Powell Testifies on 6/24/25

Chairman French Hill (00:00):

Growing again. There's always some economic uncertainty when the United States engages in difficult negotiations necessary to secure more open markets for American goods and services. But that uncertainty is not without a strategy, a strategy of balanced lower regulatory costs, pro-growth tax policy, and controls on federal spending, all combined with trade successes offer economic opportunity. One Fed official Governor Waller has outlined how a balanced approach combining potential tax rates with targeted tariffs could foster strong economic growth. Let me be clear on that point. We can fight to open markets, break down non-tariff barriers while achieving solid economic growth at the same time. That's President Trump's goal just as it was for President Reagan in the 1980s. I also want to commend you, Mr. Chairman, the Federal Reserve for taking positive steps to keep politics out of the Fed, including disbanding four internal climate-related committees and making the Fed leaner and more efficient by right-sizing your workforce across the system. These moves reflect a commitment to efficiency at the Federal Reserve.

(01:14)
I'm also pleased that Governor Miki Bowman has been confirmed as Vice Chair for Supervision at the board. Governor Bowman has been a tireless advocate for community banks and this committee is eager to work with her on policies that enhance our bank's ability to provide greater access to capital and services for our families and businesses across our nation. I look forward to today's hearing and I yield back the balance of my time.

(01:42)
I'll now recognize Mr. Foster on behalf of the Ranking Member for four minutes for an opening statement.

Mr. Bill Foster (01:48):

Thank you and I will save everyone a little bit of time, Chair. Ranking Member Waters was unavoidably detained. I'll just say a little bit that the markets have spoken on their confidence in the Trump economy. Probably the single simplest metric of that is that the US dollar is down roughly 10%. Okay. This is not a small thing and it has caused countries around the world to question the primacy of the US dollar going forward. This is one of the worst market responses, I think, to the chaos that we're seeing, the tariffs that are very destructive to international trade and just seeing the tariffs that are very destructive to international trade and just every businesses that can't even start thinking about investing with the level of chaos just from the tariff policy alone. Anyway, there's a long set of things we should be talking about and I'm happy to save some people some time and let's get to it. I yield back.

Chairman French Hill (02:51):

Gentlemen yields back. I recognize the Chairman of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, Mr. Lucas for one minute for an opening statement.

Mr. Frank Lucas (03:00):

Thank you, Mr. Chairman. Today's hearing will allow us to evaluate the state of the economy and review the FOMC's policy decisions. It's appropriate to regularly take a step back and assess the Central Bank's performance and its responsiveness to the economic conditions our constituents face back home. This hearing is particularly timely conversation as the Fed wraps up its five-year framework review, including a thorough look at the consensus statement, communication strategy, and other guiding policies that will have a profound effect on the lives of every American. Many of these topics we'll discuss today, we've taken a closer look at in the Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force. I look forward to building on these conversations here.

(03:43)
One issue that I think warrants special attention is the binding nature of the SLR and ESLR on the Treasury Market Intermediation. I'm glad to see the Fed is looking into this tomorrow and I hope we'll see meaningful action soon. Chairman Powell, thank you for being here. It's critically important that Congress and the Central Bank have an open dialogue. Transparency, accountability, honest communications are pillars of our system's success. I look forward to your testimony on the state of the economy and the Fed's plans for the future, and I yield back, Mr. Chairman.

Chairman French Hill (04:11):

The gentleman yields back. I recognize the Ranking Member of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, Mr. Vargas for one minute for an opening statement.

Mr. Juan Vargas (04:19):

Thank you very much, Mr. Chairman and Ranking Member and thank you Chairman Powell, both for your years of public service and for being here today. Since 1977, the Fed has been tasked by Congress with its dual mandate goals of achieving both maximum employment and stable prices. Unfortunately, this administration has made accomplishing these goals more difficult. In the Fed's most recent summary of economic projections, we see a forecast for slower growth, stickier inflation, and rising unemployment, all of which point to a potential stagflation scenario. Whether it's the president's indecision on trade policy, his hiring freezes impacting the collection of economic data, his ballooning of the deficit to cut taxes for the wealthy or his name-calling, all of these actions make it tougher for the Fed to do his job. I look forward to your testimony today, Mr. Powell, Chairman Powell, and I yield back With that.

Chairman French Hill (05:10):

Gentleman yields back. Today, we do welcome the testimony of Honorable Jerome Powell, Chair of the Board of Governors of the Federal Reserve System. Chairman Powell, we thank you for taking time to be with us. You'll be recognized for five minutes to give an oral presentation of your written testimony and without objection, your written testimony with me made part of the record. You're now recognized for five minutes.

Hon. Jerome Powell (05:31):

Mike. Thank you, Chairman Hill, Ranking Member, and other members of the committee. It's great to be back here today. I appreciate the opportunity to present the Federal Reserve's Semiannual 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. Despite elevated uncertainty, the economy is in a solid position. The unemployment rate remains low and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2% longer run objective. We are attentive to the risks on both sides of our dual mandate. I will review the current economic situation before turning to monetary policy. Incoming data suggests that the economy remains solid. Following growth of 2.5% last year, GDP was reported to have edged down in the first quarter reflecting swings in net exports that were driven by businesses bringing in imports ahead of potential tariffs.

(06:35)
This unusual swing has complicated GDP measurement. Private Domestic Final Purchases or PDFP, which excludes net exports, inventory investment, and government spending, grew at a solid 2.5% rate. Within PDFP, growth of consumer spending moderated while investment in equipment and tangibles rebounded from weakness in the fourth quarter. Surveys of households and businesses, however, reported a decline in sentiment in recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns. It remains to be seen how these developments might affect future spending and investment. In the labor market, conditions have remained solid. Payroll job gains averaged a moderate 224,000 per month in the first five months of the year. The unemployment rate at 4.2% in May remains low and has stayed in a narrow range for the past year. Wage growth has continued to moderate while still outpacing inflation. Overall, a wide set of indicators suggests that the conditions in the labor market are broadly in balance and consistent with maximum employment. The labor market is not a source of significant inflationary pressures.

(07:50)
The strong labor market conditions in recent years have helped narrow long-standing disparities in employment and earnings across demographic groups. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer run goal. Estimates based on the consumer price index and other data indicate that total Personal Consumption Expenditures or PCE prices rose 2.3% over the 12 months ending in May, and that excluding the volatile food and energy categories, core PCE prices rose 2.6%. Near-term measures of inflation expectations have moved up over recent months as reflected in both market and survey-based measures. Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. With the labor market at or near maximum employment and inflation remaining somewhat elevated, the Federal Open Market Committee has maintained the target range for the federal funds rate at 4.25% to 4.5% since the beginning of the year.

(09:10)
We've also continued to reduce our holdings of Treasury and agency mortgage-backed securities and beginning in April further slowed the pace of this decline to facilitate a smooth transition to ample reserve balances. We'll continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. Policy changes continue to evolve and their effects on the economy remain uncertain. The effects of tariffs will depend among other things on their ultimate level. Expectations of that level and thus of the related economic effects reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity. The effects on inflation could be short-lived reflecting a one-time shift in the price level. It's also possible that the inflationary effects could instead be more persistent. Avoiding that would depend on the size of the tariff effects on how long it takes for them to pass through fully into prices and ultimately on keeping longer-term inflation expectations well-anchored.

(10:14)
Our obligation is to keep longer-term inflation expectations well-anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem. As we act to meet that obligation, we will balance our maximum employment and price stability mandates, keeping in mind that without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans. For the time being, we're well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance. To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We, at the Fed, will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

Chairman French Hill (10:58):

Thank you, Mr. Chairman. We'll now turn to member questions. I recognize myself for five minutes for questions. Over the past few weeks, our democratic colleagues have suggested the following. After the initial release of the GDP report, the president is driving the economy into a recession. Chairman Powell, the latest FOMC statement described economic activity had to continue to expand at a solid pace and you just reiterated that in your testimony this morning. In your view, is the term recession and the economy growing at a solid pace, are those synonymous with each other?

Hon. Jerome Powell (11:32):

I would say no.

Chairman French Hill (11:34):

And you note that the labor market continues strong, the economy is at a standard pace, and you also referenced in your testimony that that first quarter GDP initial react was also from front-end loading as you noted, imports to try to avoid tariff impacts. Also, I looked at the Atlanta Fed GDPNow model, which forecast GDP growth for the second quarter of this year at nearly 4% with core GDP forecast at 2%. Does that Atlanta model suggest a recession to you?

Hon. Jerome Powell (12:05):

No, I would say it doesn't.

Chairman French Hill (12:07):

So, in looking at your remarks about tariffs today and then the ones that you made during March and April, I was looking back at a Fed study that noted that up until March, tariffs have already been partially passed through in consumer prices leading to a contribution of merely one-tenth percentage point increase in core PCE prices. And a Harvard study last week showed that prices have only modestly adjusted since the announcement of tariffs. Finally, the longer-term inflation expectations remain consistent with the 2% goal. Governor Waller laid out a pathway that allows for rate cuts provided that average effective tariff rates remain close to 10% or I assume he means 10% or lower. The labor market remains solid, prices continue to disinflate. So, given that data I've outlined, I'm sure data that you're very familiar with, for the economy to avoid persistent inflation, do you concur with Governor Waller that there is a pathway for good news as it relates to the regulatory policies, the tax policies that I've discussed in a world with lower tariff rates?

Hon. Jerome Powell (13:23):

So, first I wouldn't comment on any other FOMC member's comments one way or the other, but I will say this. I think many paths are possible here and certainly, the one you mentioned is a possible one. We could see inflation come in not as strong as we expect, and if that were the case, that would tend to suggest cutting sooner. We could see the labor market weakening and that would also suggest cutting sooner. On the other hand, if we see inflation coming in higher or if labor market were to remain strong, then we would probably be moving later. So, I think a range of possible paths are possible and certainly the one you mentioned is one of them.

Chairman French Hill (14:06):

In February of 2021, you told us in this committee that you would stay in your lane and not comment on President Biden's proposal for the American Rescue Plan or sharply increasing Federal spending and you said it was an issue but that you would stay in your lane and not comment on it. But here in this year, you have commented on this idea of tariffs being set by the executive branch. So, are tariffs in your lane, but a huge fiscal spending by the Biden administration, not in your lane? Explain to the committee why you chose to be silent in February of '21 but outspoken this spring.

Hon. Jerome Powell (14:47):

Sure. So, we haven't commented and it would be inappropriate for us to comment on the policy of tariffs. We don't have a view. It's not our job and we just wouldn't do that, just as we wouldn't comment on the reconciliation package that you're working on right now. We're not commenting on tariffs. What our job is inflation, keeping inflation under control, and also keeping maximum employment. And when policies have what appear to be short and medium term implications, meaningful implications for that, then they, not the policies themselves, but the inflation becomes our job.

Chairman French Hill (15:21):

Yeah, you know my views on price stability, I think it's a first among equals in your dual mandate. I've argued for that. I've introduced legislation to make the dual mandate the sole mandate, and we've talked about that before, but I was very curious about your thoughts on former president of the Cleveland Bank, Loretta Mester's quote that I read from last fall. She says, "I think that maximum employment is the maximum level of employment consistent with price stability." In other words, she elegantly ties that together that price stability is what you can have more control over rather than all these other factors that enter the employment picture like legislative and executive branch. What's your thought about her quote?

Hon. Jerome Powell (16:03):

I personally think that's a very reasonable way to think about it.

Chairman French Hill (16:06):

Thank you very much. I yield back.

(16:10)
The gentleman from New York is recognized for five minutes.

Ms. Nydia Velazquez (16:13):

Thank you, Mr. Chairman. Good morning, Mr. Chair. Chair Powell and thank you for being here. Last week, the FOMC decided to maintain the target range for the federal funds rate at four and a quarter to 4. 5%. While I was not surprised by the decision to hold rates steady, I was surprised by the committee's revised forecast since March, which represented a decrease of 0.3 percentage points for GDP, a similar increase for core PCE and an uptick in the unemployment rate, 4% to 4.5%. Can you explain the incoming data that the committee has seen since March that caused it to make these adjustments?

Hon. Jerome Powell (17:07):

Sure. So, first of all, these are individual. This is not a committee forecast. These are just individuals submitting their own personal forecasts and we don't bless those as a committee, but I think people are looking at the incoming data and having a range of different judgments. If you look at the range, if you look at the central tendency, you'll see that it covers quite a wide range. Those are the medians that you're talking about. I think so, inflation is projected to have moved up because of what we've seen particularly from tariffs. And I think if you look at other outside forecasters, you'll see very much the same thing.

Ms. Nydia Velazquez (17:43):

And what data are you looking for?

Hon. Jerome Powell (17:46):

Well, we look at the incoming data on, we look at our own forecast and we ask ourselves what's likely to happen. Monetary policy has to be forward-looking. A forecast is a prediction of what's going to happen in the future.

Ms. Nydia Velazquez (17:59):

Thank you. In its statement, the committee announced that it will continue to monitor the implications of incoming data and adjust the stand of monetary policy as appropriate. Some analysts predict two rate cuts by the end of the year as still on the table. Is this a fair and accurate assumption and what incoming data will the committee need to see to consider this cuts?

Hon. Jerome Powell (18:25):

So, what will actually happen with rates is going to depend on the path of the economy and that's highly uncertain. So, I would just say what that means at this moment in time is that a significant majority of the committee, but also there's a pretty significant minority, it doesn't agree, but a significant majority feels it will be appropriate to reduce rates later this year. And what that means is that each of those persons who wrote down a cut in rates later this year, they think that there's some state of the world where inflation doesn't prove to be as high or the labor market weakens or some combination of those two things that it will turn out to be more likely than not appropriate to reduce policy rates subject to great uncertainty. The story has been evolving and our thinking has been adapting and that will continue.

Ms. Nydia Velazquez (19:19):

Thank you, Chair Powell. Although a ceasefire has been tentatively rich in the Middle East, the situation still has the potential to open global and energy markets, especially if the ceasefire is broken. While at this point Iran is seen as unlikely to close the Strait of Hormuz, that decision could change. How is the Fed assessing the current situation and incorporating those assessments as it considers future adjustment to economic projections and is stand on monetary policy?

Hon. Jerome Powell (20:02):

I think it's too early to know what any economic implications might be and I would not want to speculate like everyone else. We are, of course, watching the situation.

Ms. Nydia Velazquez (20:13):

Thank you. And Chair Powell, after reviewing the economic data, following the meeting last week, it seems to me that the committee is indicating that we could be headed for a situation, where inflation accelerates while unemployment rises and growth become more sluggish. In this scenario, this will put the Fed's dual mandate of maximum employment and price stability intention with one another. In this scenario, how does the Fed balance these priorities in to achieve both mandates?

Hon. Jerome Powell (20:49):

So, let me say that we're not facing that right now and that isn't really our forecast that we will face such an issue in a serious way. But if that does happen, then what we do is we look at the two goals and we see which one of them is farther from its goal. Two variables is maximum employment or price stability farther from its goal and we prefer the one that's farther than its goal. And then we also ask ourselves how quickly will they return to goal. It's a very difficult situation for any Central Bank. And I would say again, we're not in that situation right now.

Ms. Nydia Velazquez (21:19):

Thank you, Mr. Chairman. I yield back.

Chairman French Hill (21:21):

The gentleman's time has expired. Vice Chairman of the full committee, Mr. Huizenga of Michigan's recognized for five minutes.

Mr. Bill Huizenga (21:27):

Thank you, Chair Hill and Chair Powell, good to see you again. I got a lot to cover, so we're going to try and keep this concise. But following up a bit on what Chair Hill had been talking about, you had said in January 29th, 2025, quote, "We don't know what will happen with tariffs, with immigration, with fiscal policy, and with regulatory policy." I would add energy into that, by the way. "We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be. This is no different than any set of policy changes at the beginning of the administration." However, December 18th, 2024 at the FOMC press conference, you noted, and I'm paraphrasing that some Federal Reserve officials began to incorporate preliminary conditional estimates of how fiscal policies might impact the economy into their forecasts. This seems inconsistent and I sidebarred with the chair to say, "Okay, did I hear this correctly?" His question and your answer.

(22:23)
What I heard is that there was a belief that the IRA would not be inflationary but that tariffs could be. Therefore, suddenly, you and others were commenting on tariffs and for the institution, I know you try to be consensus-driven. Why are there FOMC participants making fiscal policy assumptions into their forecasting when you, yourself, said that fiscal policies need to be articulated before the FOMC can make a plausible assessment into their implications, what those will be? And I think if there's different participants having different assumptions that would render the SEP, Summary of Economic Projections, biased, meaningless, useless, less impactful, and when you're not comparing apples to apples. So, when it make more sense for all the forecasters to make the same fiscal policy assumptions at the same time, or if not, shouldn't each participant disclose what assumptions that they're using and building into that? So, here's the question.

Hon. Jerome Powell (23:30):

That's a great question that really when summary of economic projections was originally designed and put into effect in this way, the way it works is that individuals are free to make whatever assumptions they want and they do disclose them. They disclose them in their speeches and things like that. So, there'll be situations where some people incorporate something and others don't, and we try to be transparent about that. But that's the way it works. When I say we don't take it into account, I'm really talking about policy and the committee, as a whole, where we won't take things into account until we know more about-

Mr. Bill Huizenga (24:04):

And you believe that the participants disclose their assumptions when they're doing their forecasts?

Hon. Jerome Powell (24:10):

Well, I think they do that in their speeches. Each of people go out, you may have noticed there are a lot of speeches and that-

Mr. Bill Huizenga (24:17):

I guess the opaqueness of the Fed has been something over the arc of my 15 years on this committee has been one that has been debated greatly, including auditing the Fed and a number of other things that have gone on. I've got here a brief moment. I do feel like I need to touch on interest rates, not to be a shock. You asked how the family business was doing back in Michigan, families involved in sand and gravel and aggregates and construction and things like that. It's been strong. We need more labor, we need a few other things on that, what's happening. But I think there's no recession that's been established. There's no hyperinflation or certainly not is what some had been projecting yet there seems to be higher than expected or certainly desired interest rates for many of us. And I'm curious how high interest rates, they heard Americans who were paying car loans, credit cards, mortgages, you had FHFA Director Pulte asking for lower interest rates, which would obviously impact home buyers, as well.

(25:27)
So, what is it that's keeping in your mind the Fed from what many of us believe is the right thing to do, which is to lower some interest rates, and by the way, match what the Bank of Canada, Bank of England, the European Central Bank, the Swiss Central Bank, a number of emerging Central Banks. By the way, that's your own assessment on page 33 as where you're laying that out, why aren't we doing what the rest of the world is doing? Is it because we're at full employment? Is it because of those tariff concerns that you said weren't part of the analysis? Was it energy, groceries, durable goods? Why?

Hon. Jerome Powell (26:01):

So, you're right that if you just look in the rear-view mirror and look at the existing data that we've seen, you can make a good argument that that would call for us to be at a neutral level, which would be a couple of cuts or maybe more kind of thing. The reason we're not is the forecast by all professional forecasters that I know of on the outside and the Fed do expect a meaningful increase in inflation over the course of this year. When I said we weren't going to talk about tariffs and inflation, that was to say until we see what the policies are. And so, now, we know it start six months since I said that. So, anyway, I'd be happy to continue this with you.

Mr. Bill Huizenga (26:44):

Thank you.

Chairman French Hill (26:45):

Gentleman's time has expired. Gentleman from Michigan, Ms. Tlaib is recognized for five minutes.

Ms. Rashida Tlaib (26:50):

Thank you so much, Mr. Chairman. Chair Powell, last month there was research published in the Journal of Urban Health that found that more than half of black women of reproductive age, that's the term they use, in the counties that I represent, that had experienced some sort of eviction during their lifetime. So, that's like 50% of black women in the two largest county, Wayne County and Oakland County, Michigan. And these numbers are horrific as you know. Were you aware of that?

Hon. Jerome Powell (27:26):

No, I was not.

Ms. Rashida Tlaib (27:28):

And evictions are often very traumatic experience, but also, it creates a cycle of poverty, but also this instability for many families. But especially when it comes to a lot of our black neighbors, the access to equity, the access to housing has diminished even more. In Michigan, we lost more black home ownership than any other state in the country during the last recession. So, we know the housing crisis, I believe is structural and some may say it's a policy choice. While there are many factors at play and you know this Chairman, high mortgage rates, the finance rates, and so forth that drag the supply of new housing. But last month, new housing hit a five-year low. Are you familiar with that?

Hon. Jerome Powell (28:12):

I'm not sure exactly what statistic you are referring to.

Ms. Rashida Tlaib (28:16):

Okay. I don't know. There was all this articles about the housing market and the impact of tariffs and so forth, and they said again, it hit a five-year low. And again, I'm getting this from a source, but this sets the market up for higher inflation and more burdensome housing costs to years to come. So, Chairman Powell, I'm looking at this monetary, whatever policy framework that you guys have put together. Do you think that the way it's structured, and again, I'm trying to understand how you're looking at this and the housing crisis, do you believe it's eroding new rental supply under construction right now leading to high inflation in future years?

Hon. Jerome Powell (29:01):

So, I think there are two things going on quickly. One is just there's a longer run shortage of housing in the United States, which there's nothing that the Fed can do about. That's not that something we can affect. There's also, if I may say, in the short run, rates are high and that's going to weigh on housing activity. But the best thing we can do for the housing market, the absolute best thing is to restore price stability, so that rates come down. And so, that rates can be at a level of-

Ms. Rashida Tlaib (29:26):

But don't you think that restrictive monetary policy you wrote, the framework you all put together undermines long-term price stability right now by reducing the supply?

Hon. Jerome Powell (29:35):

No, I think it restores price stability. The point of higher rates is to and it does affect-

Ms. Rashida Tlaib (29:40):

So, you don't think the higher rates is impacting future supply of housing.

Hon. Jerome Powell (29:43):

So, I think what that does is I think interest-sensitive sectors like housing are very much directly affected when we cut rates or when we raise rates. That's right. But that's part of the mechanism for restoring general price stability.

Ms. Rashida Tlaib (29:57):

So, keeping the high interest rates does not impact future supply of housing?

Hon. Jerome Powell (30:04):

Overall, over the long-

Ms. Rashida Tlaib (30:05):

I need to go back to talk to…

Hon. Jerome Powell (30:07):

Over the long run…

Ms. Rashida Tlaib (30:07):

… Women that the study-

Hon. Jerome Powell (30:09):

… Fed will not be, our policy will not be a driver of longer-run housing supply in the United States.

Ms. Rashida Tlaib (30:13):

So, okay. Let me ask you, what is the difference? Now, honestly, I want to learn here, and I'm sure people listening to this want to learn. What is the difference between demand-driven rent inflation and supply-driven rent inflation? You guys use these terminology. What is that? How do I communicate that to the public? What is the difference between supply-driven versus demand-driven rent?

Hon. Jerome Powell (30:37):

Those are not terms that we use particularly often.

Ms. Rashida Tlaib (30:41):

What's supply-driven formula you guys-

Hon. Jerome Powell (30:43):

That would mean that there's not enough supply to meet demand, but at the same time, it also means there's more demand than there is supply.

Ms. Rashida Tlaib (30:50):

So, are you guys ignoring that?

Hon. Jerome Powell (30:53):

No. But as I said, again, our policies will not affect in the long run,

Hon. Jerome Powell (31:00):

… either demand or supply in housing.

Ms. Tlaib (31:01):

I'm being serious because I see somebody behind you kind of started… I'm being serious y'all, we're talking about a housing crisis that is getting worse right now because we're not paying attention to future instability that the current rates, and you can raise your eyebrows and all this stuff behind, I don't know. I mean do you understand, I come from a community right now that I believe is now being impacted by the current framework that you're putting together, that I do feel like is going to be long-term effects on the housing crisis, and you're ignoring it.

Hon. Jerome Powell (31:32):

No, we're not actually. We think the very best thing we can do is to fully restore price stability at the aggregate level. That will be the best thing for homeowners and for home builders and everybody else.

Ms. Tlaib (31:43):

Even though the housing supply has been impacted by the [inaudible 00:31:43]-

Hon. Jerome Powell (31:43):

In the long run, that is the single thing that Congress has assigned us to do.

Ms. Tlaib (31:47):

But Chairman Powell, do you see where I'm coming from? But do you see where I'm coming from, it is impacting future supply of housing, right?

Hon. Jerome Powell (31:51):

Not in the long run, no.

Ms. Tlaib (31:53):

Okay. Well, Mr. Chair, thank you.

Chairman French Hill (31:54):

Time is expired. The gentleman from Wisconsin, Mr. Steil, who's also the chair of our subcommittee on digital assets, financial technology and artificial intelligence. You're recognized for five minutes.

Mr. Steil (32:04):

Thank you Chairman Hill, thank you Chairman Powell for being with us today. I want to dive into two actions the Fed's recently taken to get a little additional color on. Yesterday the Fed announced that reputational risk would no longer be a component in bank exams. I viewed that positively. I viewed the reputational risk as often being a catch-all for political bias. I think it's positive to depoliticize bank exams and instead focus on the core and measurable risks. Could you provide color as to whether or not any new or new information came to light that led to the decision of the Fed to remove that yesterday?

Hon. Jerome Powell (32:40):

I'm not aware of any new information. No. We just think it's the right thing to do, and of course made an announcement on Monday under Governor Bowman's, Vice Chair Bowman's leadership.

Mr. Steil (32:50):

Why would it not have been done previously, if it's the right thing to do? I agree with you it's the right thing to do. Any timeline as to why that was done yesterday versus previously?

Hon. Jerome Powell (32:59):

No, I think this is a problem that we came to understand as a problem over the course of the last couple of years, and actually began considering what's going on here. We're hearing a lot of reports of de-banking and that sort of thing. And over the course of really 2024 came to the view that this was a serious problem that we need to address, and we've said that publicly and now we're doing this and so are the other agencies, by the way.

Mr. Steil (33:26):

I appreciate you taking that action. I do agree that there were real political bias in some of those exams, and particular as it related to regulated entities engaged in the digital asset space. Let me shift into the digital asset space, if I can. Another action recently taken by the Fed, the novel activities' supervision program was ended and withdrew several statements on digital asset related risks, that deterred bank involvement in particular. You and the Fed and others, the Fed have spoken positively about the House and Senate work to regulate stablecoin in particular, a real opportunity to dollarize the globe and be a significant purchaser of U.S. treasuries. Following that action by the Fed, have you seen an identifiable shift in banks or other regulated entities as it relates to engagement in the digital asset space?

Hon. Jerome Powell (34:17):

I wouldn't be the one to be picking that up first, but what I do see is a very significant change in the tone, and it really does reflect evolving thinking and the evolving status of the crypto industry, and I would expect over time we'll see more activity.

Mr. Steil (34:33):

How is the Fed evaluating and overseeing banks or the regulated entities that are in the digital assets or crypto space?

Hon. Jerome Powell (34:40):

So our view is that banks get to decide who their customers are, it's not our decision. And so banks are free to provide banking services to the crypto industry, to crypto companies, and banks are also free to conduct crypto activities as long as they do so in a way that is protective of safety and soundness.

Mr. Steil (35:01):

Thank you very much. Let me shift gears because I want to give you just a little bit of an opportunity to comment on the housing sector once again, but give you a little freedom here to speak to that area. You correctly are trying to balance inflation and price stability, but also higher rates have a significant impact on the housing market, is shelter and housing costs are a significant driver of why many families can't afford the things that they need. Can you provide color as to how you're analyzing the impact that housing and shelter costs have on families and on inflation with your desire to maintain price stability of the interest rates that is currently set by the Fed?

Hon. Jerome Powell (35:39):

Sure. So we realized that people are feeling high housing costs and high financing costs. In terms of inflation, we look at something called owner's equivalent rent and rentals, and that's meant to capture both rented housing and owned housing. And it's been very sticky. It's been one of the stickiest parts of inflation. I'm happy to say now it actually is coming down quite regularly. That's very good news. That's been the part, really it's been the service inflation that's been stickier than other parts of inflation. So that's good news for people I think. And it is showing through into measured inflation now. Again, in the long run the best thing we can do is restore price stability and let the market work, even then though we're still going to have a housing shortage.

Mr. Steil (36:23):

What data do you think is leading to the reduction, the rent equivalent?

Hon. Jerome Powell (36:29):

I just think it took time. So the thought is when you would think that if rents come up every year, you would think it would take one year or two years for a lack of growth in rents to show up in a lack of growth in housing prices. It turns out it takes four years or three years. If you're an existing tenant, it's a complicated thought, but if you're an existing tenant you don't actually catch up the way you would if new tenants came in. And so that's made the measurement of inflation stickier. But I'm happy to say we've been through that period now and we are really seeing now housing services inflation pretty close to where it was when inflation was solidly at 2%.

Mr. Steil (37:08):

Thank you. I yield back.

Chairman French Hill (37:10):

Gentleman yields back. Gentleman from California, Mr. Liccardo is recognized for five minutes.

Mr. Liccardo (37:14):

Thank you, Mr. Chair. Chairman, thank you for your testimony today. I appreciate that your dual mandate is full employment and price stability, and I appreciate your efforts on behalf of our country to achieve those. My understanding is that critical data is collected by the Bureau of Labor Statistics to help formulate the indicators that you rely on, that we rely on, to understand unemployment rates, CPI, and other inflation indicators. We are certainly hearing a lot about the impacts of DOJ on our workforce and specifically about the elimination of many of those positions in BLS, and now we have a proposal in front of Congress to cut $56 million from that agency. Are you concerned about the ability of your team to get accurate data, and about the ability to have reliable indicators to make good decisions upon?

Hon. Jerome Powell (38:15):

I wouldn't say that I'm concerned about the data today, although clearly there has been a very mild degradation of the scope of the surveys and things like that. But I would say the direction of travel is something I'm concerned about, and that is measuring the U.S. economy carefully and well is a project that's been going on and we've been getting better at it for a hundred years and more. And it's really important not just for the Fed but for Congress and for businesses frankly, to know what really is going on in the economy, what's happening, is growth high, is it low? And all those sorts of things. So I think it's a smart investment to just continually try to get better at measurement of what's happening in the economy, and I don't like to see the kind of stories I'm reading and the idea being that the data's going to become more volatile and less reliable, that's not going to, that'll make it more difficult for the private sector and for you and for us, and I don't like to see that direction.

Mr. Liccardo (39:12):

I agree. Thank you. I appreciate that it's not your role to comment on the advisability specific policies, but given your critical role in ensuring price stability and reducing inflation, I have had conversations with quite recently, just a week ago with a C-suite executive of a major world global retailer who informed me, because I asked why aren't we seeing the impact of these tariffs and price data yet? And he said it's coming, it's coming in the third quarter, because it takes time for tariffs to work their way through a distribution chain. Often what you have on the shelf today may have been imported two or three months ago. Is that your understanding? Do you anticipate there may be impacts down the road?

Hon. Jerome Powell (40:01):

Yeah, that's very much what I hear. I happened to meet with an unusually large number of business people in this last FOMC cycle, and that's a typical thing that they'll say, especially the retailers, that what's being sold now was an inventory in February, let's say, and it just isn't showing up yet. So we do expect to show up tariff inflation to show up more, but I want to be honest, we really don't know how much of that's going to be passed through to the consumers. We just don't know, and we won't know until we see it. It could be lower than we expect, it could be higher. We have to wait and see, which is kind of what we're doing.

Mr. Liccardo (40:35):

And I appreciate the uncertainty. Another thing he told me, had me very concerned was that often they will increase prices on goods not subjected to tariffs, to compensate for the very substantial losses they have to suffer with the increase of tariffs on relatively price-elastic goods. So in other words, necessities will also tend to bear a higher price, even if they're not subjected to tariffs. Is that your understanding of the potential impacts?

Hon. Jerome Powell (41:09):

That very much is something that companies will tell you that they do. If they can't cover the losses on the thing that's being tariffed, they'll find other ways to do it. We actually don't have prominent examples of that yet, but that's certainly a possibility. And that did happen in the last tariff episode with washing machines and dryers.

Mr. Liccardo (41:28):

Thank you, Mr. Chairman. And finally, there's indications in the introduction of the report that the Fed is losing its ability as we see interest rates getting closer and closer to the minimum threshold, the ability to stimulate this economy in times of recession. We haven't had a recession, or at least we haven't had an extended recession in a decade and a half. I am particularly concerned now as we are looking at debt that is being considered to be imposed on future generations by this particular bill. Could there be a combination of very high debt and very little room to move in monetary policy that could undermine our ability to respond to the next recession?

Hon. Jerome Powell (42:14):

So we faced that issue quite a bit in the era of very low interest rates, but we're at higher levels of interest rates now. So significantly more room to cut than there was then.

Mr. Liccardo (42:25):

Thank you, Mr. Chairman.

Chairman French Hill (42:25):

The gentleman yields back. Gentleman from Wisconsin, Mr. Fitzgerald, you're recognized four or five minutes.

Mr. Fitzgerald (42:29):

Thank you, Chairman. Chairman Powell, thanks for being here today. Appreciate it. I want to go back to something we've had. We had some brief discussions about this in the past, but in September of 2024, with core inflation still being above target and the labor market was holding steady at the time, the Fed made a decision to cut rates by a full half percentage point. It raised some serious questions as to whether or not the data truly supported such a move at that time, and I think some of us were surprised that it was a full half percent. So can you revisit that again, what the Fed was thinking at that time because it seems to be somewhat of an enigma now. It stands out as why was this done? Why was the half percent done at that point?

Hon. Jerome Powell (43:24):

I'd be glad to. So first of all, actually the inflation and employment readings were very similar then to what they are now. They weren't terribly a 10th or two.

Mr. Fitzgerald (43:34):

Right.

Hon. Jerome Powell (43:34):

But the difference then was you mentioned that the labor market was stable, it wasn't, the unemployment rate had actually gone up almost a full percentage point. I was very clear about this. We were very clear about it in real time too. The concern at that time was that there really hasn't been an experience or hadn't been an experience in the modern era in which the unemployment rate has gone up close to 1%, that hasn't been followed by much higher levels of unemployment and a recession. So we were looking at that and saying, and remember at that point, at the point we're talking about, the federal funds rate was 5.3%, so definitely very restrictive level. We were the last of the big central banks to cut.

(44:15)
So we wanted to make a statement that we were supportive of the labor market and not just inflation, we'd been focusing on inflation. I was quite clear about this. So it was all about the labor market, inflation was the same and unemployment was roughly the same, but it was the rate of change with the unemployment rate that raised a lot of concerns. And remember we were being criticized for being late to cut, so we could have done 25, if we'd done 25 in July, we were criticized for not cutting in July. Instead, we cut 50 in September, and it seemed like the right thing to do. And at the end of the day, we do what we think is the right thing when we think it's the right thing to do. We don't take into consideration political factors. If we start doing that, I don't know where that stops. Once you start considering elections and stuff like that, where does it stop?

Mr. Fitzgerald (45:02):

And I don't want to insinuate that it had anything to do with the election itself, but there just seems to be some very similar numbers right now. And I'm wondering, and I don't bring this up because I want to kind of make a point about did the Fed do the right thing or not? I bring it up because it seems like everything's in place right now to kind of do the same thing, make the same move. I know this morning already you've talked a little bit about where you were on inflation right now and what you're watching, but is there any lesson there? I mean, are we in a position where it would be appropriate to do something as big as a half percent cut again?

Hon. Jerome Powell (45:45):

Well look, as I said earlier, if you just look at the basic data and don't look at the forecast, you would say that we would've continued cutting. The difference of course is at this time all forecasters are expecting pretty soon that some significant inflation will show up from tariffs now, and we can't just ignore that, but we're just saying let's wait and see more. That's all we're doing. And you will have noticed a substantial majority of the committee has written down rate cuts in the remaining four years, four meetings this year. So it's just a question of being prudent and careful. But at a time when the labor market is still strong, we don't see weakness in the labor market. If we did, that would change things.

(46:33)
We're going to continue to adapt as the data adapt, but that is the difference between then and now. Then, inflation was forecasted to continue to come down, here it's forecasted to go up by all forecasters. And again, we're not overreacting to that, we're just saying, hey, as long as the economy's strong, we can take a little bit of a pause here. And that's what we're doing, and again, continue to adapt as the data comes in. If we see data that suggests that inflation is not going to produce big increases, that would matter. And if we saw the labor market weakening, that would matter too, but we don't see those things.

Mr. Fitzgerald (47:07):

What about supply chain, in 2020 that was a big issue, obviously related to COVID. But I know myself and other members, when we're in our districts and we're specifically talking to light manufacturing, there's concerns about the supply chain. Is that part of the data package that you review when you make a decision about where we're headed in the future?

Hon. Jerome Powell (47:28):

Very much so. I think that's one of the great, well, we won't call it a great thing, lessons to be taken from the last episode is supply chains really matter. We're watching that carefully. It's too soon to say really on that. We're not seeing it yet, but we-

Chairman French Hill (47:42):

The gentleman's time has expired.

Mr. Fitzgerald (47:43):

Thank you, Chairman. Heel back.

Chairman French Hill (47:44):

Thank you, Mr. Fitzgerald. The gentleman from New Jersey, Mr. Gottheimer, you're recognized for five minutes.

Mr. Gottheimer (47:48):

Thank you, Mr. Chairman. Chairman Powell, as a member of the intelligence committee, I'm deeply concerned about the threat of Iranian cyber attacks on our financial system as retaliation for our strikes on their nuclear facilities. In its cyber security report last year, the Fed acknowledged the critical infrastructure, including financial services at risk with rising geopolitical tensions. Iran has a history of targeting American infrastructure companies and financial institutions and banks, which could obviously threaten and cause economic damage. What actions is the Fed taking now to monitor and defend against Iranian or proxy cyber threats targeting our country's financial institutions?

Hon. Jerome Powell (48:22):

So we're in touch with the other regulators and the parts of the government that work on cyber as you know, and we're in touch with the banks for people to be on the alert for things like that to happen. And also, we're on the alert because we're a target as well. So you're right to raise it. It's a big issue.

Mr. Gottheimer (48:44):

Do you feel like you have the resources right now to be prepared for that?

Hon. Jerome Powell (48:47):

Yes. I mean I think we do. We spend a lot, and the government generally spends a lot on these things, but you can never ever be comfortable in this area because the bad guys are always getting better. So we need to keep to get better.

Mr. Gottheimer (49:03):

Thank you, Chairman. Switching gears, the President and members of his administration have recently called you out, various name-calling for certain decisions you've made. I know that some people worry that the President's bullying will impact your decision making. I know you work together and I know that and respect obviously your independence greatly. Anything you want to add and give you a chance to reiterate your independence to the American people?

Hon. Jerome Powell (49:28):

Yeah, I would just say we're focused on one thing, and that is we want to deliver a good economy for the benefit of the American people. That's it. And anything else is kind of a distraction. I don't mean to refer to any particular thing, but we stay focused on that task all the time. We always do what we think is the right thing to do, and we live with the consequences. And I don't know how else to do the job.

Mr. Gottheimer (49:54):

Right. So the name-calling and the Mr. Too late and all that stuff, the American people shouldn't worry about that, you're focused on being independent?

Hon. Jerome Powell (50:02):

That's what I care about. I care about doing the job for the American people. The things we do matter a lot for people's lives and that really concentrates the mind. You want to just stay focused on that task. As long as you're sitting in these chairs that we occupy, focus on that task, do what you think is the right thing, and take the consequences.

Mr. Gottheimer (50:21):

Thank you, Mr. Chairman. You've previously stated that you've used stablecoins as a form of money. Payment stablecoins are already being used for both retail and wholesale payments as well as for settlement. Recently this committee passed the Stablecoin Act and the Senate passed the Genius Act, both aiming to establish clear regulatory frameworks for fully reserved dollar-backed payment stablecoins. Given their design to maintain a stable value and be redeemable for U.S. dollars, should the SEC or other regulators explore treating these stablecoins as cash equivalents for accounting or financial reporting purposes?

Hon. Jerome Powell (50:50):

Let me say I think it's a great thing that bills are moving. We need a stablecoin framework. On that particular issue, I don't have a view for you. I can come back to you on that.

Mr. Gottheimer (50:59):

I'd be grateful. Thank you. High rates have also caused, as we've discussed, the cost of paying off our nation's debt to skyrocket. The CBOS estimates that interest payments will cost the U.S. a trillion dollars in fiscal year 2026 and continue to rise almost 1.8 trillion by FY2035. How do you see us continuing to be able to afford to pay off our debt at this rate? And as the U.S. continues to borrow, how does that impact your decision to keep or cut rates? Obviously, foreign countries like Japan who are significant buyers of our bonds have started decreasing their purchases significantly, other internal pressures worldwide are having that impact. Are you worried about this global issue?

Hon. Jerome Powell (51:38):

Fiscal policy, and it really is not our job and it's not something we take into consideration in making monetary policy, that's really elected people's jobs. And I would add that for some time now, the U.S. federal fiscal policy has been on an unsustainable path. And I'll limit myself to that.

Mr. Gottheimer (52:01):

Last question. Last week you chose to keep rates steady and families in our state, as you'll hear from a lot of people today, are really struggling with the higher cost of borrowing and putting off bigger purchases on things like cars and homes. As a result, their wallets' being crushed by these price hikes and obviously the President's tariffs. What do you to say to Jersey families who are struggling with higher costs and how you look at how they should forecast themselves for their own families?

Hon. Jerome Powell (52:25):

We're committed to returning inflation sustainably to 2% and keeping it there in the long run. And what we're doing now is we had cut rates by a hundred basis points, so they've come down quite a bit. And when the time is right, I expect that that will continue, and that will depend on economic factors in the coming months, for starters.

Mr. Gottheimer (52:50):

Thank you. I yield back. Thank you, sir.

Chairman French Hill (52:51):

Gentleman yields back. Gentleman from Nebraska, the chair of our housing and insurance subcommittee, Mr. Flood. You're recognized four or five minutes.

Mr. Flood (52:58):

Thank you, Mr. Chairman. Chairman Powell, later this week the banking agencies will be proposing changes to the supplementary leverage ratio, which we think are long overdue, considering the Fed in 2021 indicated that they would soon put out proposals for reform to the SLR and never actually did. However, our understanding is that the proposal being considered this week will not allow for treasuries to be excluded from the SLR calculation. Secretary Bessent earlier this year had argued that such a change could serve as a boost for banks and their ability to intermediate in the treasury market and could potentially pull treasury yields down 30 to 70 basis points. Chairman Powell, do you agree with the treasury secretary's comments on the potential positive impact of SLR reform on the treasury market, and what is the rationale for not excluding treasuries from the SLR calculation in the proposed rule?

Hon. Jerome Powell (53:54):

So I agree that when the leverage ratio is binding, it discourages banks from undertaking low margin, fairly safe activities, such as mediation in the treasury markets. So this should encourage more mediation. I don't have a numerical estimate of how much that would matter, but I do think it would matter. I think it's important. I've supported leverage ratio reform for a very long time, since before 2021. In terms of the structure of the thing, I think we're seeking comment on a particular proposal that doesn't involve exclusion, but we're also asking a question about exclusion.

Mr. Flood (54:35):

Mr. Chairman, considering the Fed temporarily excluded treasuries from the SLR calculation during the COVID pandemic, were you aware of any safety and soundness or financial stability problems that arose as a result of that decision? And if not, why was that relief terminated in 2021?

Hon. Jerome Powell (54:51):

So that was an emergency measure from the beginning and end. It was an emergency measure. I think my long-held view is that we should have a permanent measure, and now we're going to. And we have an open board meeting on Wednesday afternoon, and after I finish my hearing on the Senate side, and I'm very much looking forward to putting this proposal out for comment.

Mr. Flood (55:12):

Thank you. In March, the Federal Reserve together with the FDIC and the OCC announced that they intend to issue a notice of proposed rulemaking to repeal the 2023 Community Reinvestment Act and replace it with the legacy CRA framework. Nearly three months have passed since this announcement. What is the status of this project?

Hon. Jerome Powell (55:33):

Well, we're going to do what we said we were going to do. It's just a question of execution, and I think you'll see that coming. This would be, so Vice Chair Bowman has the job of sequencing these things, and that one's certainly coming.

Mr. Flood (55:47):

Do you intend to issue a proposal that will be a clean rescission and replacement of that rulemaking, or are you considering amendments to the legacy rule?

Hon. Jerome Powell (55:55):

I honestly don't know. We'll come back to you on that.

Mr. Flood (55:58):

Okay, so we should know more later this week?

Hon. Jerome Powell (56:01):

We might, yeah.

Mr. Flood (56:02):

Okay. Finally, I'd like to build off of what Congressman Steil asked previously on the supervision of novel activities program. Do you feel any changes could be made to it to encourage innovation, and do you anticipate any such changes to the program?

Hon. Jerome Powell (56:16):

I do. And I also think Governor Bowman, now Vice Chair Bowman, is someone who is actually deeply knowledgeable and experienced in supervision, and that hasn't really been the model. We've more had people who are experts on regulation. I think she brings a particular ability to move supervision in a healthy direction while also preserving safety and soundness. And what you mentioned is one of the dimensions in which I think that will be true.

Mr. Flood (56:44):

Thank you for your testimony today. Appreciate your service to the country. And with that, I yield back, Mr. Chairman.

Hon. Jerome Powell (56:48):

Thank you.

Chairman French Hill (56:49):

Gentleman yields back. The chair recognizes the ranking member of our full committee, Mrs. Waters, for five minutes.

Ms. Waters (56:59):

Thank you very much, Mr. Chairman. Chair Powell, I appreciate that despite the repeated attacks by the President and his cabinet on you personally, that you stood your ground and you did not bow to pressure from Trump, especially given the current state of economic uncertainty due to his policies. Last week, the Fed held interest rates steady, afterwards you said that you and other experts continue to expect a meaningful amount of inflation due to Trump's tariffs. You said that it may take some time for the tariffs to work their way through the supply chain, but that you found, and I quote, "Many companies do expect to put some or all of the effect of tariffs through to the next person in the chain, and ultimately to the consumer." Quote, end quote. So while the President may try to claim other countries pay these tariffs, can you confirm that it is indeed consumers and businesses in the United States that will bear these costs?

Hon. Jerome Powell (58:09):

So it can be anybody from the exporter, the importer, the retailer, the manufacturer or the consumer that winds up paying these tariffs. In the beginning it will be the importer that pays the tariff, but ultimately it will be spread out among those five, each of which will try very hard not to contribute. But in the end, the tariff will be paid, and all of the data suggests that at least some of that will fall, not all of it, but at least some of it will fall on consumers.

Ms. Waters (58:38):

Well, you indicated it may take some time for tariffs to work their way through the supply chain. Would you elaborate on this, including when is it that we can see negative impacts to inflation from Trump's tariff policy?

Hon. Jerome Powell (58:57):

So the things that are being sold at retail now, they might've been put into inventory before the tariffs, in February or March. So we think we should start to see this over the summer in the June numbers and in the July numbers. And if we don't, I think we're learning here. If we see less pass-through, there aren't historical experiences we can consult here really. So it may turn out that the pass-through is less or more than we think, and I think we're going to be learning. We'll get a number for June, an inflation number for June. We'll learn something then, we'll get it for July. As we go through the summer, we should start seeing this. And if we don't, I think we're perfectly open to the idea that the pass-through will be less than we think, and if so, that'll matter for our policy.

Ms. Waters (59:45):

Well, I've been talking with a lot of my constituents about these tariffs, and the question that comes up is, now is this going to only hurt maybe the big businesses? What about our small business people? What about the people that we buy goods and services from every day in our communities, is this going to hurt big business as well as small business?

Hon. Jerome Powell (01:00:13):

Yes, I think it will certainly. If you're a smaller company that maybe imports a single product, that's a common business model these days. Then if your product is tariffed, you may be the one that's affected significantly. Whereas bigger companies have more resources and a more diverse product line.

Ms. Waters (01:00:34):

Why do you think you can resist the President basically telling you what to do, what gives you that authority?

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

I don't think about it that way at all. I think I have a job that I'm sworn to do, and all I think of is how much people rely on us to get it right. It really matters that we get it right, and that concentrates one's mind. And so that's what we think about at the Fed. We think about what's the right thing. All I want to do in what's left of my time at the Fed is have the economy be strong and have inflation be under control and have a solid labor market. I want to turn it over to my successor in that condition of course, that's what keeps me up at night is to do that. And that's what I think about. That's the only thing I think about.

Ms. Waters (01:01:19):

So how are you protected by law, by Constitution? Where does your authority come from?

Hon. Jerome Powell (01:01:25):

I've covered all that. I do think we're fully protected. And again, I don't think about that anymore. What I think about is let's just do our jobs, and that's what we do. We don't talk about those issues at all. And all we do is do our jobs as best we can. And it's not an easy job, but it's one we've willingly taken on, and very important that we remain focused just on the job and not on other things.

Ms. Waters (01:01:51):

Thank you very much. I yield back.

Chairman French Hill (01:01:53):

The gentleman yields back. The Chair recognizes the gentleman from New York, our vice chair for communications, Mr. Lawler, you're

Chairman French Hill (01:02:00):

… recognized for five minutes.

Mr. Lawler (01:02:02):

Thank you, Mr. Chairman. Chairman Powell, as recently as yesterday, Fed Governor Bowman indicated that if inflation pressures remain contained, the Fed should consider lowering rates and said she is open to a rate cut in July. Governor Waller said very much the same. Do you believe that we are in a position where we may be able to cut rates in July?

Hon. Jerome Powell (01:02:35):

So, I would say this, I think if it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates sooner rather than later, but I wouldn't want to point to a particular meeting. I don't think we need to be in any rush because the economy is still strong, the labor market is strong. If we were to see the labor market meaningfully weaken in a way that was concerning, that would matter for that decision. And if we see inflation continuing not to move up… We hadn't expected inflation to move up much. We do expect it to move in the summer. And if we see it not happening, then we'll learn from that.

Mr. Lawler (01:03:15):

The September 2018 Teal Book suggested that the Fed seeing through tariffs inflationary effects is an appropriate response, so long as inflation expectations are firmly anchored and that the pass-through costs are relatively short-lived. Would you agree that this assessment from the Teal Book still applies to today?

Hon. Jerome Powell (01:03:36):

I would. Those are the exact factors that we cite when we talk about this situation, that plus the size of the tariffs.

Mr. Lawler (01:03:42):

Right. So, let's assess the current economic situation. The Monetary Policy Report states that longer-run inflation expectations "continue to be broadly consistent with 2% inflation." And a Harvard study argued that despite the relatively quick price responses to tariff announcements, the overall magnitude of these changes remains modest. So, if these conditions hold, is it not unreasonable to think that underlying inflation trends should continue its path towards 2%?

Hon. Jerome Powell (01:04:18):

That's certainly a very defensible position. I think what others on the committee think and what I think is that this is a question we need to be careful with because it's different than it was in 2018. The difference is that in 2018, we hadn't had inflation as high as 2% for a decade or more. This is a different situation. We haven't fully restored price stability and another shock… We have to be careful if there's a meaningfully large and sustained inflation shock, we have to be careful about that. And so, I think we're just trying to be careful and cautious and we really think that's the best thing we can do for the people that we serve. If that happens, we need to be there for it. And so, we're in a difficult situation in deciding exactly when to move. But again, if we continue to see inflation come in and not prove up at the higher levels than we expect, then that would matter for our decision-making.

Mr. Lawler (01:05:21):

Chairman Powell, economist John Taylor once noted that the Federal Reserve should deviate from its own Taylor rule in the event of an oil shock. Similar to the tariff scenario, one-time price increase from an oil shock should not be accompanied with an increase in interest rates. Do you agree with that assessment?

Hon. Jerome Powell (01:05:39):

I generally do, yes.

Mr. Lawler (01:05:41):

Previously, you said that if you wait for inflation to get back down to 2% to cut rates, you are already too late. You also said in November 2024 that inflation was on a sustainable path to 2%. Given that the FOMC believes that interest rates now are moderately restrictive and that an oil or tariff shock may not impact underlying inflation in a significant or meaningful way, because as the Monetary Policy Report established, inflation expectations are firmly anchored, what is the reason not to cut rates?

Hon. Jerome Powell (01:06:20):

Well, it's uncertainty about the size and potential persistence of the potential, but highly uncertain, inflation from tariffs. By the way, we have five Taylor rules in the monetary policy report, four of them say that the policy rate is in the right range and the other one calls for a hike, just for the record.

Mr. Lawler (01:06:40):

Well, back in the beginning of the Biden administration, when we talk about inflation, they increased federal spending by $2.5 trillion dollars each year, $5 trillion in new spending. That's what gave us inflation by printing all of this new money and borrowing. And yet, you did not respond to that by raising rates. In fact, you were late to raise rates. And now, again, we see a situation where-

Chairman French Hill (01:07:07):

The gentleman's time has-

Mr. Lawler (01:07:08):

… you are late to cut rates. That is the challenge here.

Chairman French Hill (01:07:11):

The gentleman yields back. The chair recognizes the gentleman from Georgia, Mr. Scott, for five minutes.

Speaker 1 (01:07:17):

Thank you, Chairman. Chairman Powell, to the best of your knowledge, has President Trump put forward a coherent tariff policy? Is that your opinion?

Hon. Jerome Powell (01:07:34):

That is not a judgment for me to make or to discuss.

Speaker 1 (01:07:40):

Well, what do you think?

Hon. Jerome Powell (01:07:41):

Sir, I have no-

Speaker 1 (01:07:41):

I mean you're running the economy.

Hon. Jerome Powell (01:07:45):

… comment on the president's words or the president's policy.

Speaker 1 (01:07:47):

Does the president, in your opinion, does he have a coherent tariff policy? You ought to have an opinion on that, you run our economy. This is your bailiwick. Do you think he's got a good policy? Answer me.

Hon. Jerome Powell (01:08:09):

I would never comment on the president of the United States in that way.

Speaker 1 (01:08:14):

All right. What do you think our policy should be?

Hon. Jerome Powell (01:08:26):

We play no role in either establishing or commenting on tariff policy, or fiscal policy for that matter. It's not our business. We have a specific mandate, we try to stick to it.

Speaker 1 (01:08:37):

Let me tell you something, Chairman. In my state of Georgia, I got the fastest-growing trade group down there. The Port of Savannah is indeed our nation's fastest-growing port and it's rising even more. The cost, the expenses, our business community is suffering. And I want to know what you think of our tariff policy. What do I tell my people? What do we tell the American people? And you're a good man, I want to know the answer to this question. I want to know how you feel.

(01:09:33)
This whole tariff question, it's a tax increase. It's running people out of business. What do you think about that? Give me some sort of answer. Do you think anything about our tariff policy? Don't you feel you have a responsibility here? Are you afraid of President Donald Trump? Why don't you deal with this? Because our economy are suffering in a mighty bad way and I've got to represent my constituency. Let's take Georgia's agricultural sector. Mostly pecans and poultry and cotton exports. They've been hit hard by retaliatory tariffs from key trading partners, like China. Why are you running away from the tariff fight? Give us some understanding of that.

Hon. Jerome Powell (01:10:49):

Honestly, this is just not our role. We are not an institution that comments on or analyzes decisions that the president makes, or the things that he runs for office on and is elected on, and then does. That's just completely out of our lane. It's really inappropriate for me to have any comment on that. I'm sorry to say, Mr. Scott.

Speaker 1 (01:11:17):

We're having these regional disruptions. Our economy is in a bad way and I want to see you and the president, you got to get together on this. We got pecans in Georgia, we got peanuts. We won the biggest group. We got the fastest-growing trade mechanism in the Savannah Port Authority. We're crushed in Georgia. My business folks are coming to me on it. I got to get some answers from you. What do I tell them that the Fed Chairman feels about their experience in this terror? I think we need to get you and the president together.

Chairman French Hill (01:12:20):

Gentleman's time has expired. Appreciate the gentleman from Georgia. Gentlewoman from Florida, Ms. Salazar, is recognized for five minutes.

Speaker 2 (01:12:30):

Hi, thank you very much for being here. Appreciate your time. My name is Maria Salazar. I represent the city of Miami, which is one of the city's most composed of Hispanic Americans and people that adore living the American dream. So, putting that into context, I wanted to ask you a few questions about the labor force. We agree with what the President Trump is doing or what the administration is doing in deporting illegals, criminal illegals. We do not want Tren de Aragua. We don't really want people who have committed any type of crime, even more if they're illegals.

(01:13:10)
But we do know that unfortunately what's happening right now after six months of Mr. President being in office, that we're losing thousands and thousands of workers, what the ICE leadership has called collateral damage. And most of those people are working in three main sectors, construction, hospitality, and agricultural. Even the president said the other day in a tweet that he understands that those hands are needed. We're talking about 15% of the economy, construction, hospitality and agricultural. So, my question to you is what is the growth effect on the economy if this type of removal of hands being removed from those three main top sectors?

Hon. Jerome Powell (01:13:58):

So, immigration is another area where nobody put us in charge. Congressional Budget Office and other agencies can make assessments like that. We do have a role to maximize employment, but we take immigration policy as… we take it as it comes. What it's obviously done is it's really reduced the amount of growth in the labor force. And so, at the same time, demand for workers has been coming down as well because they've been coming down at about-

Speaker 2 (01:14:28):

Let me just go one drop at a time. Reduce the growth… Why don't we talk a little bit more? Because we want to continue growing. We're the number one economy in the world. We need to continue growing. So, you're saying that what's affecting the growth?

Hon. Jerome Powell (01:14:40):

Well, there are two things that affect growth. One is growth in the labor force, more people working. And the other thing is productivity. How much do they produce per hour worked? So, when you significantly slow the growth of the labor force, you will slow the growth of the economy. But I think, again, it's not for us to have a view on immigration policy. I can just report that.

Speaker 2 (01:15:04):

No, no, I understand that. It was just my comments. But you do agree that if we don't have those hands, then we don't grow?

Hon. Jerome Powell (01:15:09):

I think that growth will slow and actually is slowing this year, and that's one of the reasons.

Speaker 2 (01:15:14):

Well, we don't like that. So, now let's talk about over the next 10 years, 2025 to 2035. Americans are not having enough kids, so that means that we need other people. So, over the next decade, based on the current trends that I just explained to you and that you just reiterated, will there be enough workers to fulfill the labor needs of our economy within between 2025 and 2035?

Hon. Jerome Powell (01:15:42):

Though I think labor economists do observe the phenomenon you're talking about, which is demand for labor going to be met by the domestic population, the native-born population? And the answer appears to be probably not over the next 10 years.

Speaker 2 (01:15:59):

And then, what about if we do not have that labor force over the next 10 years, what happens?

Hon. Jerome Powell (01:16:04):

So, many things will happen. You can see a big increase in productivity, which would mean we don't need as many workers. For example, artificial intelligence could be implemented in a way that creates widespread productivity gains. I wouldn't count on that, but it's a possibility.

Speaker 2 (01:16:21):

You would not? You would not count on that?

Hon. Jerome Powell (01:16:22):

I wouldn't count on it.

Speaker 2 (01:16:23):

You would not?

Hon. Jerome Powell (01:16:24):

No. I mean I think there will be gains-

Speaker 2 (01:16:26):

Why not?

Hon. Jerome Powell (01:16:26):

Well, because with productivity enhancing things, they typically take longer to be implemented, and then it takes a while for the gains to be shown. I think in the case of artificial intelligence, those gains are coming, but they may take longer or be less in the beginning than expected.

Speaker 2 (01:16:41):

And during the time that those changes happen, then what happens? Our economy doesn't grow, is that what you're saying?

Hon. Jerome Powell (01:16:48):

Yes, but I mean those who make immigration policy are entitled to weigh these factors.

Speaker 2 (01:16:52):

No, I hear you.

Hon. Jerome Powell (01:16:53):

We can report on what happens, but it's really not our job-

Speaker 2 (01:16:56):

I understand it's not, I just want to hear what you're thinking, what's your expertise based on those immigration laws that we're implementing right now? The last thing because I only have 30 seconds. Do you think that with everything that we have talked about, do you think that we can continue remaining or the United States economy can continue being the number one economy in the world and that we could compete if we were to have the immigration laws that we have right now?

Hon. Jerome Powell (01:17:22):

I think you could have the highest per capita earnings, but if you're talking about the aggregate output, then population growth may be a constraint.

Speaker 2 (01:17:33):

Now, which one of the two is more important?

Chairman French Hill (01:17:35):

The gentlewoman's time has expired.

Hon. Jerome Powell (01:17:36):

Good question.

Speaker 2 (01:17:39):

Well, I think you-

Chairman French Hill (01:17:40):

The gentlewoman's time has expired.

Speaker 2 (01:17:41):

All right. Thank you, Chairman.

Chairman French Hill (01:17:43):

Let me turn the ranking member of the House Intelligence Committee, Mr. Himes, for five minutes.

Speaker 3 (01:17:48):

Thank you, Mr. Chairman, and welcome, Chairman Powell. Let me start by thanking you for your careful keeping in your lane and steering clear of fiscal policy. And in particular, for your stalwart defense of independent monetary policy. You're getting pressure from very powerful places and lots of kibitzing from lots of members on the interest rate question. And most know better that our independent monetary policy is the very bedrock of our economy. So, thank you for that.

(01:18:23)
Mr. Chairman. I want to talk just a little bit about some of the technical matters associated with energy prices and inflation, because obviously, turmoil in the Middle East has sent oil prices swinging wildly with West Texas Intermediate in the last month or so being anywhere between $61 and $75 a barrel. We recently saw the Iranian Parliament vote to close the Strait of Hormuz, which currently handles around 20 million barrels a day, a fifth of global demand and a little bit more in terms of natural gas.

(01:18:53)
Chair Powell, you said last week that conflict in the Middle East and the 1970s resulted in very large inflation shocks. In contrast to the 1970s, today the United States does not import most of its energy. We call ourselves energy self-sufficient on a net basis. But I hear the argument made, that I think is wrong, that because we're energy self-sufficient, somehow we are insulated from global energy market prices. Can you comment on that? Is there any validity to the notion that American consumers of energy are not subject to global swings and energy prices?

Hon. Jerome Powell (01:19:32):

Yeah, so the price of oil is set globally. And I think if you go back a few years, the thought was that when the global… We had a natural shock absorber, which is that we would just drill more. And if prices went up, we would drill more. And so, you wouldn't have these sustained price shocks that we had during the 1970s and the original OPEC era. I think that is actually in question now because the oil industry in the US is being much more careful and focused on return on investment than they were, having been burned with overcapacity.

Speaker 3 (01:20:09):

Right. And I mean, yeah, in the long run you can invest in additional extraction technologies, but this does not respond to day-to-day spot prices. So-

Hon. Jerome Powell (01:20:17):

Not quickly, no.

Speaker 3 (01:20:18):

… the point I'm trying to make is that the conflict in the Middle East, if it resulted in $120 barrel oil, which is where oil was in 2022, that would have a fairly substantial inflationary impact on the American household. Is that correct?

Hon. Jerome Powell (01:20:32):

We would certainly feel that. And as we've discussed earlier, there's a lot of lore around looking through oil price shocks, but that depends on the facts and circumstance.

Speaker 3 (01:20:41):

As a technical matter, we tend to refer to CPI, which is a basket of goods and we measure the price changes. Roughly speaking, what percentage of that basket is comprised of energy?

Hon. Jerome Powell (01:20:55):

I don't have that on the top of my head. It's much less than it was, of course. Oil consumption is much less than it was in the '70s as a percent of GDP, but it's come-

Speaker 3 (01:21:04):

But energy includes natural gas and gasoline and that sort… It's a meaningful portion of the basket?

Hon. Jerome Powell (01:21:08):

Yes, of course, we have so much natural gas, so that'll always be there for us.

Speaker 3 (01:21:15):

So, none of us can predict what's going to happen in the Middle East in an hour, much less in a week or a month or a year. But as a technical matter, at what price for a barrel of oil does the American household begin to feel inflationary effects? So, we're at $75 a barrel roughly right now. At what price point does the American household begin to feel some inflationary effects?

Hon. Jerome Powell (01:21:43):

I don't want to throw out a number. Frankly, it's too early to say that something like that's going to happen. And I know you know that, but I wouldn't want to throw out a specific number. If prices went up materially, people would feel that.

Speaker 3 (01:21:58):

Okay. Okay. Again, I think if I look at the data here, WTI per barrel, it peaked at about $120 in 2022. What do your models suggest would occur to inflation and how would it influence the Fed's thinking should we be back at $120 a barrel?

Hon. Jerome Powell (01:22:23):

Well, let's just say there's a big price spike in that range. So, we look at the overall situation, we would ask ourselves should we react to that? So, for example, during what we call the Arab Spring, back in the early teens, oil prices went up a lot and that went into the price and there was a discussion. And I think the right answer was to look through that. The question you'd be asking to yourself because by the time you react, the price comes back down. I think the question today would be, is the situation different and what would be the implications of those differences?

Chairman French Hill (01:22:57):

The gentleman's time has expired.

Speaker 3 (01:22:59):

Thank you.

Chairman French Hill (01:22:59):

I thank the gentleman from Connecticut. The Chair recognizes the gentleman from North Carolina. Mr. Moore, you're recognized for five minutes.

Speaker 4 (01:23:06):

Thank you, Mr. Chairman. Chairman Powell, I want to touch on international standard setting bodies like the Basel Committee on Banking Supervision. Their goal is to promote better harmonization for global capital flows and regulatory standards. But the Biden administration's implementation of Basel III Endgame demonstrated the pitfalls when the US is a follower instead of a leader in the international arena. That's why both Democrats and Republicans shot down Former Vice Chair Michael Barr's proposal, which made capital less acceptable and put US firms and businesses at a global disadvantage.

(01:23:43)
Do you agree that the United States should only implement international standards in a way that is consistent with our own domestic legal and regulatory scheme?

Hon. Jerome Powell (01:23:51):

I do.

Speaker 4 (01:23:53):

I appreciate the Federal Reserve's announcement yesterday to end the use of reputational risk during banking examinations. This supervisory practice was used as a tool to pressure banks to refrain from offering financial services to politically-disfavored individuals or industries. What further steps is the Federal Reserve taking to help usher in these changes, such as ending examination practices that informally encourage banks to close certain accounts without written justification?

Hon. Jerome Powell (01:24:21):

So, I should say Vice Chair Bowman is developing a range of policies that will help in that area, and I should let her speak to it. But as you know, we've eliminated reputation risk, largely, in a thoughtful way from those things. I think we became more aware of that problem over the course of last year, and like the other agencies, decided to move away from that. We're very conscious of the fact that we shouldn't be telling banks who they can lend to, that that's a decision for them in the private sector.

Speaker 4 (01:24:53):

Let me ask you this. How are you ensuring though that the front-line examiners are aligned with this new direction and not continuing with any past practices?

Hon. Jerome Powell (01:25:04):

I will say that that is the ultimate question is will the… And I think they will. And I think as a former bank examiner, Vice Chair Bowman is actually very well positioned to engage with supervisors in a way that someone with experience can do successfully. Whereas if you don't have that experience, I think it might be harder.

Speaker 4 (01:25:28):

Thank you. Secretary Bessent recently announced a drive to change the culture of supervision through improvements to examination procedures, enhanced monitoring of examiner's compliance with those procedures and more realistic processes for appealing supervisory findings, that includes defining, unsafe and unsound by rule using more objective measures rooted in financial risk. Do you support this initiative and will we be seeing further rule changes at the Federal Reserve to achieve this goal?

Hon. Jerome Powell (01:25:57):

So, I like the sound of all that. I will say on issues of supervision, Vice Chair Bowman has significant authority. And also, she's got the background and the understanding, and the first thing I would do is I would ask her what she thinks about that.

Speaker 4 (01:26:11):

Yeah. Just changing direction on a couple of questions. During the volatility in the treasury markets last April, some have speculated that foreign investors were dumping treasury securities. Since then though recent data has showed that foreign investors holding of US treasuries held close to a record high in April. Does this data show that Treasury's safe-haven status and the dollar's global reserve currency status remain strong while the administration conducted trade negotiations?

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

I would say yes to that. I think we need to be careful about these narratives that pop up quickly. I mean, we're the world's reserve currency and the world's greatest democracy. And I think the dollar and is always going to be for, anyway, for a long time is going to be the reserve currency and the place where people want to be.

Speaker 4 (01:27:01):

Let me ask you this, do you believe there's a possibility that treasury markets will crack just as Jamie Dimon has recently warned at the Reagan National Economic Forum?

Hon. Jerome Powell (01:27:12):

I don't want to say things like that. I don't think that's something that's happening. Treasury markets are functioning well and normally and they did function through a period of pretty substantial stress. And as you pointed out, Mr. Moore, they're focusing well now.

Speaker 4 (01:27:25):

Thank you. With that, I yield back. And actually if Ms. Salazar is still here, I'll give her my remaining time. If not, I yield back, Mr. Chair.

Chairman French Hill (01:27:34):

The gentleman yields back. Chair recognizes Ms. Williams of Georgia. You're recognized for five minutes.

Speaker 5 (01:27:39):

Thank you, Mr. Chairman, and thank you, Chairman Powell, for being here. It's been a while since I've had the opportunity to ask questions sitting at the bottom of the room, but I am happy to have this conversation today because the last time we talked, last July, I mentioned that combating economic inequality is a critical part of the Fed's dual-mandate, and that is something that I am deeply, deeply interested in. Back then, we were talking about how we can get everyone in our economy to have the opportunity to contribute to their fullest potential because that's how we get our economy firing on all cylinders and work to continue to close the racial wealth gap, which my home city of Atlanta continues to lead the nation in.

(01:28:19)
That seems like such a far cry from where we are today, almost a year later. Forget our economy firing on all cylinders now our economy and our nation seem to just be on fire. We're looking at tariffs that are raising the prices of groceries, fuel, housing, and everyday goods. Chairman Powell, I get feedback every time I'm in a hearing about my nails because I like to get my nails done. And my nail tech told me about the increase in cost of so many of the different products that would be used just for me to get my manicure monthly because tariffs are frightening so many of our small businesses, which we know are the backbone of our economy. And so, it's hurting my community in Atlanta.

(01:29:02)
But it doesn't seem like our president and my Republican colleagues are really interested in making sure that our economy fires on all cylinders as long as billionaires continue to get richer, because that's what we've seen and all of the gutting that has been done to the federal government. And Chairman Powell, I'm sure that this is coming to your department as well. With the recent events that we've seen, we know that it is very dangerous to gut the federal government, agencies that we depend on and politicizing the work of agencies such as yours.

(01:29:42)
Chairman Powell, this current president has tried to reclassify tens of thousands of non-political public servants just to make it easier to fire them, and that includes people who have served in Democratic and Republican administrations. It even includes people who serve in independent agencies, just like yours. Chair Powell as a chair who our current and previous president routinely has threatened to fire, I think I just heard something on CNN today while you were here testifying, but what effect has this policy had on the career civil servants in your agency? And are these threats making it easier or harder for the Fed to do monetary policy?

Hon. Jerome Powell (01:30:22):

They're having no effect. We're doing our jobs.

Speaker 5 (01:30:25):

You're doing your jobs? I appreciate you doing your job even when it might not be easy. It is important to tune out the things that you hear on the media because I hear it every day representing a district that has a lot of federal employees, a lot of people who work at your agency. I hear from people all the time. Thank you so much.

(01:30:46)
And not only do I have thousands of federal employees in my district, but my district has one of the widest racial wealth gaps in the country. Much of that has to do with our worsening housing crisis. And unfortunately, as we've seen with the past six months, this administration has been focused on this big billionaire bailout bill, gutting HUD, and releasing a budget that does not help the supply a fair and affordable housing nationwide.

(01:31:13)
Now, we've heard the president talk about having the power to control interest rates. In your opinion, Chairman Powell, what would you expect the effects would be on the housing market if the president were to lower interest rates without addressing the housing supply crisis? nationwide?

Hon. Jerome Powell (01:31:28):

Sorry, if he were to what?

Speaker 5 (01:31:30):

So, the president has talked about having the power to control interest rates. In your opinion, what would you expect the effects would be on the housing market if the president were to lower interest rates without addressing the housing supply crisis nationwide?

Hon. Jerome Powell (01:31:47):

Honestly, it's not our job to speculate on things the president might do.

Speaker 5 (01:31:52):

Sorry. So, what impact do interest rates have on housing access?

Hon. Jerome Powell (01:31:58):

Over the long run, they don't really affect housing supply. Assuming that rates will go up and down-

Speaker 5 (01:32:05):

Well, not on the supply, but on the housing market. The supply is separate that we need to address going into this. If we're going to move interest rates up and down, that's not going to be the end-all be-all to getting people into housing. We must address the housing supply crisis, but what impact do interest rates have on the housing market in general?

Hon. Jerome Powell (01:32:26):

Well, interest rates really affect housing demand. So, with lower rates, you see more demand. And higher rates, maybe less demand.

Speaker 5 (01:32:33):

Thank you, Chairman Powell. I am out of time, but I have lots of questions that I continue to work to close the racial wealth gap in this country, specifically focused on my district in Atlanta where it's so prevalent. Thank you so much.

Chairman French Hill (01:32:46):

Gentlewoman's time has expired. The gentleman from Indiana, Mr. Stutzman, is recognized for five minutes.

Mr. Stutzman (01:32:51):

Thank you, Mr. Chairman. And Chairman Powell, great to see you. And again, as I've mentioned to you before, always appreciate your steady hand at the wheel

Mr. Stutzman (01:33:00):

… And not, I guess, getting out of your lane necessarily, but obviously you have a huge impact on the economy and what's happening there at the Fed.

(01:33:12)
I want to kind of follow up a little bit on housing, as I've been hearing a lot about the housing concerns in Northeast Indiana, and I know you're used to being beat up on a lot by folks all around the country. But I want to speak specifically to one particular individual, Cardone Capital, Grant Cardone. He made some pretty strong remarks about your policy when it comes to the housing industry. And he said that's why you have 500,000 more homes listed than buyers for those homes. When the rates come down, prices will also come down with it, because you'll have more supply in the marketplace and supply is what controls prices. He went on to say that interest rates do not control prices and he explained that lower rates could stimulate activity in the market and activity is what makes the economy work.

(01:34:13)
And I agree with his comments overall, but I believe, as you said earlier, the economy seems stable and I would agree with that coming from an ag and manufacturing area. It's not booming yet, but I believe most people are optimistic that the good times are coming and that the structure is set and in place. But when it comes to housing, it seems like that's where a lot of Americans are. They're stuck. They've had low rates, they've got a good mortgage rate, but if they want to make a move, they have to go out of that 3% interest rate into 4.5, 5 or higher percent interest rate. Thoughts on addressing housing because their prices are up for sure, but people aren't… there's no activity, the velocity is very slow. Would you like to comment on any of that?

Hon. Jerome Powell (01:35:07):

Sure. So yeah, we see the same thing you do in the housing market. It's tough. People are locked in, they can't afford to get out of their house because the cost of getting to a higher mortgage, higher price mortgage, would be a lot. So the best thing we can do though is to get inflation sustainably down to 2% and have it stay there over a long period of time. A long period of time. And that is really what we can offer to them.

(01:35:36)
And I think, so if you go back to the beginning of the pandemic when we cut to zero and we did all those programs, we really saved the housing industry because they're the front line for interest rates. At a time like this, when rates are, I would say, modestly restrictive… not even moderately but modestly restrictive… they feel it, and their customers feel it. We understand that, but we only have one tool for the whole economy, not just for housing. So it's something we consider, but we have to consider the bigger picture. And I do think in the medium term, as rates come down, you'll see normalization in housing. Of course, there'll still be a national housing shortage. I don't know about your district but…

Mr. Stutzman (01:36:17):

Yeah. No, there's a shortage. I mean, considering the macroeconomics of interest rates, how much consideration do you take housing into that decision as you address interest rates?

Hon. Jerome Powell (01:36:31):

We're always briefed on it, we always talk about it, and we always look at it. But at the end of the day, it's the big US economy, the whole aggregate thing, that matters. We also talk about the agricultural economy a lot as well, but ultimately… and manufacturing… it's got to be the whole and not any one particular piece.

Mr. Stutzman (01:36:51):

Yeah. I just would mention, it is hard for American families to make that move and they're stuck and so I would just highly ask you to consider that piece of it. Because when Americans can't move and Americans can't upgrade or move laterally even, it really keeps the economy in a… kind of holds the economy back a bit when Americans don't have that.

(01:37:17)
But again, I want to say thank you because you have a tough job, but I haven't heard from anyone in my district asking interest rates to go up, so I'll just pass that along from Indiana's 3rd District. With that, Mr. Chairman, I'll yield back.

Mr. Frank Lucas (01:37:30):

Gentleman yields back. The chair now recognizes the gentlewoman from Colorado. Ms. Pettersen is now recognized for five minutes.

Ms. Pettersen (01:37:38):

Thank you, Mr. Chairman, and great to see you, Chair Powell. Thank you so much for being here today. I want to thank you for your long service to our country. I know that you've served under many Democrats, Republicans, you've always been nonpartisan and done your job to put our country first, and we appreciate your steadfast leadership. And if you are not reappointed, it will be very missed here.

(01:38:06)
I have some concerns when I think about, and I know you've touched on this a little bit through the questions today, but around the independence of the Federal Reserve. Your job, no matter what president you served under, Republican or Democrat, was to make sure that this was not a political position while you brought news that some would not be happy about because it reflected what you had to do to address inflation. When I think about the conversations we've had going through the global pandemic and the economic fallout, and how we had to infuse money throughout our country to keep our services afloat, or our businesses afloat. And while we suffered from inflation like the rest of the world, we had the quickest, strongest recovery. We were leading the globe, and so much of that was because of your leadership.

(01:39:06)
And so when I think about what this position means, how important it is that there is independence, what are your biggest concerns about a potential successor that doesn't prioritize that, and wants to do what is politically asked of them versus what they need to do for the country? And what are the long-term repercussions if you're not acting on addressing the economic uncertainties and trying to address inflation in this position?

Hon. Jerome Powell (01:39:38):

So I wouldn't speculate on that, but I would say the credibility of the Fed on price stability is very, very important. People believe that we will bring inflation back down to 2% over time. And if they really do believe it and it's true, then that'll have big effects on not just short-term rates but long-term rates. If that were to be called into question, then you'd see long-term rates go up. I mean, that credibility, once lost, is very expensive to regain, is what the historical record says. So I think people should understand that that credibility on inflation is hard won and something we need to constantly tend. And that's what we're doing with our current policy is just being careful with potential inflation risks. We haven't overreacted, in fact, we haven't reacted at all, but we're being a little bit careful about that set of questions as we decide what to do next.

Ms. Pettersen (01:40:41):

And thank you for bringing that up. As we look at where we were, how far we had come in our economy, and things were starting to stabilize and we were starting to finally see a relief on the interest rates, they were starting to go down. Now they're holding steady. Can you talk about why the instability, when we look at tariffs around the increase in the deficit by the proposed big ugly bill that is being brought through Congress right now and increasing our debt by trillions of dollars, and having our credit downgraded again because we are increasing our deficit? So with this economic uncertainty, where we were going, we were on the way down for reducing our rates and now we have to hold steady to address the instability. Is that correct?

Hon. Jerome Powell (01:41:34):

I'm sorry, could you just briefly restate your question there? I apologize.

Ms. Pettersen (01:41:38):

Yes. I'm going to do this the best I can with Sam here. With having to address inflation as we've started to see it, you were able to decrease the rates. We were starting to go down a little bit. We were seeing that our economy was finally in a solid place. Prices were starting to go down. And now, with the economic uncertainty, we're starting to see that you had to hold steady, whereas everyone was projecting, before this administration came in with these changes, that it was going to continue to go down. Can you talk about why you have had to choose to hold steady on the interest rates?

Hon. Jerome Powell (01:42:20):

So we stick to what we're assigned to do, which is maximum employment and price stability. We don't have opinions on fiscal policy or trade policy or immigration policy, or any one of another, or regulation policy, other than that we have our regulatory responsibilities. And so we take what comes as it comes. And elected politicians do what they do and we don't criticize that. We don't have opinions [inaudible 01:42:48]-

Mr. Frank Lucas (01:42:47):

Gentleman's time is expired, and the gentlelady's.

Hon. Jerome Powell (01:42:50):

Thank you and thank you, Sam.

Mr. Frank Lucas (01:42:53):

Chair now recognizes the gentlewoman from Texas, Mrs. De La Cruz, for five minutes.

Ms. De La Cruz (01:42:59):

Thank you so much and thank you, Chair Powell, for being here with us today. I am Congresswoman Monica De La Cruz and I am from deep South Texas, a largely Hispanic district, a rural community right there on the border of Texas and Mexico. I serve as the vice chair for Housing and Insurance Subcommittee, and it's difficult for families right now to afford a home on an average paycheck. I'm committed to finding affordable housing solutions for the people in my community but also for all over the nation.

(01:43:42)
So Chair Powell, mortgage rates remain significantly elevated relative to treasury yields with spreads well above historical norms. To what extent does the Federal Reserve believe its balance sheet policy, particularly the runoff of MBS Holdings, is contributing to widening, and how does that factor into your broader assessment of financial conditions?

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

I don't think that our runoff of MBS is a particularly large contributor to that situation. I also think it's not just interest rates, it's so many things around housing now, it's insurance, it's materials, it's land acquisition, it's labor. There's so many cost pressures that are pushing up housing costs.

Ms. De La Cruz (01:44:35):

Thank you. With that being said, moving on to an entirely different topic, if the Federal Reserve focuses on issues outside its dual mandate, there are more opportunities for policy mistakes. How can you ensure that no other climate policy work is being done at the Federal Reserve?

Hon. Jerome Powell (01:44:58):

So it is a big risk to our independence if we were to stray into areas where we shouldn't, that really aren't part of our mandate, and I would agree that climate is the biggest risk. So we really did the bare minimum. We did much less than I think people understand in the climate area. All we did was one piece of guidance, and then we ran one stress scenario, and by the way, it didn't find anything. And I think you don't look to us to try to take on a bigger role or really to play any role in climate, which I personally think is an important issue and one that needs to be dealt with by elected officials. And for bank regulators just to step in and take that on, without a mandate from Congress, is not a good idea. It's not a good solution and it's not a good way to remain independent.

Ms. De La Cruz (01:45:48):

Reclaiming my time. What kind of climate guidance did you make?

Hon. Jerome Powell (01:45:55):

For just the big banks, I believe, we asked them to monitor their… to have a framework for which they would monitor their risks from lending. That's all it was. And I would say that guidance is something we're looking at pulling back.

Ms. De La Cruz (01:46:13):

When you say the risk for lending, the risk for lending based on political climate change, is that correct?

Hon. Jerome Powell (01:46:22):

Well, the idea was that the changing climate could… I mean, I'm not defending this, I'm telling you what the idea was. The idea was climate change would cause certain kinds of assets to lose value and that if banks are lending in those areas or to those industries, then they should at least be able to measure. It didn't ban anybody from doing anything. It wasn't prescriptive. At the same time, you have the feeling that the side effect of it would be to discourage lending and we don't want that to be the case, so that's why we're looking at it.

Ms. De La Cruz (01:47:02):

Well, it does sound like that is policy that is based on political agenda. And when it comes to banking, it should not be based on political agenda, but instead on facts. Facts such as credit, facts, as monetary, good monetary policy. So I would have to disagree with you on the fact that the Federal Reserve stayed outside or outside of political agendas when it comes to climate change. That is a political agenda and I would have to disagree with you on that. Thank you. I yield back.

Mr. Frank Lucas (01:47:42):

Gentlelady yields back. The chair now recognizes the gentleman from California, Mr. Sherman, who's also a ranking member of the Capital Markets Subcommittee, for five minutes.

Mr. Sherman (01:47:52):

We don't notice good bank regulation. In '23, we saw the effects of inadequate bank regulation where we lost three banks. There was a proposal that passed the House, that would've cut the pay rate of your bank inspectors, regulators, down to 70% of the rate paid by FDIC. So you would've been 70% of what the other major bank regulation agency did. I know you've announced things about headcount, but I'm focusing here on just the rate of pay. Fortunately, we were saved by not Superman, but Superwoman, Elizabeth MacDonough, the Senate parliamentarian. But what effect would it have had on our ability to have good bank regulation, if you had to go to all the folks in doing bank regulation at the Fed and say that their pay is going to be cut to 70% of the rate of pay over at the FDIC?

Hon. Jerome Powell (01:48:58):

It would've made it harder for us to attract or to retain personnel, it also would've knocked down something we've had for 90 years, which is a sort of a moat that allows us to take care of HR issues on our own without Congress.

Mr. Sherman (01:49:16):

Gotcha. I've got a couple of questions I'd ask you to respond for in the record. The first is Section 899 of the big ugly bill, Big Beautiful Bill, whatever you want to call it, enforcement of remedies against unfair foreign taxes. What this does is it imposes a tax on those residents of about two dozen foreign countries should they invest in the United States, including in our treasuries. And we're trying to attract capital from abroad. This is to push out capital abroad. And it doesn't affect China, it just affects two dozen of our friends, particularly in Europe.

(01:49:55)
The other thing I'd like you to respond for the record is the tariffs and the effect that that has not only on the inflation rate but therefore on interest rates. And at your press conference you said increases in tariffs this year are likely to push up prices and weigh on economic activity, and I'd certainly like to know more about that.

(01:50:21)
The Treasury has our reserves, but you also have a liquidity fund, which I believe involves buying and selling foreign currencies. And so that begs the question whether if you're allowed to buy the euro, whether you're allowed to buy cryptocurrencies, and of course the president has said that some agency of the federal government should have a strategic crypto reserve. Do you or your successors have the legal right to take assets of the Fed and buy Bitcoin or Trump Coin?

Hon. Jerome Powell (01:51:00):

No, we don't and we do not seek this authority.

Mr. Sherman (01:51:04):

I hope very much that your successor is not someone who tries to stretch existing statutes and come to an opposite answer.

(01:51:19)
Like to focus a little bit on when you came before our committee last, I guess, in February, I asked you if you would take a holistic look at bank capital requirements, including the risk-based capital ratios, like Basel III Endgame, and stress testing to make sure that you don't have a contraction in the ability to provide credit to Main Street businesses. And you said you would do that. So my question this time is how does the Fed plan to sequence the various capital requirement reform proposals that we expect to see in the coming months? In what order will you proceed with reforms on Basel III, weight risked capital, leverage ratio, stress testing, and the GSIB service charge, knowing that these have interactive effects? Can you tell us what the sequence will be?

Hon. Jerome Powell (01:52:15):

So I really do. This is at the heart of what the vice chair for supervision is assigned to do, is to bring proposals to the board and I read that as giving her the… she's the one who will decide that sequencing. You're right though, there are many things and it's really up to her to decide what's the timing, what's the priority, and I don't actually know exactly what, 'cause she's only been confirmed for a couple of weeks, so we're just getting going.

Mr. Sherman (01:52:41):

I hope with you as the head of the agency, even if she is supposed to decide the sequencing, that your agency would tell us what the sequencing is going to be. And understand how important it is for people to know what the order, those various regulations will have-

Mr. Frank Lucas (01:52:58):

Gentleman's time's expired.

Mr. Sherman (01:52:59):

… and I yield back.

Mr. Frank Lucas (01:53:00):

The gentleman yields back. The chair now recognizes the gentleman from Iowa, Mr. Nunn, for five minutes.

Mr. Nunn (01:53:07):

Well, thank you, Mr. Chairman, and thank you, Chairman Powell, for joining us again here. We have a saying, Iowa is nice, kind of boring, we want our Fed chairman to be just the same and you're doing a great job at that. We appreciate it.

Hon. Jerome Powell (01:53:19):

Thank you.

Mr. Nunn (01:53:21):

Nothing gets boring. We like that too. Look, you have a lot of great staff that come from Iowa as well. I appreciate you having them on your team. We also want to recognize the fact that folks in Iowa are still feeling the challenges of the last four years. We're middle America, it is the heartland of the country, but it also means that impacts that change things on the coast don't always get felt the same way in the Midwest. And so as a result, folks are stretching every dollar, as they face everything from higher grocery prices, eggs, to trying to buy just that first car, or even maybe that first home. And interest rates to them matter, as they do everywhere else, but there even more.

(01:53:58)
Now, I will offer the president has made great strides in making progress for Iowa families, and wage growth is moderating nationwide. Many Iowans still feel though that inflation spikes impact them. And with the president focused on rebuilding the middle class, I'd like to talk a little bit about how the Fed ensures that this heart of the heartland can feel the benefits of a soft landing as you've laid out?

Hon. Jerome Powell (01:54:26):

Oh, you're asking me how you will feel the benefits of the… Well, I would think… Pretty open-ended question and I think our goal is to keep the economy strong, the labor market strong, and price stability fully restored. So that's really what we can provide, is a long period of stable prices. And we define that, as Chairman Greenspan used to, which is people can make economic decisions in their families and their jobs, where they don't have to think about inflation all the time. And we're getting back closer to that place, but we're not quite there yet. That's the main thing we can now do. And once we restore price stability very soundly, that gives us the ability to react more strongly to downturns in the economy without having to worry about inflation. And so we have limited scope, but those are two very, very important things that we can deliver that benefit all families.

Mr. Nunn (01:55:20):

I would agree. So I guess, I would also like us to focus here on the short term. The Fed Reserve has slightly lower rates to ease borrowing costs for rural communities, and long- term trade negotiations strengthen our global position. Would you agree that the agricultural sector, in particular, is vulnerable to both interest rates and recognized international markets and how would the Fed evaluate the unintended consequences of policy on commodity-dependent economies in a state like Iowa?

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

So we have a number of our Federal Reserve Bank presidents represent districts which have extensive agricultural operations and families and farms. And so we hear from them kind of all the time, but we hear from them in great detail around every FOMC meeting, and we understand that time's pretty challenging right now in the agricultural sector. We take that into account. Ultimately, we're responsible for the aggregate level of the economy and for keeping inflation under control, and maximum employment, but we do very much think about and take into consideration the agricultural sector and the people in it.

Mr. Nunn (01:56:29):

We appreciate that evaluation. I know there are farmers back home as well, as our bankers, who value that because they're the ones providing the capital for it.

(01:56:37)
I want to talk a little bit on the national security side as the vice chair of NATSEC here. If foreign actors begin weaponizing treasury sales or dollar reserves, what tools does the Fed have to help preserve financial stability and the dollar's status as a reserve currency within the world?

Hon. Jerome Powell (01:56:53):

Essentially, what makes us the reserve currency is a few things. It is our great democratic institutions. It is that we have open capital markets, very open capital markets, and it is that we have price stability and the rule of law. Those are the things that make you the reserve currency, and you can keep that status as long as you maintain those things. Of those things, the thing that we contribute is price stability over the long run. So people who want to invest in or use the dollar, they can be confident in the value of the dollar over time, that it-

Mr. Nunn (01:57:27):

Both now and in the future.

Hon. Jerome Powell (01:57:28):

… won't fluctuate wildly or decline in ways that… And so that's our role. Really, Treasury is responsible for stewardship of the dollar, but we have that role to play as well.

Mr. Nunn (01:57:37):

Very good. In the brief time that I have left here, I just came back from a trip to Saudi and the Arab states. Big concern here, in the world we're living in right now with Iran looking at asymmetric ways to threaten the United States, cyber attacks have been on the rise. You got a question here earlier on cybersecurity. Help us feel confident that the Fed is doing everything they can to protect us from a cyber threat.

Hon. Jerome Powell (01:58:02):

So our part of it is the financial sector and the institutions we regulate, and they spend a lot of time and money on cybersecurity. We spend a lot protecting ourselves, and there are other parts of the US government that are very much involved in-

Mr. Frank Lucas (01:58:18):

Gentleman's time's expired.

Hon. Jerome Powell (01:58:19):

… making us aware of cyber issues and making sure that we're all ready. And we never sleep on this because it's always getting harder.

Mr. Nunn (01:58:26):

Thank you, Mr. Chair. I yield my time.

Mr. Frank Lucas (01:58:27):

Gentleman's time expired. The gentleman from California, Mr. Vargas, who's also a ranking member and my colleague on the Monetary Policy Task Force, is now recognized for five minutes.

Mr. Juan Vargas (01:58:37):

Thank you very much, Mr. Chairman, and thank you Ranking Member, appreciate it. And of course, Mr. Powell. Thank you very much, Chairman Powell, for being here. I'm 64 years old, you're a little bit older than I am. In my lifetime, I know what the most dramatic economic event is, at least that I believe. In your lifetime, what do you think is the most dramatic economic event that you lived through, as a country, as a world?

Hon. Jerome Powell (01:59:03):

So as an adult, I would say the global financial crisis and the pandemic-

Mr. Juan Vargas (01:59:10):

Oh, just one. You get to pick one.

Hon. Jerome Powell (01:59:11):

… are the two big events. Sorry?

Mr. Juan Vargas (01:59:12):

You get to pick one. You picked two. Just one.

Hon. Jerome Powell (01:59:14):

I would say there's a third, which would be the great inflation. So I'm going the wrong way here.

Mr. Juan Vargas (01:59:18):

You're going the wrong way. Yeah, just pick one.

Hon. Jerome Powell (01:59:20):

I'd say the global financial crisis was in a lot of ways scarier than the pandemic, for me.

Mr. Juan Vargas (01:59:27):

It's interesting because both of them were ones that I lived through too, and I have to tell you, the most dramatic for me was the pandemic in so many ways. I'd never seen anything like it, where everything closed down. I remember flying here from San Diego, where I live, on a 737 and there were four passengers. There were four of us on the plane. Of course some idiot sits right next to me, a tiny guy. What are you doing? You're stupid, move away.

(01:59:53)
But anyway, it is interesting that we didn't fall into the recession and we didn't fall into a depression. I was really scared about what was going to happen because of the way we closed down. We didn't know what was going to go… We didn't know what's going to happen. And I think a big reason for that was the strength that we had at the Fed, and the country came together and said, "We're going to figure this thing out," and we did that. You didn't panic. You guys were very independent. I think everyone did their job. The reason I say that is because I do worry about the independence of the Fed now going forward. So a question, can the president appoint himself as the Fed chair?

Hon. Jerome Powell (02:00:35):

It's a question, but not for me.

Mr. Juan Vargas (02:00:37):

You're the Fed chair. You should know. You should know what the requirements are to be the Fed chair. Can he appoint himself?

Hon. Jerome Powell (02:00:42):

I don't know.

Mr. Juan Vargas (02:00:43):

You don't know that question? Well, you're the Fed chair. What is the requirements to be the Fed chair?

Hon. Jerome Powell (02:00:50):

Confirmed by the… Nominated by the president, confirmed by the Senate. I think you probably have to be a US citizen probably, but I'm not sure.

Mr. Juan Vargas (02:00:57):

Okay. So, so far it seems like the president fits those. He's a US citizen, he can appoint, he can propose himself, and I assume that the senators over there could confirm. Why couldn't he become the Fed chair also?

Hon. Jerome Powell (02:01:09):

Again, not a question for me.

Mr. Juan Vargas (02:01:11):

Okay.

Hon. Jerome Powell (02:01:12):

I wouldn't speculate.

Mr. Juan Vargas (02:01:14):

The reason I ask that is because, again, I do think that we have a great system because of the independence of the Fed. And it worries me that more and more… And I assume, I'm not going to ask you this embarrassing question, although I would like to, whether you read all the things that he says about you? I'm sure you do or some people tell you, but I won't tell you what they are. But I'm glad you've been independent. And I think that that's so important because you do look at long-terms. It's not missed on you, you know that we want you all to lower the rates. You know that, both sides, right? You get that? The answer could be yes or no.

Hon. Jerome Powell (02:02:00):

Honestly, I'm not sure I do know that. I talked to my members privately-

Mr. Juan Vargas (02:02:04):

Well, I can say from our side we'd love to see the rates go down. And I've heard from a number of my colleagues on the other side, we'd love to see the rates go down.

Hon. Jerome Powell (02:02:11):

I talk to a lot of members-

Mr. Juan Vargas (02:02:12):

I think pretty unanimously we'd like to see it.

Hon. Jerome Powell (02:02:13):

… who say, privately, you're doing the right thing. I hear that from a lot of members privately. But in any case, we have to do… you were appointed and confirmed, my colleagues and I, to do what we think is right.

Mr. Juan Vargas (02:02:24):

That's exactly right and that's why I say it. Because I think it's not lost on you that we all want the rates to go down. In fact, it's really real when you say someone's locked in at 3% at their house, their interest rates, so they don't want to move and get a 7% rate. I mean, they don't want to pay that. That's real. My colleagues mentioned that and that's truthful. And that's why it's so important to be independent.

(02:02:44)
Now, lastly, I do want to ask, because again, it's so darn important to have an independent Fed chair and independent Fed. Secondly, the dual mandate. I respect the chairman very much and he's a friend. Hope that doesn't hurt him politically. But that being said, he did ask you a question about the dual mandate in a way that he quoted somebody else and said… Is that the way you see it? I do want to see how do you see the dual mandate? It seems to me that you gave a little bit of a preference to price stability over maximum employment. Is that the case?

Hon. Jerome Powell (02:03:18):

No. I think the two things are equal under the law. But if the thought is… We haven't defined it in exactly the way that the chairman said, but not [inaudible 02:03:31]-

Mr. Juan Vargas (02:03:32):

Do you agree with it at all?

Hon. Jerome Powell (02:03:32):

I do think it's a reasonable way to define it, which is the maximum employment is the maximum level that's sustainable or consistent with price stability over the long run. That doesn't make it, to me, an inferior goal.

Mr. Frank Lucas (02:03:43):

Gentleman's time has expired.

Mr. Juan Vargas (02:03:46):

Thank you.

Hon. Jerome Powell (02:03:46):

I think it's kind of implicit in a way.

Mr. Frank Lucas (02:03:48):

The chair now recognizes the gentlewoman from Michigan, Ms. McClain, for five minutes.

Ms. McClain (02:03:54):

Thank you, and thank you so much for being here, I appreciate it. As a business owner, a small business owner, myself,

Mrs. McClain (02:04:00):

Access to capital is extremely important to me. So, I want to talk a little bit about the Fed's balance sheet, and just get a better understanding of how we're thinking about it. I mean, some experts say that the Fed's balance sheet or large balance sheet is distorting the markets and keeping long-term rates, let's say, too low. Also, I think it limits the access to capital, right? Historically, if I'm accurate, the balance sheet's been about 4 trillion prior to the pandemic. Then we raised it, almost doubled it, to about 9 trillion, and now, it's on a downward trajectory to about 7.2, again, if my math is right. Do you think we're on the right track in shrinking this balance sheet?

Hon. Jerome Powell (02:04:51):

I do, yes.

Mrs. McClain (02:04:53):

Do you… I'm trying to get a sense of what the landing spot in your opinion should be. Do you think we'll get back to the 4 trillion?

Hon. Jerome Powell (02:05:02):

No. No. So, we're in what we call an ample reserves regime. What that means is that the quantity of reserves… Demand fluctuates, and this means the quantity of reserves can fluctuate without affecting interest rates, and we think that's a good thing. What that means is there's going to be a lot of liquidity in the banks and in the financial system. That's a good thing. There wasn't enough liquidity before the global financial crisis. That was one of the problems. We have some shrinking left to do on the balance sheet, but we're not going to get down as far as you asked.

Mrs. McClain (02:05:39):

Where do you think we'll land, because my… Let me start, I'm sorry. Where do you think we'll land?

Hon. Jerome Powell (02:05:42):

I can't give you an exact number, but we're going at a pretty modest pace now. We've slowed down, cut in half twice the speed. We think we can go for a good while at this speed, and we'll learn as we go.

Mrs. McClain (02:05:54):

So, you think the trajectory so to speak will remain?

Hon. Jerome Powell (02:05:57):

Yes, and I think the fact that it's quite a gradual trajectory now is going to enable us to find that level that is ample and not scarce. When reserves are scarce, you get a lot of volatility, and that doesn't help.

Mrs. McClain (02:06:10):

Sure.

Hon. Jerome Powell (02:06:10):

So, I think that's a good framework. The ample reserves framework, I think, serves the country well.

Mrs. McClain (02:06:16):

You're not concerned in terms of the access to capital. I mean, as a business owner, that's what I look at is I got to be able to get capital, and some people are saying we're really hanging onto our cash.

Hon. Jerome Powell (02:06:27):

Honestly, I think if you took the trouble to go back to a much smaller balance sheet, it would've no effect whatsoever on capital ability for companies. We wouldn't do that at all.

Mrs. McClain (02:06:36):

Why do you say that?

Hon. Jerome Powell (02:06:37):

We're not pulling capital away from companies. That's not what's happening. It's just you have a big balance sheet where there's a lot of liquidity. The result is there's a lot of liquidity. Banks are flush with liquidity for the most part, and that actually enables lending. It probably wouldn't have much of an effect one way or the other if you go back to a smaller balance sheet.

Mrs. McClain (02:06:58):

So, you're comfortable with the liquidity. You're comfortable with the access to capital. Excuse me.

Hon. Jerome Powell (02:07:03):

Yes. I mean, we look at credit availability for smaller businesses, and right now, conditions are a little bit tight.

Mrs. McClain (02:07:11):

It's tough for people in my district. It's tough.

Hon. Jerome Powell (02:07:14):

I would say that they're not terribly tight, but we do see that there's some tightness, but that's not really a function of the size of the Fed's balance sheet. That's just that banks are perhaps a little risk-averse in this uncertain environment.

Mrs. McClain (02:07:26):

I think it all marriage goes together and is intertwined, but I appreciate that. I want to just switch gears a little bit. Are you seeing any signs of financial instability building beneath the surface that we may not be seeing maybe on top of the surface, whether it's in commercial real estate, private credit, regional banking, I don't know, anything you're seeing underneath the surface that could derail the growth path that we should-

Hon. Jerome Powell (02:07:58):

Not really. No. I mean, you mentioned there are a lot of pots that we need to watch to see that they don't boil over. CRE, it's been a problem for five years. We're working our way through it. I think we're making good progress there. It's not getting worse. It's getting a little better. Private credit has its real positive attributes. A lot of… It's not funded by deposits, so as long as it's not funded by retail or by deposits, it's actually fine for financial stability, but it's a very big and fast-growing sector, and it hasn't been through a real downturn, and it's quite diverse. So, I think it bears close watching. I mean, asset prices are high, but leverage is not particularly high for corporations and households historically. It's not particularly high for banks. Banks are well capitalized, so I think overall, financial stability conditions are not in a place where we worry a lot.

Mrs. McClain (02:08:52):

So, we're really poised in a pretty good position economically.

Hon. Jerome Powell (02:08:57):

I think so, yes.

Mr. Frank Lucas (02:08:58):

Gentle ladies, time's expired.

Hon. Jerome Powell (02:08:58):

Absolutely.

Mrs. McClain (02:08:59):

Thank you, Mr. Chair. Thank you.

Mr. Frank Lucas (02:09:00):

Absolutely. The chair now recognizes the gentleman from Illinois, Mr. Casten, for five minutes.

Mr. Casten (02:09:04):

Thank you, Mr. Chairman, and Chair Powell, nice to see you again. We had spoken in February about some concerns I had about some of the cuts in some of our economic data reporting agencies. I think you'd said at the time that you didn't have a concern, but you would alert us if there were concerns. You'd mentioned this with Mr. Ricardo, and I gather, if I'm paraphrasing you, I think you said that you're not concerned about your access to data right now, but I think you said that you don't like the direction of travel. I wonder if you could speak to… Well, first, I'm going to work under the assumption that as the chairman of the Fed, you probably have more access to economic data than just about anyone in our country.

(02:09:43)
I am more worried about the impact on smaller businesses that don't have your access to data, whether someone thinking about hiring decisions, looking at regional inflation rates, all the data we get from those resources. If an efficient economy defends, at some level, on equal access to information, how concerned should we be that our business community with some of these cuts to DLS and elsewhere is not going to be able to allocate capital as efficiently as otherwise would be in this moment?

Hon. Jerome Powell (02:10:15):

The reality is that essentially all the data we use overwhelmingly is public data. The difference isn't that we have more access. The difference is that this is our job and we follow the data very, very closely, but the employment reports, the CPI reports, the analysis of that by many economists, internal and external. We just spend all of our time on this stuff, but I think large businesses have the exact same… Smaller businesses-

Mr. Casten (02:10:41):

Well, but I'm talking about BLS has announced they're cutting 350 indexes, so that data is no longer going to be public data.

Hon. Jerome Powell (02:10:49):

That's a different thing. So if you're asking about that, again, I don't want to say, and it wouldn't be true to say that we can't work. We can't do our jobs with the data that we have now. That's just not true. The data… Overall, we get the data. These jobs, you're always going to make mistakes. It's never going to be certain in any time. But I would say seeing that survey sizes are shrinking and we're seeing more volatility, for example, in the labor market data, lower response rates and things like that, that's not good. We should be getting better and better and better. I would add the private sector, by the way, we use more and more big private data, private sector data sets, and that is a relatively new thing for the last five or 10 years.

Mr. Casten (02:11:33):

Sure. Oftentimes-

Hon. Jerome Powell (02:11:33):

It doesn't replace… The U.S. government data has been the gold standard.

Mr. Casten (02:11:37):

I guess, I get concerned because some of those data sets, of course, you have to pay for, and not every business can afford that. I want to… Staying on the data point and picking up on what Mr. Himes was saying, I think only a fool would predict they know what's going to happen in the Middle East right now, but I get concerned that trying to handicap… The Saudis have been very open that they would like to not see the price of oil get above a point where they're going to lose market share, much to the dismay of U.S. Frackers. U.S. Frackers have been wanting to see it go the other direction. I don't know how to handicap which group is going to have more impact on Trump right now, but I would like to have some smart person out there taking a position on what is happening in oil markets and the energy information administration who's now announced they're not going to run the international energy outlook anymore.

(02:12:28)
Should we be concerned about that piece of data as we think about what's happening in global energy markets right now, given all the pressures between various suppliers of where they'd like to see the price go and the wild card that is Iran and the Red Sea?

Hon. Jerome Powell (02:12:45):

I don't particularly know that specific report. I know there are many, many, many entities that do data analysis around energy and oil and the availability of it and the price of it and all those things. So, I can't speak to that one report.

Mr. Casten (02:13:05):

Okay. Well, I mean, again, just my own experience before coming here, I relied a lot on that, and if I was in my past job, I would now basically have to reply on the International Energy Agency, which in general was not as robust as the DOE data. So, it's a gap. I guess maybe I'll just close with, I think, a lot of this gets tied together with the Office of Financial Research, which would presumably be synthesizing a lot of this information for you. Your predecessors, Janet Yellen and Ben Bernanke, both recently urged the opposition to cuts in office of financial resource that are in the bill that the Republicans are pushing through. Do you share your predecessors' concerns about the importance of that agency to synthesize some of this disparate things so that you can do your jobs, that the American people can do your job, or do you share the views of the Republican Party that that agency is not necessary?

Hon. Jerome Powell (02:13:56):

I'm not going to take position on the bill, on the reconciliation package on specific issues like that that don't relate to us. I will say generally, and everyone at the Fed is a big fan of good data collection.

Mr. Frank Lucas (02:14:11):

Gentlemen, time has expired. The chair now recognizes the gentleman from Montana, Mr. Downing, for five minutes.

Mr. Downing (02:14:16):

Thank you, Mr. chair. Our national debt now exceeds $36 trillion. Congressional Republicans have made it our mission to rein in out-of-control spending from repealing the green news scam, and acting common-sense Medicaid and snap reforms and rescinding wasteful spending. Mr. chairman, you've repeatedly said our national debt is not currently at an unsustainable level, but it is on an unsustainable path. Can you describe what the point of no return looks like when our debt reaches an unsustainable level?

Hon. Jerome Powell (02:14:51):

So, there's no way to know exactly what that is, but ultimately if the debt is growing substantially faster than the economy by definition at some point, it will not be sustainable. So, we don't have oversight responsibility over the fiscal authorities, but that's traditionally what my predecessors have limited themselves to saying and I'll say it too.

Mr. Downing (02:15:15):

What effect would that have on the economy?

Hon. Jerome Powell (02:15:18):

You'd see rates go up. It would be very challenging too. I think if you wait too long to fix the problem, you'll have to fix the problem eventually. If you wait too long, it'll be much more painful.

Mr. Downing (02:15:29):

Yes, I believe the U.S. dollar status as the global reserve currency is essential. It allows the U.S. to borrow at lower costs which stimulates economic growth and increases standards of living. The Trump administration is actively negotiating to ensure we are no longer taken advantage of by our trading partners. At a previous monetary policy task force hearing, all of the witnesses agreed that the recent volatility in the treasury markets did not permanently damage the dollar's global reserve currency status. Do you agree?

Hon. Jerome Powell (02:15:58):

I do.

Mr. Downing (02:15:59):

Thank you, sir. Let me turn to oversight of the Federal Reserve. I certainly believe that had the Federal Reserve responded faster by raising interest rates earlier to combat the inflation crisis of the previous administration, that interest rates would not be as high as they are now. I hear frequently from my constituents that they're increasingly getting priced out of the housing market while interest rates remain near record highs despite the rate of inflation coming down. So Mr. Chairman, I appreciate the Fed's increased transparency under your leadership, and you've always welcomed Congressional oversight into the Fed. I also appreciate the comments you've made about the limits of our knowledge demanding humility. So with that in mind, can you point to oversight practices of other governments into their central banks that could be replicated with the Federal Reserve?

Hon. Jerome Powell (02:16:51):

That's an interesting question. I want to think about that. I'll come see you, and we can talk about that.

Mr. Downing (02:16:55):

Thank you, sir.

Hon. Jerome Powell (02:16:56):

I think we have effective oversight from this committee and from the other committee in the Senate, and I think that's important.

Mr. Downing (02:17:02):

Would you be supportive of an outside independent group of analysts or economists that conducts a periodic review of the Fed's economic assessments and modeling?

Hon. Jerome Powell (02:17:13):

Those are ideas I'd like to think about and discuss privately before.

Mr. Downing (02:17:16):

So, do you have any other ideas to increase oversight in the Federal Reserve?

Hon. Jerome Powell (02:17:22):

I think like my predecessors, I've fostered more and more transparency at the margin and I think that's appropriate. I think transparency is critical if we're to maintain our democratic legitimacy. So, I've tried that, but I'll devote some more thought to that question.

Mr. Downing (02:17:41):

Well, I look forward to following up, and I thank you for your responses. On that, Mr. Chairman, I yield

Mr. Frank Lucas (02:17:47):

Gentleman yields back. The chair now recognizes the gentleman from Texas, Mr. Gonzalez, for five minutes.

Mr. Gonzalez (02:17:52):

Thank you, Mr. Chairman, and thank you, Chairman Powell for being here with us today. I understand that commenting on some policy issues are outside of your purview, but I have one that I think is heavily impactful on the American economy right now. I want to underscore the scale and impact of the ICE raids that we're seeing across the country. Peer research estimates that over 10.5 million undocumented individuals live in the United States, more than 3.3% of the population today. According to the Nonpartisan American Immigration Council, removing this workforce could cost the U.S. economy between 1.1 and 1.7 trillion in GDP and billions in tax contributions including 22.6 billion in social security and 5.7 billion in Medicare funds that are increasingly critical as our population continues to age.

(02:18:48)
These are resources that are paid by these have been here for a long time. Many of them have been here for a very long time. That's why I plan to introduce the Save the American Workforce Act, which would establish an employee-sponsored temporary work authorization for undocumented immigrants who have been in the country for three years or longer and have never been in any kind of trouble, no criminal liability or nothing else. Additionally, last week, I sent a letter to President Trump urging him to halt indiscriminate deportations, and issue an executive order that would do exactly what my bill does to protect American businesses that need a workforce. The last I heard, I think we have 7 million open jobs. We have a record low unemployment, which is great, but we have 7 million open jobs that we cannot fill by American workers.

(02:19:33)
What economic consequences would we face if these individuals were removed from the workforce even further hurt the situation that we're in? Could this disrupt the economy even more severely than what we experienced during the great recession?

Hon. Jerome Powell (02:19:48):

So as you might expect, Mr. Gonzalez, immigration policy is just not for the Fed to comment on or to let alone make. So, I'm reluctant to engage with you on that.

Mr. Gonzalez (02:20:03):

Okay. Well, I want to talk to you something a little differently. We have… This is a banking issue. Banks are making billions of dollars of construction loans across the country that are timeline, and contractors are not able to fulfill their obligation because they don't have the labor force in the middle of the jobs to finish. I mean, I'm hearing stories in Texas at least where people are pouring concrete at midnight. Are y'all having any conversation with the administration on how this could impact the economy and our GDP?

Hon. Jerome Powell (02:20:39):

So, we have very deep connections all over the country through the Reserve banks, and we hear some of the same stories. But for us, we're not the policymakers here. We don't report this to the administration. We don't just publicly have a view on it. It just is what it is. So, we're our responsibility, maximum employment, price stability. Many, many other factors affect those goals, but we don't make those goals. We don't make the policy in those extraneous areas, which include things like energy, for example, or immigration or fiscal policy or any number of things. We try to stick to our knitting because that's how we remain independent.

Mr. Gonzalez (02:21:21):

We're living in such unconventional times that I would love to have that. It would be great if you all were having those conversations in the administration. But moving on, the U.S. dollar has also long been the world's dominant reserve currency, but that position is facing growing pressure. As of 2024, BRICS nations led by China and including Brazil, Russia, India and South Africa have stepped up efforts to reduce their reliance on the dollar in global trade. China, for instance, has expanded the use of the yuan in energy transactions and cross-border payments while BRICS is actively developing alternative payment systems that could erode the dollar's global role. At the same time, inconsistent and unpredictable economic policies from the White House have contributed to a drop in the dollar's value now at its lowest level in three years.

(02:22:14)
What risk does a weakening dollar pose to our economy, particularly to U.S. borrowing costs, inflation, financial stability as China and BRIC nations expand their efforts to challenge the dollar's global dominance?

Hon. Jerome Powell (02:22:28):

So by long agreement and custom and tradition, the Treasury Department has responsibility for the dollar and dollar stewardship. I would say we also are involved in payments policy, and we're very aware, we and the other major economy. Central banks are very aware of other payment developments and working on ideas to make sure that the payment systems that support the dollar and other major currencies of the democracies are well- supported by that infrastructure.

Mr. Frank Lucas (02:23:02):

Gentlemen, time's expired.

Mr. Gonzalez (02:23:03):

Thank you. I yield back

Mr. Frank Lucas (02:23:04):

Gentleman's, time has expired. The chair now recognizes the gentleman from Florida, Mr. Haridopolos, for five minutes.

Mr. Haridopolos (02:23:09):

Thank you very much, Mr. Chairman. Thank you, Chairman Powell for being here today and answering these questions for us is very much appreciated. Looking back over the last few years, I think the question a lot of people have been asking me as they really were suffering through the challenges with higher prices across the board, I know they got as high as over 9% inflation in 2022. There's a lot of discussion about was it Ukraine? Was it transitory? Was it post-COVID? What was the reason? As you look back now in those years, and this is your field of expertise, if you look back and you're teaching a history class, what would you blame the increase in prices on back at that time period?

Hon. Jerome Powell (02:23:48):

So, I'll start with the fact that it was extremely global. So, we saw there literally was a point at which not a single country in the world had inflation 2% or below. So, it was everywhere. So, you have to look at common factors, and I would say that the pandemic and the closing of the global economy and then the reopening of it in all cases with some support, that's a big part of the story. Clearly though, there's a role in that for fiscal policy. There's a role in that for monetary policy, and I like to think all of those factors were involved. But when it happens everywhere in the world, you can't look to one thing. You got to look to something, a common factor, and I think that common factor is what happened around the pandemic.

Mr. Haridopolos (02:24:32):

Sure. Good. Build on that idea. I hate it, Monday morning quarterback, but if you had to do it over again, you had this opportunity. As you know, the rates stay pretty flat in 2021 as inflation creeped up. What would you do differently today if you had the opportunity to look back and make some changes?

Hon. Jerome Powell (02:24:52):

I have perfect hindsight in this.

Mr. Haridopolos (02:24:54):

Yes, sir, if you had it.

Hon. Jerome Powell (02:24:55):

Sure. So clearly, I would've raised rates a little earlier. I honestly don't believe it would've made much difference to the outcomes, but we would've looked a lot smarter, but that's something I would've done. The other thing is ultimately, we did get all the way back to 2% inflation just about without having a big increase in employment. So, that was not at all expected. I don't know how that would've affected my behavior, but somehow things really came out much better than everyone had anticipated was that it would take high unemployment to restore inflation, but it didn't.

Mr. Haridopolos (02:25:35):

The other pressure point that I hear a lot of people talking about is this idea of the tariff issue. I've heard from months now that the sky is falling, but it seems at this point at least that the inflation rate is pretty steady. How many months of steadiness do you need before you might look at an even larger rate cut from the 4.33, I think, we have today?

Hon. Jerome Powell (02:25:58):

So, you're right. Inflation, the non-tariff parts of inflation that we've been working on for three, four years are behaving really well. That was our forecast, but it's good to see it coming true. I would say we expected that tariffs take a while to work their way through the distribution chain several months. I would say we would expect to see meaningful effects June, July, August. If we don't, we'll be learning something. We have a highly adaptive flexible economy, and it's certainly a possibility that the tariffs that we expect will come through in a much smaller level.

(02:26:40)
We can't know that until we actually see it, but I think we'll be learning as we go. If we see that, then that would lead us to want to cut earlier. The other thing that would lead us to want to cut earlier is if we actually did see some weakness in the labor market of a troubling nature, and we don't see that. Those are the two things we'll be looking for.

Mr. Haridopolos (02:26:56):

The last question I'd ask is at that same time period, as you put it, the global issue of inflation, I get that, but at the same time period, there's pretty radical increase in spending in 2021 by the federal government. What factor did that play in the inflation level?

Hon. Jerome Powell (02:27:11):

Certainly a factor I would say. As I mentioned, fiscal policy definitely played a role. I think if you take a step back from those things, what happened was demand came back so much stronger than we expected. You remember if in late '21, early '22, you had the pandemic still going on, Omicron going, was it 21? Yeah, 21 into 22, and demand was just much stronger than people expected. By the way, the supply side was much slower to recover. So, that's the labor force. That's all of the snarled up supply chains. The supply side took a long time to recover, and demand was much stronger. That story created the high inflation. Behind that, tariffs, I mean, sorry, fiscal policy played a role, the spending did. Monetary policy played a role, and the pandemic played a role.

Mr. Haridopolos (02:28:02):

You would agree that the government spending did play a significant role in that as well?

Hon. Jerome Powell (02:28:06):

Yeah, I would say that.

Mr. Haridopolos (02:28:07):

Thank you. Thank you, Mr. Chairman

Mr. Frank Lucas (02:28:10):

Gentleman yields back. The chair now recognizes the gentleman from Illinois, Mr. Foster, who's also ranking member of the financial institution's subcommittee for five minutes.

Mr. Bill Foster (02:28:20):

Thank you, Mr. Chair. Following up actually on Rep. Gonzalez's line of questioning, so in addition to your dual mandate, do you believe that preserving the U.S. dollar and the primacy of the U.S. dollar is part of your job description?

Hon. Jerome Powell (02:28:38):

I think it's something. It's not formally part of our job, but yes, it's something that we care about, and we certainly wouldn't want to undermine that, but that's really… Treasury has the primary role around the dollar. That's been the case for some time now.

Mr. Bill Foster (02:28:52):

I was just wondering how you deal with the worldwide drop in investor confidence, in dollar- denominated assets, frankly due to a president who disregards conventional economic theory and whose answer to nearly every question seems to be, "Well, I haven't decided yet, or maybe I'll give you an answer in a couple weeks." Maybe I'll just comment. It must be challenging. Now, one of the things I've been very concerned about in terms of the job market is artificial intelligence and the coming impact there. We're seeing predictions by the leaders of the leading AI firms that within one to two years, a majority of entry-level white-collar jobs will be gone. Then there are products that are being released to market that propose to do pretty much exactly that.

(02:29:39)
I anticipate pretty high uptake of those things to essentially eliminate back-office operations in small businesses, things like that, or intermediate-sized businesses. We're already seeing layoffs in the big tech firms. Microsoft had a big round of layoffs where 40% were computer coders and maybe another 20% supervisors of computer coders. So, I was just wondering, what analysis is the Federal Reserve doing about that job shock, and how is it going to affect your dual mandate when it lands perhaps as early as the next year or two?

Hon. Jerome Powell (02:30:14):

So, I think economists everywhere are doing work analyzing the potential implications of AI for employment and some of the very things that you mentioned. We're certainly both consumers and producers of that kind of research. I don't think anybody… I certainly can't make any positive statements with great confidence about what will happen, but there's certainly a possibility that at least at the beginning, AI will replace a lot of jobs rather than just augmenting people's labor. Over a long run, the history shows that generally new technology raises productivity and creates new jobs over time, but it can be disruptive in the very short term. Anyone who's been exposed to AI has to be stunned with what it's capable of.

(02:31:10)
If you think, "Oh, this is just the beginning," they say that two years from now, the things you're looking at will be left and left behind by the continued development. So, I think it is certainly everything you would want in a transformational technology and I think the unknowable, but certainly to be important effects on the labor market. I hear the same things you mentioned from CEOs that they can see a way to significant reductions in employment, but I don't think we know that.

Mr. Bill Foster (02:31:42):

Yeah, but the question is are you developing a playbook for this shock? Part of your job is to look at tail risks, and this is probably not even a real tail risk at this point. A lot of the CEOs think it's more probable than not. Law firms just not hire the same number of junior associates just across the economy. Are you actually developing a playbook in case the shock is real, and what you may or may not be able to do with monetary or policies?

Hon. Jerome Powell (02:32:12):

The playbook is really in your hands and in the private sector's hands. We will be trying to maximize employment, and that will be what we do. At the same time, we maintain price stability. So, we don't have the tools to… You're talking about transitioning people into new jobs and new lives.

Mr. Bill Foster (02:32:32):

Before AI wipes out those new jobs you're retraining them for. Okay, well, but think about it. I urge you to think about it and what you will do if that job shock hit. So last week, Fed put out a request for information on ways to mitigate check and payment fraud. Despite a decline in the use of checks, check fraud is really very prevalent, and I was happy to join Chair Hill in sending you a letter and other banking regulators as well as FinCEN urging action. Can you summarize what you have in mind doing in response to that letter, or what you've learned when the outreach that resulted from it?

Hon. Jerome Powell (02:33:15):

So, this is on the check fraud thing. I just know we just started a request for information, and I think we're starting a process of gathering a bunch of information, really focusing on that issue.

Mr. Frank Lucas (02:33:25):

Gentlemen, time has expired.

Mr. Bill Foster (02:33:27):

If you could say what you're actually going to do in response to that.

Mr. Frank Lucas (02:33:29):

Gentlemen, time has expired.

Mr. Bill Foster (02:33:31):

Thank you. I yield back.

Mr. Frank Lucas (02:33:33):

The gentleman yields back. I now recognize myself for five minutes. Chair Powell, we've discussed this several times before, but the issue remains so I continue to raise it. I sent you a letter several months ago urging you to seek public comment and permanently revisit the SLR and ESLR, particularly given the constraints, current calculations, places on, market participant's ability to intermediate in the Treasury market. I'm glad to see that you're meeting tomorrow to discuss the issue. I know you've discussed this with Mr. Flood, but I want to clarify a couple of things. The last time you testified before the committee, you said you were concerned about the levels of liquidity in the treasury market, and that one obvious thing to do would be to reduce how binding the SLR on intermediate capacity. Are you considering changes in the SLR and ESLR, and will you consider exempting treasuries and reserves from the SLR and ESLR?

Hon. Jerome Powell (02:34:36):

So, I do think we've effectively raised the capital tax on all kinds of intermediation activities, and that certainly includes treasury market activities. So, I've long favored leverage ratio reform. So, we're putting out a document for comment, which will seek comments on one particular proposal and alternatives

Hon. Jerome Powell (02:35:00):

… understand that proposal as I mentioned earlier.

Mr. Frank Lucas (02:35:03):

Which I think answers my next question, which will you look at changes at the leverage ratios that constrain a bank's ability to participate?

Hon. Jerome Powell (02:35:10):

Yes, that's the idea.

Mr. Frank Lucas (02:35:14):

In your view, would allowing netting mechanisms for derivatives on treasuries encourage participation in the market? And would you consider looking at that with your prudential counterparts?

Hon. Jerome Powell (02:35:25):

This is for derivatives?

Mr. Frank Lucas (02:35:27):

Mm-hmm.

Hon. Jerome Powell (02:35:29):

My first phone call on that would be to Vice Chair Bowman to ask her what she's planning, but I'm certainly open to that conversation.

Mr. Frank Lucas (02:35:36):

Absolutely. Let's discuss the framework review. You said that the review of the consensus statement is complete, but potential changes to communication strategies and tools may continue into the fall. When can we expect the framework review to be complete and will you provide opportunities to receive feedback from members, industry, and the public on any changes the board is considering?

Hon. Jerome Powell (02:35:59):

So, the framework review, there are two parts of it. There's the consensus statement, which contains our monetary policy framework, and then there's communications. On the first, the framework, we've had the meetings that we needed to have to talk about the employment mandate and the price stability mandate and how we might change the framework. Now, comes the discussion between participants on the committee, all 19 of us, about exactly what language to use in the new framework. And we're just entering that phase between these two meetings and at the July meeting. And hopefully, we'll be able to announce something near the end of the summer. I expect that that will be… And by the way, we've talked about, we've laid this out a little bit in the minutes as we go.

Mr. Frank Lucas (02:36:47):

One last question, the NPR notes that the FOMC's policy deviates from the first difference policy rule, will you provide a justification for why the FOMC decided against that path?

Hon. Jerome Powell (02:37:02):

Against the first difference rule or the… Well, as you probably know, there are five rules that we talk about there, and the first difference rule is the one that calls for a price hike. The other four say that we're in the right place. So, the Taylor rules generally are very supportive for where we are. It so happens right now. The first difference rule is a very interesting concept, which we can talk online, which has a lot of appeal, but it can be a little bit volatile too. And right now, it's calling for a rate hike. The other four are calling for us to hold our policy where it is.

Mr. Frank Lucas (02:37:38):

The irony. Thank you, Mr. Chairman. I yield back the balance of my time and I turn to the gentleman from Oregon, Mr. Bynum, for five minutes. Ms. Bynum for five minutes.

Rep. Bynum (02:37:49):

All right, thank you, Mr. Chair. I want to start off with just a foundational belief I have. This Big Beautiful Bill is trash and is actually increasing our costs, but thank you for being here today. I was just back home and saw firsthand that businesses across the country, across my state, are worried about inflation and rising costs, and particularly for our state where we make chips, we import/export agriculture and we have apparel. So, just want to level set there.

(02:38:24)
My Republican colleagues have actually been focused today on asking you to lower interest rates, but they're seeming to ignore the market chaos that the president has caused. So, my first question is, it's my understanding that one of the key responsibilities of the Chair of the Federal Reserve is to stabilize prices and fight inflation. Is that right?

Hon. Jerome Powell (02:38:45):

Yes.

Rep. Bynum (02:38:46):

By my count, the president, President Trump has changed or announced the new tariff or delay of previously announced tariffs 19 times. And so, has the president's ever- changing tariff made it easier or harder to stabilize prices and fight inflation?

Hon. Jerome Powell (02:39:05):

So, I, by practice, never comment on things the president does or says.

Rep. Bynum (02:39:12):

Has the administration's policies on tariffs-

Hon. Jerome Powell (02:39:15):

Or the administration.

Rep. Bynum (02:39:18):

Has the change in policy on tariffs made it easier or harder?

Hon. Jerome Powell (02:39:24):

It's not up to us to judge these changes. These are things that elected politicians get elected and do, and it's just not our job. Our job is to provide stable prices and maximum employment to the public, and that's what we do. So, we do expect there will be a set of price increases from… Some of the price increases from tariffs will flow through to the consumer. We don't know whether that will be persistent or how large it will be. And so, right now, we're in a watch-and-wait mood until we have a better sense.

Rep. Bynum (02:39:57):

Is your sense that back-to-school will be affected, the holiday season would be affected? You mentioned it a little bit earlier on how… You didn't say the exact timeframe, but you thought maybe a few months, we would start to see changes from tariff impact.

Hon. Jerome Powell (02:40:12):

I think we're going to be learning as we see. Before the July meeting, we'll get an inflation report well before that and we expect to start to see meaningful increases through the goods channel. And if we don't see that, then that'll be telling us something. We'll be learning from that. And by the way, we'll also be looking at the labor market. If it weakens unexpectedly, we'll be looking at that too. We will continue to adapt to the evolving situation as we have been doing.

Rep. Bynum (02:40:42):

Thank you. So, what market conditions would make it so that the Federal Reserve would be able to lower interest rates, which would also lower costs?

Hon. Jerome Powell (02:40:52):

So, as I just mentioned, I would say if we were to see that inflation is not coming through as our forecast and other public forecasts have suggested, that would push us in the direction of being able to cut sooner. Also, if the labor market were to weaken, that would push us in the direction of being able to cut sooner. I think if the opposite happens, if the labor market remains strong and we do see higher inflation, I think we will still get around to cutting, but it would be later rather than sooner.

Rep. Bynum (02:41:26):

What do you think American families are expecting from the Federal Reserve?

Hon. Jerome Powell (02:41:32):

Stable prices and maximum employment, that's what we want to deliver and we want people to feel so confident of price stability that they never think about inflation. That's where we were for a very long time and we've made a lot of progress back to that place, but we're not quite there yet, and we're going to finish that job.

Rep. Bynum (02:41:52):

Is there a plan that the administration has presented on how it plans to lower costs as opposed to providing tax breaks for billionaires?

Hon. Jerome Powell (02:42:00):

Again, I don't really… It's really not up to me to discuss the administration's priorities or policies.

Rep. Bynum (02:42:07):

I'm going to quickly switch gears here. It seems to me like you're under a lot of pressure from the president to address the national debt. True? False?

Hon. Jerome Powell (02:42:17):

Sorry?

Rep. Bynum (02:42:18):

Are you under pressure from the president to address the national debt?

Hon. Jerome Powell (02:42:23):

So, our role is maximum employment and price stability. Fiscal policy is the responsibility of Congress. And so, it's not really within our ambit.

Rep. Bynum (02:42:35):

I think that despite all of the talk about national debt, this Big Beautiful trash bill, continuing to do that will actually raise the national debt. So, thank you for answering the questions today and continuing to work to lower cost.

Mr. Frank Lucas (02:42:51):

And the lady's time has expired.

Rep. Bynum (02:42:52):

Thank you, Mr. Chair.

Mr. Frank Lucas (02:42:52):

Thank you. The Chair now recognizes the gentleman from Kentucky, Mr. Barr, who is Chairman of the Subcommittee on Financial Institutions for five minutes.

Rep. Barr (02:43:02):

Thank you, Mr. Chairman, and thank you, Chairman Powell, for the generosity of your time. We're at the witching hour, but appreciate your endurance. And with respect to my friend's, the gentlelady's line of questioning, would a recession that would potentially result from a massive tax increase, a 4-trillion-dollar tax increase, would a recession help the debt and deficit picture?

Hon. Jerome Powell (02:43:26):

No. Tax receipts would go down and all that.

Rep. Barr (02:43:31):

Yeah, so I think this sky-is-falling scenario about the One Big Beautiful Bill, we have to put into context. And I'm not asking you, Chairman Powell, to comment on this, but this is my editorial response to my colleague. A massive 4.5-trillion-dollar tax increase that would put us into a recession is not a recipe for fiscal discipline.

(02:43:52)
Chairman Powell, let me switch gears to tariffs. Governor Waller argued in a speech earlier this month that tariffs might result in just a one-time price increase as opposed to increasing long-term inflation expectations, especially since this Congress has not pumped massive spending into the economy as Democrats did under President Biden. On this issue of a one-time price increase versus inflation expectations, do you generally agree with Governor Waller's analysis?

Hon. Jerome Powell (02:44:23):

So, I do agree that basically if things are a one-time increase, then you don't respond to them. That's the whole idea, is there's a shock to prices. It could be an oil shock. It could be a tariff shock. Generally speaking, you don't respond if you are highly confident that it will just be a one-time shock.

(02:44:46)
I think the current situation though is a complicated one, and I think a number of my colleagues and I feel like it's a decision we need to take with some care. And the reason is because we're not at price stability. In 2018 and '19, when the president's tariffs were put into place, not only did we not raise rates, we cut rates three times that year because the tariffs were so much smaller. These tariffs are many times larger and they do raise more concern in 2019. We hadn't had high inflation in 30 years. Now, we're only a few years reduced away from high inflation.

(02:45:22)
So, I think we think that they may well prove to be a one-time thing, but in the meantime, it's a decision we want to approach with some care.

Rep. Barr (02:45:31):

I think we made a lot of progress towards getting closer to that 2% goal. Does the Fed take into account the disinflationary fiscal policies, like supply-side tax cuts, deregulation, and more energy production that could be a counterweight to whatever one-time price increase that might materialize as a result of tariffs?

Hon. Jerome Powell (02:45:50):

So, we look at aggregate inflation, not any particular kind. And I'm very gratified at the performance of services inflation, which has come down now. That was the very sticky inflation. So, I think, overall, the inflation picture is actually pretty positive.

Rep. Barr (02:46:05):

Chairman Powell, we're looking forward to this rulemaking later this week addressing treasury market liquidity. Can you talk about how banks are constrained from holding US treasuries and other low-risk assets on their balance sheet as a result of these restrictive leverage ratios?

Hon. Jerome Powell (02:46:27):

Yes. When banks are bound by the leverage ratio, when that's the binding capital constraint, then that's going to make low-risk, low-return assets something you don't want to hold. And so, lots of fairly low-risk intermediation, including treasury market intermediation, gets taxed to the point with capital requirements that you just see less of it. So, I've always thought that it would be better if we had a leverage ratio that was a backstop rather than the binding thing. And that's what this proposal is going to do.

Rep. Barr (02:47:01):

Well, let me preemptively thank you and Vice Chair of Supervision Bowman for working on SLR reform to accommodate more bank holdings of treasuries to stabilize our treasury markets. Finally, I'm pleased to see that the Fed join its interagency counterparts and announced that you no longer plan to consider reputational risk in your examination process.

(02:47:24)
Senator Scott and I introduced the FIRM Act to stop the weaponization of the supervision process, to stop the targeting of politically unfashionable groups. Our bill requires regulators to focus on the true risks as opposed to political factors. What was the Federal Reserve's thought process and implementing this common sense reform?

Hon. Jerome Powell (02:47:48):

That it's common sense. And I think this is an area where we've learned over the last couple of years that there really was a problem here. The reports were louder and louder and more and more troubling. So, we just thought, let's take this off the table. It may have been unintentional-

Mr. Frank Lucas (02:48:05):

The gentleman's time has expired.

Hon. Jerome Powell (02:48:06):

… on the part of banks that just there was so much… It was just such a-

Mr. Frank Lucas (02:48:09):

Gentleman's time has expired.

Hon. Jerome Powell (02:48:10):

… fraught issue that banks turned away people with… They didn't intend to discriminate. That's what the bank-

Rep. Barr (02:48:16):

Thank you for helping to [inaudible 02:48:17] the banking system.

Mr. Frank Lucas (02:48:16):

The Chair will announce his membership. We will recognize Mr. Torres and Mr. Loudermilk then adjourn for our 1:00 PM agreed to hard stop time. And with that the gentleman of New York, Mr. Torres, is recognized for five minutes.

Rep. Torres (02:48:29):

Thank you. Chair Powell, you spoke about elevated uncertainty and declining sentiment in the US economy. Do you believe, as I do, that the economy would be in a better position but for the elevated uncertainty and declining sentiment created by the Trump tariffs?

Hon. Jerome Powell (02:48:47):

I don't want to be criticizing policies. I will say uncertainty has-

Rep. Torres (02:48:52):

Wait. It's fair to say that the policy created uncertainty.

Hon. Jerome Powell (02:48:56):

It's fair to say uncertainty was very elevated, but it's also fair to say that that uncertainty has actually come down since the peak, if you will, in April. I think there's a different feeling out there now than there was two months ago and it's more constructive feeling on the part of businesses, which you must be feeling too.

Rep. Torres (02:49:16):

But it's higher than it otherwise would be in the absence of The Liberation Day tariffs. To what extent was the elevated uncertainty a factor in keeping the Fed from cutting interest rates?

Hon. Jerome Powell (02:49:27):

I think that's part of it. The truth is we were cutting rates and we paused in January and haven't cut rates since. And really, the reason is that we, like other forecasters, do expect a fairly substantial wave of price increases to come through to the consumer and then to measured inflation. We've always said the timing, amount, and persistence of all that is highly uncertain. I think we hadn't expected to see it until now. We now begin to think it is time for us to be seeing that. And if we don't see it, that will matter. If we do see it, that will matter. So, we've just taken a cautious approach to not moving our policy rate until we have a little more confidence about the size and likely effects of that.

Rep. Torres (02:50:12):

Chair Powell, following the so-called Liberation Day tariffs in early April, we saw something the US economy had not seen in decades, a flight not to the US dollar as a safe haven, but away from it. And since President Trump's inauguration, the US dollar index has fallen by nearly 10%, marking the worst first half performance for the dollar since 1986. At the same time, Japan, America's largest sovereign creditor, just saw the worst 20-year Japanese government bond auction since the 1980s raising fears that it could reduce its holdings of US treasuries.

(02:50:49)
Given these developments, do you believe, as I do, that the US may be transitioning from a period of dollar dominance to a period of dollar decline?

Hon. Jerome Powell (02:50:58):

Well, let me say the Fed does not have responsibility for the dollar. That's really the Treasury.

Rep. Torres (02:51:04):

But I'm asking for your analysis.

Hon. Jerome Powell (02:51:06):

I wouldn't make that statement, no. I think things have been volatile. The markets are digesting things, and I think the treasury market's been fine. By many measures, the dollar is still-

Rep. Torres (02:51:18):

You feel the safe haven status of the dollar is as strong as it's ever been?

Hon. Jerome Powell (02:51:23):

I think the dollar is still the number one safe haven currency and I don't think it's… I would say these narratives of decline are premature and a bit overdone.

Rep. Torres (02:51:34):

I want to ask about the debt. The Big Beautiful Bill would have ugly consequences for our nation's finances, adding more than $2 trillion to the debt if the provisions are temporary and far more if made permanent. We've accumulated World War II levels of debt not during a world war, but during peacetime. Interest payments on the debt have become the largest item in the federal budget after Social Security, surpassing Medicaid, Medicare and military defense.

(02:52:04)
To what extent is the US at risk of entering a debt spiral in which rising interest costs lead to ever-larger deficits, which in turn lead to ever-larger interest cost?

Hon. Jerome Powell (02:52:15):

I think that the US federal budget is on an unsustainable path. The debt is not at an unsustainable level right now, but the path is not sustainable. And I think the sooner we deal with that, and by we, I mean you, the better.

Rep. Torres (02:52:33):

The Trump administration has championed the unitary executive theory, the notion that the president has absolute power over all entities that wield executive power. That theory, if taken to an extreme, would all but abolish the independence of the Federal Reserve. If monetary policy became nothing more than an expression of presidential will and whims, what havoc would that wreak on the US economy?

Hon. Jerome Powell (02:53:00):

I think that independent central banks have proven over time to be a valuable and critical institutional practice. And I think that is because, basically, advanced economy democracies around the world have given their central banks a degree of operational independence. They assign them goals; you go do this and you stick to those things, but we'll let you… You may choose the means of achieving those goals. It's called instrument independence but not goal independence. And I think it's a very-

Mr. Frank Lucas (02:53:32):

The gentleman's time has expired.

Hon. Jerome Powell (02:53:34):

… a very important practice.

Mr. Frank Lucas (02:53:35):

Gentleman's time has expired. Chair now recognizes our last member of the day, the gentleman from Georgia, Mr. Loudermilk, for five minutes.

Rep. Loudermilk (02:53:42):

Well, thank you, Mr. Chairman. Chairman Powell, it's good to see you again. And I'm going to be brief, so maybe we can get out of here right at time. As some of my colleagues know, I chair the Bipartisan Payments and Fintech Caucus along with a fellow Georgian on this committee, Representative Davis Scott. And in the past, you and I have talked about payment-related issues like FedNow. But today, I'd like to ask you about the failure of Synapse Financial Technologies, a third-party service provider that connects banks with non-bank FinTechs and what it means for the bank and the non-bank ecosystem.

(02:54:19)
Last year, dispute between Synapse Financial Technologies and Evolve Bank & Trust revealed a shortfall in customer savings deposits of 65 to $95 million. There are still thousands of individuals who are not able to access their funds, including some of my constituents. So, the question is, could you provide an update on what the Federal Reserve is doing to ensure that customers regain access to their funds? And is there anything that the Federal Reserve is considering to help prevent situations such as this going forward?

Hon. Jerome Powell (02:54:48):

So, I don't have a lot of specifics for you on that. I am assured that we're still very much doing everything we can to try to get people their money back and to avoid similar occurrences.

Rep. Loudermilk (02:55:00):

Okay. Well, I said I was going to be brief and that was a brief answer. So, with that, I yield back, Mr. Chair.

Mr. Frank Lucas (02:55:06):

Gentleman yields back. The Chair would like to thank Chairman Powell for his testimony today. And without objection, all members will have five legislative days to submit additional written questions for the witness to the Chair. The questions will be forwarded to the witness for his response. And Chair Powell, please respond no later than January 29th, 2025. This hearing is adjourned.