masto (35:09):

Chairman Powell, thank you. And thank you always for the conversations in between these hearings as well. Let me focus on a couple of things of concern, and you touched on a little bit of this, and I think this is important to clarify. There was a change in the law when the CFPB was created. The CFPB examines the banks and enforces the law, whereas the Fed only supervises those banks. Is that correct, or how would you determine that relationship?

Jerome H. Powell (35:41):

With the CFPB?

Senator Catherine Cortez Masto (35:42):

Yeah.

Jerome H. Powell (35:42):

So Dodd-Frank took a lot of the consumer compliance jurisdiction away from the other banking agencies and gave it to a newly created agency, the CFPB. We retained a residual amount of that as we just discussed, which was banks under 10 billion in assets. But the CFPB essentially took all of that when Dodd-Frank came into being.

Senator Catherine Cortez Masto (36:06):

So as it was created, when you two were working together, the Federal Reserve collaborated with the Consumer Bureau when supervising those large banks, correct?

Jerome H. Powell (36:15):

Yes, we still retain supervision over all the holding companies and also of Fed member banks.

Senator Catherine Cortez Masto (36:21):

And let me ask you this then, does the Federal Reserve enforce consumer protection laws now for things like money transmitters?

Jerome H. Powell (36:31):

Not for money.

Senator Catherine Cortez Masto (36:32):

That would be the consumer protection?

Jerome H. Powell (36:33):

For Fed member banks, yes.

Senator Catherine Cortez Masto (36:34):

That would be CFPB?

Jerome H. Powell (36:35):

Yes. That's right.

Senator Catherine Cortez Masto (36:36):

Okay, and so when we're talking about collaborating with the CFPB for financial technology firms, what would the Fed Reserve now do that if the CFPB, if hypothetical is the CFPB no longer exists, what would be the Fed's role right now with respect to technology firms?

Jerome H. Powell (36:54):

We don't have jurisdiction over… We have jurisdiction over banks and some financial market utilities.

Senator Catherine Cortez Masto (37:00):

And that's it. So let me ask you this, because I know there's a number of Nevadans who file consumer reports of concerns about fraud and predators with the CFPB. The Fed Reserve doesn't receive those reports, correct?

Jerome H. Powell (37:13):

No, I don't believe so.

Senator Catherine Cortez Masto (37:13):

And you have no role when it comes to consumer protection like the CFPB does, correct?

Jerome H. Powell (37:18):

Unless you're a Fed member bank that has 10 billion or less in assets, then we have jurisdiction on a consumer.

Senator Catherine Cortez Masto (37:25):

Right. So there is a gap. If the hypothetical is true and what we're hearing that the CFPB is being shut down, there is a gap what we're hearing in enforcement out there and particularly when it comes to consumer protection. Would you say that's true?

Jerome H. Powell (37:39):

Yes, for all banks that we don't supervise.

Senator Catherine Cortez Masto (37:43):

Yeah, and I think that's the concern we're all having right now, is this concern of when we're looking to streamline government and listen, I'll be the first to tell you, there's a lot of bloat, we need to streamline it. We need to address regulations and overreach, but there's a strategic way to do it and not this burn down the house that is going to harm people across the country, including in my state, those Nevadans that are looking for some sort of enforcement around consumer protection laws. So, that's what you're hearing from many of us on our side of the aisle here.

Jerome H. Powell (38:16):

Can I just very briefly add that we do have some residual enforcement authorities, but what we don't have is examination authority, and for the banks that the CFPB supervises.

Senator Catherine Cortez Masto (38:25):

Thank you. Let me ask you this. We talked about this over the phone and I understand it may be difficult to answer this, but the Federal Reserve board members have been clear that future interest rate cuts are unlikely to happen despite the strong economy, but there are folks in my home or that are in my state that are waiting to buy a home, and we know that's still an issue. The high prices right now for home affordability, you add the interest rates to it, it is a problem. So, do you think it's most likely that interest rates will remain above 6% for this year, or can you even address that?

Jerome H. Powell (39:10):

So overall, the economy is strong, growing 2.5% last year. The labor market is also very solid, unemployment at 4%, quite a low level. Inflation last year was 2.6% for the year, so we're in a pretty good place with this economy. We want to make more progress on inflation and we think our policy rate is in a good place and we don't see any reason to be in a hurry to reduce it further.

(39:34)
As it relates to housing. So there's a, it's true that mortgage rates remained high, but that's not so directly related to the Fed's rate. That's really related more to long-term bond rates, particularly the Treasury, the 10-year Treasury, the 30-year Treasury, for example. And those are high for reasons not particularly closely related to Fed policy. They may remain high. I think there's a, once we lower rates and rates return to a lower level, mortgage rates will come down. I don't know when that'll happen, and even when it does happen, we're still going to have a housing shortage in many places.

Senator Catherine Cortez Masto (40:11):

Thank you. Chairman Powell, thank you again for being here.

Chairman Scott (40:14):

Thank you ma'am. Next will be Senator Kennedy.

Senator John Neely Kennedy (40:18):

Thank you, Mr. Chairman. Thank you Mr. Chairman for being here.

Senator Catherine Cortez Masto (40:21):

[inaudible 00:40:22].

Chairman Scott (40:21):

Okay, great.

Senator Catherine Cortez Masto (40:24):

Thanks.

Chairman Scott (40:25):

Yes, ma'am.

Senator John Neely Kennedy (40:25):

My friend, our ranking member, said that you are knuckling under to the big bank lobbyists. Is that true?

Jerome H. Powell (40:34):

No.

Senator John Neely Kennedy (40:34):

Okay. It seems to me that the big picture should not go unnoticed. Do you recall a year or two ago when inflation was raging, I think its peak was by 9%? Many economists and other experts, based in part on history, said that you were going to have to provoke high unemployment and put our country into recession in order to get inflation down. Do you recall that?

Jerome H. Powell (41:31):

Very, very well.

Senator John Neely Kennedy (41:34):

Are we in a recession?

Jerome H. Powell (41:37):

We are not.

Senator John Neely Kennedy (41:40):

Would you as an American trade places right now with Germany, in terms of the economy?

Jerome H. Powell (41:48):

No, I sure wouldn't.

Senator John Neely Kennedy (41:50):

How about China?

Jerome H. Powell (41:52):

No, wouldn't trade places.

Senator John Neely Kennedy (41:55):

How about France?

Jerome H. Powell (41:57):

No thanks.

Senator John Neely Kennedy (42:04):

Things aren't perfect. Inflation is obviously still sticky and loan rates are too high, which I want to talk about in a second. The fact is, knock on wood, we have experienced a soft landing, haven't we?

Jerome H. Powell (42:24):

Not for me to say, really. I'll let others make that-

Senator John Neely Kennedy (42:29):

But haven't we experienced a hard landing?

Jerome H. Powell (42:30):

No, we sure haven't.

Senator John Neely Kennedy (42:31):

Are we in a recession?

Jerome H. Powell (42:32):

No, we're not.

Senator John Neely Kennedy (42:33):

I call that a soft landing. And it seems to me that you and some of the ladies and gentlemen who are your colleagues at the Federal Reserve behind you, deserve some credit for that.

Jerome H. Powell (42:49):

Thank you.

Senator John Neely Kennedy (42:51):

I don't know why you don't take the credit, everybody else in Washington DC does. Again, I'm not saying things are perfect, but I never imagined that our landing could be this soft, albeit, not perfect. And I wanted to thank you and your colleagues for that effort. You sure didn't get any help from Congress and our president on the fiscal side. I don't expect you to comment on that. You and the Federal Reserve can, to a large extent, control short rates, can't you?

Jerome H. Powell (43:39):

Yes.

Senator John Neely Kennedy (43:41):

Through the open market committee. You can't control long rates though, can you?

Jerome H. Powell (43:48):

No, we can't.

Senator John Neely Kennedy (43:50):

Why is that?

Jerome H. Powell (43:52):

So, a lot of things go into long rates. And one of them is the expected future short rate of Fed policy, but many, many other things go in. Expectations of inflation in the longer run, the sort of risks around the economy and around the budget deficit go into something called the term premium, which is the part we can't explain when we do these decompositions. And so it's set by supply and demand in the bond market at the long end and we're not particularly, we have some influence, but mostly, mostly not.

Senator John Neely Kennedy (44:29):

Many Americans are looking at short rates and looking at the Fed's behavior and how you reduced inflation, but they don't see the long rates going down. And obviously that affects mortgage rates. And I would encourage you and your colleagues to spend some time explaining to the American people why that is.

(44:53)
Final question. If you went home tonight, and Mayor Powell, your spouse, said, "I got a call today from our bank and they're de-banking us. They're worried about their reputational risk because they don't like our politics." Would you think that fair?

Jerome H. Powell (45:30):

No, I sure wouldn't. And as I mentioned earlier, I too am troubled by the quantity of these reports, and really want to understand better why this is happening. One theory is that banks are just very risk averse around BSA and money laundering, and that's because we're so tough on them, they just don't want, any red flag is enough. But it may be that this whole thing with reputation risk needs to be thought about. It's actually coming out of our one manual that we use. We're taking that concept out, the manual that we've been using for account access for master accounts. We're just going to take that out, but I think this needs a fresh look and I think it's time for that and we're going to do that.

Senator John Neely Kennedy (46:18):

Well, I've asked our chairman, and he has agreed to invite some of the CEOs of some of the banks that have been de-banking people. The CEOs, not their lawyers, not their PR consultants.

Chairman Scott (46:34):

Not their lobbyists.

Senator John Neely Kennedy (46:34):

Not their priests, them. The CEOs to come in and let's talk about this and find out what the hell's been going on.

Chairman Scott (46:45):

Thank you, Senator Kennedy.

Senator John Neely Kennedy (46:47):

Thank you, Mr. Chairman.

Chairman Scott (46:48):

Senator Reed.

Jerome H. Powell (46:49):

Thanks.

Senator Jack Reed (46:49):

Thank you Chairman Scott. Chairman Powell, welcome. Thank you very much. I think your monetary policy, combined with the Biden fiscal policy over the last four years has made a tremendous difference, we've avoided a recession. I'd like to remind people how far we've come. In 2020, the gross domestic product decreased 2.2%. The unemployment rate finished the year at 6.7%. By 2024, gross domestic product grew 2.5%, the unemployment rate was 4.1%, labor force participation rate went up from 61% to 62.5%. And that's a combination of your work, together with the fiscal policy of the Biden Administration. So, I thank you for that.

(47:36)
One of the issues before us today is the issue of tariffs. In July 2018 testimony you stated, Mr. Chairman, "Countries that have remained open to trade, that have non erected barriers, including tariffs, have grown faster and higher incomes." Do you still believe that?

Jerome H. Powell (47:53):

Yes, I do. I would stand by that.

Senator Jack Reed (47:55):

So, President Trump's tariffs on China, Canada, and Mexico will obviously raise costs on families. In fact, some economists, many economists project about $1,200 per year, households will be paying extra. An increase of inflation by nearly 1%, economic growth, depression and for example, the increase of the average car price by $2,700. Is that a wise policy?

Jerome H. Powell (48:25):

So, I guess I ought to say this. I think the standard case for free trade and all that, logically still makes sense. It didn't work that well when we have one very large country that doesn't really play by the rules. And in any case, it's not the Fed's job to make or comment on tariff policy. Really, that's for elected people and it's not for us to comment. Ours is to try to react to it in a thoughtful, sensible way and make monetary policy so that we can achieve our mandate.

Senator Jack Reed (49:02):

Just this weekend, the president removed the board of the Kennedy Center and made himself Chairman. What would you do if the president tried to remove a member of the Federal Reserve Board?

Jerome H. Powell (49:13):

Well, it's pretty clearly not allowed under the law.

Senator Jack Reed (49:18):

Thank you. We've communicated back and forth about synthetic risk transfer as a potential danger to the banking system. And could you give us some insights on how we can improve financial stability by regulating these transactions more appropriately?

Jerome H. Powell (49:41):

So what we've been doing for some time now, is looking at them on a case-by-case basis, and if they really do transfer risk successfully, then that's okay. I mean, it's a good thing if a bank wants to transfer risk off its balance sheet and in a way that it gets compensated for it and all that. But what you want to make sure is that that the risk is really transferred. And that was the problem during the global financial crisis, is with sort of things that appeared to but did not accomplish a transfer of risk. So, we see this coming and we've been looking at these transactions on an ongoing basis.

Senator Jack Reed (50:16):

Well, I commend you for that. In fact, what happens typically is the transaction becomes complicated by synthetic risk transfers, as it was the case with synthetic derivatives. So, thank you for your attention to that.

(50:32)
We've talked about housing, it's absolutely critical everywhere across the country. We're in a housing shortage. First of all, all housing is difficult. Two of the mainstays of our housing market are Fannie Mae and Freddie Mac helping to support homeownership. Does the federal guarantee backing Fannie and Freddie help make mortgage rates more affordable and homeownership more accessible, Mr. Chairman?

Jerome H. Powell (50:57):

I imagine it does hold down mortgage rates, the fact that they're a sovereign risk.

Senator Jack Reed (51:02):

And how important is the 30-year mortgage to ensure that families can afford a home?

Jerome H. Powell (51:07):

In our housing market, the 30-year mortgage is very important.

Senator Jack Reed (51:10):

Yeah, and I have heard some discussions about eliminating Fannie Mae and Freddie Mac, which would be detrimental, I presume, to the housing market.

Jerome H. Powell (51:21):

That's really a question for you. I mean, putting them back in the private, putting housing finance back in the private sector has some appeal over the longer run, but I leave that with you.

Senator Jack Reed (51:35):

Thank you, Mr. Chairman, very much. Appreciate it.

Chairman Scott (51:38):

Thank you. Senator Ricketts.

Senator Pete Ricketts (51:42):

Well thank you Mr. Chairman and Ranking Member, for holding this important hearing and thank you Chairman Powell for being here today to talk about our economy and all the things that are going on.

(51:52)
I want to address again something that the ranking members started talking off about, which was characterizing the CFPB as being the cop on the beat here. But I can tell you as having been a governor and having a department of banking that reported to me, that if any consumer would contact us and make a complaint about a bank, even a big bank like JP Morgan, we would investigate. As could the OCC, the FDIC, the FTC. So to characterize it, nobody's out there looking for consumers, I think is inaccurate, and we ought not to try and scare consumers right now that somehow this is the case. Because if you do have an issue, if you're a consumer, please reach out to your state department of banking because those folks are going to look out for you. I can tell you that because I used to have one of those department of bankings, they did a fantastic job of looking out for the consumers.

(52:50)
One of the things that has also impacted consumers is inflation. Prices under the Biden Administration were up 20%. An average household is paying $13,000 more today than they were for the same standard of living they had before Joe Biden got elected. We see that grocery prices, for example, are up 22%, rent's up 23%. Simply put, Nebraskans are economically worse off today than they were four years ago, and I expect that that's part of the reason why we saw this change in the administration. They thought that that was not something that they wanted to continue to pursue, they didn't want the same policies being followed. We have to end the reckless federal spending, rein in inflation, and be responsible about how we make decisions to be able to grow the economy.

(53:37)
One of those areas that I am concerned about is the expansion of the Fed balance sheet. The Fed's balance sheet before, at the end of 2019, so before the pandemic, was about $4.1 trillion. By May of 2020, the Fed expanded that to seven trillion, and by 2022, the Fed's balance sheet hit an all-time record $8.9 trillion. Inflation peaked at 9.1% that year, a high we had not seen since 1981. Now, I'm encouraged by the actions the Fed has taken with quantitative tightening to shrink the balance sheet down to $6.85 trillion, but $6.85 trillion is still too high. And one of my concerns with it, Chairman, is that that's kind of one of your tools to be able to guard against to downturn the economy or some sort of shock. Obviously, you used it during the pandemic. Looking ahead long-term, will the Fed reserve continue to this course of unwinding the balance sheet?

Jerome H. Powell (54:33):

Yes, so what we said is that we intend to slow and then stop the decline when reserve balances are somewhat above the level that we judge consistent with so-called "ample reserves." The most recent data and the feel of the markets is definitely the reserves are still abundant. They're about the level they were at when runoffs started because the runoff has really happened out of the overnight repo facility, reverse repo. So yes, it's an ongoing thing and we're not yet where we're headed.

Senator Pete Ricketts (55:01):

So what kind of pace can we expect? And I know that obviously there's going to be a lot of factors like what happens to the economy over the course of next year, but if things were going to go along the way they are today, you've already said the economy's doing well, inflation is a little higher than we want it to be at 2.6% but unemployment is at 4%. If these conditions, and I think you used the word stable quite a bit, if these conditions were to remain stable throughout the course of year, would you have a range that you could give us where the balance sheet might be, if we were talking again here in January 2026?

Jerome H. Powell (55:32):

Basically we're going to be looking at reserve conditions, conditions in reserve markets, and trying to stop a little bit above what we can consider ample, and we think we're meaningfully above that now. We can't put a number on it because you can't directly know the demand for reserves, other than by observing behavior in the market and then putting a little bit of a buffer on it. So, I can't give you an exact number, but for now it's ongoing and we have a ways to go.

Senator Pete Ricketts (56:01):

What kind of conditions would have to happen for you to start going back to quantitative easing?

Jerome H. Powell (56:05):

So, quantitative easing. So, that's a tool we tend to use when we're at the effective lower bound and we can't cut interest rates anymore. So, nothing like what you're seeing in the current day. It's a different test for stopping quantitative tightening, but we would use QE going forward, only in a situation when where rates are at zero, and we're a long way from zero now.

Senator Pete Ricketts (56:28):

So that you think that, again, just generally speaking then, if things were to remain stable, you continue to do unwind the balance sheet, you continue the quantitative tightening. Can't give me a range on this, is that what I'm hear you saying?

Jerome H. Powell (56:39):

That's right, that's right.

Senator Pete Ricketts (56:41):

Okay, great. Well, I encourage you to keep doing that because again, I think that's important to be able to make sure that you've got powdered for the next issue that we may face. So, thank you very much Mr. Chairman.

Jerome H. Powell (56:50):

Thank you.

Senator Pete Ricketts (56:51):

Appreciate you being here.

Chairman Scott (56:52):

Senator Warner.

Senator Mark Warner (56:54):

Thank you, Mr. Chairman. Chairman Powell, good to see you. One of the things we've talked about in the past, and I've got two or three issues I want to get through fairly quickly, is that while our regulatory framework should always promote financial innovation, that innovation can't come at the expense of things like anti-money laundering, consumer protection, financial stability. I continue to worry in many of these hearings where we keep seeing this regulatory creep outside the boundaries of traditional financial regulation. I think if we were starting a system from scratch, a few of us would design it this way, but it is one of the reasons why I'm looking forward to working with Chair Scott and my colleague, Senator Lummis, on a framework at looking at stablecoins in particular within the regulatory perimeter. I know my friend, Bill Haggerty just introduced a bill in this area. I'm looking at trying to make sure we get those guardrails put in place and how it touches the Fed is something that's terribly important to me.

(58:12)
I know you and I have talked in the past about the notional idea of same activity, same regulation in the non-bank sector. If you'd like to wax briefly on this question around stablecoins and how we think about them in the same point of, if they are similar to other activities, should they not have the same regulatory structure?

Jerome H. Powell (58:36):

So, we definitely support these efforts to create a regulatory framework around stablecoins. Stablecoins may have a big future with consumers and businesses. We can't know that now, but it is important for the development of stablecoins in a safe and sound manner and manner that protects consumers and savers and all, that there be a regulatory framework. So we see these bills and we're in contact, as we were in the last Congress, and trying to add our technical thoughts and how to do this and we think it's a very constructive exercise.

Senator Mark Warner (59:09):

Well, we do think you have a lot of expertise in this session and there are people that are… People come with lots of opinions on everything in crypto, from over the top to the other end of the spectrum, and I'm going to need to rely on your expertise as well, as we try to work through some framework for stablecoins.

(59:31)
I know there are a lot of earlier questions on CFPB. I think the record is pretty darn good, it's returned $20 billion to consumers. Matter of fact, the last time we had the previous chair here, Ms. Chopra, we were talking about $55 million to Virginians. I do have to mention, this is more for my colleagues. Tim Kaine and I did a Tell-A-Town Hall last night, lots of things happening in Virginia. Normally, we would get maybe three, five, 6,000 folks on a Tell-A-Town Hall. We had 60,000 last night. I have not seen anything like that in my time up on here on The Hill, and a huge amount of concern about what the Doge boys are doing, whether our information is safe, whether their privacy is protected.

(01:00:29)
I had one lady say in light of what was happening at CFPB, and while there's not a direct connection, she's saying is her deposits at her bank safe? We tried to give her assurance, but I said, "You know what, ma'am? I'm going to be talking to the Chairman of the Federal Reserve tomorrow." And with this diminution or shuttering, at least at the time being of the CFPB, can I tell, I believe her name was Mary, can I tell Mary from Virginia that our bank account is safe?

Jerome H. Powell (01:01:04):

I think bank accounts overall across the economy are safe, yes. We've still got deposit insurance at the FDIC and the banking system is well capitalized and safe.

Senator Mark Warner (01:01:14):

Well, again, I think the concern was being raised was that the diminution of consumer protections lent her concerns about whether that dollar being safe.

(01:01:26)
Last thing I want to recognize is that there's been reports in the media about the thinness in the treasury markets, the number of additional bonding that we are going to have to do, particularly with so many of these unpaid tax cuts. Matter of fact, one of the things that was really striking to me was that yesterday the president mentioned how he was, "Examining Treasury debt payments for possible fraud," and suggested that our debt might not be as high as possible. We all understand the full faith and credit of the United States is based upon a reputation. If this president were to suddenly say, "I'm wiping off X amount of debt because I don't believe we owe it," what kind of effect would that have on both stability of the dollar and the over stability of our economy?

Jerome H. Powell (01:02:16):

It will probably not surprise you that I will defer to you on that question.

Senator Mark Warner (01:02:22):

So you think it would be from a Fed standpoint, the President of the United States starts to say, "We're not going to pay our Treasury debt," you're going to have no view at all?

Jerome H. Powell (01:02:32):

I'm not going to comment on things that the president says.

Senator Mark Warner (01:02:39):

I would like to see us at some point get a stronger answer on that, because I think that in light of the president's willingness to shut down agencies willy-nilly, his ability to potentially curtail payment of debt, I think would've devastating consequences on our economy. Thank you, Mr. Chairman.

Chairman Scott (01:02:56):

Senator Britt.

Senator Katie Britt (01:02:56):

Thank you, Mr. Chairman. Obviously there's been a lot of conversation both in and out of this hearing room today. Conversations about a co-president, referencing Elon Musk, referencing the work that Doge is doing. I think it's important to remember that President Trump ran on this. I mean, he said, "We're going to look for wasteful spending across our government." We're $36 trillion in debt, y'all, that's not only fiscally irresponsible, it is actually morally irresponsible. And the difference in this administration and the last administration, is that President Trump is actually the final arbiter. And it's interesting that none of you had anything to say over the last four years, when it is clear that our commander in chief was not in command. And if we're going to use the term co-president, then let's go back and say Co-President Jake Sullivan, Co-President Ron Klain, Co-President Jill Biden. I mean, it seems that some of the biggest decisions were made during the President's afternoon nap time. And so I just think we need to be a little bit more honest about what's been laid out and what's actually occurring.

(01:03:54)
Chair Powell, I do, I want to discuss some monetary policy issues, but I first want to highlight a few supervisory items. We unfortunately started 2023 with several bank failures in which the Fed itself admits its supervisors were "too slow to ask." The question has been asked earlier about who was fired, who was not. I think that there's some real merit to having accountability that we have not seen there. In the aftermath of those failures, the Fed was certainly not slow to act when it came to new regulations. Like the new capital requirements that would've had, it would've put the US banks at a global disadvantage and actually hurt consumers in my state. The way I look at this is, the world came up with a gold standard and then Vice Chair Barr said, "Hold my beer." And unfortunately, that hurts Alabamians.

(01:04:54)
In addition to that, we had Community Reinvestment Act and stress testing frameworks that were basically adopted in secret. Or as we discussed last week, the reputational risk and just the arbitrary nature of that and those standards that were used to push political agendas. None of this is acceptable and we've got to take a look at how to promote greater accountability and transparency into the Fed's supervisory function.

(01:05:21)
Shifting gears, as of January 30th, the Federal Reserve had a mark to market loss on its balance sheet of roughly $221 billion. In fact, I looked back and the Fed has posted losses since September of 2022. Meanwhile, we've seen transfers to the CFPB totaling $2 billion since September of 2022. So just to clarify, Chair Powell, these money transfers are requested by the CFPB director each quarter and then directly deposited by the Fed, is that how that works?

Jerome H. Powell (01:06:02):

So, the director of the CFPB requests money and we, under the law, we send that money. Yes.

Senator Katie Britt (01:06:09):

So yeah, in fact, but Dodd-Frank actually prohibits the Fed from actually reviewing or amending those requests.

Jerome H. Powell (01:06:17):

That is correct.

Senator Katie Britt (01:06:18):

And so it gives full discretion to the CFPB [inaudible 01:06:21].

Jerome H. Powell (01:06:21):

Up to I think 12% of our… There's a ceiling on that, but that's correct.

Senator Katie Britt (01:06:27):

So just to level set, how many times has the CFPB funding request been denied by the Fed?

Jerome H. Powell (01:06:35):

We don't have the authority to deny it under the law.

Senator Katie Britt (01:06:37):

Zero. Zero, right?

Jerome H. Powell (01:06:38):

Zero, yeah.

Senator Katie Britt (01:06:38):

Yeah, that's what I thought. And by the way, I'd like to applaud the current administration and acting director vote for inserting some accountability back into the agency by pausing these quarterly just blank checks. On that, I know there's been a lot of conversation around the Bureau over the last few days, but I do want to focus on those last couple of years, particularly the two billion, the CFPB received from September 2022, up to the last receipt on January 2nd, 2025. Congress specified in statute that the Fed shall fund the CFPB through the combined earnings of the Federal Reserve system. However, as I mentioned, the Fed has no current earnings. It has a balance sheet of negative 200 billion. So instead of the recent audit statement saying the Fed is funding the CFPB through assessments on its reserve banks, Mr. Chair, there only two statutes that authorize the Fed to make reserve bank assessments and neither present, I mean, permit the CFPB to fund transfers. So, what authority exactly did the Federal Reserve have to assess the reserve banks in this manner over the last two years? I just wanted kind a fact finding.

Jerome H. Powell (01:07:53):

We looked at that question very carefully and it's very clear on the law and the legislative history that we're still required to make those payments

Jerome H. Powell (01:08:00):

- that's to do so.

Speaker 1 (01:08:01):

Appreciate it. Thank you.

Senator Tim Scott (01:08:04):

Senator Van Hollen.

Senator Chris Van Hollen (01:08:05):

Thank you Mr. Chairman. I would point out that candidate Trump did not run on implementing Project 2025. In fact, when he was asked on the campaign trail about Project 2025, he said, "I don't anything about that. Who are those people?" And yet he early on and quickly installed a key architect of Project 2025, Russ Vought as the head of the Office of Management and Budget, which we know is the command and control center for the budget overseeing all federal agencies.

(01:08:40)
And that's what Elon Musk is doing now. He's implementing Project 2025, the same Project 2025 that candidate Trump said he knew nothing about. And he said that because he knew it was unpopular. He knew it would be unpopular to take the financial cop off the beat. And I want to start by talking about what's happening over at CFPB, the Consumer Financial Protection Bureau, because that is the cop on the beat to go after fraudsters and scammers who cheat Americans out of their hard-earned money. And they have returned billions of dollars to our constituents, to the consumers who have been victims of these scams. And in doing so, they've earned some powerful enemies who want to shut them down. And Elon Musk is doing that dirty work on behalf of those fraudsters.

(01:09:35)
And there's something especially twisted about the richest man in the world shutting down an agency that helps victims of scammers and fraudsters recover just a little bit of their hard-earned money. And I find it especially interesting that the new self-declared head of the CFPB, Russell Vought told employees not to come into the office and essentially to stop work.

(01:10:02)
Here's what he wrote, and I'm quoting, "Employees should not come into the office," and "Stand down from performing any work task." So this is an interesting situation. Federal employees continue to get paid, but the Trump Administration tells them to stop doing their work. That apparently is what the Trump Administration thinks is a good deal for the American taxpayer, to pay employees not to do their job. So Mr. Chairman, I have a simple question for you. Is that a practice that you pursue at the Fed to pay your employees but tell them not to come to work? Have you done that?

Jerome H. Powell (01:10:43):

No.

Senator Chris Van Hollen (01:10:44):

That wouldn't be very efficient, would it?

Jerome H. Powell (01:10:48):

No.

Senator Chris Van Hollen (01:10:48):

No it wouldn't. And yet that's what the so-called Doge boys, efficient boys are doing. In addition to that, they're rummaging through the private, very personal sensitive information of Americans at the Department of Treasury. So it seems to me that the Trump Administration and Elon Musk are focused on everything except what Donald Trump said he was going to focus on during the campaign, which was to bring prices down. And when you look at the price of eggs these days, I noticed that Waffle House just instituted a new 50 cent per egg surcharge due to the nationwide rise in the cost of eggs. They said that's going to be a new surcharge and other restaurants are following suit. You've seen that, right, Mr. Chairman?

Jerome H. Powell (01:11:44):

Yes.

Senator Chris Van Hollen (01:11:45):

And at the same time, the Trump Administration has restricted federal agencies from providing the public information about the bird flu, avian flu, which is part of the cost of egg increases. So what we're really facing here is an administration that campaigned on bringing down prices and is not doing that. Did not campaign on Project 2025, and that's what they're doing. But when it comes to prices, Mr. Chairman, the president's also talking about significant increases in tariffs.

(01:12:24)
Our Republican colleagues are also talking about passing a tax bill that gives away disproportionately to the super wealthy and which will add trillions to the deficit by their own account. They're talking about playing around with the baseline. So my question to you is simple. All things being equal, do big increases in tariffs and increasing the deficit in debt put upward pressure on inflation? Isn't that simple math?

Jerome H. Powell (01:12:57):

It really does remain to be seen what tariff policies will be implemented and I just think it would be unwise to speculate when we really don't know. I mean, we see proposals, but it's so hard to say what's going to happen.

Senator Chris Van Hollen (01:13:11):

Well, last time the Trump Administration was in office, the Fed took actions because they were concerned about the impact of increasing tariffs. Isn't that the case?

Jerome H. Powell (01:13:22):

We wound up cutting rates in 2000, and I guess it was 19, but it really was because growth slowed and confidence was weak and the global economy was weakening. So the net effect of all of… That's what we look at, and it's really not just tariffs, it's tariffs, immigration, fiscal policy and regulatory policy. And those will all go into a mix and we'll try to make sense of it and do what's right from monetary.

Senator Chris Van Hollen (01:13:47):

Well, if you could just get back to me on the question of increasing the deficit by trillions of dollars and what impact you believe that has on inflation and prices. Thank you, Mr. Chairman.

Senator Tim Scott (01:13:58):

Yes sir. Senator Lummis.

Senator Cynthia Lummis (01:14:01):

Thank you Mr. Chairman and thanks Chairman Powell for being with us today. I think you're aware of what direction my questions will take. They will be focused on the bank supervision function of the Fed. And I'd point out that when you and I were toddlers, 1956, the chairman of the Fed at the time, William McChesney Martin, said that the Federal Reserve Board is an agency of the Congress. Ben Bernanke said something similar in 2013 when he told Janet Yellen that quote, "Congress is our boss." Do you agree with that statement?

Jerome H. Powell (01:14:49):

Yes. The way I always say it is that our supervision, our accountability runs through the legislature branch, not through the executive branch as it does in many other forms of government.

Senator Cynthia Lummis (01:15:00):

Thank you for that because I wouldn't have guessed that that was going to be your response. The way that the Fed has behaved for the last four years in its relationship with the U.S. Congress is to thumb its nose at Congress. Your staff has repeatedly stymied information requests from this committee, notably made by myself, the chairman, the ranking member, Senator Tillis, former senator Pat Toomey and others.

(01:15:42)
In my experience, the Fed is a black hole. It consumes information but it never releases it. Your fellow governors have personally misled me on at least two occasions with respect to Wyoming and digital assets. And in recent federal court filings, former senator Pat Toomey has accused your staff of lying to him while providing technical assistance on legislation that passed in the National Defense Authorization Act in 2022.

(01:16:20)
Now I have behind me a statement by the Fed's general counsel, one of the staff that's sitting behind you today who said, "The Fed generally resists legislative prescriptions." Now to me that's thumbing his nose at Congress, the very people that you and I just agreed you are responsible to and the people depend on. So this is why the American people think there's a deep state. This is why they think there are faceless bureaucrats making policy to hurt the very people of this country.

(01:17:14)
Just look at the mess the Fed made of Silicon Valley Bank. And I contend that there is a lack of understanding that is deliberate on the part of the Fed with respect to digital asset policy. So the Constitution says Congress is your boss, but somehow your staff have not gotten that message. Chairman Powell, do you commit on behalf of yourself and the Federal Reserve staff to comply fully with all document demands issued by this committee in a timely manner?

Jerome H. Powell (01:18:01):

Sure.

Senator Cynthia Lummis (01:18:03):

Will you instruct your staff to be complete in their responses and not to obstruct the oversight functions of this committee?

Jerome H. Powell (01:18:13):

We always work with the committee to be responsive to your requests. Sometimes they're beyond our capacity to respond to and we work with committee and with committee staff to do that, but we are always responsive to committee requests.

Senator Cynthia Lummis (01:18:28):

And I'll look forward to engaging with you when you feel that our requests are outside of the scope of the oversight that we have over the Fed. Do you commit to disciplining or removing any staff that are found to have engaged in debanking activity furthering Operation Choke 2.0 or other misconduct?

Jerome H. Powell (01:18:55):

I can't make an open-ended commitment to remove anybody, but I will tell you that I am struck and my colleagues and I are struck by the growing number of cases of what appears to debanking, and we're determined to take a fresh look at that. In fact, I took the thing that you showed during the debanking hearing when I saw that. We're now taking that out of the manual. So I thank you for that.

Senator Cynthia Lummis (01:19:23):

Thank you Mr. Chairman. My time's up.

Senator Tim Scott (01:19:26):

Senator Smith.

Senator Tina Smith (01:19:29):

Thank you Mr. Chair and Ranking Member and thank you Chair Powell for being with us today. I appreciate your presence here. I'd like to start with the issue of the rising cost of homeownership. Something that I know is of great interest to many of my colleagues on this committee. I know Mr. Chair that you care a lot about homeownership and making homeownership accessible and available to folks. My colleague Senator Lummis as well, many of the folks on my side of the aisle as well.

(01:19:58)
And so I think this is something that we can agree on that the rising cost of home ownership is a big challenge for our constituents, for Americans. And one of the big pressures, there are many, but one of the big pressures is the rising cost of home insurance. In Minnesota families, seniors are struggling to manage a nearly 40% increase in home insurance rates. We've seen this over the last seven years or so. And I know Chair Powell that you've told this committee in the past that that rising cost of buying insurance for your home has been a source of inflation as we've been trying to manage inflation.

(01:20:37)
Now, I don't know anyone who doesn't see this crisis of rising insurance rates as being caused by extreme weather events. We've seen massive flooding in southeastern United States. We've seen flooding in Minnesota, we've seen fires in the mountain west in California. I mean these are climate related events. That's not a political position. That is just a fact.

(01:21:02)
So we've got banks that of course require understandably that a homeowner provide insurance as a predicate for getting a mortgage. So there's a big question about what's going to happen when insurance becomes unaffordable or in some parts of the country just literally not available and what impact that would have on the mortgage markets on the value of American homes.

(01:21:26)
Just last week, a new analysis from First Street showed that overall the value of U.S. Real estate could be reduced by $1.4 trillion, colleagues, over the next 30 years due to unaccounted for climate risk. That's the cost, the risk of not being able to afford home insurance because of these extreme weather events. And the prospect of trillions of dollars of property become uninsurable is clearly a recipe it seems to me for market instability in the rental as well as the mortgage market.

(01:21:57)
So my question Chair Powell, is given these trends, how do you think the Fed and how do you think we should be thinking about the challenges that these events are going to bring markets and to the overall financial stability of the economy? I'm asking you to comment specifically on climate change because I understand my colleagues in the other side of the aisle see that as a political question. It's more like what you see as the risk to the financial stability here.

Jerome H. Powell (01:22:28):

So let me quickly note that we don't regulate or supervise insurance companies for the most part, but we're seeing the same thing, which is both banks and insurance companies are pulling out of areas, coastal areas and things like that or areas where there are a lot of fires. So what that is going to mean is that if you fast-forward 10 or 15 years, there are going to be regions of the country where you can't get a mortgage, there won't be ATMs, the banks won't have branches and things like that. That's a possibility coming up down the road. It's not that the banks will stay there and keep making loans in the face of evidence of disaster or that insurance companies will do right policies, they can cancel those policies every year. So I think the risk is that they just won't be there and that people won't be able to get them. That's really the issue.

Senator Tina Smith (01:23:16):

And it seems that that would be a massive source of instability in our economy overall. If you were to see that kind of dramatic decline in home ownership, home values, not to mention the disruption that would occur if people literally couldn't be in their homes anymore.

Jerome H. Powell (01:23:36):

So I think going to fall, if that happens, it'll fall on homeowners and residents, but it'll also fall on state and local governments, which is what you see happening now where they're stepping in states where insurance is going away, private insurance, you're seeing states step in because they want those areas to remain prosperous. So I don't know that it's a financial stability issue, but it certainly will have significant economic consequences.

Senator Tina Smith (01:24:01):

Well certainly to try to figure out how to provide reinsurance as an example in the places where commercial insurance isn't available would be a massive impact on state budgets to follow your chain of thinking, and I know in this committee I've heard some of my colleagues on both sides of the aisle talk about the challenge overall with flood insurance just as an example and the massive expense that that would have for us as well. I raise this colleagues because I think that this is an important issue that we need to be paying attention to. I do think it has a fundamental impact on the overall health of our economy as we look not even down the road but where we are right now. So I'm out of time. Thank you Chair Powell, I have a question. You and I have talked quite frequently about my deep and keen interest in the Community Reinvestment Act and I'll follow up with a question on that for the record.

Senator Tim Scott (01:24:49):

Thank you. Thank you, Senator Smith. Senator Hagerty.

Senator Bill Hagerty (01:24:53):

Thank you Chairman Scott. Chairman Powell, it's good to see you here today. Welcome. I want to start by talking to you a bit about markets and inflation. Less than six months ago you expressed some serious concerns about labor market weakness and the risk of persistent inflation, but since then the FOMC has begun its easing cycle and cut its target rate by a hundred basis points as you mentioned in your opening remarks.

(01:25:18)
Now in the January meeting, the FOMC has telegraphed that it felt both the labor market and inflation have reached a point where you're comfortable maintaining its target range. And my question is this, the recent market data, including last week's strong jobs report indicate that the economy is on firm ground. Indeed, swaps markets have begun to price in fewer and fewer cuts this year. And I just wanted to talk broadly about these market conditions that you see. Do you see evidence of a higher neutral rate emerging at this point?

Jerome H. Powell (01:25:48):

Yes. I mean, let me say, there was a lot of reason to be concerned about downside risk in the labor market toward the middle of this year, but really that concern has diminished significantly. Labor market's very strong. I think the evidence is, my own view, and there are many different views on this, but is that the neutral rate will have risen meaningfully, very hard to be precise about it, from what it was. It was clearly very, very low before the pandemic. Extraordinarily low historically, but yes, I think it's moved up and many of my colleagues on the FOMC feel that way too.

Senator Bill Hagerty (01:26:22):

It certainly seems that way. I'd like to turn now to what seems to be a very popular topic right at this point, and that's the CFPB. In your response to Senator Britt's question earlier, you confirmed that when the CFPB submits quarterly funding requests, the Fed is not in a position to exercise any discretion over what the funds are used for. Is that correct?

Jerome H. Powell (01:26:42):

As long as it's compliant with the law.

Senator Bill Hagerty (01:26:47):

It just strikes me that the Fed is not in a position to hold the CFPB accountable for what it does or how it spends its money. Congress hasn't been allowed to hold the CFPB accountable for what it does or how it spends its money. It looks like no one has been able to hold the CFPB accountable at all. And now I hear complaints coming from every corner, particularly from the other side, complaints about the excessive delegation of authority to a Republican CFPB director when this entity was intentionally created to be wholly unresponsive to elected officials. So I just find that quite rich.

(01:27:26)
Before I close, I'd like to come to a point on climate and particularly the Fed's forays into climate activism that have taken place over these past four years and the recent retrenchment that we've seen. It's one thing for the fed to disassociate from its past climate activism in a press release, but to credibly claim that it's divorced itself from partisan climate policies, the Fed needs to do more than just issue statements. It needs to actually end its climate policies.

(01:27:55)
The Fed's independence from politics is a headline topic at the moment, of course. And while much attention has been given to potential external pressures on the Fed, I think it's also critical that we scrutinize how the Fed's own regulation and supervision might be utilized to in some way politicize the institution.

(01:28:12)
So when the Central Bank strays from its mandate by embracing partisan climate policies, the Fed embroils itself in controversial political debates and invites legitimate political scrutiny. So I just want to urge the Fed to refocus entirely on its core statutory mandates. I know it's a commitment that both you and I share, Mr. Chairman, thank you for being here with us today.

Jerome H. Powell (01:28:33):

Thank you.

Senator Tim Scott (01:28:35):

Thank you. Senator Warnock.

Senator Raphael Warnock (01:28:38):

Thank you very much, Chairman Scott, and welcome again, Chairman Powell. I want to echo the words of Ranking Member Warren and so many of my colleagues today on DOGE and Project 2025's illegal attack on the Consumer Financial Protection Bureau. Certainly the Bureau was not created to be dismantled. And since its inception, the CFPB has been the only federal agency solely dedicated to protecting Americans' wallets and pocketbooks from scammers and predatory companies in financial services. The CFPB reduced costs for Americans, returning more than $21 billion to Americans who have been cheated since its inception. I want us to focus on that as folks are talking about chasing after waste and fraud and abuse. The CFPB has returned more than $21 billion to Americans.

(01:29:41)
Make no mistake, this attack on the CFPB will increase costs for Americans and it will give the green light to fraudsters and predatory actors seeking to cheat hardworking Americans. And so Chairman Powell, thousands of Georgians of all political stripes have written into my office and they are alarmed by an unelected billionaire and his hacksters' dangerous attempts to access Americans private data and the Treasury Department's systems that control $6 trillion in annual payments to millions of American citizens including Social Security, Medicare, and tax refunds. Quickly, yes or no, has Elon Musk or members of his team, to your knowledge, attempted to access the Fed's protected data and systems? Yes or no?

Senator Tim Scott (01:30:36):

I don't believe so. I don't believe so.

Senator Raphael Warnock (01:30:37):

Okay. So will you commit to report to this committee, majority and minority immediately, should you become aware of any such attempt by Elon Musk or Doge to pierce the Fed's independence or to access its protected systems?

Jerome H. Powell (01:30:52):

Yes.

Senator Raphael Warnock (01:30:53):

Thank you for that commitment. The Fed's latest monetary policy report states that the tight labor market has allowed employment and earnings gaps between black and Hispanic Americans and white Americans to narrow. I was glad to see that many of the longstanding disparities in employment and wages by sex, race, ethnicity, and education have narrowed under the Biden Administration. Some gaps have reached historic lows. Specifically the employment gap for black workers and white workers is near its lowest point in almost 50 years. That is the economy that the Trump Administration is inheriting, a historic low in almost 50 years. Chair Powell, as you work to promote maximum employment, what steps will the Fed take to ensure that these equity gains are permanent?

Jerome H. Powell (01:31:54):

So the best thing we can do is to… It's both of our mandates really because as you well know, high inflation hits people at the low end of the income spectrum first and most. And in addition to that, we know that the benefits of a strong labor market over time can be really visible and important in those communities as well. So we pursue our mandate, we keep our heads down and it works out that that is the single best thing we can do to foster closing those gaps.

Senator Raphael Warnock (01:32:27):

You pursue your mandate, you want to make sure that it's working. Would you agree that we still need good equity data to continue to narrow and close those gaps by race and gender?

Jerome H. Powell (01:32:39):

I do think we're always going to be in favor of good data at the Fed, and actually we do have quite a bit of that data on our website.

Senator Raphael Warnock (01:32:47):

But if we don't have equity data, it'd be difficult to know, right?

Jerome H. Powell (01:32:51):

Yes.

Senator Raphael Warnock (01:32:52):

I'm glad to hear you still believe in the value of good equity data for economic policymaking is better to fly with the data than to fly blind. I'm not sure what's so controversial about the data. And while I was disappointed to hear that the Federal Reserve, which is independent from the White House, it scrubbed a diversity and inclusion section from its website after President Trump's executive order, while also scrubbing data on the racial, ethnic and gender makeup of its economists and researchers. I hope you will continue to ensure that the public has good data on how our economy is working or not working for historically marginalized Americans. I also hope you will reconsider your decisions around the whitewashing of the Fed's website.

(01:33:42)
Chair Powell, as we think about the value of protecting data on the black-white wealth gap or employment gap, I think it's important to understand what policymakers can learn from this data. Historically, from what you've seen in the data, historically, what types of economic events have caused the black-white wealth gap or employment gap to widen?

Jerome H. Powell (01:34:04):

Well, high inflation, downturns, you see generally just take the black unemployment rate. It generally moves at twice the speed of the white unemployment rate. So when it goes up, it goes up faster and when it comes down, it comes down faster. But at the end of the day, there's always been a gap, and we want to run a strong labor market and we target overall labor market conditions for maximum employment. But one of the benefits of that is that that gap comes down.

Senator Raphael Warnock (01:34:36):

Thank you so much. We all know that fully deregulating our financial regulators like the CFPB, firing bank examiners at the FDIC or weakening the Fed's supervisory capacity, makes an economic shock or recession more likely. We know that this disproportionately impacts black and Hispanic workers and there are real consequences to weakening and eliminating financial regulations that keep us safe, working people are the ones especially who suffer. So thank you so much and I look forward to continuing to work with you to close these gaps.

Senator Tim Scott (01:35:08):

Senator Banks is next.

Senator Jim Banks (01:35:10):

Thank you Mr. Chairman, Chair Powell, thank you for presenting a report to the committee today and for coming to meet with me last week in my office as well. The Federal Reserve has enormous power over Americans' ability to work and earn a living, and the Fed's interest rate decisions have an especially big impact on industries like manufacturing, which depend on big investments.

(01:35:32)
Chair Powell, the Fed's data on manufacturing is still holding up nationally, but it doesn't look very good in the Chicago region, which includes most of my state in Indiana. The beige book says manufacturing jobs are declining and fewer people are buying manufactured products. It also says that steel demand is at a low level, auto production is slowed, and machinery orders are down. What does that say about the rest of the country? When manufacturing in the heartland slows, does that signal trouble for industries and other parts of the country?

Jerome H. Powell (01:36:09):

It can. It doesn't always, but it certainly can. We watch the manufacturing sector, it's very important. Manufacturing jobs tend to be high productivity jobs. They're very important in our economy, but I would say over the last couple of years, manufacturing was pretty weak during years in which we had high GDP overall. Manufacturing is a smaller proportion of the economy than it used to be, but it's still extremely important.

Senator Jim Banks (01:36:37):

Senator Reid asked you why free trade doesn't work when one of the giant players doesn't abide by the rules. The China shock is proof of that. The Fed has a mandate to maximize employment. How do you account for the whole industry that is repeatedly suffocated by unfair competition?

Jerome H. Powell (01:36:56):

We don't do trade policy. We're not responsible for it. We don't comment on those who do trade policy. So we don't really have a role in focusing specifically on that. That really is left to those who have responsibility over trade.

Senator Jim Banks (01:37:12):

Do you agree that a healthy manufacturing economy is important to a healthy overall U.S, economy, though?

Jerome H. Powell (01:37:17):

I do.

Senator Jim Banks (01:37:18):

I hope you had an opportunity to read Robert Lighthizer's February 6th essay in the New York Times. He explains why a big trade imbalance between any two countries is harmful to citizens in both of those countries. How does the Fed take the trade deficit into account in your decision making at all?

Jerome H. Powell (01:37:34):

Again, we really don't. We're aware of it, but it's not something that directly affects our mandate goals.

Senator Jim Banks (01:37:41):

So not at all?

Jerome H. Powell (01:37:42):

No, I did read his book by the way. I didn't read that editorial.

Senator Jim Banks (01:37:46):

Fair enough. It is a good book as well. I want to get into tariffs. It's no secret that most conventional economists hate tariffs, but I want to note that Indiana gained manufacturing jobs during President Trump's first term with the 2018- 2019 tariffs. Even though the economist's conventional wisdom is at tariffs will reduce jobs, do you commit to following the data and not prejudge any outcome?

Jerome H. Powell (01:38:09):

Very much so as we did in 2018-19.

Senator Jim Banks (01:38:14):

Finally, my staff reviewed the research paper on tariffs in preparation for this hearing and I want to point out one of them called the Employment Consequences of U.S. Trade Wars. Mr. Chairman, I'd like to enter this paper for the record. It found that the timing of tariffs are very important. It found that China's retaliation to President Trump's tariffs did hurt U.S. Jobs. But if the U.S. Had imposed tariffs on China much earlier in the 90s and early-2000s, it would've almost completely eliminated job losses due to the China shock. And I know you've said what you said before, but will you and your staff please take a look at this paper?

Jerome H. Powell (01:38:54):

We certainly will. I imagine we already have, but I'd love to see it.

Senator Jim Banks (01:38:57):

I appreciate that. Home ownership is an essential part of the American dream, but families are struggling to afford homes. In just five years, the price of a typical home in Indiana has gone up more than 60%. More than three quarters of American families can't afford an average home in their neighborhood. How do the Fed decisions about monetary policy affect the ability of regular families to buy a home?

Jerome H. Powell (01:39:22):

So most of what will have driven that increase will be about, some of it's about local regulation as you I'm sure know. It's also about just wages going up and costs and materials and things like that going up, and land costs and all that are going up a lot. The channel through which we affect housing is of course interest rates. And right now interest rates are still pretty high. But actually mortgage rates are really not set at the Fed, doesn't really key off of longer run things.

(01:39:54)
Nonetheless, we're clearly having an effect on the housing market and that'll unwind as we normalize policy. But we're still going to be faced with high insurance costs and high material costs and labor shortages and all the things that keep driving housing prices up across the country.

Senator Jim Banks (01:40:11):

Thank you. My time has expired.

Senator Tim Scott (01:40:14):

Next will be Senator Gallego.

Senator Ruben Gallego (01:40:17):

Thank you, Mr. Chair. Mr. Powell, just kind of running along that vein of thought. The housing costs are one of the top concerns of my constituents in Arizona. From 2010 to 2022, rents in Arizona increased by 72% and I wish wages were as increased to match, but they did not. And the average 30-year fixed mortgage rate has been above 6% for nearly 30 months. With very few rate cuts anticipated in the near future, potential cost increase from tariffs or imported construction materials as well as the demand that we're going to see in terms of rebuilding from California and labor shortages, what do you think needs to happen to make housing more affordable in Arizona and the United States in general?

Jerome H. Powell (01:41:00):

Housing policy and things to help housing supply are really in your wheelhouse, not ours. I do think the housing markets around the country are still suffering from the effects, the after effects of the pandemic. Once that's all the way through and short-term rates are down to normal, whatever the new normal level is, I think housing costs are still going to be high. I think it's still going to be expensive to build housing in many parts of the country where lots of the urban areas that the obvious places to build housing has happened. So I think it's a short-term problem, which will go away in coming years, but there's a longer term problem with housing availability, and that's going to be something that's not within our authorities or power to effect.

Senator Ruben Gallego (01:41:51):

One of the things that I've seen in Arizona is because we have people that are locked into mortgages at 2.9, 2.8%, and in order for them to

Senator Ruben Gallego (01:42:00):

… to move to the new house, they're going to have to essentially go and try to get a, quote-unquote, "bigger house," but the mortgage payments going to be through the roof. And while I know the Fed doesn't set the mortgage rate, the same thing, one of the biggest drivers obviously of inflation, especially in places like Arizona, is housing costs. And then one of the biggest decisions essentially you make on whether or not to move rates is inflation, which is driven by housing costs. So we're in this kind of perpetual, vicious circle in Arizona when it comes to interest rates. So I don't know what the answer to that is, but I just want to say at least for there to be some understanding on that because it's… the reason we're not breaking out of this cycle is because the problem kind of feeds itself over and over and over again.

Jerome H. Powell (01:42:43):

Yes, that's exactly what's going on. But it's not obvious though that lower rates would lead to lower housing inflation, because of course, that would increase housing demand. It would unlock people's low mortgages, but that creates both a buyer and a seller. So it's not clear that that would be something that would drive down housing inflation.

Senator Ruben Gallego (01:43:03):

Well, my supposition, especially in places like Arizona, which really growing fast, is that by increasing supply with lower rates, you end up essentially having more of a competitive market. So people will start moving and essentially bring down the overall cost.

(01:43:20)
But moving on. So I've also heard from businesses in Arizona, their concerned about the threat of economic stability in tariffs that are imposed on our key U.S. trade partners. How should we expect prices to move for basic items like tomatoes, peppers, cars, and the like, if we place a 25% tariff on Mexico next month as the president has threatened?

Jerome H. Powell (01:43:43):

So as you know, we don't do tariff policy and we don't do commentary on tariff policy. I mean, just generally when somebody's got to pay the tariff, and it could be the exporter, it can be the importer, it can be a middleman, and it can be the consumer.

Senator Ruben Gallego (01:43:58):

Somebody pays for it though.

Jerome H. Powell (01:44:00):

Somebody does, but in some cases, it doesn't reach the consumer much, in some cases, it does, and it really does depend on facts that we haven't seen yet.

Senator Ruben Gallego (01:44:07):

But that also contributes to some of the calculations on inflation overall.

Jerome H. Powell (01:44:13):

It can, but…

Senator Ruben Gallego (01:44:14):

It's hard to be [inaudible 01:44:16].

Jerome H. Powell (01:44:16):

Also, there's a question of how persistent that would be and how large it would be.

Senator Ruben Gallego (01:44:22):

And of course, I understand you're not here to specifically comment on trade policy, but overall is it your opinion, let's just say a base opinion that high tariffs can lead to higher costs, which would then end up being seen in terms of your inflation calculation that helps you set the rates?

Jerome H. Powell (01:44:40):

I'd say that's a possible outcome, which will depend very much on specific facts about what's being tariffed for how long, et cetera.

Senator Ruben Gallego (01:44:48):

Okay. Thank you. I yield back.

Chairman Scott (01:44:52):

Senator McCormick.

Senator McCormick (01:44:55):

Thank you, Chairman Scott. And Chairman Powell, good to see you again. In the past five years alone, the national debt has exploded. Federal spending and the debt have increased by more than 50%. Debt held by the public, our true debt obligation has more than tripled during the past 15 years, reaching more than 28 trillion. All told, U.S. national debt is now over 120% of our GDP. And runaway spending contributed to a regressive tax on Americans, a tax known as inflation. In the past five years, the cost of living has skyrocketed for working class Pennsylvanians, especially, as you and I discussed when we visited, those relying on fixed incomes. And unfortunately, that compounded effective inflation has not been offset by commensurate rise in wages for many Pennsylvanians. I've heard from countless Pennsylvanians who had to count their dollars at the gas pump, cancel family trips, even tighten their belts at the dinner table because of inflation.

(01:45:56)
So while we discuss these heady issues, let's not lose sight of the very real human cost of the decisions made by people sitting in this room. And given that cost, I'd like to ask you about the national debt and the cost of financing it. We now spend more to service the debt annually than we do on national defense. So how concerned are you about the accelerating pace of government borrowing and the borrowing cost, which will affect families in the form of higher mortgage rates?

Jerome H. Powell (01:46:28):

We don't comment on fiscal policy other than to say that, as my predecessors have said, that the U.S. federal budget is on an unsustainable path. It's not that the level of spending or the level of the debt itself is unsustainable. It's that the path is unsustainable, and ultimately the level of the debt will be. So there's no time like the present to start working on this. The longer we wait, the more painful it will be. It's something we need to do and we'll have to do in the long run. And the short run is better than the long run for that.

Senator McCormick (01:47:01):

And just as a practical matter, how do you factor that into your policy thinking and decisions?

Jerome H. Powell (01:47:06):

We don't. We're here to achieve maximum employment and price stability, and it's really up to Congress to deal with fiscal issues, and we leave that to you.

Senator McCormick (01:47:18):

Well, just as a more practical question, I think, which falls clearly in your bailiwick, because of that national debt, it's caused the supply of U.S. treasuries needed to finance the debt to skyrocket. And that's at the same time the Fed is shrinking its holdings of Treasury through quantitative tightening. So the question is, or could you at least give us some insight into the impact that this is having on the Treasury market as investors must absorb that supply? And in particular, I'm interested in how the biggest holders of U.S. treasuries, how their behavior is changing as debt increases.

Jerome H. Powell (01:47:59):

So this is a real treasury question, but I think from our standpoint, I can say that there are lots of buyers for treasuries, but treasury buyers are going to be factoring in their assessments of the supply that's coming, and that may be part of the reason why the term premium has increased, as you know, over the course of this year. Although the rates have been going up and down lately. They're almost back to where they were before the election.

Senator McCormick (01:48:27):

I know the Fed has been moving forward with comprehensive changes to the stress test process. Could you discuss how you're thinking about reducing the volatility of the results and increasing transparency on the stress test?

Jerome H. Powell (01:48:42):

So on transparency, we're going to release the models, clean them up, and publish the models, put them out for comment. And in terms of volatility, by the way, we're also going to release the stress test scenarios before we implement them.

(01:49:02)
In terms of volatility, what we said we would do is average the changes to… The problem is the stress capital buffer can be moving up and down just because of volatility in the results. And it seemed like a good idea to smooth that out by averaging over a couple of years. We're putting all this out for comment though, and ultimately, we'll reflect those comments in the final decisions we make.

Senator McCormick (01:49:25):

Thank you. I'll yield back my time.

Chairman Cramer (01:49:29):

Thank you, Senator McCormick. Senator Blunt Rochester.

Senator Blunt Rochester (01:49:32):

Thank you, Chair and ranking member. And thank you, Chairman Powell, it's good to see you. And thank you for meeting with me last week. We discussed everything from jobs and housing supply to the real impact on Fed policies on all of our lives. And I also got a chance to share with you just the concerns and consternation of Delawareans who, for the past few weeks, have been frightened by hirings and funding freezes and just the real impact on people's financial and personal data and information when DOGE has access to this information. I'm hearing from my constituents as well about the potential shuttering of the Consumer Financial Protection Bureau. As Senator Warnock mentioned, CFPB has returned over $21 billion to millions of consumers, and that's a real impact.

(01:50:33)
But I want to also highlight that it was your leadership and the Fed working with Congress and the Biden administration to really help answer that question that you were asked about if you had the choice to switch countries with France and Germany and others that you said, no, you'd rather be here. And that success is a testament to all of us.

(01:50:59)
We came together during a really tough economic time at the end of this during a pandemic. And it limited the recession and job losses. And since COVID, we've seen a robust job growth. But we also have grappled with inflation that drove prices up for so many goods. And I've worked to address one part of this phenomenon; our supply chain disruptions.

(01:51:23)
In fact, I recently joined Senators Cantwell and Blackburn to reintroduce the bipartisan Promoting Resilience Supply Chains Act to address supply chain vulnerabilities. And while we see indications that inflation may be slowing, too many of our constituents are still facing high prices and economic uncertainty. We need to do everything that we can to address this anxiety and the realities that Americans are facing. And there seems to be a disconnect; while the economy is doing well here on the ground, people aren't really feeling that. So Mr. Powell, can you talk about from your perspective, just what is driving this disconnect between traditional economic indicators such as GDP growth and the stock market performance and the tangible benefits for families?

Jerome H. Powell (01:52:19):

I'd be glad to. So it is clear that the overall aggregate numbers are just very, very good for the economy. 4% unemployment, inflation down to 2.6% last year, and the economy well in excess of 2%. These are good numbers.

(01:52:34)
But what people are feeling is the results of several years of inflation. And particularly for people in the low and moderate income category, they're really feeling it. So if you look at the earnings releases and press conferences that they do, that companies like the Dollar Stores and things like that do who deal a lot with low and moderate income people, they're all telling you that those consumers are feeling really strapped.

(01:52:58)
So we do understand that, and we try to keep that in mind. Even though we acknowledge that the overall data are good, we see what people are feeling, and that's inflation. So it's just another reminder how much people hate inflation and how bad inflation is for people, high inflation, and it just furthers our resolve to get inflation back to 2% and keep it there.

Senator Blunt Rochester (01:53:21):

Thank you. One of the big areas that I focus on, you've heard many of us across the aisle talk about the housing crisis that we have in this country, and I know a few others have asked questions previous to me about this, but I would love to follow up afterwards with specifically what you think are the short-term and long-term things that we can do to really address the housing supply and affordability crisis. I have legislation that looks at things like reducing regulatory barriers, zoning reform, these things that we know we can, in partnership with local governments, make a significant difference. And so if I could, would love, again, to follow up with you, even cutting red tape, those kinds of things that we can do long-term and short-term.

(01:54:12)
But I did want to mention one last thing in the 20 seconds that I have, the Fed Listens, things that you do, activities that you do. Could you talk a little bit about that as well? Because working people, a lot of times people don't feel that they have a place in these kind of conversations, but can you talk about what the Fed does with Fed Listens?

Jerome H. Powell (01:54:29):

So briefly, we did this as part of our review five years ago, and we do it on an ongoing basis now. And the idea is that we break out from the usual people that we talk to, which is a pretty diverse group, and try to deal directly with people who are experiencing the economy and our policies. And it's quite eye-opening to listen to people talk about… We had one person at the Chicago conference five years ago who said the expansion, which was then nine years old, is just reaching my community. And he talked for some minutes about how companies were going into prisons and finding people who weren't going to get out for a year or two and training them and stuff like that. I could hear a pin drop. It was very telling stuff. So I think we learned from all that, and so we'll keep doing it.

Senator Blunt Rochester (01:55:18):

Well, I will end by saying there's a famous quote, I think it's Martin Luther King, "We may have come over on different ships, but we're all in the same boat now." We need to get it together. Thank you. I yield back.

Chairman Cramer (01:55:28):

Thank you, Senator Blunt Rochester. Senator Moreno.

Senator Moreno (01:55:31):

Chairman, thank you for being here, thank you for taking the time on the phone the other day. Appreciate that very much. Just to ask you a broad, general question, when you increase M2, the money supply by 40% over a short period of time, is that going to drive inflation?

Jerome H. Powell (01:55:49):

It could. Well, I think we discussed, monetary aggregates have not been a great predictor of really any other thing, but I think when there's a sharp increase like that in M2, then that's something might cause some inflation.

Senator Moreno (01:56:04):

Now, just to be clear for the people watching, that happened because of public policy in this institution, correct? In other words, there wasn't a civilian-led effort to increase government spending outside of the elected leaders that were chose to make those decisions.

Jerome H. Powell (01:56:23):

So I think that was part of it. I think there were just a lot of causes in the inflation that we saw, but it's fiscal policy, it was monetary policy, it was just closing and reopening the economy, just generated a bunch of confusing signals, and then a lot of inflation everywhere in the world really, whether people did a lot of fiscal policy or not. But there were many factors, and that's, I would say, one of them.

Chairman Scott (01:56:47):

But just to be clear, it wasn't the citizens of the country making those decisions. Those were elected leaders choosing to close the economy. Businesses didn't decide one day to close, didn't decide to not be able to go to work. Those were decisions made by policymakers, correct?

Jerome H. Powell (01:57:03):

Yes.

Chairman Scott (01:57:04):

So it's a little disingenuous to hear my colleagues talk about how they care so much about inflation when in reality they cause it. But I don't want to continue that.

(01:57:15)
I'd ask you a question just out of curiosity, because you worked at the Department of Treasury, at what point did you think they were going to run out of ink? Did that concern you that maybe it was possible that they were printing so much money that the Treasury would have to find alternate ink suppliers?

Jerome H. Powell (01:57:33):

Didn't occur to me, but good question.

Chairman Scott (01:57:36):

So along those lines, something that concerns me a lot is the idea that we would even look like China in any way. So can I have your commitment that as long as you're the chairman of the Federal Reserve System, that we will never have a central bank digital currency?

Jerome H. Powell (01:57:54):

Yes.

Chairman Scott (01:57:55):

Thank you for that. I think that's extremely important. That makes me very happy to hear you say that. Shifting gears to a little bit, something that matters to me and entrepreneurs all over the country is why can't I wire somebody money at 6:00 P.M. Eastern Time? Can we get to a 24/7 scenario where wires are cleared every day, all day? I think that would be very, very helpful to businesses all over the country.

Jerome H. Powell (01:58:21):

So that's coming. It's just coming slowly here. We have that at FedNow. We'll get in touch with you about FedNow. We provide that service between two banks, and others want to provide it too. But yes, we do kind of lag a lot of other countries in that, and it is time for that to happen.

Chairman Scott (01:58:37):

So I know I don't want to put you on a spot, but to put you on a spot, FedNow is very familiar with it, but it was a little bit late in coming. Can we get a [inaudible 01:58:47] to do that this year so that by the end of this calendar year businesses can transact 24/7 and settle payments?

Jerome H. Powell (01:58:55):

Well, I believe they can do it now on FedNow, and they can also do it on the RTP system as well. So I think it's available. Let me check in, and then I'll follow up with you.

Chairman Scott (01:59:09):

That'd be great. One other piece of the puzzle here is what do you think the Fed can do to fight international terror groups, for example, Hamas, Hezbollah, Iran, the proxies that are funded by places like Qatar? Do you think that we're doing enough to keep them outside of the banking system, because at the end of the day, terrorism is ultimately funded by these bad actors?

(01:59:40)
I met with the hostage families this morning. It was heart-wrenching to hear stories about kids that are my kids' age being held for almost 500 days. The Qataris are obviously completely complicit in all this. What can we do? What advice would you have that we can do to make certain that we bring these terror groups to their knees?

Jerome H. Powell (02:00:03):

We do enforce the money laundering laws very, very strictly, but it's a tough question. It's a huge focus in international meetings and things like that. But you're right, it's really hard to nail it down, particularly if it's all happening overseas. But we can do what we can do with our banks. We don't want to make it so costly though that they debank people because they're so worried about violating the money laundering laws. I mean, that's some of what's happening according to the banks is that they're so afraid that there might be money laundering that they just cut people off at the first flag as opposed to… Perfectly legal businesses are being thrown out because of their fear of being caught doing money laundering. So I think there's a balance there. But no, it's a really, really hard project and one we spend a lot of time on.

Chairman Scott (02:01:00):

Thank you, John.

Chairman Cramer (02:01:00):

Thank you, Senator Moreno. The patient and persistent, Senator Kim.

Senator Kim (02:01:05):

Thank you. I wanted to make sure some of my colleagues had a chance to be able to run off to some of their meetings. And I've enjoyed being able to listen to the chairman, to be able to hear some of your articulation here. I just want to share with you, I did a telephone town hall last night, and I'm glad to hear some of my other colleagues as well, and there is a lot of anxiety right now by the American people in trying to understand what's happening and seeing and interpreting what's happening on the news. I guess I just wanted to ask you for your words of how you would explain to the American people the importance of independence when it comes to the Federal Reserve?

Jerome H. Powell (02:01:42):

So I think the point is that we'll make better policy, we'll keep inflation lower if we just focus on doing our job and stay out of politics, stay out of elections, don't try to favor or to hurt any political party, any political figure. Just focus on the data. If we start putting up political filters, we'll be less effective at our already quite difficult job.

(02:02:09)
And I do think that's broadly understood, and I think there's broad support up here in both political parties and on both sides of the hill. I think that there is a decent degree of support for continued independence. That's not to say we shouldn't be accountable. We should be very accountable and transparent about what we do. We should be up here explaining what we do and why to our oversight body, which is this committee and then the same committee on the House side. So that's what I would say.

Senator Kim (02:02:39):

Making decisions about your core mission, about stability, and about growth, but not thinking about in terms of the context of an election cycle for instance, is that right?

Jerome H. Powell (02:02:49):

Yes, exactly.

Senator Kim (02:02:51):

I wanted to just shift gears a little bit, but similar type topic. There's been a lot of attention to the role of public servants within our government and our understanding of what role they play, how many to have. And I guess I just wanted to ask if you could speak to the role of the Federal Reserve employees, their qualifications, and more importantly, their importance to the mission and being able to engage. How important are they to the work that you are trying to do towards stability and growth?

Jerome H. Powell (02:03:22):

So I'm very proud to be associated with the people of the Federal Reserve, and I'll give you an example why. When the pandemic hit kind of out of the blue and economies all over the world are shutting down, the U.S. treasury market is stopping to function, companies can't roll over their commercial paper, economists are writing about a depression. People at the Fed who went through the global financial crisis 10 years before step forward and say, "We got this. We know what to do. Here's what we do with the Treasury market, [inaudible 02:03:56] what we do with money market funds, here's what we do with the companies that can't get any financing." The markets were closed and companies were having maturing debt that they had to roll over. The people who knew what to do in that pretty dire emergency were working at the Federal Reserve and other places.

(02:04:14)
But I will tell you, it was impressive, and I think if you could have seen the way people react and how hard they work and how much they know and how well it worked really. Our work during the acute phase of the crisis was very successful, and it's entirely due to the knowledge base that resides with the career people at the Fed.

Senator Kim (02:04:38):

Yeah. Would you say that the Fed is overstaffed?

Jerome H. Powell (02:04:42):

No, I would say that overworked maybe, not overstaffed. Everybody at the Fed works really hard. It's a place where people work very hard.

Senator Kim (02:04:52):

And a lot of this conversation right now about staffing numbers at different departments and agencies, it's going back to this sense of the taxpayer dollar in terms of accountability there. But I guess I just wanted to ask you, is the Fed paid for by the taxpayer dollars? Can you explain to us what the burden is on the taxpayer?

Jerome H. Powell (02:05:08):

So we're self-funding through our large balance sheet.

Senator Kim (02:05:13):

So when it comes to the staffing at the Federal Reserve, not coming from the taxpayers, is that right?

Jerome H. Powell (02:05:19):

Indirectly. So all of our profits, we give back to Treasury, and those profits would be higher if we didn't pay for the Fed. So in fairness, it's ultimately paid for by the taxpayer, but in that sense, we're self-funded.

Senator Kim (02:05:35):

Self-funded.

Jerome H. Powell (02:05:36):

Yeah.

Senator Kim (02:05:36):

Just one last question here. You talked about the different actors that are involved when it comes to levying tariffs in terms of paying that the exporter, the importer, or the consumer, you said middle-man could be part of that. I guess I just wanted to ask you, do you know of any way in which to 100% guarantee that the consumers will not have to pay higher costs when it comes to tariffs?

Jerome H. Powell (02:05:56):

Not really. It's not going to be easy to identify with any accuracy exactly where costs do fall, but I think it'd be hard to guarantee any particular outcome. I think we're just going to have to see.

Senator Kim (02:06:09):

Great. Thank you. I yield back.

Chairman Cramer (02:06:11):

Thank you, Senator. Senator Warren, did you…?

Senator Warren (02:06:15):

I do. Thank you, Mr. Chairman. I just want to make a point before we quit here, and that is about law enforcement. If you keep the laws the same on the books, but you fire the cops, you're going to have a lot more crime. That's kind of law enforcement 101. And the problem we've got right now is law in the books about consumer protection hasn't changed, but the cops, at least right at this moment, have been told at CFPB to stand down. And I appreciate that we have state AGs who step in, and often they partner up with the CFPB. But there is no one else for the giant banks who actually does what's called the bank examination, the supervision. And that is so important.

(02:07:01)
Remember the Wells Fargo scandal where Wells Fargo was illegally opening fake accounts in people's names? You find that through bank examination, not because the person who got cheated could figure it out. Bank of America gets hauled in because bank examiners discovered they were charging people illegally on junk fees. Nobody finds that but the people who are down in the banks doing the bank examination on behalf of the consumers.

(02:07:31)
Look, we tried a patchwork of law enforcement for consumers before 2008. We had all those laws scattered among seven different agencies, and we saw how it ended. It ended with millions of people losing their homes, millions of people losing their jobs, millions of people losing their savings. The CFPB is our law enforcement agency to make sure that the giant banks follow the rules on consumer protection. And for me right now, I'd be really worried about doing business with a giant bank when there's no cop on the beat.

Chairman Cramer (02:08:12):

Thank you, Senator. I'll recognize myself for just one question, and it'll even be relevant to your job, I promise, Mr. Chairman. So thank you for your patience and for being here. I wanted to follow up on, so there were some questions, or at least I know Senator Rounds asked a Basel III question, and your response was basically let's get the people in place from the administration, and then we'll proceed again.

(02:08:35)
Treasury Secretary Bessent recently said that the banking system is, I believe he said, quote, "well-capitalized, perhaps over-capitalized," unquote. And given that assessment or if you agree with it, could you discuss the necessity of advancing a new Basel III proposal? Specifically how an updated regulation would impact the ability of the regional banks to compete with the big Wall Street banks, and what consideration should be taken into account to ensure that we have a competitive banking system? Because I know this concern comes and goes, and for those of us who have largely regional banks or, God love them, the best of all community banks and credit unions, a competitive system's really important. So if you could just answer that, and then I'll wrap up.

Jerome H. Powell (02:09:20):

Sure. So we're eager to get together with new colleagues from the FDIC, new leadership at the FDIC and the OCC to try to finish Basel III. My own view has been that our banks are well-capitalized, and Basel III was not supposed to be an exercise in raising capital in US banks. Mario Draghi said that, Dan Tarullo said that back in the day, I believe. So I think that's about right. We have some work to do, but we'll get there, I believe fairly quickly.

(02:09:55)
In terms of your regionals, they don't face the GSIB surcharges, they don't face quite the burden that the large banks face on resolution planning and that sort of thing. So we certainly, we need those banks to be healthy and profitable because we need them to compete with the GSIBs. We don't want a world where the GSIBs just keep getting a bigger and bigger share of the economy. That's not what we're looking for. And that's what a lot of pressure… We've seen the number of community banks especially declining for 30 years, and this is not something we want to… We don't want to be the cause of that. If it's happening by natural causes or because of evolving technology, that's one thing. But we don't want to be inadvertently causing that to happen.

Chairman Cramer (02:10:45):

So as you look at a Basel III exercise, can you think of anything specifically that ensures that competitive diverse banking system is maintained rather than a consolidation, whether it's fewer community banks into more regional banks, or fewer regional banks into more Wall Street banks?

Jerome H. Powell (02:11:05):

Well, I just think you think twice before you impose the kinds of things that we impose on the largest banks and the next to largest banks. You want to be careful not to just think we should do exactly the same thing. It's what tends to happen is so for smaller banks, it raises the fixed costs, is what it does, of banking, and it makes it harder to start new banks and makes it harder for any but the largest to be successful. So that's not what we want. We want a lot of competition, and these regionals, it's important that they thrive.

Chairman Cramer (02:11:39):

I agree, and I agree with your assessment, so thank you for that. Thank you for staying with us for the day, and glad we could get you first.

(02:11:47)
So as we wrap up, for senators who wish to submit questions for the hearing record, those questions are due one week from today, Tuesday, February 18th. Chair Paul, you have 45 days from that day to submit your response to questions for the record. Thank you. The committee stands adjourned.

Jerome H. Powell (02:12:03):

Thank you.