CARES Act Oversight of Treasury and the Federal Reserve — Senate Banking Committee Hearing
Summary
Hearing titled CARES Act Oversight of Treasury and the Federal Reserve: Building a Resilient Economy, before the Committee on Banking, Housing, and Urban Affairs of the United States Senate, dated November 30, 2021. It examines testimony from the Secretary of the Treasury and the Chairman of the Federal Reserve, as required under Title IV of the CARES Act. The witnesses are Janet L. Yellen, Secretary of the Department of the Treasury, and Jerome H. Powell, Chairman of the Board of Governors of the Federal Reserve System. Chairman Brown's opening statement says 5.6 million jobs were created this year and unemployment dropped to 4.6 percent, and Senator Toomey also gives an opening statement.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
- Issuer
- Congressional materials
- Document type
- Congressional Hearing
- Case
- Chrg Chrg 117Shrg52248 Chrg 117Shrg52248
Cite this document
“CARES Act Oversight of Treasury and the Federal Reserve — Senate Banking Committee Hearing.”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/chrg-chrg-117shrg52248-chrg-117shrg52248/
, SHA-256 f8a042983004cfdd4a9b8259c1e4e8c4f829b0ea95421ac286dce926a450263e.Full text
S. HRG. 117–670
CARES ACT OVERSIGHT OF TREASURY AND THE
FEDERAL RESERVE: BUILDING A RESILIENT
ECONOMY
HEARING
BEFORE THE
COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING TESTIMONY FROM THE SECRETARY OF THE TREASURY AND THE
CHAIRMAN OF THE FEDERAL RESERVE, AS REQUIRED UNDER TITLE IV OF
THE CARES ACT
NOVEMBER 30, 2021
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
(
Available at: https: //www.govinfo.gov /
U.S. GOVERNMENT PUBLISHING OFFICE
52–248 PDF WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
LAURA SWANSON, Staff Director
BRAD GRANTZ, Republican Staff Director
ELISHA TUKU, Chief Counsel
COREY FRAYER, Professional Staff Member
DAN SULLIVAN, Republican Chief Counsel
CAMERON RICKER, Chief Clerk
SHELVIN SIMMONS, IT Director
CHARLES J. MOFFAT, Hearing Clerk
(II)
C O N T E N T S
TUESDAY, NOVEMBER 30, 2021
Page
Opening statement of Chairman Brown ................................................................ 1
Prepared statement ................................................................................... 45
Opening statements, comments, or prepared statements of:
Senator Toomey ................................................................................................ 4
Prepared statement ................................................................................... 46
WITNESSES
Janet L. Yellen, Secretary, Department of the Treasury ..................................... 6
Prepared statement .......................................................................................... 47
Responses to written questions of:
Chairman Brown ....................................................................................... 51
Senator Toomey ......................................................................................... 53
Senator Warren ......................................................................................... 59
Senator Rounds ......................................................................................... 59
Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve
System ................................................................................................................... 7
Prepared statement .......................................................................................... 49
Responses to written questions of:
Chairman Brown ....................................................................................... 60
Senator Toomey ......................................................................................... 61
Senator Menendez ..................................................................................... 66
Senator Warren ......................................................................................... 69
Senator Van Hollen ................................................................................... 70
Senator Sinema ......................................................................................... 72
Senator Scott ............................................................................................. 73
Senator Rounds ......................................................................................... 74
ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD
Washington Post article submitted by Senator Tillis ........................................... 76
(III)
CARES ACT OVERSIGHT OF TREASURY AND
THE FEDERAL RESERVE: BUILDING A RE-
SILIENT ECONOMY
TUESDAY, NOVEMBER 30, 2021
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room G50,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman BROWN. The Committee on Banking, Housing, and
Urban Affairs will come to order. Today’s hearing is in the hybrid
format. Our witnesses are in person. Members have the option to
appear either in person or virtually.
For those joining remotely, a few reminders. Once you start
speaking there will be a slight delay before you are displayed on
the screen. Please click the Mute button to minimize background
noise. All of you have been through this before so I do not think
I need to lay out all that we are doing.
Our speaking order, though, will be as usual, that is by seniority
of the Members who have checked in before the gavel came down,
either in person or virtually, and then by seniority of Members ar-
riving later, alternating between Democrats and Republicans.
Last week, many Americans sat down with family and friends to
celebrate Thanksgiving. I start with taking a moment to thank the
workers that made that possible, many of whom did not get the
day off—farm workers, grocery store workers, restaurant workers,
auto workers, delivery workers, longshore workers, and so many
others who touch our lives. These are the people who make our
economy work. It is something that the Treasury Secretary and the
Fed Chair need to always keep in mind.
Under the Biden-Harris administration, our economy is bouncing
back. It is getting stronger every day. We created 5.6 million jobs
this year. The unemployment has dropped to 4.6 percent, and
weekly unemployment claims dropped to under 200,000 last week,
the lowest level not just since the pandemic began, but in over 50
years, since 1969.
Of course raw jobs numbers alone do not tell the whole story.
They do not tell you how good the job is, what kind of wage it pays.
And on that front, the news is even better. Workers are starting
to finally get a little bit more power in our economy. Last year, cor-
(1)
2
porations called their workers essential, and then many turned
around and cut hazard pay—if they ever offered it at all—and cut
corners on safety, to make sure their profits did not take a hit. Or
worse, they laid off loyal, long-time employees in the midst of a
public health crisis.
They cannot make those record profits without someone to actu-
ally do the work, though. Today, American workers are demanding
what they have earned. After years of stagnant wages, shrinking
benefits, and no control over their schedules, workers are standing
up for themselves and for each other, and asking for their fair
share of the profits they create.
We just saw the United Auto Workers win better pay and better
retirement benefits after a 5-week strike of John Deere. It was
good for non-union employees too—this is typical—who got a bump
in pay too.
For too long, corporate greed has kept paychecks down and prices
up. Corporations ‘‘cut costs’’ at workers’ expense to juice quarterly
earnings numbers, even when they are already plenty profitable.
Executives reward themselves with record profits and stock
buybacks, while arguing they cannot afford to pay higher wages to
anyone else, or cannot afford to lower prices.
During a once-in-a-generation global pandemic, despite the sup-
posed ‘‘labor shortages’’ and inflation fears, Wall Street banks and
corporations still managed to rake in record profits. Profits at the
biggest U.S. companies shot above $3 trillion—3,000 billion dol-
lars—this year, and the margins keep growing. And now, while
working families are just starting to get back on their feet,
megacorporations would rather pass higher costs onto consumers
than to cut into their already large profits.
To continue the progress we have made, we need to rethink that
old system.
The Biden administration is creating jobs and bringing down
costs for families to build a resilient economy for the long run. The
biggest costs families face have been rising for years, in many cases
decades—housing, health care, prescription drugs, childcare, pre-
school. The Democrats’ agenda will bring down all these costs.
We passed the American Rescue Plan, which got shots in arms
and money in pockets, including the Child Tax Credit, the largest
tax cuts for working families ever that has helping millions of fami-
lies afford childcare and keep up with the cost of living. Ninety per-
cent of families in Pittsburgh and Cleveland and Toledo and Phila-
delphia, 90 percent of families with children under 18 are getting
at least a $3,000 tax cut.
We passed the bipartisan infrastructure bill to upgrade our ports
and transit systems, to revitalize manufacturing here in the United
States, to secure supply chains, to create millions of good jobs.
Two weeks ago, the House passed Build Back Better which will
bring down childcare, housing, health care and other household
costs, and extend the child tax credit, the biggest tax cut, as I said.
Now, the Senate must act.
The ongoing pandemic has also exposed longstanding weaknesses
in our supply chain. Global supply chain disruptions and increased
demands as our economy rebounds are causing higher prices in cer-
tain sectors.
3
Secretary Yellen and Chair Powell are keeping an eye on this,
and the more we can get the virus under control and understand
its variants, the faster we will see these disruptions subside. We
are already seeing some progress.
The bipartisan infrastructure plan’s investment in our ports will
help speed up our supply chains in the long-run. Passing my Sup-
ply Chain Resiliency Act would further reshore and strengthen
U.S. supply chains.
There is also an even simpler, short-term fix available. Corpora-
tions could—could—lower their prices. Executives could get a
slightly smaller pay bump this year and stock buyback plans could
be put on hold, instead of raising costs for customers. Again, that
is the choice they face. They could take a slightly smaller pay
bump this year. They could cut back on their stock buyback plans,
actually put them on hold, instead of raising costs for consumers.
There is no inexorable law that says profits for those at the top
must continue to rise and rise and rise in perpetuity, even at the
expense of everyone and everything else in the economy. Corpora-
tions can get away with it—we know this. I have had these con-
versations with Chair Powell and Secretary Yellen. They can get
away with it because they have too much power in our economy.
That makes it all the more vital that we not pull back on empow-
ering workers. The Fed cannot pump the brakes on our economic
recovery too soon, before workers get a chance to fully rebound, and
I mean all workers. Women, who finally started to make significant
job gains last month, were disproportionately forced out of the
labor market as many took on the extra jobs of full-time caregiver
and homeschool teacher. The Black unemployment rate is still
twice that of White workers. That is increasingly unacceptable.
A resilient economy is an economy where full employment means
everyone can get a job—a good job, that pays a living wage and al-
lows you to build a career and raise a family. And it is an economy
where everyone shares in the benefits of growth, and where our
progress is not gambled away by Wall Street greed.
Instead of doing Wall Street’s bidding, we all—and I include the
Fed, the Treasury Department, and this Congress—we all need to
support the institutions that work at serving their neighbors and
contributing to the real economy. That means supporting small
business and creating paths to home ownership. That means sup-
porting institutions like MDIs and CDFIs that serve communities
that the banks ignore. That means making sure workers have
power in our economy and share in the prosperity they create.
Corporations and their allies in this building—and there are a
whole lot of them—want you to believe that we have to choose be-
tween high wages and low prices. That is a false choice. We can
have an economy where you earn a living wage and you can afford
the things you need to live—childcare, health care, education, hous-
ing, and groceries. Our economy can be a reflection of our values
as Americans, one that recognizes every worker’s potential, from all
walks of life and from every corner of our country.
President Biden recently announced his intention to renominate
Chair Powell to lead the Federal Reserve, and Governor Lael
Brainard to be the Vice Chair. They have helped lead our economy
through the pandemic, and I will continue to work with both of
4
them, and the next Federal Reserve nominees that reflect the di-
versity, in thought, in gender, and race, the diversity of the Sec-
retary and the Chair on how they plan to build a resilient economy
that works for everyone.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator TOOMEY. Thank you, Mr. Chairman. Secretary Yellen
and Chairman Powell, welcome back to the Committee. Chairman
Powell, congratulations on your renomination. Despite our several
disagreements, I look forward to supporting your confirmation.
When the pandemic hit in 2020, Chairman Powell acted swiftly
to stabilize financial markets and the economy. He also imple-
mented a number of sensible regulatory reforms that helped to
spur economic growth. And for those who would criticize those ef-
forts, I suggest they look at the past 2 years. Our economy, and our
financial system, experienced a very severe, real-world stress test
during the worst days of the pandemic, and we came out of it with
the best capitalized banking system in American history.
While I support Chairman Powell’s renomination, I am very con-
cerned about whom President Biden may nominate to fill other
seats on the Fed Board given some of the radical financial regu-
lators he has nominated so far. Just consider his radical nominee
to serve as the Comptroller of the Currency, the Nation’s top bank-
ing regulator.
Members of the Fed Board ought to have exceptional qualifica-
tions and an appreciation for the Fed’s narrow statutory role on
monetary policy and banking supervision. We need Fed nominees
who are focused not on social policy, but rather the alarming bout
of inflation that we are currently experiencing. Inflation is at a 31-
year high. Just last month, the consumer price index increased by
6.2 percent year over year.
Price hikes are everywhere, from the cost of a Thanksgiving
meal, which rose by 14 percent over last year, to the pump, where
gas has reached as high as $6 a gallon in some places.
Inflation is a tax that is eroding Americans’ paychecks every day.
Even though wages are growing, inflation is growing faster and
that is causing workers to fall further and further behind.
I have been warning about the risks of higher and more per-
sistent inflation since January. Unfortunately, the Fed has decided
to continue its really emergency monetary policy, adding fuel to the
inflationary fire, long after the economic emergency had passed.
Earlier this month, I was glad to see the Fed finally announce
a long-overdue taper of its bond-buying program. Quantitative eas-
ing should be used in emergencies only, and we are well past the
need for such support.
Our economy took a nosedive in the second quarter of last year,
but by the third quarter of 2020, it had largely recovered. And yet
here we are in November 2021, and the Fed is still buying more
than $100 billion in bonds each month.
The Fed should have started tapering nearly a year ago. But in-
stead it is expected to continue buying bonds through next June.
And on interest rates, which are currently near zero, the Fed is
still maintaining a wait-and-see approach.
5
I am somewhat relieved that Chairman Powell has recently spo-
ken about the heightened risks of higher and more persistent infla-
tion and has indicated his determination to control it.
Unfortunately, the Biden administration and many of our Demo-
crat colleagues in Congress are not willing to do their part to limit
inflation. Instead, they are exacerbating the problem and then
blaming inflation on their usual suspects—greedy corporations.
Apparently, some of my colleagues believe that companies were
for years generously leaving money on the table and only now have
thought to raise prices to maximize profits. Well, this is a cynical
fib meant to distract from the fact that congressional Democrats’
extremely liberal policies are contributing to the price hikes hitting
Americans’ wallets.
Just take energy prices, for example. President Biden kicked off
his presidency by taking measures to curb our Nation’s energy sup-
ply. He terminated construction of the Keystone Pipeline, a tremen-
dous source of oil. He placed an indefinite ban on new oil and gas
leases on Federal land.
Meanwhile, on the demand side, the Administration and Demo-
crats in Congress have propped up demand for energy with their
March 2021 $1.9 trillion stimulus bill. It is no wonder then that
Americans are seeing skyrocketing energy prices. When you de-
crease supply, and then subsidize demand, prices go up. That is
basic economics.
Unfortunately, the Administration has not learned its lesson. It
is still pushing a multitrillion-dollar reckless tax-and-spend plan
that will contribute to more inflation and damage our economy. Its
plan is a massive expansion of the welfare State, and it will be par-
tially paid for by large tax increases that will hurt American fami-
lies and make the U.S. a less competitive place to do business.
The intent of this plan is to fundamentally transform the rela-
tionship between the Federal Government and the middle class. It
is about socializing many ordinary responsibilities that middle-in-
come families have always assumed, including by providing free
preschool, free paid leave, and free childcare, just to name a few.
Democrats are attempting to hide the unprecedented enormity of
this tax-and-spending spree through budget gimmicks. According to
the nonpartisan Penn-Wharton budget model, the House version of
the Build Back Better plan will cost $4.6 trillion over 10 years if
the bill’s temporary provisions are made permanent, as the Demo-
crats plan and hope. As Senator Manchin has noted, Democrats are
using, quote, ‘‘shell games,’’ end quote, to hide the true cost of this
inflation.
I hope that Democrats will reconsider their misguided efforts to
double down on the reckless spending that has contributed so much
to the highest inflation that Americans have experienced in 31
years.
Chairman BROWN. Thank you, Senator Toomey.
I will introduce today’s witnesses. We will hear from Treasury
Secretary Yellen, Federal Reserve Chair Powell, on their agencies’
continued actions to recover from the pandemic and build a resil-
ient economy that works for all Americans. Thank you both for
your service. Congratulations again to you Chair Powell, and thank
you for your testimony today.
6
Madam Secretary, if you would begin. Thank you.
STATEMENT OF JANET L. YELLEN, SECRETARY, DEPARTMENT
OF THE TREASURY
Secretary YELLEN. Chairman Brown, Ranking Member Toomey,
Members of the Committee, it is a pleasure to testify today.
November has been a very significant month for our economy,
and Congress is a large part of the reason why. Our economy has
needed updated roads, ports, and broadband networks for many
years now, and I am very grateful that on the night of November
5, members of both parties came together to pass the largest infra-
structure package in American history.
November 5th, it turned out, was a particularly consequential
day because earlier that morning we received a very favorable jobs
report—531,000 jobs added. It is never wise to make too much of
one piece of economic data, but in this case it was an addition to
a mounting body of evidence that points to a clear conclusion: Our
economic recovery is on track. We are averaging half-a-million new
jobs per month since January, and GDP now exceeds its
prepandemic levels. Our unemployment rate is at its lowest level
since the start of the pandemic, and our economy is on pace to
reach full employment 2 years faster than the Congressional Budg-
et Office had estimated.
Of course, the progress of our economic recovery cannot be sepa-
rated from our progress against the pandemic, and I know that we
are all following the news about the Omicron variant. As the Presi-
dent said yesterday, we are still waiting for more data, but what
remains true is that our best protection against the virus is the
vaccine. People should get vaccinated and boosted.
At this point, I am confident that our recovery remains strong
and is even quite remarkable when put in context. We should not
forget that last winter there was a risk that our economy was going
to slip into a prolonged recession, and there is an alternate reality
where, right now, millions more people cannot find a job or are los-
ing the roofs over their heads.
It is clear that what has separated us from that counterfactual
are the bold relief measures Congress has enacted during the cri-
sis—the CARES Act, the Consolidated Appropriations Act, and the
American Rescue Plan Act. And it is not just the passage of these
laws that has made the difference, but their effective implementa-
tion.
Treasury, as you know, was tasked with administering a large
portion of the relief funds provided by Congress under those bills.
During our last quarterly hearing, I spoke extensively about the
State and local relief program, but I wanted to update you on some
other measures.
First, the American Rescue Plan’s expanded Child Tax Credit
has been sent out every month since July, putting about $77 billion
in the pockets of families of more than 61 million children. Fami-
lies are using these funds for essential needs like food, and in fact,
according to the Census Bureau, food insecurity among families
with children dropped 24 percent after the July payments, which
is a profound economic and moral victory for the country.
7
Meanwhile, the Emergency Rental Assistance Program has sig-
nificantly expanded, providing much-needed assistance to over 2
million households. This assistance has helped keep eviction rates
below prepandemic levels.
This month we also released guidelines for the $10 billion State
Small Business Credit Initiative program, which will provide tar-
geted lending and investments that will help small businesses grow
and create well-paying jobs.
As consequential as November was, December promises to be
more so. There are two decisions facing Congress that could send
our economy in very different directions.
The first is the debt limit. I cannot overstate how critical it is
that Congress address this issue. America must pay its bills on
time and in full. If we do not, we will eviscerate our current recov-
ery. In a matter of days, the majority of Americans would suffer
financial pain as critical payments, like Social Security checks and
military paychecks, would not reach their bank accounts, and that
would likely be followed by a deep recession.
The second action involves the Build Back Better agenda. I ap-
plaud the House for passing the bill and am hopeful that the Sen-
ate will soon follow. Build Back Better is the right economic deci-
sion for many reasons. It will, for example, end the childcare crisis
in this country, letting parents return to work. These investments,
we expect, will lead to a GDP increase over the long term without
increasing the national debt or deficit by a dollar. In fact, the off-
sets in these bills mean they actually reduce annual deficits over
time.
Thanks to your work, we have ensured that America will recover
from this pandemic. And now, with this bill, we have the chance
to ensure America thrives in a postpandemic world.
With that, I am happy to take your questions.
Chairman BROWN. Thank you, Secretary Yellen.
Chair Powell, you are recognized. Thank you for joining us.
STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. POWELL. Thank you, Chairman Brown, Ranking Member
Toomey, and other Members of the Committee for the opportunity
to testify today.
The economy has continued to strengthen. The rise in Delta vari-
ant cases temporarily slowed progress this past summer, restrain-
ing previously rapid growth in household and business spending,
intensifying supply chain disruptions, and, in some cases, keeping
people from returning to work or looking for a job. Fiscal and mon-
etary policy and the healthy financial positions of households and
businesses continue to support aggregate demand. Recent data sug-
gest that the post-September decline in cases corresponded to a
pickup in economic growth, and GDP appears on track to grow
about 5 percent in 2021, the fastest pace in many years.
As with overall economic activity, conditions in the labor market
have continued to improve. The Delta variant contributed to slower
job growth this summer, as factors related to the pandemic, such
as caregiving needs and fears of the virus, kept some people out of
the labor force despite strong demand for workers. Nonetheless, Oc-
8
tober saw job growth of 531,000, and the unemployment rate fell
to 4.6 percent, indicating a rebound in the pace of labor market im-
provement. There is still ground to cover to reach maximum em-
ployment for both employment and labor force participation, and
we expect progress to continue.
The economic downturn has not fallen equally, and those least
able to shoulder the burden have been the hardest hit. In par-
ticular, despite progress, joblessness continues to fall disproportion-
ately on African Americans and Hispanics.
Pandemic-related supply and demand imbalances have contrib-
uted to notable price increases in some areas. Supply chain prob-
lems have made it difficult for producers to meet strong demand,
particularly for goods. Increases in energy prices and rents are also
pushing inflation upward. As a result, overall inflation is running
well above our 2 percent longer-run goal, with the PCE price index
up 5 percent over the 12 months ending in October.
Most forecasters, including at the Fed, continue to expect that in-
flation will move down significantly over the next year as supply
and demand imbalances abate. It is difficult to predict the persist-
ence and effects of supply constraints, but it now appears that fac-
tors pushing inflation upward will linger well into next year. In ad-
dition, with the rapid improvement in the labor market, slack is di-
minishing, and wages are rising at a brisk pace.
We understand that high inflation imposes significant burdens,
especially on those less able to meet the higher costs of essentials
like food, housing, and transportation. We are committed to our
price-stability goal, and we will use our tools both to support the
economy and a strong labor market and to prevent higher inflation
from becoming entrenched.
The recent rise in COVID–19 cases and the emergence of the
Omicron variant pose downside risks to employment and economic
activity and increased uncertainty for inflation. Greater concerns
about the virus could reduce people’s willingness to work in person,
which would slow progress in the labor market and intensify sup-
ply chain disruptions.
To conclude, we understand that our actions affect communities,
families, and businesses across the country. Everything we do is in
service to our public mission. At the Fed we will do everything we
can to support a full recovery in employment and achieve our price-
stability goal.
Thank you. I look forward to your questions.
Chairman BROWN. Thank you, Mr. Chair. Secretary Yellen,
thank you for your comments on the debt ceiling. We have 2 more
weeks. We know failing to get this done will hurt families in small
businesses and our whole economy.
I want to ask you about something else though. The Wall Street
Journal reported 2 weeks ago the two-thirds of the largest publicly
traded companies had larger profit margins in 2021 than in 2019
before COVID–19.
In 2020, top CEOs made 351 times the income that a typical
worker made. Even during an ongoing pandemic when faced with
increased demand and supply chain issues, big corporations refused
to cut their own profits, they raised prices on people, they com-
plained about having to pay workers more, never mind the fact
9
they have been giving themselves raises for years without it im-
pacting their prices. Meanwhile, the cost of housing and medical
care and almost everything else for most workers has been rising
for years.
You have said, Secretary Yellen, you have said the bipartisan in-
frastructure bill and Build Back Better will bring costs down for
most Americans. Could you explain that?
Secretary YELLEN. Yes. The Build Back Better plan contains sup-
port for households to help address some of the most burdensome
and most rapidly rising costs that they face, for example, the cost
of childcare, which is virtually unaffordable for many American
families. There are subsidies for quality childcare that will bring
down the cost for the great majority of American families, uni-
versal pre-K for 3- and 4-year-olds, and a child tax credit. And all
of that will bring down the cost of childcare, and for families that
are facing crushing burdens, for example, very high rental costs in
many areas, the additional money that they get through the child
tax credit will help them keep a roof over their family’s heads, and
as I indicated in my opening remarks, is already helping them put
food on the table.
With respect to the costs of caring for the elderly, Build Back
Better contains support for those who are disabled and the elderly
to get care in their homes. There are subsidies, an increase in the
Pell Grant and money for education and for workforce training that
will make that more affordable, and reductions in the cost of pre-
scription drugs. These are some of the most burdensome items in
family budgets, ones that have risen more rapidly than the general
level of prices over time, and the bill will help families meet those
burdensome expenditures.
Chairman BROWN. Thank you Madam Secretary.
Chair Powell, is it still your belief that higher prices in certain
sectors are chiefly caused by the upheaval we are experiencing as
a result of the global pandemic, and that as the pandemic eases so
too should inflationary pressure?
Mr. POWELL. I guess I would say it this way. Generally the high-
er prices we are seeing are related to the supply and demand’s im-
balances that can be traced directly back to the pandemic and the
reopening of the economy. But it is also the case that price in-
creases have spread much more broadly in the recent few months
across the economy, and I think the risk of higher inflation has in-
creased.
Chairman BROWN. OK. Thank you. This is a question for both of
you. The dollar is controlled by the American people, but
stablecoins are controlled by opaque, secretive technology compa-
nies over and over on issue after issue. We have seen tech firms
put profits ahead of the public interest with our elections, with our
privacy, with competition in our markets.
And start with you Madam Secretary. Is it risky to let control
over our money fall into the hands of these companies?
Secretary YELLEN. I believe that stablecoins can result in some
greater efficiencies in the payment system and could contribute to
easier and more efficient payments, but only if they are adequately
regulated. And the President’s working group, that I chair, recently
issued or report indicating that there are significant risks associ-
10
ated with these currencies, risks to the payment system, risks of
runs, and risks related to the concentration of economic power.
And we have called upon Congress to put in place, force these
stablecoins a regulatory framework that would make them safe and
protect consumers, and put them on a level playing field with other
providers of similar services such as banks.
Chairman BROWN. Chair Powell, do you agree with that?
Mr. POWELL. Yes, I do.
Chairman BROWN. OK. Thank you. In closing out my time, I
think it is important to look in a bit of historical perspective, as
both of you have explained to me in other conversations, in the late
’90s and early 2000s over-the-counter derivatives and subprime
mortgages were billed as financial innovations. Financial regu-
lators at the time pushed to weaken safeguards saying that a cloud
of legal uncertainty hung over the OTC derivatives markets and
regulations. Again, their words could discourage innovation and
growth and drive transactions offshore.
Later, the banking lobby argued that regulating subprime mort-
gages would decrease borrower choice and reduce access to capital.
Financial Crises Inquiry Commission cited derivatives and
subprime mortgages as key factors in the crisis.
It looks again, again, again like the financial industry is using
these same arguments for stablecoins in decentralized finance plat-
forms. Today all of us on this Committee and both parties should
be concerned about that, should understand the historical parallels,
and should listen to this very bipartisan panel, the Secretary of the
Treasury and the Chair of the Federal Reserve.
Senator Toomey.
Senator TOOMEY. Thank you, Mr. Chairman. Since the topic of
the debt ceiling came out, let me just remind all of us of something
that we know very well, and that is our Democratic colleagues
could raise the debt limit all by themselves, any time they want,
and there is nothing Republicans could do to stop them. The tools
have been available to them all year long, and, in fact, Republicans
have offered to expedite the process.
There is only one reason that our Democratic colleagues refuse
to use reconciliation to raise the debt limit, and that is because
they would have to specify the amount of debt they want to inflict
on the American economy. They want to avoid accountability for
this terrible spending spree they are engaged in by obfuscating and
not specifying a dollar amount. I think we should be very clear
about what is going on here.
Mr. Powell, under the Fed’s new flexible average inflation tar-
geting, the inflation target remains at 2 percent, but now it is on
an average over an unspecified timeframe. Core PCE, the Fed’s
preferred inflation metric, is running above 2 percent over the past
5 years, nearly 3 percent over the past 2 years, and 4.1 percent
over the past year. So it is above target, it has been above target
and it is accelerating.
Yet, the Fed has maintained an extraordinary emergency mone-
tary policy stance. It looks to me like this framework appears to
be a weakening of the Fed’s commitment to stable prices. Now I
know you believe this is transitory, but everything is transitory.
11
Life is transitory. How long does inflation have to run above your
target before the Fed decides maybe it is not so transitory?
Mr. POWELL. Well, first of all, the test that we have articulated
I think clearly has been met now. You know, you are absolutely
right. Inflation has run well above 2 percent for long enough that
if you look back a few years, inflation averages 2 percent. It was
not the case going into this episode. It had been many years since
we had inflation at 2 percent.
So I think the word ‘‘transitory’’ has different meanings to dif-
ferent people. To many, it carries a time, a sense of short lived. We
tend to use it to mean that it will not leave a permanent mark in
the form of higher inflation. I think it is probably a good time to
retire that word and try to explain more clearly what we mean.
Senator TOOMEY. Well, you know, it still strikes me as just ex-
traordinary that the economy has—it is long past recovery. We are
in a full-blown expansion. Unemployment is down to 4.6. We have
record-high asset prices. Housing is leading the way to the point
where, in many markets, houses are just unaffordable for many
people. And yet, the Fed is going to purchase $35 billion in mort-
gage-backed securities in December alone and is scheduled to con-
tinue purchasing mortgage-backed securities for months on end. I
would strongly urge you to reconsider the pace of the tapering.
Secretary Yellen, I want to follow up on the discussion about
payment stablecoins. In the President’s working group payment
stablecoins were defined, and the definition is, and I quote, ‘‘Those
stablecoins that are designed to maintain a stable value relative to
a fiat currency, and therefore have the potential to be used as a
widespread means of payment,’’ end quote.
Well, that certainly covers every major stablecoin that exists
right now. And what strikes me as perplexing is that the Presi-
dent’s working group recommendation is that all such stablecoins
be required to be issued by depository institutions only. But yet, as
you know, the mechanism by which the value of the stablecoin is
maintained relative to a fiat currency, they vary significantly.
Some arguably look somewhat like depository institutions. Others
look more like money market accounts. Still others look like some-
thing wholly new.
Why suggest that they all must be regulated the same way and
treated as depository institutions?
Secretary YELLEN. Well, they all have the potential to be used as
a means of payment, regardless of how they are used at the outset
when they are introduced. And the structure that they espouse and
adhere to, which is that they have a stable value relative to a fiat
currency, that is really what depository institutions guarantee.
Senator TOOMEY. I would just suggest that we really think this
through. I think the very fundamentally different designs suggest
that there might be different regulatory approaches.
I am going to run out of time here, so Mr. Chairman, I just want
to note that Pillar One of the Biden administration’s international
tax agreement will be the most significant international tax change
in 100 years. To implement it, every one of our bilateral trade—
I am sorry—our bilateral tax treaties would need to be modified.
There is no historical precedent for bypassing the Senate treaty
process to implement Pillar One.
12
Secretary Yellen, during a recent Finance Committee briefing, I
asked you to acknowledge that Administration would need to come
to the Senate for treaty approval to implement Pillar One. You re-
sponded that Treasury has yet to determine whether a treaty will
be needed or not. In my view, and that of many of my colleagues,
implementing Pillar One would require modifications to our exist-
ing bilateral tax treaties and those modifications must be approved
by two-thirds of the Senate. The Executive branch cannot ignore
the Senate on a matter that is clearly our constitutional responsi-
bility.
Thank you, Mr. Chairman.
Chairman BROWN. Thanks, Senator Toomey.
Senator Reed is recognized from Rhode Island.
Senator REED. Thank you, Mr. Chairman. And first, let me thank
Secretary Yellen for being our guest speaker at the Providence
Chamber of Commerce last week. Thank you, Madam Secretary.
Secretary YELLEN. Thank you.
Senator REED. And I learned something there. I always do when
I am with the Secretary. She is the only person that has been the
Chairman of the President’s Council of Economic Advisors, Chair-
man of the Federal Reserve, and Secretary of the Treasury. So
thank you, Madam Secretary, for your work. And let me, Chairman
Powell, extend my congratulations for your reappointment to the
Federal Reserve. Thank you.
Chairman Powell, we have seen, as you both discussed, a steady
job growth. What is troubling, though, is the labor participation
rate has remained depressed, and until we get that participation
rate up higher, we are going to have the complaint that we receive,
the inability to get workers, et cetera. How do we do that, and
what do you think are the causes of this fall-off in the participation
rate?
Mr. POWELL. I did not catch the very end of that. Sorry.
Senator REED. The causes of the fall of the participation rate,
and then how do we rectify those causes?
Mr. POWELL. So it is very surprising. Since June of last year, the
unemployment rate has dropped six-and-a-half percent, and partici-
pation has basically moved up to two-tenths. It sort of moved side-
ways, which was surprising. I think when enhanced unemployment
insurance ran off and schools reopened and vaccination came, we
all thought there would be a significant increase in labor supply
and it has not happened. So you ask why there is tremendous un-
certainty around that, but a big part of it is clearly linked to the
ongoing pandemic. People answered surveys and they are reluctant
to go back to work. They are reluctant to leave their caregiving re-
sponsibilities and go back to work because they feel like schools
might be closing again, things like that.
So it is an issue, and I think what I am taking on board is that
it is going to take longer to get labor force participation back. We
are not going right back to the same economy. And really, often
labor force participation is a lagging indicator. It follows big im-
provements in the unemployment rate. And we are probably on
track to have that happen, and that means to get back to the kind
of great labor market we had before the pandemic we are going to
need a long expansion to get that. We are going to need price sta-
13
bility. And in a sense, the risk of persistent high inflation is also
a major risk to getting back to such a labor market.
Senator REED. Thank you very much.
Madam Secretary, let me thank you for maximizing the flexi-
bility in the Emergency Rental Assistance Program. Steps like self-
attestation and bulk utility payments have been very helpful to
Rhode Islanders is trying to get these returns. One area though is
very difficult and it always seems difficult. That is the homeless
population. Can you look at and try to develop the ERA guidelines
to emphasize how funds can be appropriately used for homeless-
ness?
Secretary YELLEN. That is an extremely important area. We are
very focused on it and we will be happy to work with you on it.
What I can say is that ERA funds can be used to provide so-called
housing stability services, a range of services to the homeless to
help them find a stable shelter.
Something that Treasury did, a kind of flexibility that we built
into our guidelines, is ERA statute requires that to be eligible for
assistance a household has to have a so-called rental obligation.
Recognizing that would be something that would be challenging for
families experiencing homelessness. We created an opportunity for
ERA grantees to provide individuals with a letter of intent to pay
a rental obligation. So with this letter of intent, that would make
it easier for the homeless to be able to secure housing.
So those are two forms of flexibility we think will help, and we
would be glad to work with you to see if we can identify more.
Senator REED. Thank you, Madam Secretary, and communicating
those provisions to local authorities would be helpful.
And just a final point, Secretary Yellen, this is with the Home-
owner Assistance Fund. I know you are looking at the State plans.
And if you could accelerate that to get the money out, because as
you well know, a lot of these moratoriums on eviction are either
gone or going, and it would be very helpful to get the money out.
Thank you.
Secretary YELLEN. Yes.
Senator REED. Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Reed.
Senator Crapo, of Idaho, is recognized.
Senator CRAPO. Thank you, Mr. Chairman.
Secretary Yellen, some appear to believe that you have an-
nounced that unless a debt limit increase or a suspension occurs
before December 15th, that the Treasury faces imminent default.
That is not how I have read your comments. So it would be helpful
for you to clarify what your current projection is for when Treasury
would run out of headroom to operate below the debt limit and run
dangerously low of operating cash. I also request that Treasury
provide details of its latest debt and cash projections to the Finance
Committee and look forward to receiving those projections.
Secretary YELLEN. Yes. Let me clarify what I said. What I indi-
cated in my most recent letter to Congress is that I have a high
degree of confidence the Treasury will be able to finance the U.S.
Government through December 15th, but there would be scenarios
in which Treasury would not have sufficient funds to continue to
finance the operations of the U.S. Government beyond that date. I
14
would note that on December 15th, Treasury will invest funds from
the infrastructure bill, and that will use up $118 billion worth of
capacity when those funds from the Highway Trust Fund are in-
vested in Government securities.
And I did not say that there is no way that we can make it past
December 15th. There are a range There is uncertainty about what
our cash balance will be, and our resources right now, there is un-
certainty about where we will be on December 15th. And there are
scenarios in which we can see it would not be possible to finance
the Government. That does not mean that there are not also sce-
narios in which we can, but we think it is important for Congress
to recognize that we may not be able to and therefore to raise the
debt ceiling expeditiously.
Senator CRAPO. Well, thank you for that clarification.
Chair Powell, inflation hit 6.2 percent last month, which is the
highest in more than three decades. Still, the Administration is
pushing for support of a nearly $2 trillion social spending package.
And by the way, that number even accepts their budget gimmicks
that hide real costs that could mean several trillion more in spend-
ing over the next 10 years.
Most of that spending does nothing to ameliorate the problems
of rising inflation, in fact, will simply add fuel to the inflation fire.
I am very concerned that the Administration is not taking infla-
tion’s threat seriously, and in the case of energy prices is enacting
regulatory policies that themselves are threats.
Do you agree that inflation is a serious threat to our economy,
and how do you intend to address inflation?
Mr. POWELL. I do think that the threat of persistently higher in-
flation has grown. I think my baseline expectation is still, as I
mentioned, and of most forecasters, is still that inflation will move
back down over the course of next year, closer to our target. But
clearly the risk of more persist inflation has risen. And I think
what you have seen is you have seen our policy adapt, and you will
see it continue to adapt. We will use our tools to make sure that
higher inflation does not become entrenched.
Senator CRAPO. I noted in your opening statement that you indi-
cated that inflation pressures will linger well into next year. You
do stand by that?
Mr. POWELL. Yes. I think we can now see, certainly through the
middle of next year, it is an expectation. You know, forecasting is
not a perfect art, as you may have noticed. But yes, right into the
middle of next year, and that is our expectation. But of course,
what has happened is that data has been pushed out repeatedly as
supply side problems have not really improved.
Senator CRAPO. And if Congress were to pass an additional $2
trillion plus in spending, mixed with a number of increases in
taxes, would that add to inflationary pressures?
Mr. POWELL. Senator, I am sorry but I will just note that we
have a longstanding policy of not commenting on active legislation,
as you probably are not surprised to hear.
Senator CRAPO. I suspected that. One last, very quick question,
and for you, Chair Powell. You have indicated that there would be
a report by the Fed on its discussion paper relating to digital cur-
rencies, and that has been delayed several times. My question to
15
you is, when can we expect the Fed’s report and are there reasons
for that delay?
Mr. POWELL. I would think very soon. I mean, certainly in com-
ing weeks. And the reasons are they are just trying to get it right
and trying to find the time to get it right. It has been a very busy
time, as you will know.
Senator CRAPO. Thank you.
Mr. POWELL. Thank you.
Chairman BROWN. Thanks Senator Crapo.
Senator Warner, of Virginia, is recognized.
Senator WARNER. Thank you, Mr. Chairman, and it is good to see
you Secretary Yellen, and congratulations, Chair Powell, on your
reappointment.
I want to start with you, Chair Powell. I mean, I actually think
the Fed’s activities, particularly during the pandemic, which in-
cluded both extensive use of 13(3) facilities and some aggressive
bond purchases actually helped stave off what could have been a
complete economic meltdown. And while we did spend in excess of
$5 trillion, mostly all in extraordinarily partisan way under both
President Trump and President Biden on recovery from COVID, I
think history will treat those actions, certain areas excessive, but
I think net-net, from a historical perspective, it will be well-re-
garded both for the American economy and for the world’s econ-
omy.
But I think, as you have indicated, Chair Powell, I think we are
seeing our economy come back. We will differ on the bipartisan in-
frastructure plan and maybe even a bit of the Build Back Better,
but that is part of our job. But I have seen since your FOMC’s No-
vember meeting, that the Fed signaled a shift, announcing starting
to move back from some of the very aggressive means you have
used and announcing a tapering on the pace of bond purchases
month-by-month as the economy continues to strengthen.
I would like you to get into that a little bit. Which factors most
influence that decision for a gradual change in course, and how
long do you think it will take the Fed to gradually wind down these
purchases?
Mr. POWELL. So we actually have not made a decision on that,
but I would just say this. The most recent data, particularly since
the November FOMC meeting, show elevated inflation pressures, a
rapid improvement in many labor market indicators without an ac-
companying addition of labor supply, and also strong spending that
really signals big, significant growth in coming months.
Remember that every dollar of asset purchases actually adds ac-
commodation to the economy, but at this point the economy is very
strong and inflationary pressures are high, and it is therefore ap-
propriate, in my view, to consider wrapping up the taper of our
asset purchases, which we actually announced at the November
meeting, perhaps a few months sooner. And I expect that we will
discuss that at our upcoming meeting in a couple of weeks. Of
course, between now and then we will see another labor market re-
port, another inflation report, and we will also get a better sense
of the new COVID variant, as well, before we make that decision.
Senator WARNER. Let me drill down on that a little bit. I mean,
clearly I think I was surprised. You say you were surprised. I think
16
most of us were surprised that coming back in September that we
did not see more folks reenter the labor force. I believe that taper-
ing and, frankly, accelerating it can kind of serve as an insurance
policy if we do not see this return and we see these potential over-
heating of the economy. So I do hope that you will move more ag-
gressively on this tapering.
I also would like to just touch again, you mentioned some of the
new variants with COVID. One of the things we have got to main-
tain is some ability to move quickly, and we, obviously, Congress
moved very quickly under President Trump and Secretary
Mnuchin, with the outset of COVID. Hopefully we will not have to
come back to those kind of actions from this entity. But with these
new variants coming on board, what are the markers you are going
to look at to determine how that might influence Fed activity?
Mr. POWELL. So at this point, I think we are all looking at the
same thing and we are listening to the experts, which I am cer-
tainly not one of those. But I talk to those people, and it is really
about transmissibility, it is about the ability of the existing vac-
cines to address any new variant, and it is about the severity of
the disease once it is contracted. And we do not know. I think we
are going to know—what I am told by experts is it will know quite
a bit about those answers within about a month. We will know
something, though, within a week or 10 days. And then and only
then can we make an assessment of what the impact would be on
the economy. As I pointed out in my testimony, for now, it is a risk.
It is a risk to the baseline. It is not really baked into our forecast.
Senator WARNER. I am down on my last 20-odd seconds. I am not
going to get away without at least raising an issue I always raised
with Secretary Yellen and I know, Chairman Powell, I have raised
with you as well, and that is, I think, the very smart action that
took place again, actually under President Trump, on investment
in CDFIs and minority depository institutions.
And I want to thank Chairman Brown and people like Senator
Crapo and so many others, including Secretary Mnuchin, that we
made that investment,. and you now, Secretary Yellen, are imple-
menting that. We have seen a great take-up rate from the ECIP
program, in terms of tier one capital investment into these institu-
tions that hit low- and moderate-income individuals.
I guess, with this demand exceeding the amount of money we
had, what else can we do to shore up these institutions? And I
would love to press both of you. Maybe you can take this partially
for the record since I have gone over, on how we might even be able
to look at securitization of some of this CDFI debt so that we can
again, increase the liquidity of these institutions. But if you briefly,
recognizing I have gone over, answer that I would appreciate it.
Thank you, Mr. Chairman.
Secretary YELLEN. Well, we would be glad to work with you to
discuss possibilities there. I think that the infusion of funds into
CDFIs and MDIs, it is historic. It is going to make a tremendous
difference to their ability to support businesses, particularly in mi-
nority areas.
We have seen huge take-up of the ECIP funds that have been
provided. It is $4 billion over subscribed. We are working through
applications and we will try to make decisions on investments
17
shortly. But it certainly shows that it is a program that has the
potential to make an enormous difference to this lending. We would
be happy to work with you to find ways to make it yet more effec-
tive.
Senator WARNER. I am way over time. If you could just say yes,
you will work with me too, Chair Powell, that would be great.
Mr. POWELL. Yes, I will work with you too.
Chairman BROWN. Senator Rounds, from South Dakota, is recog-
nized for 5 minutes.
Senator ROUNDS. Thank you, Mr. Chairman. First of all, Chair-
man Powell, congratulations on your renomination. I do look for-
ward to supporting your nomination. I think you have provided sta-
bility during a very challenging time. Secretary Yellen, it is good
to see you once again, and I thank you for your service to our coun-
try.
In September, when you were before this Committee, I asked you
when you would say enough is enough when it comes to our debt
and deficit. You acknowledged that debt becomes an issue when it
exceeds 100 percent of GDP, a level we have already hit, as you
know. But you said also that since the cost of servicing our debt
has been negative due to a long stretch of low rates, our debt has
been less burdensome. However, due to skyrocketing inflation, I
think it is just a matter of time before we exit this very low inter-
est rate environment.
Secretary Yellen, do you think it is finally time to start sounding
some alarm bells with regard to the financing of our national debt?
Secretary YELLEN. Well, I would not want to sound alarm bells.
I think that we are in a sustainable debt path, but President Biden
was very clear when he proposed the Build Back Better plan that
it should be fully financed as the infrastructure bill was. And that
is what CBO found, that the fiscal plans that the Biden adminis-
tration have put forth in infrastructure and Build Back Better will
not worsen the debt or deficit path. And indeed, by the end of the
10-year horizon, Build Back Better lowers deficits, and it yields
very great benefits beyond the 10-year horizon, particularly from
the investment in the IRS to enhance its ability to close the tax
gap and to collect revenues that are due under our tax code.
Senator ROUNDS. Right. But——
Secretary YELLEN. So it is a fiscally responsible plan that makes
matters better rather than worse.
Senator ROUNDS. But Madam Secretary, I guess the reason for
my question is that it is not just a matter of whether or not we
have half-a-trillion dollars or so that will have to be financed or
more during a 10-year time period as that money comes back in for
paying for programs that are 4 to 5 years in duration under the
proposal. But rather, we have $29 trillion plus that will not only
be refinanced during a time period, but may very well be refi-
nanced at a higher rate. In fact, treasuries right now have run any-
where from 1.54 percent to 1.42 percent over the last couple of
days. But they are going to trend upwards, and, in fact, there are
some people that would suggest that treasuries may very well hit
3.5 percent over the next 18 months. Do you think that would be
a reasonable expectation?
18
Secretary YELLEN. The forecasts that were included most re-
cently in the midsession review assumed that interest rates would
move up over time over the 10-year horizon in line with the fore-
casts of blue chip and other private sector forecasters. And even
then, given the expectation that real interest rates are likely to re-
main low, below levels that prevailed for much of the postwar pe-
riod, for important structural reasons that we have seen plentiful
savings at the global level and weak investment demand, even with
interest rates moving up the interest burden of the debt remains
quite manageable.
Now of course there is some scenarios in which interest rates
could move up more than that and we could be in a position—there
is a chance that the interest burden would become difficult for us
to manage. But I believe we could have the capacity to make fiscal
decisions.
Senator ROUNDS. Well thank you, Madam Secretary. And Chair-
man Powell, I recognize, and you have been very consistent that
you manage based upon your direction, which is full unemployment
and a 2 percent interest rate goal. But does the Fed take into ac-
count the impacts on a national debt servicing and our credit wor-
thiness when it considers interest rate decisions?
Mr. POWELL. I think certainly the cost of programs, it all goes
into our model. You mentioned credit risk. There is not any credit
risk baked into treasuries at this time, and I would not expect that
there would be, certainly in the foreseeable future.
Senator ROUNDS. When you look at this, do you project that
treasuries will rise over the next 18 months?
Mr. POWELL. So generally, that is something that staff has been
forecasting ever since I got to the Fed 10 years ago, and it really
has not happened. What has happened is that, as the Secretary
mentioned, you have a series of long-running global forces that are
leading to lower sustained interest rates. How long will they last?
It is very hard to say. But for now we have lower inflation trend.
Obviously, currently at the moment we have high inflation, but for
many years, we have had low inflation, and the markets are baking
in that return to lower inflation.
Senator ROUNDS. Thank you. Mr. Chairman. Thank you for your
time. Thank you for your answers.
Chairman BROWN. Senator Menendez, from New Jersey, is recog-
nized.
Senator MENENDEZ. Thank you, Mr. Chairman. One of the cen-
tral pillars of the House-passed version of the Build Back Better
Act is an expanded childcare support program that would provide
direct support to families so that nobody has to pay more than 7
percent of their income on high-quality childcare. Madam Sec-
retary, would expanding access to childcare services improve the
labor force participation rate and overall economic outcomes among
women?
Secretary YELLEN. Senator, I believe that it will succeed in hav-
ing that impact. One of the reasons that labor force participation,
especially of women, in the United States is now lower than that
in many developed countries—once upon the time, we were the
leader; now we have fallen behind—and a major difference between
the United States and other developed countries is our support for
19
childcare, paid leave, things that enable women to participate in
the labor market. And so I believe the provisions, the subsidies for
childcare and the universal 2 years of pre-K, both of those things,
I believe, will enhance labor force participation.
There are a number of studies that show that. The Treasury Of-
fice of Economic Policy recently issued a paper that summarized
some of the evidence. And recently, the Congressional Budget Of-
fice, in assessing Build Back Better, issued a statement that indi-
cated that this was likely to boost labor force participation.
Senator MENENDEZ. Well, let me—I agree. One study suggests
that the rising costs of childcare resulted in an estimated 13 per-
cent decline in the employment of mothers with children under the
age of five. Another study found that when one major city started
offering 2 years of free public preschool, the percentage of mothers
with young children participated in the labor force increased by 10
percent. So you have real-life realities of that.
And one of the things that I am looking forward to on this is the
effect on minority families. A study from October in the Wash-
ington Post showed that Black men and women are twice as likely
as their White peers to report that they are unable to look for work
because they cannot find childcare. So there is evidence here that
the currently broken childcare system’s is especially harmful, par-
ticularly to the most vulnerable members of our society.
Chairman Powell, earlier this month I sent you a letter, along
with Chairman Brown and several of our Senate colleagues, asking
you to work closely with the Boston and Dallas board of directors
and search committees to find and select diverse candidates for the
open president’s position. We have not had a Hispanic in this role.
Can you give us an update on how that search is going, including
what specific steps you have taken to ensure the diverse candidates
are being considered?
Mr. POWELL. Those searches are just getting going now. They
have, I believe, both hired headhunters and I know the process
well, and it will involve extensive outreach to all different kinds of
communities and an openness to different kinds of candidates. And
it is essential, we believe, that diverse candidates be identified and
be given every chance to do well and win those processes as they
go forward. So I can take you through the details of it if you would
like offline, but it is something we are pretty committed to.
Senator MENENDEZ. I would very much like to see that, because
as you and I have discussed on several occasions the Federal Re-
serve has a serious diversity problem, particularly at the leader-
ship level, and the lack of minority representation hurts the Fed’s
ability to do its job. Especially when we talk about promoting max-
imum employment and price stability, it is essential that the Fed
has in place individuals that understand how an uneven recovery
will impact minority communities. So I look at this as the begin-
ning of, I hope, an effort as it relates to diversity, and I hope we
will have a successful result, I understand a process that hopefully
includes good, qualified candidates to be considered, but I hope it
will lead to a successful result.
Madam Secretary, let me turn to you on the same question. How
have you empowered Janice Bowdler, the Treasury’s first Coun-
selor for Racial Equity, to diversify the Treasury Department? This
20
is something that I think I have raised with you several times. I
would like to understand what her first goals will be, what are the
immediate goals for the Counselor for Racial Equity? Can you
speak to me to those issues?
Secretary YELLEN. Yes. Briefly, she is empowered to review and
look for ways to enhance not only our internal hiring and diversity
efforts within Treasury, but also to review all of the programs that
we conduct, whether it is the emergency programs that were au-
thorized by the ARP or our tax code and the way it is administered
more broadly. We have asked her to undertake a review of ways
in which these programs can be changed, or if they may have unin-
tended negative consequences on diversity or on minority commu-
nities, and we are asking her to look for ways to improve what we
do, both internally at Treasury, and with respect to the many pro-
grams we conduct. Senator Menendez. Well, I look forward to see-
ing the effects of her work. Thank you, Mr. Chair.
Chairman BROWN. Thanks Senator Menendez.
Senator Tillis is recognized from his office, perhaps. He may have
turned his camera off.
Senator Kennedy from Louisiana is recognized.
Senator KENNEDY. Madam Secretary, welcome. Mr. Chairman,
welcome. Congratulations.
Mr. Chairman, I want to start with you. I realize that no one is
clairvoyant, but I think it is fair to say that the experts who have
been advising you about the future rate of inflation have pretty
much the same credibility as those late night, psychic hotlines you
see on TV. Is the Fed considering increasing the pace of its taper-
ing? We have got to get control of inflation. It is ravaging our peo-
ple.
Mr. POWELL. So I think what we missed about inflation was we
did not predict the supply side problems, and those are highly un-
usual and very difficult, very nonlinear, and it is really hard to pre-
dict those things. But that is really what we missed, and that is
why all of the professional forecasters had much lower inflation
projections.
You asked about the taper, so yes. As I mentioned earlier, since
the last meeting, we have seen basically elevated inflation pres-
sures, we have seen very strong labor market data without any im-
provement in labor supply, and we have seen strong spending data
too. And remembering that every dollar of asset purchases does in-
crease accommodation, we now look at an economy that is very
strong and inflationary pressures that are high. That means it is
appropriate, I think, for us to discuss at our next meeting, which
is in a couple weeks, whether it will be appropriate to wrap up our
purchases a few months earlier, as I mentioned.
Senator KENNEDY. All right, thank you.
Mr. POWELL. But in those 2 weeks we are going to get more data
and we are going to learn more about the new variant.
Senator KENNEDY. OK. Thank you, Mr. Chairman.
Madam Secretary, you and I do not agree on everything, but I
have great respect for your intellect and your experience. And I un-
derstand you have a job to do, but I would be remiss if I did not
point out that in my opinion there is no fair-minded person in the
Milky Way who believes the infrastructure bill and the Build Back
21
Better bill are not going to require the American people to incur
substantial debt.
Now, here is my question, and I am looking for a number. How
much, in the Biden administration’s opinion, is too much debt? At
what point as you incur debt will the Biden administration say,
‘‘OK, that is it. We cannot borrow anymore, or it is going to hurt
the American people’’?
Secretary YELLEN. Well, first of all, I want to say that I disagree
with your assessment of Build Back Better. It is fully paid for, or
even more than fully paid for, and CBO just completed a com-
prehensive review of it in which they found essentially the same
thing. And I believe it was important that it be fully paid for.
Now, I think no single metric is appropriate for evaluating
whether or not the level of debt in an economy is reasonable and
sustainable. And we used to, we are accustomed to looking at debt-
to-GDP ratios and using those kind of metrics and looking around
the world. Many economists have found that debt-to-GDP ratios of
100 or more tend to be associated with significant problems.
Senator KENNEDY. Are we at 100 and more?
Secretary YELLEN. We are, but we are in very different times and
that is why it is important to recognize there is no single metric
that is right. And especially in a world of very low interest rates,
it is appropriate to look at the burden of that debt on society,
which is better measured by the real interest burden of the debt.
And that is exceptionally low, negative currently, but projected as
interest rates normalize to rise to——
Senator KENNEDY. I am going to run out of time.
Secretary YELLEN. It is still——
Senator KENNEDY. I am going to ask you this, Madam Chair,
quickly. You gave a great speech back in September of 2019. It was
actually an interview, and I ordered a copy at the time. And I am
trying to find my copy here. You said—this is what you said. I am
going to quote. I thought this was such a wise statement.
You said, ‘‘The former Fed chair said she is not worried about the
debt to gross domestic product ratio in the United States right
now,’’ but added, and I quote, ‘‘I am worried about the trajectory
of where it is going. It is not stable. We are not living within our
means right now. Debt is going to escalate and that is going to cre-
ate problems down the road. But then most important is the demo-
graphic wave that lies ahead of us is going to essentially, over the
next 30 years, double spending on three programs: Social Security,
Medicare, and Medicaid as a share of GDP. And the increases, both
because of the aging population and on the healthcare side, medical
expenses, those things put us on a trajectory of a completely sus-
tainable budget path.’’
Now that was when the debt was $17 trillion. It is 29 trillion.
You are going to add trillions more through the Build Back Better.
Why is that not true today?
Secretary YELLEN. Well, I want to repeat again, Build Back Bet-
ter is fully paid for and will not add to the debt or to deficits. In
fact——
Senator KENNEDY. You and I just do not agree on that.
Secretary YELLEN. ——it can reduce it.
Senator KENNEDY. I understand.
22
Secretary YELLEN. CBO certainly agrees with what I said. And,
I mean, we do have problems eventually in financing Medicare and
Social Security, which need to be addressed.
Senator KENNEDY. Thank you, Mr. Chairman.
Chairman BROWN. Senator Van Hollen is recognized for 5 min-
utes, from Maryland.
Senator VAN HOLLEN. Thank you, Mr. Chairman. Thank both of
you for your service. Chairman Powell, congratulations on your re-
nomination.
And Secretary Yellen, I really want to pick up just where you left
off. I remember 3 years ago, in both this Committee and the Budg-
et Committee, talking about the Republican tax breaks for big cor-
porations. At that time, the Congressional Budget Office did assess
that it would add $2 trillion to the deficit. Is that not true?
Secretary YELLEN. That is my recollection that that was the kind
of number that——
Senator VAN HOLLEN. That was the CBO score.
Secretary YELLEN. Yes.
Senator VAN HOLLEN. So it is interesting to hear so many of my
colleagues who, 3 years ago, did not give a damn about adding $2
trillion to the debt, now talking about the Build Back Better bill,
which as you said does not add to the debt at the end of the 10
years. In fact, the Congressional Budget Office has already done its
analysis. And one of the ways that it does not add to the debt is
that we close some of those big——
Secretary YELLEN. Yes.
Senator VAN HOLLEN. ——tax breaks from multinational cor-
porations who like to park their profits in tax havens. And we got
rid of some of the incentives in that bill that actually encouraged
U.S. companies to ship jobs and equipment overseas. Isn’t that the
case?
Secretary YELLEN. That is the case.
Senator VAN HOLLEN. And can you talk also about out your ef-
forts, your successful efforts to establish a sort of 15 percent global
minimum rate in order to prevent the race to the bottom?
Secretary YELLEN. Yes. Over decades, what we have seen is that
countries have been engaged in a race to try to attract more multi-
national firms to do business in their countries by cutting corporate
tax rates. And if you look at the pattern across the globe you see
the corporate tax rates have simply been trending down. The con-
sequence of that is that corporations have paid less and less tax in
the United States and elsewhere. They have won from this com-
petition, and countries like the United States and other countries
are raising less and less money through taxation on corporations.
In the United States, corporate taxes have fallen to around 1 per-
cent of GDP as a consequence of this. And this international tax
agreement that has been endorsed by, I think, 137 countries, coun-
tries have agreed to hold hands and say, ‘‘Enough is enough. We
need to raise taxes to support infrastructure spending, to support
investment in people, to make our economies productive to grow
over time. And corporations that are profitable and successful need
to pay their fair share.’’
23
So we want to be able to tax companies at a reasonable rate and
to stop this race to the bottom. And that is what the 15 percent
global minimum tax achieves.
From our point of view, the difference—we are the only country
right now that has a global minimum tax, and our tax is 10.5 per-
cent. It is half what companies that operate only in the United
States or multinationals pay on their U.S. income. And that big dif-
ferential really encourages multinational companies based in the
U.S. to shift their profits abroad. So by raising our own rate from
10.5 to 15, we narrow that differential. We help just purely domes-
tic firms that right now are on an unfair, unlevel playing field
versus multinationals that can shift their activities abroad in the
global agreement, boost competitiveness——
Senator VAN HOLLEN. Thank you, Madam Secretary. I think it
makes common sense and it is important for U.S. businesses.
There is also a provision in the bill that says folks who are mak-
ing more than $10 million every year should pay a little bit more
in U.S. taxes. I think that makes sense to most people around the
country in order to help the whole country succeed. And you men-
tioned some of the items that we are going to then invest those
funds in. It is fully paid for, including lowering childcare costs, say-
ing that no families should pay more than 8 percent on childcare
costs. That is one of the items, right?
Secretary YELLEN. Yes.
Senator VAN HOLLEN. And there is also, as you mentioned, the
provision with respect to the child tax credit. This is one of the
largest tax cuts for middle- and lower-income families ever. Is it
not?
Secretary YELLEN. Yes.
Senator VAN HOLLEN. And we are talking about up to $3,600 per
year, per child, per family, which will expire on December 31st if
we do not extend it as part of the Build Back Better legislation.
Isn’t that the case?
Secretary YELLEN. That is true.
Senator VAN HOLLEN. So we are talking about closing corporate
tax loopholes, asking folks who are making more than $10 million
a year to pay a little bit more, so that we can lower costs and fi-
nancial squeeze on American families, and it is all paid for. Isn’t
that right?
Secretary YELLEN. That is correct.
Senator VAN HOLLEN. Thank you, Madam Secretary. Thank you,
Mr. Chairman.
Chairman BROWN. Thank you, Senator Van Hollen. Senator
Tillis is recognized.
Senator TILLIS. Thank you, Mr. Chair. Secretary Yellen, Chair
Powell, thank you for being here. Chair Powell, I am glad to see
your nomination has been sent forth. I look forward to supporting
your confirmation.
This may actually be a legitimate yes-no question. It is on
LIBOR transition. Do you all both agree that Congress needs to
provide a solution to effect the LIBOR transfer, possibly using
SOFR for legacy contracts, but optionality moving forward?
Mr. POWELL. Yes.
Secretary YELLEN. Yes.
24
Senator TILLIS. Great. Chair Powell, you noted the PCE was
risen by 5 percent of the last year with energy and rent prices
pushing inflation upward, in particular. I want to make sure I un-
derstand your perspective on inflation and how it is calculated by
the Fed. If the Federal Government provides subsidies to every
American renter so their out-of-pocket rent was the same as it was
12 months ago, even though the sticker price on the rental unit has
gone up, would that mean the Fed would see no inflation of rents?
Mr. POWELL. I am not sure exactly how they collect the data, but
I think the question would be, what is the landlord receiving,
would be my guess.
Senator TILLIS. Right. So——
Mr. POWELL. I do not know the answer to that.
Senator TILLIS. ——the landlord is receiving more in spite of the
fact that that rent payment would have been subsidized——
Mr. POWELL. I do not know the answer. I will come back to you.
I do not know the answer on that. Yeah.
Senator TILLIS. Chair Powell, what would be—I am sorry. Sec-
retary Yellen, what would be your position?
Secretary YELLEN. I would agree with Chair Powell’s comments
on that.
Senator TILLIS. I think it would be interesting to get that. You
know, we were going to use another example. If turkey prices went
up for 14 percent, I think that is roughly the number at Thanks-
giving, and we subsidize the cost of the turkey, is the turkey cheap-
er or is it 14 percent more expensive? So I would like for you to
get back with me on that, Chair Powell.
Chair Powell, I have got another question for you. We had the
original COVID virus. We have had Delta. We have had some
variants have not been designated as a variant of concern. We have
got Omicron now, which is being viewed as a variant of concern.
And after that we will have maybe a Pi variant. But I am a bit
worried that the Administration has a policy of just zeroing out
COVID, that the goal here is to remove a virus that is likely to be
around for as long as we are alive. It is going to be like a flu sea-
son. But I feel like we are still in this mode where monetary policy
or Fed policy is heavily instructed by the risk of another onslaught
of a virus. We took the first wave. Now we are dealing with subse-
quent waves that are variants.
So at what point do we just get back to a more normal execution
of Fed policy that is not influenced by maybe the next threat, as
if it is suggesting we are going to go back to where we were last
year? I do not believe that most people think that we would treat
a variant the way we had to treat this new virus that is among us.
So at what point can we get away from seeing the market, seeing
the Fed appear to react based on, and implement policy that looks
more like what we had to do last year with something new affect-
ing our economy?
Mr. POWELL. You know, so we are not thinking, and I am not
thinking that the effects on the economy will be remotely com-
parable to what happened last March with the shutdowns or that
there will be additional shutdowns. We have tried to adapt. We are
focused on maximum employment and price stability, and we have
25
tried to adapt our policy as we have moved along. We will continue
to do that.
And, you know, part of the world is—I agree with you—we are
going to see this disease being around probably for a long time. I
think the economic effects over time will diminish. We have to be
humble about our ability to predict this or to really understand.
But we are not at all thinking that we have not made progress on
the economy, as you suggest.
Senator TILLIS. Well, I think it would be helpful for the Adminis-
tration to maybe be more specific to the American people to under-
stand that COVID is going to be among us. It is a new virus. It
is going to be here and we have to deal with it. We cannot have
talk or expectations that we would in any way react the way we
did last year. Last year, rightfully, but now we have to deal with
the fact that it is among us.
Secretary Yellen, I will have to—first, I would like unanimous
consent for a Washington Post FactCheck on the economists, that
Nobel winners, that President Biden has cited as the Build Back
Better plan actually being noninflationary. I think if you read fur-
ther into the letter, and you hear other comments by those econo-
mists, they say that longer term, it may reduce inflation, but short-
er term, it may increase inflation.
And so rather than drilling down on a question—my time is ex-
pired—I would like unanimous consent to submit the FactCheck.
And just to say, Secretary Yellen, I think that there are laudable
goals in some of what is put into the Build Back Better plan, but
I do not think that they are sustainable. I think the way that they
have been passed out of the House are problematic. And I tend to
agree with Senator Kennedy that we have got other pressing prob-
lems, promises that we have already made to the American people
with respect to Medicare, Medicaid, Social Security, that are prom-
ises that we have already made, that if we continue to add more
and more stressors on our debt and our deficit, those are going to
be promises that are broken. And then once we get that on sound
footing, maybe we should consider other ways to help others.
Chairman BROWN. Without objection, so ordered.
Senator Warren, from Massachusetts, is recognized.
Senator WARREN. Thank you, Mr. Chairman.
So as you know, in the early 2000s, the Fed stood by and failed
to use its authorities to regulate and supervise the biggest banks
in this country. And the result was a financial crash that cost mil-
lions of families their jobs, millions their homes, millions their sav-
ings. That is why I believe that vigilant regulation is an essential
part of the Fed’s job.
Chair Powell, you recently stated that it would be appropriate,
quote, ‘‘for a new person to come in and look at the current state
of regulation and supervision and suggest appropriate changes,’’
end quote. Is that still your position?
Mr. POWELL. Yes, it is.
Senator WARREN. The press also reported this as your agreement
to defer to the Vice Chair for Supervision. So I want to ask you a
specific example of how that deference would work in practice. If
you are confirmed and if the new Vice Chair for Supervision sug-
26
gests a regulatory action that you disagree with, will you bring
that matter before the full Federal Reserve board for consideration?
Mr. POWELL. So let me just say that what the law does is the
law gives the Vice Chair for Supervision the authority to set the
regulatory and supervisory agenda. And I would expect to have a
perfectly normal, good, constructive working relationship with a
new Vice Chair for Supervision. I would not see myself as stopping
those kinds of proposals from reaching the Board since the law
seems to indicate that that is the job of the Vice Chair for Super-
vision.
Senator WARREN. Good. I am just trying to be clear on your un-
derstanding of it. So you would bring that before the full board for
consideration, even if you personally disagree?
Mr. POWELL. You know, that would be my general intent, yes.
Senator WARREN. OK.
Mr. POWELL. Yes. I mean, I cannot cover every possible conceiv-
able situation, but yes. That is my understanding of how—this the
only other office that has specific legislative grant is the Vice Chair
for Supervision, and that is what the job is.
Senator WARREN. OK. I appreciate that. So you are saying you
would do it and you would actually feel like you were legally bound
to do it.
Mr. POWELL. I would say that is how I read the law.
Senator WARREN. OK. If the Vice Chair for Supervision rec-
ommends a regulatory action with which you disagree, such as
undoing a rule that Vice Chair Quarles brought forth and that you
voted in favor of it, what does it mean to defer under such cir-
cumstances? I just want to understand your thinking here.
Mr. POWELL. I do not think I used the term ‘‘defer.’’ You men-
tioned that was a press report.
Senator WARREN. Yeah.
Mr. POWELL. You know, we are a commission structure. The per-
son is not the Comptroller of the Currency where they are the sole
voice. Every Vice Chair for Supervision and those who held the job
before there was a formal job, they have to convince the other
members of the Board and that is how it works, and that is how
I would expect it to work going forward.
Senator WARREN. And I appreciate that. But your specific lan-
guage was that you would respect that authority, which is I believe
why many, many in the press interpreted that as defer. That is
why I am trying to understand what respect that authority—those
were your words—means.
Mr. POWELL. You know, I would say a couple things. First, re-
spect the authority to bring these proposals. I also think a person
who arrives, nominated by the President, confirmed by this body,
with particular views, I would say that that person is entitled to
a degree of deference, but I would not overstate that. The person
still will have to convince the members of the Board to vote for
whatever that person is proposing.
Senator WARREN. OK. And then, if I can, just one more example.
If the person in this role proposed new capital requirements to in-
corporate banks’ exposure to climate risks, would you vote for that?
Mr. POWELL. Would I vote for that? I would have to see what you
are really specifically talking about.
27
Senator WARREN. All right. It is very helpful. I appreciate your
answers here.
You know, during the last 4 years, while the Fed was chipping
away at regulations piece by piece, new and emerging threats to
our financial system continued to grow. I just think about the list
right now. Climate change—right now, climate change is on pace
to depress the global economic output by as much as $23 trillion
annually by 2050. Crypto—the market cap of cryptocurrency mar-
ket is now $3 trillion, six times bigger than it was just a year ago.
And this is explosive growth that is coupled with almost no regula-
tion and no guardrails to protect either investors or our financial
system.
The crash scenario here writes itself. Nonbank financial institu-
tions grow bigger by the day. BlackRock alone manages nearly
twice as much money as the entire economy of Japan while the Fed
refuses to work to declare them a systemically significant financial
institution.
Growth and collateralized loan obligations, a new COVID vari-
ant, the list goes on. This is why I believe that the Fed must take
a much more active role on regulation. Failure to do so puts our
entire economy at risk.
Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Warren.
Senator Hagerty, of Tennessee, is recognized.
Senator HAGERTY. Thank you, Chairman Brown, Ranking Mem-
ber Toomey. I appreciate your holding the hearing today. Secretary
Yellen, Chair Powell, thank you for your testimony. Chair Powell,
I want to congratulate you on your recent renomination. I look for-
ward to the hearing that is coming up. I also appreciate that we
are going to be seeing the Fed’s report on the digital dollar soon.
We have been long awaiting that. I think it is an opportunity for
America to take a real lead in innovation. So thank you for that.
Secretary Yellen, I would like to pose my first question to you.
Every move that President Biden has taken so far has seemingly
improved Russia and Vladimir Putin’s strategic position. From
capitulating on the New START treaty’s unconditional extension to
not fully enforcing mandatory sanctions to halt Nord Stream 2, we
see Russia and Putin now with leverage and strength, vis-a-vis our
partners in Ukraine, that they have not had since the fall of the
Soviet Union. Natural gas prices in Europe have been soaring to
Putin’s benefit. And now, in real time, just like watching a fatal car
crash in slow motion, we are seeing Russia buildup an unprece-
dented number of troops on the border of Ukraine.
Secretary Yellen, I want to make certain that you have all the
authority that you need from Congress to deter, and if necessary,
to punish Putin if Russia invades Ukraine. After what happened in
2014, we certainly cannot be caught flatfooted again.
Secretary YELLEN. We do have authority to impose sanctions. We
have imposed sanctions, and the President signed in, I believe it
was in April, a new Executive order expanding Treasury’s author-
ity to impose sanctions. And we are aware of the troop buildup and
I believe have adequate authority to——
Senator HAGERTY. Good.
Secretary YELLEN. ——act at least on these sanctions.
28
Senator HAGERTY. Madam Secretary, I am pleased to hear that
you have the authorities that you need to pose significant economic
and financial pressure. I am curious to hear what the Biden admin-
istration’s strategy is to stop this train wreck that appears to be
happening at the border of Ukraine.
Secretary YELLEN. Well, we are very cognizant of what is hap-
pening and are involved in discussions about what the appropriate
set of steps will be.
Senator HAGERTY. Madam Secretary, with all due respect, I hope
that we can talk much more than discussions about real strategy
to send a very strong message to Putin. This is the largest buildup
that we have seen again since the fall of the Soviet Union. They
are taking a very aggressive posture there, and I would encourage
you to send a strong message to Vladimir Putin that we are going
too, we are capable of, and you have the authority to do what you
need to put significant, biting financial pressure on that regime.
Secretary YELLEN. Agreed that that is appropriate.
Senator HAGERTY. Thank you. Secretary Yellen, I will turn to an-
other topic that we have discussed before. Back in September, we
talked about the leak of confidential taxpayer information to
ProPublica that was done in early 2021, for political purposes. You
testified then that it is an illegal act, that it is being investigated
thoroughly, and there cannot be any tolerance for that. You and I
agreed on that. So given that testimony, I want to ask you; have
the leakers been identified?
Secretary YELLEN. There are independent agencies, both within
Treasury, the inspector general, also the FBI and DOJ that are
conducting investigations. We are not privy. Nothing has been re-
ported out yet from those investigations that I am aware of, but I
believe those investigations are moving forward.
Senator HAGERTY. Well, I take that as no update, but after the
Lois Lerner scandal, after the scandal that occurred here in 2021,
under this Administration’s watch, I appreciate the fact that there
is an investigation underway, but I would say this. Until we have
the results of that investigation, until we have true accountability,
I cannot imagine how the Biden administration is encouraging
what is in effect a 10-times increase in the audit capacity of the
IRS when there is no accountability there. This is the D.C. swamp
at its best.
Secretary YELLEN. Sir, we do not know what the source of the
leak of that information was, and I would say it is premature to
indicate that it came from the IRS.
Senator HAGERTY. Well, I think that underscores my case. We
cannot even determine the source of the leak. We know that was
IRS information. There is zero accountability. Again, this is the
swamp and I could not encourage, and certainly my constituents
cannot condone this aspect of the Build Back Better plan that
would give even more authority and a tenfold increase in the budg-
et to snoop on more Americans, audit more Americans and invade
our privacy.
Secretary YELLEN. Sir, we have an enormous tax gap. Over the
next decade, it is estimated that actual tax collections will be $7
trillion below what is due. And the IRS has been starved of re-
sources over the last decade, so that they are not able to conduct
29
meaningful audits of either high-income individuals or complex
partnerships or corporations. And that is where most of the tax gap
lies. These are very important resources that are needed to make
sure that the wealthiest individuals and corporations particularly
comply with the tax laws and pay their fair share what is due.
Senator HAGERTY. I would just——
Chairman BROWN. Thank you. Thank you.
Senator HAGERTY. ——encourage good management here, so we
make sure those resources are focused in the direction they should
be rather than attacking conservative groups and ordinary Ameri-
cans and leaking that information to the public. Thank you.
Chairman BROWN. Senator Cortez Masto is recognized, from Ne-
vada.
Senator CORTEZ MASTO. Thank you Mr. Chairman. Secretary
Yellen, Chairman Powell, welcome. Chairman Powell, congratula-
tions on your renomination.
I also want to express my appreciation to the Treasury Depart-
ment and Federal Reserve staff because we cannot forget why we
are here. We have passed, over the last couple of years, several
COVID relief packages that were bipartisan supported, except
maybe for one of them, and the money was immediately put out to
help our families, our businesses. And so your staff have taken ex-
traordinary efforts not only to avoid an economic collapse during
this deadly COVID–19 pandemic, but getting billions of dollars in
relief and loans to help us manage the economy, help our small
businesses, help families, is a tremendous feat, and we should not
forget that. So, thank you to your staff who have worked so hard
as well.
Let me talk about something that is impacting my State is the
supply chain disruption, and I know you all are working on this.
Secretary Yellen, President Biden announced a plan to address the
supply chain disruptions. Now it is clear that the low vaccination
rates, repeated outbreaks, and an over-reliance on Chinese imports
contributes to some delays in shortages, but Secretary Yellen,
where has President Biden’s initiatives to address supply chain dis-
ruptions been successful, and where are some of the current stick-
ing points that might persist past the second half of next year?
Secretary YELLEN. Well, President Biden, the Administration,
created a Supply Chain Disruption Task Force in June, and it has
been working broadly to identify places where the White House
could make a contribution, could be effective. And I think we are
beginning to see progress at the ports.
As you know, President Biden worked with the Ports of Los An-
geles and Long Beach, where there have been long delays in un-
loading ships, ships waiting for many days to be able to offload
their containers. They have agreed to remain open 24/7, which they
are now doing. And also, the Administration has worked with
major retailers that were leaving containers for long periods time
on the docks without picking them up, to make sure that they
begin to expedite movement of those containers away from the
ports.
In other areas, in Savannah, the President has worked to estab-
lish locations away from the ports where containers could be
30
brought, moved, and deposited to create more room at the docks to
keep cargo moving.
And so there are just a wealth of interventions and working real-
ly with private sector—because these are private sector partici-
pants that are responsible for the supply chain, but bringing to-
gether parties. We are looking at ways that maybe we could work
with States and cities to expedite the licensing commercial driver’s
license to raise the supply of truck drivers, which are in short sup-
ply.
And of course, a lot of this is related to the pandemic, and it
comes back to increasing vaccinations, boosters, get the pandemic
under control so that demand patterns shift back toward more nor-
mal, toward services and away from goods. But there are a wealth
of interventions that the White House is involved in.
Senator CORTEZ MASTO. No, I appreciate that. I think there is
also a role for Congress to continue to support not only the Admin-
istration, but there is legislation that we could pass to actually
help us address this as well, which is why I support the Supply
Chain Resiliency Act that has been introduced by me and several
of my colleagues. It creates an Office of Supply Chain Resiliency at
the Commerce Department, charged with monitoring, researching,
and addressing vulnerable supply chains. The office will provide
loans, loan guarantees, and grants to small and medium manufac-
turers to allow them to address supply chain bottlenecks by ex-
panding production. We should be prepared for this, knowing this
has happened for the future short-term and long-term. And so I ap-
preciate your comment.
Secretary YELLEN. Long term is important as well.
Senator CORTEZ MASTO. Thank you. I know my time is up. I will
submit the rest of my questions to you for future response as well.
Thank you again.
Chairman BROWN. Thanks, Senator Cortez.
Now, Senator Scott, from South Carolina, is recognized.
Senator SCOTT. Thank you, Mr. Chairman, and thank you, Rank-
ing Member, for holding this hearing this morning. Thank you to
the guests for being here with us this morning.
I was thinking about the conversation I had over Thanksgiving
with some South Carolinians about the consequences of elections,
and we have heard over and over again that elections have con-
sequences. Elections have consequences.
But perhaps no finer point that elections have consequences is
simply losing a single seat in Georgia, January 5th. The result of
one lost seat in Georgia may cost taxpayers just this year $5 tril-
lion in additional spending. One single seat, $5 trillion in addi-
tional spending; $1.9 trillion on a COVID relief package that had
1 percent for vaccines and less than 9 percent for COVID related
health; $1.2 trillion for an infrastructure package with only 10 per-
cent of that $1.2 trillion going to roads and bridges in the next 5
years, and now we are talking about overheating the economy with
another $2 trillion. Elections have consequences. It is stunning.
And what I have heard this morning is hard to process back at
home in South Carolina. What I have heard so far is that the Ad-
ministration wants you to believe what they say and not what you
see and are experiencing, what you see with your own eyes. They
31
say by putting another $2 trillion in the economy, it will make
things more affordable for you.
But what you see and are experiencing is inflation in part caused
by trillions of dollars of Government spending and the anticipation
of even more money. In other words, when inflation is over 6 per-
cent and your wage growth is under 3 percent, your buying power
is going down, not up. And they want you to believe that spending
more money is going solve this problem.
But South Carolinians on a fixed income, like Social Security,
averaging around $1,500 per month, they are spending because of
this transitory inflation—I do not know what the definition of
‘‘transitory’’ is anymore—a third of their Social Security income on
putting gas in their cars, heating their houses, and fixing up the
places they live in.
Chairman Powell, is it your impression that the Biden adminis-
tration has a clear understanding that rising prices are hitting peo-
ple the hardest who are on Social Security, families struggling pay-
check to paycheck, and single moms?
Mr. POWELL. It is not appropriate for me to comment on what
the Biden administration thinks.
Senator SCOTT. What do you——
Mr. POWELL. I will say that we do.
Senator SCOTT. Well, let me ask you this.
Mr. POWELL. I can talk about what I——
Senator SCOTT. What do you think, in 30 seconds or so?
Mr. POWELL. So, I think that is right. If you think that if you
think about families that are living paycheck to paycheck, they are
feeling high gas prices, soon enough heating, oil prices, food prices.
They are certainly feeling that. And, you know, this is our job. Our
role is to make sure that this higher inflation does not become en-
trenched.
Senator SCOTT. And part of the challenge that I see—I know that
someone else may address this point, but I was trying to figure out
the complexity of the labor force participation rate, and the fact of
the matter is that since the pandemic, we have seen a loss of about
1.7 percent of the labor force participation rate. We celebrate a 4.6
percent unemployment rate, but what we sometimes miss is the
fact that when you have fewer people looking for work, your unem-
ployment rate goes down because your long-term unemployment
goes up, which means that your labor force participation rate also
goes down.
Before I run out of time, let me just follow up on Senator
Hagerty’s points about expanding the power of the IRS and your
response, Secretary Yellen. Giving the IRS more power to catch tax
cheats by starting with the IRS bank reporting proposal seems far-
fetched, at best, because the original proposal literally said that if
you were a successful lemonade stand operator, making 12 bucks
a week, putting $600 into your checking or savings account, your
checking account, would cause that account to be reported to the
IRS. So then they revamped that proposal to $10,000, said dif-
ferently, if you are making minimum wage, working almost full-
time, your accounts would then also be transferred or at least
available for heightened inspections by the IRS.
32
If you are looking to catch complex business partnerships in
cheating their taxes, you do not need the IRS bank reporting pro-
posal. Can you tell the American people today, Secretary Yellen,
whether you still support any form of the IRS bank reporting re-
quirements your Department proposed earlier this year, which
would provide the IRS with currently undisclosed taxpayer infor-
mation for the purpose of targeting essentially every single working
American at minimum wage or higher? Do you still support that
or not?
Secretary YELLEN. I do support it. I think it is important that the
IRS have visibility into opaque income streams, and that is an im-
portant way of improving tax compliance. And it is not——
Senator SCOTT. Secretary Yellen, let me ask a question.
Secretary YELLEN. ——it is not——
Senator SCOTT. Let me ask you a question. Reclaiming my time.
Let me ask you a question. Because if you are looking to catch tax
cheats, why in the world would we start with something as low as
$600 and then revamp it to $10,000? If you are trying to find mil-
lionaires and billionaires, they are not running lemonade stands—
I do not think they are—and they are certainly not making min-
imum wage. So when you create a new approach to having the IRS
search through our account records at our financial institutions,
or——
Secretary YELLEN. I am sorry. It is not searching through any-
body’s——
Senator SCOTT. ——or compelling our financial institutions to
forward our information to the IRS——
Secretary YELLEN. I am sorry. It is not detailed information
about what you are doing in your bank account. It is too——
Senator SCOTT. Aggregated information going to the IRS is the
scariest proposal, and there is no way that it has to be anywhere
near the thresholds that you have started with in order to find a
way to——
Secretary YELLEN. We——
Senator SCOTT. ——take accountability for those complex organi-
zations.
Secretary YELLEN. We——
Chairman BROWN. Senator Scott, your time has expired. Sec-
retary Yellen, please answer the question.
Secretary YELLEN. We have worked——
Senator SCOTT. Well, Chairman, if we are going to have a con-
versation, we are going to have the dialog.
Chairman BROWN. Well, you have had the dialog. Please——
Secretary YELLEN. We have worked carefully with Congress to
narrow the scope of the reporting, and in particular to exempt
wage earners and Federal beneficiaries. The initial proposal was
intended to be comprehensive. The requirement asked for exactly
two pieces of information, aggregate inflows and aggregate outflows
over the course of a year for each account where financial institu-
tions already report interest income earned if it exceeds $10. The
burden on financial institutions was minimal and there was no at-
tempt to target income earners whose actual incomes are below
$400,000. But the low reporting requirement was meant to make
evasion more difficult by open multiple accounts.
33
Chairman BROWN. Thank you.
Senator Ossoff, from Georgia, is recognized.
Senator OSSOFF. Thank you, Mr. Chairman. Thank you to our
witnesses. Chair Powell, congratulations on your renomination.
The Fed, as has been noted, is beginning to taper its bond buying
program, but the program is scheduled to continue through mid
next year. We are talking about approximately $100 billion in No-
vember, around $90 billion in December, according to the current
schedule that we have seen created by the Fed, injected into capital
markets via asset purchases.
Chair Powell, what specific economic purposes does this bond
buying continue to serve?
Mr. POWELL. So, we are actually, at our next meeting in a couple
of weeks, going to have a discussion about accelerating that taper
by a few months, and in the intervening time, we will see more
data on inflation, on employment. And also, we will see more about
the development of the Omicron variant.
You know, the purpose at the very beginning was all about mar-
ket function, and the purchases did a great job of restoring market
function. When we continued the program and said we would con-
tinue it until substantial further progress was made, the idea was
to continue to support the economy in the way that lower longer-
term interest rates do. And it served that purpose. Now the econ-
omy is strong and inflationary pressures are high. So we are going
to discuss the possibility of a faster conclusion and wrap up those
purchases a little earlier.
Senator OSSOFF. With aggregate demand quite strong, in fact,
demand currently exceeding supply of labor and durable goods in
certain markets, as you noted, rates are low, capital markets are
highly liquid. So what economic purpose—and I am not disputing
that there is one, but what economic purpose does this continued
bond buying serve today and in the months to come, recognizing
that as you have stated, you and your colleagues will be reas-
sessing the pace of the taper at your December meeting?
Mr. POWELL. So the purpose it has been serving lately, for the
most part, has just been supporting economic activity. And you are
absolutely—you know, the point I am making is that the need for
that has clearly diminished as the economy has continued to
strengthen, as we have seen continued significant inflationary pres-
sures, and that is why we announced that we would taper, and it
is why we are now saying that we are going to discuss a somewhat
faster taper at our next meeting.
Senator OSSOFF. When future crises arise, as they no doubt will,
this specific method, quantitative easing bond purchases beyond
typical Federal open market operations which are targeting inter-
est rates, what have been the costs and benefits of utilizing this
technique? Does it not, for example, while it provides additional li-
quidity to capital markets, worsen inequality by driving up equity
and asset valuations and shifting more cash onto the balance
sheets of major financial institutions, high net worth individuals,
and investors?
Mr. POWELL. So I think the record from this and the last episode
is that asset purchases work through much the same channels as
regular interest rate changes. Just the difference is when you are
34
at the effective lower bound you cannot lower interest rates any-
more. What do you do? There are two things you can do, really.
You can promise to hold rates lower for longer, and that will affect
rates out the curve, and then you can actually go ahead and buy
bonds directly, and that lowers long-term rates. That supports eco-
nomic activity.
So it is part of the toolkit. As long as we are going to be near
the effective lower bound, asset purchases will be part of the tool-
kit.
You know, the inequality point, I think, it does not bear up
under scrutiny. Essentially, what is happening is companies are ex-
periencing lower longer-term rates. That enables them to finance
their operations, mortgage rates. The longer-term debts in our
economy will benefit from those lower long-term rates and support
economic activity through many of the same channels. I think that
the idea that they promote inequality is not well-supported. And,
by the way, we never hear about that from the—you know, we
meet with community groups and labor unions, and they never
come in and complain about quantitative easing.
Senator OSSOFF. Thank you for sharing your point of view, Chair
Powell. With my remaining time, I would like to ask you what you
currently assess to be the most significant systemic threats to fi-
nancial stability in the United States.
Mr. POWELL. You know, I would say the banking system is
strong. There are some issues to address in the capital markets,
but I would not say they rise to the level of grave systemic impor-
tance. We always think about cyber risk as being the one that is
so difficult to quantify and for which it is hard to have a great
playbook. So that is the one that I tend to lose sleep over.
Senator OSSOFF. Thank you, Chair Powell. Thank you, Mr.
Chairman.
Chairman BROWN. Senator Daines, of Montana, is recognized for
5 minutes.
Senator DAINES. Chairman, thank you. Secretary Yellen, Chair-
man Powell, thank you for being here as well, and congratulations,
Chairman Powell, on your renomination. I was vocal and out front
last August supporting your nomination, and congratulations. You
will have my support.
I would like to start by expressing my concern with the inflation
we are seeing in the economy, my concern with the Administration
and my Democrat colleagues are continuing to plow ahead with, I
believe, is a very reckless tax and spending proposal as if inflation
did not exist.
To go back to where we were here earlier this year, Senator Scott
made the comment about elections having consequences, and the
consequences are then we have policy outcomes here that have con-
sequences. Even though we had nearly $1 trillion of unspent
COVID relief dollars coming into 2021, the Democrats marched for-
ward with a $1.9 trillion, purely partisan spending package. Some
of my colleagues refer to this as cash cannons shooting across this
economy.
So, we created demand by injecting borrowed money into the
economy. Now the Democrats are looking at jamming through this
some $1.75, $1.8 trillion reckless spending bill. Many believe the
35
true cost of that bill is somewhere between $4 and $5 trillion, be-
cause they played games with truncating these massive programs
to try to get the number under $2 trillion. The real number is prob-
ably $4 or $5 trillion.
The point is this. Injecting all this money in the economy, bor-
rowed money, at the same time constricting supplies whether it is
through mandates or Government shutdowns, we now have really
the perfect storm created by the Biden administration for inflation,
not to mention the issues of energy. Montanans expect to see a 47
percent increase in heating costs this winter with higher energy
prices.
The proposal that the Democrats are trying to ram through at
the moment will add at least $300 billion of deficit in the first 2
years, and about $740 billion over the first 5 years. And with all
due respect, Secretary Yellen, you said it is paid for. I think the
CBO has not actually said that, even if you add in the massive tax
break they will be giving to the coastal elites the Democrats put
in there because their donors screamed so loud in places like Cali-
fornia and New York. But the bottom line is it is not fully paid for,
and the CBO has stated that.
Also, giving the IRS $80 billion to hire 87,000 more agents
should be chilling to the American people. This is a massive expan-
sion of Government. It is funded, in part, through more than $400
billion in additional taxes on small businesses, that I believe will
only exacerbate the inflation fire. And it is why so many Mon-
tanans and Americans are experiencing these inflation harms every
day.
Chairman Powell, core PCE and CPI readings, two main indica-
tors for inflation, jumped to 30-year highs of 4.1 percent and 6.2
percent, respectively. Needless to say, we are seeing much higher
inflation rates than the Fed projected, but yet the Fed is continuing
to predict that inflation is going to come down in the near future.
I think many of us here several months ago were very concerned
about inflation and probably had a different view of where the in-
flation forecast was going than the Fed did at that time.
But given that inflation has consistently run hotter this year
than the Fed has projected, what, in hindsight, would you say the
Fed underestimated in its previous forecast? And second, what eco-
nomic factors have changed to give you confidence in your projec-
tion that inflation will come down the near term?
Mr. POWELL. So I would love to be able to blame our models, but
it is a poor craftsman who blames his tools. And I will tell you
what I think we missed and what all the forecasters missed, and
it is the same thing. It is really the collapse of—or call it just the
enormous amount of supply side problem we have had with semi-
conductor chips and lumber and all of those things. We saw high
demand coming, we saw some higher inflation coming, but what
really happened was this demand came and hit a kind of a hard
constraint in the form of these supply constraints. And that is not
in the model.
So, you know, we live and learn. It is hard to model something
that is nonlinear and that is, you know, incredibly infrequent.
There is no precedent really for it.
36
Senator DAINES. Yeah. You know, I spent 20 years in business
and there are two rules: the forecast is always wrong and the fur-
ther out the forecast, the wronger it is, is generally true.
But I guess what have we learned from that and what has been
adjusted in your model now, having learned what has happened
here in the last 6 months, that gives you confidence that your cur-
rent forecast of seeing diminishing inflation are accurate?
Mr. POWELL. You know, so we have learned a lot about how to
model, for example, a pandemic. We had not thought much about
that. But you will never hear us say that we have great confidence
in our forecast. What you hear us saying is that there is tremen-
dous uncertainty around our forecasts, and we have been saying
that for some time. And also we have said that we do see these in-
flationary pressures as now being sustained well into next year. We
do expect them, though, to subside in the second half of next year,
and by the way, that is very widely held in the forecasting commu-
nity, which admittedly has much to be humble about.
Senator DAINES. Do you think deficits and the rapid increase in
debt, given that we are now projecting $1.2 trillion annual deficits
for the foreseeable future, is that going to have an impact on infla-
tion?
Mr. POWELL. Well, I do not want to comment on fiscal policy.
That is really up to you and——
Senator DAINES. But you think the rapid rise in debt is a threat
as it relates to inflation?
Mr. POWELL. I would just say if I can stay in my role, you know,
unfunded spending tends to be stimulative, I think, in the short
term. It does. But I would just say, we do need to return to a more
sustainable fiscal path, but the timing and the means of doing that
are really not up to the Fed.
Senator DAINES. Mr. Chairman, I know. Before I close, I want to
quickly touch just one of the banking——
Chairman BROWN. Well, you did close. You can make a comment.
No more questions. We are already over, and we are well over time.
Senator DAINES. I have a short comment to make. A lot of Ameri-
cans and Montanans are concerned about this. We have seen re-
ports, and some of my colleagues the other side of the aisle have
concerns over Professor Omarova, the nominee for Comptroller of
the Currency. Concerns are one thing. I would encourage my col-
leagues to come out publicly opposed to Ms. Omarova’s nomination
so we can find a way forward on filling this important nomination.
Mr. Chairman, thank you.
Chairman BROWN. Senator Tester is recognized from his office.
Senator TESTER. Well, thank you, Mr. Chairman. Hopefully you
can hear me. I want to thank Secretary Yellen and Chairman Pow-
ell for being on this call.
I think it is interesting though, Mr. Chairman, before I get to the
folks who have presented, that when we gave a tax break to billion-
aires under a Republican administration there was no talk about
debt then, that, you know, this was going to turn around the econ-
omy and it was going to move forward. The fact is, debt is debt,
whether it is created by Democrats or Republicans, and I think it
is more than just a little bit disingenuous to talk about debt when
it fits your needs. It does not fit them all.
37
The fact of the matter is that we have got a debt problem in this
country and we need to work to fix it. But giving tax breaks to bil-
lionaires is not a way to fix the debt problem in this country. That
is just a side comment.
I want to talk about housing. For Secretary Yellen, look, we have
housing challenges all over this country. We have particular hous-
ing challenges that not a lot of folks are talking about in Indian
country and in some of the more rural and frontier areas of our
State of Montana, and I believe throughout the country. We have
done some stuff for housing, but the truth is the impact of COVID–
19, the impact of poverty in many areas, particularly the Indian
country areas, is a big problem.
Could you give me some indications on how we should be ad-
dressing this issue and if it is an issue that is very high up on or
radar screen as far as something that needs to be done?
Secretary YELLEN. Well, I think the issue of affordable housing
is one that has plagued our country for many years. It certainly
predates the pandemic, but the pandemic really dramatically im-
pacted the income of many, especially low-income workers that al-
ready were tremendously challenged by the affordability or lack
thereof of housing.
So in the short term, the Emergency Rental Assistance money
that was made available is helping these households, but that
those funds cannot be used to solve the longer run problems that
we have. But the Build Back Better package, really that is where
the President has proposed policies to address what is really a cri-
sis in housing affordability. And that proposal contains really the
most ambitious investments in affordable housing production that
this country has ever seen.
So I am hopeful that that will be helpful. The funds that were
made available to State and local governments in the ARP can also
be used to address longer-term problems with respect to housing
affordability.
Senator TESTER. So one of the headlines in the papers today, in
Montana at least, is that housing inventory has caused an increase
in prices. In other words, the inventory is low, supply is low, and
it is driving prices up. That is pretty basic economics, quite frankly.
But with Build Back Better, do you see a significant investment in
supply for workforce housing and affordable housing?
Secretary YELLEN. Yes. I think it is mainly directed at affordable
housing. In total, I think the housing-related provisions amount to
almost $150 billion, so I think that that is substantial support to
raise the supply of affordable housing in this country.
Senator TESTER. And maybe this is going to be up to us, but I
have got to ask you anyway because you have been around a bit,
Secretary Yellen. Have you had a chance to take a look and see
how much money that $150 billion, if implemented correctly, could
leverage for housing? Are you there?
Secretary YELLEN. I—sorry. Is this for me?
Senator TESTER. This is for you, Secretary Yellen.
Secretary YELLEN. Oh, I am sorry. The question was, how
much——
Senator TESTER. My question was, have you had a chance to look
to see how much $150 billion could leverage for affordable housing?
38
Secretary YELLEN. I do not have those numbers at my fingertips,
but I can get back to you on it. I am sure there are estimates of
that.
Senator TESTER. OK. Very good. Well, I just want to thank you
both for being here. Chair Powell, congratulations on the nomina-
tion, and we will move from there. And thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Tester.
Senator Cramer, of North Dakota, is recognized.
Senator CRAMER. Thank you, Chairman. Thank you both for
being here. Congratulations, Chairman Powell. I look forward, as
do many of my colleagues, to supporting your confirmation.
First thing I want to do, Mr. Chairman, is correct a record that
got real fuzzy when Senator Kennedy asked Secretary Yellen a cou-
ple of times about debt and deficit and she said that the Build
Back Better plan is completely paid for and to prove it, the point
she said, the CBO agrees with her. Senator Daines touched on it.
But I want to read directly from the Congressional Budget Of-
fice’s score. ‘‘The CBO estimates that enhancing this legislation
would result in a net increase in the deficit totaling $367 billion
over the 2022 through 2031 period.’’ That is the 10 years.
Now, I have got the chart year by year. It is $155 billion next
year alone, and it continues for 5 years, and then in the last 4, it
shows some turnaround. But of course, all of that 5 years of rev-
enue or beyond the first 5 years is built on the premise that these
programs are not going to be continued, which we know, any casual
observer of American politics knows, once these programs start,
they are never going to be cut again. But even presuming, the pre-
sumption is built in, it is a $367 billion deficit, according to this
Congressional Budget Office’s score on the Build Back Better plan.
Now, I want to get back to an earlier question that Senator
Menendez asked you, Secretary Yellen. Basically he said would a
lot of these programs in the Build Back Better plan actually in-
crease workforce participation, things like child tax credit,
childcare credit. You talked a little bit just now about—Senator
Tester called it workforce housing. You called it affordable housing.
Important distinction because those words matter a lot.
So my question is, if all of those credits, all of those giveaways,
all of those incentives are going to help increase workforce partici-
pation, is there a work requirement tied to all of those?
Secretary YELLEN. I would like to start by correcting what I be-
lieve you said about the CBO.
Senator CRAMER. Well, I did not say it. I read the score from the
Congressional Budget Office.
Secretary YELLEN. I am sorry, but you did not read it completely.
It does say $360 billion over 10-year effect on the deficit. It then
notes that it did not include the revenue that would come from en-
hanced resources for tax enforcement. They estimated that at $207
billion, and have indicated that their scoring of that does not take
account of behavioral changes that would result from a regime of
stricter tax enforcement. And Treasury put out its own estimate of
that.
Senator CRAMER. And fairy dust creates energy. I understand.
39
But I want to get back to the issue of incentivizing a workforce.
Are there workforce incentives, work requirements attached to the
Build Back Better plan from the House?
Secretary YELLEN. There are places where there are not work-
force requirement, like the child tax credit. But the vast majority,
the overwhelming preponderance of individuals who receive these
tax credits, the child tax credit, do work. And, in some cases——
Senator CRAMER. But we are talking about a workforce participa-
tion rate that needs to be increased. Do any of these incentives re-
quire people to work to get them or is this just going to be added
on to whatever they are already getting, regardless of their employ-
ment situation? They are not, just so you know. They are not.
You know, earlier, Secretary Yellen, you answered a question
from Chairman Brown about why Build Back Better does not in-
crease inflation. Or, actually, his question was, will it bring down
costs? And you went on to explain all the ways that it brings down
costs, except that you really did not.
In North Dakota, the inflation rate is over 7 percent, over 7 per-
cent, because we appropriately last year stimulated the economy,
the Congress, the President, the Federal Reserve through its poli-
cies. We did that appropriately not knowing what the outcome was
going to be. But by the time we got to early this year, the winds
of inflation were already blowing, the economy was already expand-
ing, and Democrats added $2 trillion more dollars to debt and def-
icit as well as stimulating the economy without any requirement on
the other side. Now we are doing another, whatever it is going to
be, $2 to $4 or $5 trillion that the Democrats are going to push
through.
And I know that my time is up and I know that Chairman Pow-
ell does not answer questions about pending legislation, at least
not recently, so I am going to ask him this. Do you know of any
economists or a reputable economic model where more stimulus of
money into a situation reduces the cost of a product? To be fair,
Secretary Yellen, it may help people pay for some things, but the
cost does not come down when there is more money.
So, Chairman Powell, do you know of any economic model where
costs come down when people have more money to spend on it?
Mr. POWELL. It is really hard to answer that in the abstract. I
mean, there are forms of, really, investment that create more ca-
pacity in the economy.
Senator CRAMER. And I would agree with that, which is why I
supported the infrastructure package. I think that invests in the
infrastructure that moves an economy and pays people to work to
build it and to use it rather than not pay them to work.
Thank you, Mr. Chairman.
Chairman BROWN. Thank you.
Senator Sinema is recognized from her office.
Senator SINEMA. Thank you, Mr. Chairman, and thank you to
our witnesses for being here today. Secretary Yellen and Chair
Powell, it is good to speak with you both again.
Arizonans are increasingly concerned about supply chain disrup-
tions and inflation. As we know, global supply chains were and con-
tinue to be fragmented and dysfunctional due to the pandemic. In
the bustle of the holiday season, families are frustrated to see de-
40
layed shipments and empty shelves. Ongoing disruptions reduce
available supplies of goods, which tends to push prices higher, cre-
ating inflationary pressures.
I would like to hear from both of you on my question. Of the in-
flation that we are seeing, how much of it do you attribute to global
supply chain disruptions? And Secretary Yellen, if you could re-
spond first.
Secretary YELLEN. Well, we are seeing inflation all around the
developed world. The United States is not alone in seeing an in-
crease in inflation, and I think most countries are seeing disrup-
tions that result from the pandemic. We have had a huge shift
away from spending on services like going out to restaurants, trav-
eling, staying in hotels, and a shift toward goods that need to be
produced, many of which are imported. This is true in the United
States and in other countries as well.
Another impact of the pandemic that we are seeing here and
other countries are a reduction in labor supply because many peo-
ple who have jobs that involve face-to-face contact do not yet feel
comfortable going back to work and childcare is disrupted.
And so labor supply has been constricted and this dramatic shift
toward goods away from services, combined with reduced labor sup-
ply and problems of when it is suddenly hard because of supply
chain problems to get needed components for manufacturing or to
stock shelves, that tends to incentivize more ordering to build in-
ventories, which adds to the problem.
So I think both of these factors play into inflation in the United
States and also to other countries.
Senator SINEMA. Thank you. Chair Powell.
Mr. POWELL. Yes. So I guess I would just say, you are looking
for a number. I do not really have one close to hand, but if you just
took out the inflationary effects around durable goods and other
goods, which is really where the main inflation is coming from, cer-
tainly in core inflation, you would be at a substantially lower level
of inflation. In addition, you are seeing energy prices going up. It
is not really a supply chain issue, mostly, but some of it is. But if
you look at headline inflation, that is going to be one of the big fac-
tors driving up headline inflation.
Senator SINEMA. Thank you. Now as you know, Government is
extremely limited in its ability to resolve supply chain issues,
which are fundamentally working relationships between private
businesses. Now that being said, I know the Administration has
taken steps to address some of the staffing and logistics issues at
our ports. Congress also recently acted by passing the Bipartisan
Infrastructure Investment and Jobs Act, which makes a historic
and necessary investment in our core infrastructure like roads,
bridges, transit, ports, and broadband.
Republican Senator Rob Portman, my negotiating partner in
crafting this deal, has said he believes our new law is crafted in
a way that will reduce inflation. Secretary Yellen, do you agree
with that assessment that this bipartisan infrastructure deal will
reduce inflation?
Secretary YELLEN. Well, yes. I think over time the infrastructure
bill will increase the efficiency of our economy, modernize our
ports, our rails, improve our roads and bridges, and enhance the
41
potential output of the economy, raise our ability to supply goods
and services efficiently, and in that sense over time will lower in-
flationary pressures.
Senator SINEMA. Thank you. And my last question for you, Chair
Powell. In February, I asked you if the Fed needed to achieve all
three of the goals it set out—full employment, 2 percent inflation,
and an outlook for greater than 2 percent inflation before raising
interest rates, and you said yes. Now recognizing that the Fed has
made some initial moves to begin tapering bond purchases, is the
answer that you gave me in February on interest rates still true
today?
Mr. POWELL. So there is still a three-part test. That is still true.
I would say that if you look at the—one goal was to reach 2 percent
inflation and another was to achieve inflation above 2 percent for
some time, I would say this is a decision for the Committee to
make, but I think the Committee, in coming meetings we will wind
up saying that those inflation conditions have been met.
Senator SINEMA. Thank you. Thank you, Mr. Chairman.
Chairman BROWN. Senator Warnock, from Georgia, is recognized.
Senator WARNOCK. Thank you so very much, Mr. Chairman. Sec-
retary Yellen, it is good to see you and congratulations, Chairman
Powell, on your nomination for a second term as Chair of the Fed.
I look forward to some supporting your nomination and continuing
to work with you to ensure that Georgia families and businesses
and workers continue to recover from the pandemic and that work-
ing together we can ensure that we have a labor market that in-
cludes historically overlooked communities so that we have an
economy that works for all Americans.
Earlier this month, Georgia’s Department of Labor reported that
the State’s unemployment rate is now at 3.1 percent. This is the
lowest rate in the State’s recorded history. This is good news, and
it indicates that emergency economic relief programs in the CARES
Act and the American Rescue Plan have been working. Certainly,
working in Georgia.
Still, Georgia’s economy is not out of the woods yet. Small busi-
nesses continue to tell me that they are having difficulty hiring,
while the labor force is still not what it was prior to the pandemic.
Secretary Yellen, the labor participation rate fell in the outset of
the pandemic and it has remained flat over the past year, even as
aid programs ended and the economy reopened, particularly among
women, which is why some called the pandemic a ‘‘she-demic’’, if
you will. Women have been especially hard hit by this, especially
women and parents with small children. What else should Con-
gress do to help bring workers back into the labor force?
Secretary YELLEN. So I would say that in the short run vaccina-
tions and increasing the number of people who have boosters to get
the pandemic under control, to reduce number of cases, that is the
single most important thing we need to do to create an environ-
ment in which people feel it is safe to work. A substantial number
of people say that they are not looking for work for COVID-related
reasons. In some cases, even people who are fully vaccinated but
who engage in face-to-face contact in their jobs are concerned about
exposing themselves to COVID risks. And I think you see that for
schools, childcare centers, retail, in food services.
42
Over a medium to longer term, many of the provisions of Build
Back Better, particularly those affecting childcare, the availability
of elder care and care for the disabled, support for childcare, those
things promote labor force participation.
Senator WARNOCK. Chairman Powell, would you add your per-
spective to this?
Mr. POWELL. Yes. I mean, I guess I would just say that on par-
ticipation it has been a bit of a surprise that we have not had more
of a recovery, and I really think the single most important thing
is to get past the pandemic. Then we are really going to know how
permanent this is. People get surveyed and they do say—substan-
tial numbers of people are concerned about going back to work at
a time when the pandemic is still moving around. And so I think
that is the key, which means more vaccination, more boosters.
Senator WARNOCK. So getting the pandemic under control
through vaccinations, and if I am understanding you correctly, the
care economy, so supporting families with elder care, childcare that
you think that will actually strengthen labor market participation
and not the opposite?
Mr. POWELL. You know, I do not want to get into any particular
legislation.
Senator WARNOCK. Sure.
Mr. POWELL. But yes, I think there is good research, as the Sec-
retary pointed out a while ago earlier in the hearing, there is good
research showing that the U.S. has fallen behind, for example, in
female labor force participation. You ask why, you do comparisons
to other countries, and one of the differences that shows up as sta-
tistically significant is the availability of childcare.
Senator WARNOCK. Yeah. I believe in the dignity of work and it
frustrates me, quite frankly, to hear folks moralize about the im-
portance of work while not supporting workers, and their ability to
participate in the labor market. I think closing the coverage gap,
which is part of Build Back Better, will also help enable and
strengthen workers even as they strengthen the American econ-
omy.
Thank you all so much.
Chairman BROWN. Thank you, Senator Warnock. As we close,
Senator Toomey.
Senator TOOMEY. Thank you, Mr. Chairman. Just a few points
to wrap up. First I would like to respond to my friend and col-
league, the senior Senator from Montana, who brought up the issue
of the 2017 tax reform and remind him and all of us that in the
wake of our 2017 tax reform, we had the strongest economy in 50
years. We had all-time record low unemployment. We had wages
growing, growing fastest for the lowest-income workers. We had in-
flation that was modest. And, in fact, we were narrowing the gap
between high-income and low-income people. Oh, and by the way,
tax revenue collected by the Federal Government was growing.
I also want to touch on the important point that Senator Cramer
correctly made. The CBO has not said that the Build Back Better
bill will be fully paid for. He correctly noted that it would result
in an increase in the deficit totaling $367 billion over the 10-year
period, not counting any additional revenue that would be gen-
erated by additional funding for tax enforcement.
43
But when you take that number into account as well, which is
$207 billion, you are still left with a $160 billion estimated increase
in the deficit over the 10 years. But it is actually much worse than
that because, by design, the spending in this bill is heavily front
loaded with the expectation that supposedly expiring programs will
actually be continued. If you look at CBO’s numbers for the first
5 years, the deficit increases by $804 billion. That is $804 billion
in additional deficits, which means $804 billion increasing in the
debt we would take on, which is why our Democratic colleagues
need such a big number by which to raise the debt ceiling and why
they are so unwilling, so far, to use the tool that is available to
them to pass the debt ceiling increase with a simple majority vote,
the reconciliation tool, because it also requires that they specify
just how much debt they want to run up.
So Mr. Chairman, I think it is important to set the record
straight on those matters.
Chairman BROWN. I thank the Ranking Member. As the Ranking
Member mentioned the debt ceiling, I would like to make a com-
ment. The last time Congress dealt with the debt ceiling was in the
summer of 2019. Twenty-seven Senate Republicans voted to raise
the debt ceiling. So did I. So did, with a Republican President, a
Republican House and a Republican Senate, more than 40 of my
Democratic colleagues joined me and others to vote to do the right
thing for our country.
There was such little concern about the debt when my colleagues
passed the $2 trillion tax cut giveaway to the wealthy and corpora-
tions in 2017. Senator Toomey and I both sit on the Finance Com-
mittee and had those debates. They just were not concerned in
those days.
And I would reiterate, as Secretary Yellen and the nonpartisan
Congressional Budget Office have affirmed that this bill is in fact
paid for. Secretary Yellen responded to greatly detailed questions
with the answer to that, and we heard it. Now Republicans would
rather hold our full faith and credit hostage than pay the bills that
they have racked up, perhaps that we have all racked up, and that
is not acceptable.
One final point on inflation. Just this morning, Bloomberg re-
leased a story where the headline pretty much says it all, ‘‘Fattest
Profits Since 1950 Debunk Wage Inflation Story Of CEOs’’. ‘‘Fat-
test Profits Since 1950 Debunk Wage Inflation Story Of CEOs’’.
The FDIC also just released its quarterly report. Shocking no one,
bank profits are up.
The idea that these corporations cannot afford to pay workers
higher wages, wages that actually reflect the value of the work
they do to make these companies profitable, is ridiculous. They
want the Fed to pull back. Let’s be clear. By pull back, by tapering,
what they really mean is they want fewer jobs available. That is
what happened after the last crisis. The Fed pulled back its sup-
port too soon. Some families never recovered. We cannot make that
mistake again.
For Senators who wish to submit questions for the record, they
are due 1 week from today, Tuesday, December 7. Secretary Yellen
and Chair Powell, you have 45 days to respond to any of those
questions.
44
Thank you again. The Committee is adjourned.
[Whereupon, at 12:31 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and addi-
tional material supplied for the record follow:]
45
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Last week, many Americans sat down with family and friends to celebrate
Thanksgiving. I want to take a moment to thank all the workers who made that
possible, many of whom didn’t get the day off—farm workers, grocery store workers,
restaurant workers, auto workers, delivery workers, longshore workers, and so
many others.
These are the people who make our economy work.
Under the Biden-Harris administration, our economy is bouncing back, and get-
ting stronger every day. We created 5.6 million jobs this year. The unemployment
rate has dropped to 4.6 percent, and weekly unemployment claims dropped to under
200,000 last week—the lowest level not just since the pandemic began, but in over
50 years, since 1969.
Of course raw jobs numbers alone don’t tell the whole story—they don’t tell you
how good the job is, what kind of wage it pays.
And on that front, the news is even better. Workers are starting to finally get a
little bit more power in our economy.
Last year, corporations called their workers essential, and then many turned
around and cut hazard pay—if they ever offered it at all—and cut corners on safety,
to make sure their profits didn’t take a hit. Or worse—they laid off loyal, long-time
employees in the midst of a public health crisis.
But they can’t make those record profits without someone to actually do the work.
And today, American workers are demanding what they’ve earned.
After years of stagnant wages, shrinking benefits, and no control over their sched-
ules, workers are standing up for themselves and for each other, and asking for
their fair share of the profits they create.
We just saw the United Auto Workers win better pay and better retirement bene-
fits after a 5-week strike of John Deere—and it was good for non-union employees,
who got a bump in pay, too.
For too long, corporate greed has kept paychecks down and prices up. Corpora-
tions ‘‘cut costs’’ at workers’ expense to juice their quarterly earnings numbers, even
when they’re already plenty profitable. Executives reward themselves with record
profits and stock buybacks, while arguing they can’t afford to pay higher wages to
anyone else, or can’t afford to lower prices.
During a once in a generation global pandemic, despite the supposed ‘‘labor short-
ages’’ and inflation fears, Wall Street banks and corporations still managed to rake
in record profits.
Profits at the biggest U.S. companies shot above $3 trillion this year, and the
margins keep growing. And now, while working families are just starting to get back
on their feet, megacorporations would rather pass higher costs onto consumers than
cut into their profits.
To continue the progress we’ve made, we need to rethink that old system.
The Biden administration is creating jobs and bringing down costs for families to
build a resilient economy for the long run.
The biggest costs families face have been rising for years, in many cases dec-
ades—housing, health care, prescription drugs, childcare, preschool.
Democrats’ agenda will bring down all these costs.
We passed the American Rescue Plan, which got shots in arms and money in
pockets—including the Child Tax Credit, the largest tax cut for working families
ever that’s helping millions of families afford childcare and keep up with the cost
of living. Ninety percent of kids’ families in Ohio are getting a $3,000 tax credit.
We passed the bipartisan infrastructure bill to upgrade our ports and transit sys-
tems, revitalize manufacturing here in the United States, secure supply chains, and
create millions of good jobs.
Two weeks ago, the House passed Build Back Better—which will bring down
childcare, housing, health care, and other household costs.
Now, the Senate must act.
The ongoing pandemic has also exposed longstanding weaknesses in our supply
chain.
Global supply chain disruptions and increased demand as our economy rebounds
are causing higher prices in certain sectors.
Secretary Yellen and Chair Powell are keeping an eye on this, and the more we
can get the virus under control and understand its variants, the faster we will see
those disruptions subside. We’re already seeing some progress.
The Bipartisan Infrastructure Plan’s investment in our ports will help speed up
our supply chains in the long-run. And passing my Supply Chain Resiliency Act
would further reshore and strengthen U.S. supply chains.
46
There’s also an even simpler short-term fix available—corporations could lower
their prices.
Executives could get a slightly smaller pay bump this year and stock buyback
plans could be put on hold, instead of raising costs for customers.
There’s no inexorable law that says profits for those at the top must continue to
rise in perpetuity, even at the expense of everyone and everything else in the econ-
omy.
Corporations can get away with it, because they have too much power in the econ-
omy.
That makes it all the more vital that we not pull back on empowering workers.
The Fed cannot pump the brakes on our economic recovery too soon, before work-
ers get a chance to fully rebound. And I mean all workers.
Women—who finally started to make significant job gains last month—were dis-
proportionately forced out of the labor market, as many took on the extra jobs of
full-time caregiver and homeschool teacher.
The Black unemployment rate is still twice that of White workers. That’s unac-
ceptable.
A resilient economy is an economy where full employment means everyone can
get a job—a good job, that pays a living wage and allows you to build a career and
raise a family.
And it’s an economy where everyone shares in the benefits of growth, and where
our progress isn’t gambled away by Wall Street greed.
Instead of doing Wall Street’s bidding, we all—the Fed, the Treasury Department,
Congress—need to support the institutions that are hard at work serving their
neighbors and contributing to the real economy.
That means supporting small business and creating pathways to home ownership.
That means supporting institutions like MDIs and CDFIs, that serve communities
that the banks ignore. That means making sure workers have power in our economy
and share in the prosperity they create.
Corporations and their allies in this building want you to believe that we have
to choose between high wages and low prices. That’s a false choice.
We can have an economy where you earn a living wage and you can afford the
things you need to live—childcare, health care, education, housing, groceries.
Our economy can be a reflection of our values as Americans—one that recognizes
every worker’s potential—from all walks of life and from every corner of our coun-
try.
President Biden recently announced his intention to renominate Chair Powell to
lead the Federal Reserve, and Governor Lael Brainard to be Vice Chair.
They have helped lead our economy through the pandemic, and I will continue
to work with both of them, and the next Federal Reserve nominees that reflect the
diversity of our country.
I look forward to hearing from Secretary Yellen and Chair Powell on how they
plan to help us build a resilient economy that works for everyone.
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman.
Secretary Yellen and Chairman Powell, welcome.
Chairman Powell, congratulations on your renomination. Despite our disagree-
ments, I look forward to supporting your confirmation.
When the pandemic hit in 2020, Chairman Powell acted swiftly to help stabilize
financial markets and the economy. He also implemented a number of sensible regu-
latory reforms that helped to spur economic growth.
And for those who would criticize those efforts, I suggest they look at the past
2 years. Our economy experienced a severe real-world stress test during the worst
days of the pandemic, but we’ve come out of it with the best capitalized banking
system in American history.
While I support Chairman Powell’s renomination, I’m very concerned about whom
President Biden may nominate to fill other seats on the Fed’s Board given some of
the radical financial regulators he’s nominated so far. Just consider his radical
nominee to serve as the Comptroller of the Currency, the Nation’s top banking regu-
lator.
Members of the Fed Board ought to have exceptional qualifications and apprecia-
tion for the Fed’s narrow statutory role on monetary policy and banking supervision.
We need Fed nominees who are focused not on social policy, but rather the alarm-
ing bout of inflation that we are currently experiencing. Inflation is at a 31-year
47
high. Just last month, the consumer price index increased by 6.2 percent year over
year.
Price hikes are everywhere, from the cost of a Thanksgiving meal, which rose by
14 percent over last year, to the pump, where gas has reached as high as $6 a gal-
lon in some places.
Inflation is a tax that is eroding Americans’ paychecks every day. Even though
wages are growing, inflation is growing faster and causing workers to fall further
and further behind.
I’ve been warning about the risks of higher and more persistent inflation since
January. Unfortunately, the Fed has decided to continue its emergency monetary
policy, adding fuel to the inflationary fire, long after the economic emergency had
passed.
Earlier this month, I was glad to see the Fed finally announce a long-overdue
taper of its bond-buying program. Quantitative easing should be used in emer-
gencies only, and we are well past the need for such support.
Our economy took a nose dive in the second quarter of last year. But by the third
quarter of 2020 it had largely recovered. Yet, here we are in November 2021 and
the Fed’s still buying more than $100 billion in bonds.
The Fed should have started tapering nearly a year ago. But instead it’s expected
to continue buying bonds through next June. And on interest rates, which are cur-
rently near zero, the Fed is still maintaining a wait-and-see approach.
I am somewhat relieved that Chairman Powell has recently recognized the height-
ened risks of higher and more persistent inflation and has indicated his determina-
tion to control it.
Unfortunately, the Biden administration and many Democrats in Congress are
not willing to do their part to limit inflation. Instead, they’re exacerbating the prob-
lem and blaming inflation on their usual suspects: greedy corporations.
Apparently, some of my colleagues believe companies were for years generously
leaving money on the table and only now have thought to raise prices to maximize
profit. This is a cynical fib meant to distract from the fact that Congressional Demo-
crats’ extreme Leftist policies are contributing to the price hikes hitting Americans’
wallets.
Take energy prices for example. President Biden kicked off his presidency by tak-
ing measures to curb our Nation’s energy supply. He terminated construction of the
Keystone Pipeline, a tremendous source of oil. He placed an indefinite ban on new
oil and gas leases on Federal land.
Meanwhile, on the demand side, the Administration and Democrats in Congress
have propped up demand for energy with their March 2021 $1.9 trillion stimulus
bill. It’s no wonder then that Americans are seeing skyrocketing energy prices.
When you decrease supply, but subsidize demand, prices go up. It’s basic economics.
Unfortunately, the Administration has not learned its lesson. It’s still pushing a
multitrillion dollar reckless tax-and-spend plan that will contribute to more inflation
and damage our economy. Its plan is a massive expansion of the welfare State and
will be partially paid for by large tax increases that hurt American families, and
make the U.S. a less competitive place to do business.
The intent of this plan is to fundamentally transform the relationship between the
Federal Government and the middle class. It’s about socializing many ordinary re-
sponsibilities that families have always assumed, including by providing free pre-
school, free paid leave, and free childcare.
Democrats are attempting to hide the unprecedented enormity of this tax-and-
spending spree through budget gimmicks. According to the nonpartisan Penn-Whar-
ton budget model, the House version of the Build Back Better plan will cost $4.6
trillion over 10 years if the bill’s temporary provisions are made permanent, as the
Democrats plan. As Senator Manchin has noted, Democrats are using ‘‘shell games’’
to hide the true cost of this legislation.
I hope that Democrats will reconsider their misguided efforts to double-down on
the reckless spending that has contributed to the highest inflation that Americans
have experienced in 31 years.
48
PREPARED STATEMENT OF JANET L. YELLEN
SECRETARY, DEPARTMENT OF THE TREASURY
NOVEMBER 30, 2021
Chairman Brown, Ranking Member Toomey, Members of the Committee: It is a
pleasure to testify today.
November has been a very significant month for our economy, and Congress is
a large part of the reason why. Our economy has needed updated roads, ports, and
broadband networks for many years now, and I am very grateful that on the night
of November 5, members of both parties came together to pass the largest infra-
structure package in American history.
November 5th, it turned out, was a particularly consequential day because earlier
that morning we received a very favorable jobs report—531,000 jobs added. It’s
never wise to make too much of one piece of economic data, but in this case, it was
an addition to a mounting body of evidence that points to a clear conclusion: Our
economic recovery is on track. We’re averaging half-a-million new jobs per month
since January. GDP now exceeds its prepandemic levels. Our unemployment rate
is at its lowest level since the start of the pandemic, and our economy is on pace
to reach full employment 2 years faster than the Congressional Budget Office had
estimated.
Of course, the progress of our economic recovery can’t be separated from our
progress against the pandemic, and I know that we’re all following the news about
the Omicron variant. As the President said yesterday, we’re still waiting for more
data, but what remains true is that our best protection against the virus is the vac-
cine. People should get vaccinated and boosted.
At this point, I am confident that our recovery remains strong and is even quite
remarkable when put it in context. We should not forget that last winter, there was
a risk that our economy was going to slip into a prolonged recession, and there is
an alternate reality where, right now, millions more people cannot find a job or are
losing the roofs over their heads.
It’s clear that what has separated us from that counterfactual are the bold relief
measures Congress has enacted during the crisis: the CARES Act, the Consolidated
Appropriations Act, and the American Rescue Plan Act. And it is not just the pas-
sage of these laws that has made the difference, but their effective implementation.
Treasury, as you know, was tasked with administering a large portion of the relief
funds provided by Congress under those bills. During our last quarterly hearing, I
spoke extensively about the State and local relief program, but I wanted to update
you on some other measures.
First, the American Rescue Plan’s expanded Child Tax Credit has been sent out
every month since July, putting about $77 billion in the pockets of families of more
than 61 million children. Families are using these funds for essential needs like
food, and in fact, according to the Census Bureau, food insecurity among families
with children dropped 24 percent after the July payments, which is a profound eco-
nomic and moral victory for the country.
Meanwhile, the Emergency Rental Assistance Program has significantly ex-
panded, providing much-needed assistance to over 2 million households. This assist-
ance has helped keep eviction rates below prepandemic levels.
This month, we also released guidelines for the $10 billion State Small Business
Credit Initiative program, which will provide targeted lending and investments that
will help small businesses grow and create well-paying jobs.
As consequential as November was, December promises to be more so. There are
two decisions facing Congress that could send our economy in very different direc-
tions.
The first is the debt limit. I cannot overstate how critical it is that Congress ad-
dress this issue. America must pay its bills on time and in full. If we do not, we
will eviscerate our current recovery. In a matter of days, the majority of Americans
would suffer financial pain as critical payments, like Social Security checks and
military paychecks, would not reach their bank accounts, and that would likely be
followed by a deep recession.
The second action involves the Build Back Better legislation. I applaud the House
for passing the bill and am hopeful that the Senate will soon follow. Build Back Bet-
ter is the right economic decision for many reasons. It will, for example, end the
childcare crisis in this country, letting parents return to work. These investments,
we expect, will lead to a GDP increase over the long-term without increasing the
national debt or deficit by a dollar. In fact, the offsets in these bills mean they actu-
ally reduce annual deficits over time.
49
Thanks to your work, we’ve ensured that America will recover from this pan-
demic. Now, with this bill, we have the chance to ensure America thrives in a
postpandemic world.
With that, I’m happy to take your questions.
PREPARED STATEMENT OF JEROME H. POWELL
CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
NOVEMBER 30, 2021
Chairman Brown, Ranking Member Toomey, and other Members of the Com-
mittee, thank you for the opportunity to testify today.
The economy has continued to strengthen. The rise in Delta variant cases tempo-
rarily slowed progress this past summer, restraining previously rapid growth in
household and business spending, intensifying supply chain disruptions, and, in
some cases, keeping people from returning to work or looking for a job. Fiscal and
monetary policy and the healthy financial positions of households and businesses
continue to support aggregate demand. Recent data suggest that the post-September
decline in cases corresponded to a pickup in economic growth. Gross domestic prod-
uct appears on track to grow about 5 percent in 2021, the fastest pace in many
years.
As with overall economic activity, conditions in the labor market have continued
to improve. The Delta variant contributed to slower job growth this summer, as fac-
tors related to the pandemic, such as caregiving needs and fears of the virus, kept
some people out of the labor force despite strong demand for workers. Nonetheless,
October saw job growth of 531,000, and the unemployment rate fell to 4.6 percent,
indicating a rebound in the pace of labor market improvement. There is still ground
to cover to reach maximum employment for both employment and labor force par-
ticipation, and we expect progress to continue.
The economic downturn has not fallen equally, and those least able to shoulder
the burden have been the hardest hit. In particular, despite progress, joblessness
continues to fall disproportionately on African Americans and Hispanics.
Pandemic-related supply and demand imbalances have contributed to notable
price increases in some areas. Supply chain problems have made it difficult for pro-
ducers to meet strong demand, particularly for goods. Increases in energy prices and
rents are also pushing inflation upward. As a result, overall inflation is running
well above our 2 percent longer-run-goal, with the price index for personal consump-
tion expenditures up 5 percent over the 12 months ending in October.
Most forecasters, including at the Fed, continue to expect that inflation will move
down significantly over the next year as supply and demand imbalances abate. It
is difficult to predict the persistence and effects of supply constraints, but it now
appears that factors pushing inflation upward will linger well into next year. In ad-
dition, with the rapid improvement in the labor market, slack is diminishing, and
wages are rising at a brisk pace.
We understand that high inflation imposes significant burdens, especially on
those less able to meet the higher costs of essentials like food, housing, and trans-
portation. We are committed to our price-stability goal. We will use our tools both
to support the economy and a strong labor market and to prevent higher inflation
from becoming entrenched.
The recent rise in COVID–19 cases and the emergence of the Omicron variant
pose downside risks to employment and economic activity and increased uncertainty
for inflation. Greater concerns about the virus could reduce people’s willingness to
work in person, which would slow progress in the labor market and intensify sup-
ply-chain disruptions.
To conclude, we understand that our actions affect communities, families, and
businesses across the country. Everything we do is in service to our public mission.
We at the Fed will do everything we can to support a full recovery in employment
and achieve our price-stability goal.
Thank you. I look forward to your questions.
50
51
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM JANET L. YELLEN
Q.1. Homeowners of color have faced disproportionate hardship
over the course of the COVID–19 Crisis. What data will Treasury
make public about who is receiving help through the States’ Home-
owner Assistance Fund programs and when do you expect to begin
reporting that data? Will you commit to making public data that
will allow the public to evaluate whether each State is equitably
serving all homeowners seeking assistance?
A.1. Treasury is committed to making data available about who is
benefiting from the Homeownership Assistance Fund (HAF) and
other recovery programs. Treasury rapidly made available close to
$1 billion to HAF Participants, 10 percent of each of their alloca-
tions, to immediately begin serving vulnerable homeowners and to
support administrative efforts to launch their full programs. At
least 18 States established pilot programs, and Treasury has begun
gathering information about those pilot programs.
Treasury is currently in the process of approving HAF Plans sub-
mitted by eligible participants, including several States, the Dis-
trict of Columbia, Territories, and Tribes. In addition, Treasury has
released interim reporting guidance for HAF participants. The first
report from HAF Participants, a one-time interim report, will be
due to Treasury by February 28, 2022, with quarterly reporting be-
ginning in April 2022 and annual reports due for the first time in
June 2022. After validating the accuracy of that data, Treasury will
make reports available on the Treasury website. This is likely to
begin after February 2022.
Q.2. Will Treasury commit to publishing each State’s Homeowner
Assistance Fund plan and any amendment to those plans in a cen-
tral location? When do you expect to begin publishing those plans
that are already approved?
A.2. Treasury anticipates beginning to publish approved State HAF
Plans on the Treasury website in January 2022.
Q.3. Women have borne the brunt of the job losses during the
COVID–19 Crisis. We created over half-a-million jobs in October
and more than half of those job gains went to women. The National
Women’s Law Center estimates that it would take 8 months of this
kind of job growth to gain back the millions of jobs lost since Feb-
ruary 2020. Secretary Yellen, what can we do to make sure women
can return to the work force with good jobs that help grow our
economy? What progress have we made so far, and how is Treasury
planning to address the issue?
A.3. Our labor force participation rate remains well below
prepandemic levels. The pandemic has imposed considerable bur-
dens on families and women, in particular, in childcare and elder
care responsibilities. The American Rescue Plan’s funding for State
and local governments can also be used to support childcare to help
parents get back to work.
Even before the pandemic, women’s labor force participation had
stagnated in the U.S. relative to other advanced countries. Pro-
viding more support for childcare through universal pre-K and aug-
menting our childcare infrastructure is imperative to growing our
52
labor force and our economic potential over the next decade. The
Build Back Better agenda will deliver universal pre-K and
strengthen childcare, and Treasury will work to support the imple-
mentation of these programs.
Q.4. Leading up to the 2007–2008 Crisis, regulators failed to un-
derstand the risk that was building up and the interconnectedness
of our financial system before it was too late. One of the lessons
learned from the crisis was that regulators need to proactively seek
to limit risk on the entire financial system. What parallels and dis-
tinctions do you see between the 2008 financial crisis and growing
risks to our financial system from a climate risk financial crisis?
A.4. Following the 2008 financial crisis, the Dodd-Frank Act
charged the Financial Stability Oversight Council (FSOC) with
identifying and responding to emerging risks to the stability of the
U.S. In its Report on Climate-Related Financial Risk, the FSOC
identified climate change as an emerging and increasing threat to
U.S. financial stability. The report includes over 30 specific rec-
ommendations to U.S. financial regulators, laying out necessary ac-
tions to identify and address climate-related risks to the financial
system and promote the resilience of the financial system to those
risks.
The 2008 financial crisis revealed in part the need for regulators
to work together to assess financial risks more holistically and in
a coordinated fashion. The FSOC’s climate report represents a sig-
nificant and important interagency effort to identify and consider
climate-related financial risks across markets and institutions over-
seen or supervised by FSOC member agencies. Climate-related fi-
nancial risks have the potential to impact the safety and soundness
of regulated institutions, the integrity of financial markets, inves-
tor and consumer protection, and financial stability more generally.
The report discusses the complex transmission channels linking cli-
mate-related transition and physical risks to the economy and fi-
nancial sector, recognizing that climate-related shocks may be
propagated by interconnections throughout the economy and finan-
cial system.
Climate change is not an abstract threat that we can afford to
ignore. In 2021, there were 20 separate billion-dollar weather and
climate disasters in the U.S., just two less than the record set in
2020. These disasters cost over $145 billion and took 688 lives. Cli-
mate-related disasters are expected to only increase as tempera-
tures rise, as we have seen in recent decades. Adjusted for infla-
tion, there were 29 billion-dollar weather and climate disasters in
the 1980s, 53 in the 1990s, 63 in the 2000s, and 123 in the 2010s
(NOAA National Centers for Environmental Information (NCEI)
U.S. Billion-Dollar Weather and Climate Disasters (2022). https://
www.ncdc.noaa.gov/billions/DOI:10.25921/stkw-7w73).
These events underscore the importance of the Administration’s
urgent, whole-of-Government effort on climate change and the need
for the financial system to support an orderly, economywide transi-
tion toward the goal of net-zero emissions.
While U.S. financial regulators have begun to make significant
progress in tackling these challenges, there is a substantial amount
of work yet to be done, especially improving data and measurement
53
and expanding capacity to address and manage climate-related fi-
nancial risks.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM JANET L. YELLEN
Q.1. Cryptocurrencies—Given the recent passage of cryptotax re-
porting provisions in the Infrastructure Investment and Jobs Act
(P.L. 117-58), when do you anticipate Treasury will conduct a rule-
making on third party tax reporting related to cryptocurrencies?
A.1. Information reporting is a critical tool in increasing tax com-
pliance and reducing tax evasion. Information reporting also helps
taxpayers by providing them with the information that they need
to prepare tax returns. When considering these requirements,
Treasury and the IRS will engage in a robust notice-and-comment
rulemaking process that will solicit input from affected industries
and other interested parties before they make final determinations
about the scope of application of new broker reporting rules for dig-
ital assets. This is a months-long process that requires engagement
with experts in order to appropriately consider the utility of infor-
mation that will be reported to taxpayers and the IRS and the cost
of providing that information, among other issues.
Q.2. In the recently published President’s Working Group (PWG)
recommendations for stablecoins, the PWG noted that ‘‘in the ab-
sence of Congressional action . . . the agencies recommend that
the Financial Stability Oversight Council (FSOC) consider steps
available to it to address (stablecoin) risks.’’ It is important that
Congress weigh in on proper stablecoin policies, and that the Amer-
ican economy has certainty as to the Federal Government’s actions.
What steps will the PWG take to work with Congress on the appro-
priate legislative solutions before any administrative actions are
taken related to FSOC designation?
A.2. The primary recommendation in the PWG report is for Con-
gress to enact legislation to ensure that payment stablecoins, and
payment stablecoin arrangements, are subject to a Federal pruden-
tial framework on a consistent and comprehensive basis. Since the
publication of the report, Treasury staff has been engaged in active
discussions with members of Congress and their staffs regarding
the benefits and risks of stablecoins, regulatory gaps, and measures
that would effectively address such gaps. We look forward to con-
tinuing those discussions.
Q.3. In its report, the PWG recommends that Congress enact legis-
lation that requires stablecoin issuers to be insured depository in-
stitutions. Why are existing and successful partnerships between
stablecoin issuers and insured depository institutions, in States
such as New York and Wyoming, not sufficient when it comes to
customer protection and avoiding run risks?
A.3. As discussed in the PWG report, currently, oversight of
stablecoin is fragmented and inconsistent. Stablecoins are issued
under a variety of supervisory overlays, and some issuers are effec-
tively operating outside of the regulatory perimeter. Even where
the issuer of a stablecoin is subject to effective oversight, super-
visors may lack visibility into the broader stablecoin arrangement
54
that supports the use of the stablecoin. As a result of these regu-
latory gaps, stablecoins pose risks related to runs, payment system
disruptions, and concentration of economic power. A requirement
for stablecoins to be issued by insured depository institutions, com-
bined with authority for the supervisor of that issuer to set risk
management standards for critical activities in the stablecoin ar-
rangement, would help ensure that there are safeguards in place
against these risks.
Q.4. At the Senate Banking Committee hearing on November 30,
2021, you stated that the PWG recommended that stablecoin
issuers should be insured depository institutions because
stablecoins have the potential to be used in payments. There are
multiple companies that do not issue stablecoins that provide pay-
ment services, such as PayPal, Venmo, and Square.
Do you think that these companies should also be required to be
insured depository institutions in order to provide payment serv-
ices?
A.4. The PWG was convened to consider the risks and benefits of
stablecoins, and to make recommendations for addressing any iden-
tified regulatory gaps. A requirement for stablecoin issuers to be
insured depository institutions would help to address risks related
to runs, payment system disruptions, and concentration of eco-
nomic power in the context of stablecoins. Some observers have
suggested that other payment service providers pose similar risks.
Treasury staff are considering the similarities and differences be-
tween stablecoin issuers and other payment service providers, and
would welcome the opportunity to engage further with you and
your staff on this topic.
Q.5. If your answer is ‘‘no’’, then why do you think stablecoin
issuers should be treated differently and required to be insured de-
pository institutions?
A.5. Please see the response above.
Q.6. What factors lead you to this conclusion?
A.6. Please see the response above.
Q.7. Congress through statute has given U.S. financial market reg-
ulators—both the Securities and Exchange Commission (SEC) and
Commodity Futures Trading Commission (CFTC)—considerable au-
thority to issue exemptions from specific regulatory requirements
enforced by those agencies so long as those exemptions serve the
public interest (e.g., Section 36 of the Securities Exchange Act and
Section 4 of the Commodity Exchange Act). The agencies also have
used flexibility to interpret and provide guidance on these author-
izing statutes and regulations.
Some attention has been paid by policy makers to crypto asset
market participants acting outside of the U.S. regulatory perim-
eter. However, some market participants involved with crypto as-
sets are taking steps to demonstrate that their market activity is
conducted in a safe and sound manner, and are seeking exemptions
or guidance that would result in more activity, not less, falling
under the supervision of the U.S. financial market regulators.
Do you support the SEC and the CFTC providing appropriate ex-
emptions and guidance to market participants as a means to facili-
55
tate more activity involving crypto assets coming under the super-
vision of those agencies?
A.7. Treasury supports the recommendation in the PWG report for
Congress to promptly enact legislation to ensure that stablecoins
are subject to effective oversight on a consistent and comprehensive
basis. Treasury also supports efforts by the SEC and CFTC to ef-
fectively administer and ensure compliance with the Federal secu-
rities and commodities laws.
Q.8. I have previously asked you whether Treasury believes the Fi-
nancial Stability Oversight Council (FSOC) has the authority to
designate all stablecoin providers as financial market utilities
(FMU) or payment, clearing, or settlement (PCS) activities. You re-
plied:
To address prudential risks associated with the use of
stablecoins as a means of payment, the PWG Report on
Stablecoins recommends that Congress act promptly to en-
sure that payment stablecoins are subject to appropriate
Federal prudential oversight on a consistent and com-
prehensive basis. In the absence of Congressional action,
the report recommends that the Council consider steps
available to it to address the risks outlined in the report.
As Treasury’s work on stablecoins progresses, it intends to
evaluate how FSOC’s designation authority with respect to
financial market utilities and payment, clearing, and set-
tlement activities may potentially apply to stablecoin ar-
rangements.
What would it mean for a stablecoin provider to be designated
as a systemically important FMU for as engaging in systemically
important PCS activity?
A.8. If activities conducted within stablecoin arrangements are, or
are likely to become, systemically important PCS activities and
have been designated by the Council, the appropriate financial reg-
ulator would be able to establish risk-management standards for fi-
nancial institutions that engage in that activity. These risk man-
agement standards might include requirements in relation to the
assets backing the stablecoin, requirements related to the operation
of the stablecoin arrangement, and other prudential standards. Fi-
nancial institutions that engage in designated PCS activities also
would be subject to an examination and enforcement framework.
Similarly, an entity that is designated as a systemically important
FMU would be required to comply with risk management stand-
ards established by the appropriate financial regulator.
Q.9. What does a Federal framework for regulation of payment
stablecoins look like? The PWG report on stablecoins recommends
that Congress enact legislation to address stablecoin risks, but it
does not explicitly state what that ought to look like. What specific
measures would you recommend and why?
A.9. The legislative recommendations in the PWG report include:
(a) a requirement for issuers of payment stablecoins to be insured
depository institutions; (b) a requirement for custodial wallet pro-
viders to be subject to appropriate Federal oversight; and (c) meas-
ures to ensure that supervisors of stablecoin issued have the ability
56
to set risk management standards for critical activities within a
stablecoin arrangement, and to promote interoperability among
stablecoins and between stablecoins and other payment instru-
ments. Such legislation would provide an effective set of safeguards
against run risk, payment system risk, and excessive concentration
of economic power.
Q.10. In June 2021, the Basel Committee on Banking Supervision
(BCBS) consulted on proposed guidance for the prudential treat-
ment of crypto assets, including stablecoins.
Do you agree with the proposed recommendations regarding
stablecoins and Group 2 crypto assets such as Bitcoin?
A.10. The June 2021 consultative document is a preliminary pro-
posal for prudential treatment of bank exposures to digital assets.
The proposal divides digital assets into two categories—a set of
lower risk exposures referred to as ‘‘Group 1,’’ and a set of higher
risk exposures referred to as ‘‘Group 2,’’ which includes bitcoin.
Treasury supports efforts by the banking agencies to ensure that
there are effective prudential requirements in place for bank expo-
sures to digital assets, and that such requirements appropriately
reflect the risks of the exposures involved.
Q.11. How does Treasury plan to work with the BCBS and other
international bodies with respect to digital assets and stablecoins?
A.11. Treasury is not a banking regulator (the Office of the Comp-
troller of the Currency is an independent body within Treasury)
and, therefore, does not participate in the Basel Committee on
Banking Supervision. However, Treasury works through the Finan-
cial Stability Board and other multilateral groups of which it is a
member to propose and advance policies that provide comprehen-
sive oversight of digital assets, further common regulatory out-
comes across jurisdictions, and to reduce opportunities for regu-
latory arbitrage. Treasury also supports efforts by the banking
agencies to ensure that there are effective prudential requirements
in place for bank exposures to digital assets, and that such require-
ments appropriately reflect the risks of the exposures involved.
Q.12. What steps are being taken by Treasury and the interagency
groups in which Treasury participates to remain accessible to
innovators and support the responsible growth of financial services
and products enhanced by distributed ledger technology?
A.12. Treasury routinely meets with a wide variety of market par-
ticipants, public interest groups, academics, and other stakeholders
to inform our understanding of the services and products that could
be supported by distributed ledger technology, as well as their im-
plications for consumers, the financial system, and the broader
economy. Interagency groups that Treasury participates in also
have robust processes for public and industry engagement.
Q.13. Government Sponsored Entities—On January 14, 2021,
Treasury and each of Fannie Mae and Freddie Mac (each, a GSE),
acting through the Federal Housing Finance Agency (FHFA) as its
conservator, entered into a letter agreement amending the Amend-
ed and Restated Preferred Stock Purchase Agreement dated Sep-
tember 26, 2008, between Treasury and the GSE (each, a PSPA).
Pursuant to section IX of that letter agreement, Treasury com-
57
mitted to develop a proposal to resolve the conservatorships and
transmit that proposal to both Houses of Congress on or prior to
September 30, 2021. As of December 7, 2021, Congress has not re-
ceived this proposal. When does Treasury expect to transmit this
proposal?
A.13. Treasury remains focused on providing critical relief to home-
owners and renters most impacted by the pandemic, including
through its administration of funding for the Emergency Rental As-
sistance Program and the Homeowner Assistance Fund, and on
promoting housing stability, which includes advancing housing
policies that can sustainably increase the stock of affordable hous-
ing units for rent and ownership. In addition to addressing these
urgent priorities, Treasury is formulating housing-finance policies
in cooperation with interagency partners that expand fair and equi-
table access to home ownership and affordable rental opportunities,
protect taxpayers, and promote liquid residential finance markets.
Treasury has not yet adopted any new policy positions on the GSE
conservatorships. I look forward to continuing our work across the
Administration and with the Congress in support of these goals.
Q.14. Pursuant to section IX of that letter agreement, Treasury
also ‘‘commit[ted] to work to restructure Treasury’s investment and
dividend amount in a manner that facilitates the orderly exit from
conservatorship, ensures Treasury is appropriately compensated,
and permits the [GSE] to raise third-party capital and make dis-
tributions as appropriate.’’
What actions does Treasury expect to perform to satisfy that
commitment?
A.14. Treasury remains focused on providing critical relief to home-
owners and renters most impacted by the pandemic, including
through its administration of funding for the Emergency Rental As-
sistance Program and the Homeowner Assistance Fund, and on
promoting housing stability, which includes advancing housing
policies that can sustainably increase the stock of affordable hous-
ing units for rent and ownership. In addition to addressing these
urgent priorities, Treasury is formulating housing-finance policies
in cooperation with interagency partners that expand fair and equi-
table access to home ownership and affordable rental opportunities,
protect taxpayers, and promote liquid residential finance markets.
Treasury has not yet adopted any new policy positions on the GSE
conservatorships. I look forward to continuing our work across the
Administration and with the Congress in support of these goals.
Q.15. When will each of those actions be performed?
A.15. Please see the response above.
Q.16. Has Treasury retained any financial, legal, or other advisors
to support Treasury’s effort to resolve the GSEs’ conservatorships
or otherwise assess or modify its rights or obligations under the
PSPAs?
If so, who did Treasury retain?
A.16. Treasury has not retained advisors for this purpose.
Q.17. Reconciliation Legislation—The Congressional Budget Office
estimates that H.R. 5376, the ’’Build Back Better Act,’’ would in-
crease Federal outlays by nearly $1.7 trillion and increase net
58
budget deficits by $367 billion over the 10-year 2022–2031 period.
CBO also notes that the provision providing increased funding to
the IRS would increase revenue by $207 billion, resulting in a net
deficit increase of $160 billion.
However, the legislation contains many costly provisions that are
temporary and thus sunset within the 2022–2031 budget window.
Moreover, several nonpartisan institutions have estimated the true
cost of the bill under the scenario where all temporary provisions
are made permanent. The nonpartisan Penn Wharton Budget
Model projects that the legislation would increase total spending by
$4.6 trillion over the 10-year budget window if all of the temporary
provisions are made permanent.
Without additional spending offsets or tax increases, net deficits
would increase by almost $3 trillion over the 2022–2031 budget
window. Notably, the legislation extends the expanded Child Tax
Credit for just one year at a cost of more than $100 billion for 2022
alone. Conventional wisdom would suggest that making this provi-
sion permanent would cost more than $1 trillion over 2022–2031.
Regarding the expanded Child Tax Credit, you said earlier this
year that, ‘‘I think this is something that’s very important to con-
tinue’’ and that, ‘‘[i]t’s a very important program that will do a
huge amount to relieve child poverty.’’ You have also called for
Congress to make this expanded Child Tax Credit permanent.
What, then, is the purpose of extending the expanded Child Tax
Credit for just one year (2022), rather than making it permanent?
A.17. The Biden administration has made it a clear priority to fully
fund the provisions of the Build Back Better Act, and we continue
to be firmly committed to this goal. (For more detail, see this blog
post: https://home.treasury.gov/news/featured-stories/preliminary-
estimates-show-build-back-better-legislation-will-reduce-deficits)
Making the expanded Child Tax Credit permanent is an impor-
tant goal that will serve the needs of America’s families while also
ensuring that the recent historic gains in childhood poverty reduc-
tion are truly lasting. We are committed to fully funding such ex-
tensions in subsequent legislation with appropriate revenue meas-
ures.
Q.18. What is the purpose of having other major provisions in the
Build Back Better Act, such as Federal subsidies for childcare, be
temporary rather than permanent?
A.18. The President’s FY22 Budget proposed to extend the Child
Tax Credit until the expiration of many provisions of the Tax Cuts
and Jobs Act, since other provisions (such as various personal ex-
emptions) may interact with the ideal Child Tax Credit amount, so
the full package should be considered holistically. While Congress
has opted for a shorter extension, we remain committed to working
towards a fully funded permanent version of the expanded Child
Tax Credit, and we look forward to working with Congress on ap-
propriate revenue measures.
Q.19. If you believe these policies should be made permanent, then
how would the Biden administration propose offsetting their cost?
A.19. Depending on the evolution of the Build Back Better legisla-
tion in the Senate, there will still be many appropriate revenue
measures for future consideration. The President’s FY22 Budget
59
provides a good description of several important revenue measures
that could be considered in the future.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM JANET L. YELLEN
Q.1. I am concerned that bank employees do not feel adequately
empowered to utilize whistleblower processes, given the ongoing re-
ports of systemic wrongdoing at megabanks that were not discov-
ered by regulators until the problems had already become major
systemic problems, such as the fake account scandal at Wells
Fargo. Do you agree that stronger affirmative protections for work-
ers who speak up about wrongdoing, such as ‘‘just cause’’ protec-
tions against wrongful terminations, would help address this issue?
A.1. Banks should have protections in place to ensure that their
employees can report unlawful or fraudulent practices without fear
of retaliation. Robust whistleblower protections are a critical part
of ensuring that incidents can be reported. Treasury is focused on
building an economy that lifts workers up rather than weighing
them down.
Treasury supports strong whistleblower protections and supports
strong action by the Federal regulators to prevent and address
wrongdoing by firms. Whistleblower protections should protect
truth telling and promote a culture of transparency and account-
ability. Treasury is available to review proposals that could
strengthen such employee protections.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM JANET L. YELLEN
Q.1. I’ve heard from hundreds of South Dakotans about how dif-
ficult it is to get in contact with a human being at the IRS. As you
know, the Biden administration released a memo outlining proce-
dures to returning to work, which required agencies to submit their
reentry plans by July 19, 2021.
Has your agency submitted its plan for reentry and is it publicly
available?
A.1. In accordance with OMB Memo M-21-25 ‘‘Integrating Planning
for a Safe Increased Return of Federal Employees and Contractors
to Physical Workplaces With Post-Reentry Personnel Policies and
Work Environment’’, Treasury submitted its plan for reentry to
OMB on July 12, 2021. The plan is not publicly available.
Q.2. When will the IRS return to fully in-person operations?
A.2. Prior to the pandemic, the IRS workforce performed a com-
bination of in-person, field, and remote work. In FY 2019, 47 per-
cent of IRS employees participated in telework. In FY 2020, the
most recent year for which data is available, 76 percent of employ-
ees participated in telework. The IRS completed the reopening of
its facilities in July 2020, though some individual facilities have pe-
riodically closed since then in response to local health conditions.
Employees whose duties cannot effectively be performed remotely
have returned to the office. In addition, IRS has resumed field-
based taxpayer contacts. The IRS continuously evaluates oper-
60
ational needs, health conditions, pandemic safety guidance, applica-
ble laws and regulations, bargaining agreements, and other factors
in determining the availability of telework and remote work for in-
dividual employees and work units.
Q.3. As of October 2, 2021, the IRS still had 6.8 million unproc-
essed individual 2020 tax year returns. Is there a plan in place to
prevent this level of backlog in future years?
A.3. The IRS has faced some of the same challenges that everyone
in the country has faced these past 2 years, and its mission has
also been complicated by several rounds of COVID-relief legisla-
tion, some of it retroactive, and its work distributing three rounds
of economic stimulus payments to the American people. Nonethe-
less, the IRS recognizes the need to reduce its inventory backlog
and is working hard to do so now.
Despite the challenges it faces, the IRS has cut its backlog in
half since filing season ended in May. Further, the IRS has used
its remaining resources to hire thousands of new customer service
representatives in the last several months in order to have addi-
tional personnel entering this filing season and reduce future back-
logs. However, decades of underfunding the IRS have led to fewer
personnel dedicated to service than at any time in the last decade.
In part due to significant underfunding for taxpayer service activi-
ties, the IRS is also limited in the share of its existing workforce
that can be used to answer phones or taxpayer correspondence. The
lack of stable funding also means the IRS has not been able to in-
vest in 21st technology that would dramatically improve the tax-
payer experience-like working to automate stages in the processing
of paper returns.
The challenges of the backlog and this coming season filing sea-
son illustrate the urgency of additional funding for the IRS. Had
the agency entered the pandemic with adequate resources, it would
have been well-equipped to continue to process returns and to serve
taxpayers these last few years.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM JEROME H. POWELL
Q.1. The practice of redlining excluded Black homeowners from ac-
quiring equity, and its legacy today persists in expanding the racial
wealth gap. The Brookings Institute reported in September that
‘‘homes in predominantly Black neighborhoods across the country
are valued at $48,000 less than predominantly White neighbor-
hoods for a cumulative loss in equity of approximately $156 bil-
lion.’’ A recent Federal Reserve Board OIG report noted that out
of 343 consumer affairs examinations in 2019, 36 had a high-risk
redlining matter. The Board also made only one fair lending refer-
ral to DOJ that year. The OIG Report and the Board’s response fo-
cused on the timeliness and efficiency of fair lending reviews, rath-
er than whether the Board took actions to protect borrowers and
prevent banks from engaging in redlining and other discriminatory
lending practices. What specific benchmarks or metrics will the
Board establish to ensure that that it effectively enforces fair lend-
ing laws?
61
A.1. To ensure effective enforcement of fair lending laws, the Fed-
eral Reserve starts by evaluating fair lending risk in every con-
sumer compliance examination based on the risk factors set forth
in the interagency fair lending examination procedures. When per-
forming this evaluation, we look at risk factors related to potential
discrimination in pricing, underwriting, redlining, and steering.
If warranted by our evaluation of these risk factors, we conduct
additional analyses of a State member bank’s policies and practices
to assess the bank’s compliance with fair lending laws and manage-
ment of fair lending risk. If we have concerns about a pattern or
practice of any type of lending discrimination, we require the bank
to provide additional data and information. For example, if the risk
profile of a bank warrants a more in-depth review of particular
loan products, we would request additional information from the
bank to determine whether there is a fair lending violation or
whether the bank needs to enhance its risk management to avoid
future violations.
When we find a violation, we cite it, and when we find a pattern
or practice of fair lending violations, we refer it the Department of
Justice as required by statute. In 2020, we referred two fair lend-
ing matters to DOJ, including a matter involving discrimination
based on a pattern or practice of redlining in mortgage lending
based on race or national origin.
However, citing violations and referring matters to the Depart-
ment of Justice are not the only tools we use to ensure compliance
with fair lending laws. Where we do not find a violation of law but
are still concerned about potential fair lending risk, we issue super-
visory findings directing banks to take corrective actions to
strengthen their compliance management systems and prevent fu-
ture violations. From 2018 to 2020, we issued more than 140 such
findings. We follow up to evaluate compliance with these findings
to ensure the bank has taken appropriate action.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM JEROME H. POWELL
Q.1. The Federal Reserve has not yet published its digital dollar
paper, which was initially expected to be released during the sum-
mer of 2021. My hope is that this report will be issued soon.
In drafting the report, what did you find to be the most difficult
part of getting this right?
What is your personal perspective on the role of a potential dig-
ital dollar and stablecoins in our existing financial system?
A.1. On January 20, the Federal Reserve Board (Board) issued its
discussion paper on central bank digital currency (CBDC) entitled
‘‘Money and Payments: The U.S. Dollar in the Age of Digital Trans-
formation’’, that outlines our current thinking on digital payments,
with a particular focus on the benefits and risks associated with
CBDC in the U.S. context. The discussion paper reflects the
Board’s long-standing recognition of the important role that the
private sector plays in the U.S. payment system. 1 We are seeking
1 See ‘‘The Federal Reserve in the Payments System’’ (issued 1984; revised 1990 and 2001),
https://www.federalreserve.gov/paymentsystems/pfs-frpaysys.htm.
62
to stimulate broad conversation on whether and how a CBDC could
improve an already safe, effective, dynamic, and efficient U.S. do-
mestic payment system.
With respect to any possible central bank digital currency
(CBDC), for the past several years, the Federal Reserve has been
exploring the potential benefits and risks of CBDCs from a variety
of angles, including technological research and experimentation. As
we evaluate whether a U.S. CBDC would be appropriate, one crit-
ical question is whether a CBDC would yield benefits more effec-
tively than alternative methods. These alternative methods could
include improvements to the existing U.S. payment system. Alter-
native methods could also include well-designed and appropriately
regulated stablecoins.
Payments innovations, including stablecoins, have the potential
to improve efficiencies, increase competition, lower costs, and foster
broader financial inclusion. Well-regulated, privately issued
stablecoins could coexist with a CBDC. In the future, it is possible
that CBDCs, stablecoins, and other forms of money could serve dif-
ferent needs or preferences. It is important for all forms of money
to be well-designed and appropriately regulated. For that reason,
the President’s Working Group on Financial Markets, together with
the other Federal banking agencies, has recommended that Con-
gress act promptly to enact legislation that would ensure payment
stablecoins and payment stablecoin arrangements are subject to a
consistent and comprehensive Federal regulatory framework.
The Board has not made any decisions on whether to issue a
CBDC. Moreover, the Board does not intend to proceed with
issuance of a CBDC without clear support from the executive
branch and from Congress, ideally in the form of a specific author-
izing law. The discussion paper represents the beginning of what
will be a thoughtful and deliberative process with Congress and the
broader public.
Q.2. The Federal Reserve has not made decisions on the applica-
tions of two State-chartered banks that would use stablecoins for
payments seeking master accounts at the Federal Reserve. How is
the Federal Reserve working to support innovative banks that are
offering new financial services and products, such as use of, and ac-
cess to, digital assets?
A.2. The Board continues to monitor financial services innovation
involving digital assets, including the potential risks to the finan-
cial system. As you note, certain institutions have requested access
to the payment services offered by the Federal Reserve Banks. To
help achieve the goal of applying a transparent and consistent
process for all access requests, as well as enable appropriate con-
sideration of the ramification for the broader financial system, the
Board proposed for public comment Account Access Guidelines for
the Reserve Banks (proposed guidelines) to evaluate such requests.
These proposed guidelines take into account the Federal Reserve’s
legal authority and reflect an analysis of its policy goals. With tech-
nology driving rapid change in the payments landscape, the pro-
posed guidelines would ensure requests for access to Federal Re-
serve payment services are evaluated in a consistent and trans-
parent manner that promotes a safe, efficient, inclusive, and inno-
63
vative payment system, consumer protection, and the safety and
soundness of the banking system. Specifically, the proposed ap-
proach is based on a foundation of risk management and mitigation
and recognizes that risks to the Reserve Banks, to the payment
system, to financial stability, and to the effective implementation
of monetary policy, among others, may arise when an institution
gains access to Federal Reserve accounts and services. The Board
has received comments from a broad set of stakeholders, including
institutions and trade associations representing both traditional
and nontraditional charters, as well as chartering authorities, aca-
demics, think tanks, and members of Congress. The comments re-
ceived reflect broad support for consistency and transparency in
Reserve Bank evaluation of requests for accounts and services but
differ in their views about how best to achieve those goals. Staff
are analyzing the comments and working to finalize the guidelines.
In addition, the Board’s regulatory and supervisory authority is
generally limited to activities conducted by depository institution
holding companies, State member banks, and their nonbank affili-
ates. The Federal Reserve is committed to supporting responsible
innovation in banking. To that end, the Board is focusing on pro-
viding clarity on key supervisory and regulatory questions.
With respect to coordination with other Federal regulators on
critical policy issues, the Board is working in conjunction with the
Federal Deposit Insurance Corporation and the Office of the Comp-
troller of the Currency) (together, the agencies) to understand bet-
ter the risks associated with digital assets-related activities, includ-
ing those related to cryptocurrencies, and to develop an appro-
priate, coordinated response. As noted in the recent interagency
statement on this topic, the agencies are engaging in policy work
focused on providing greater clarity on whether certain activities
related to crypto assets conducted by banking organizations are le-
gally permissible and, if so, how these activities can be conducted
safely. The agencies expect to provide further clarity on these
issues throughout 2022.
The Board, also in conjunction with the other Federal banking
agencies, works closely and frequently with the Financial Crimes
Enforcement Network on matters relating to the Bank Secrecy Act
and anti-money-laundering policy and regulatory issues, including
those related to digital assets such as cryptocurrency. Further, the
President’s Working Group on Financial Markets, 2 together with
the other Federal banking agencies, recently issued a report on
stablecoins that includes recommendations for congressional action
to holistically address the range of risks that could arise from
stablecoin arrangements.
Q.3. In June 2021, the Basel Committee on Banking Supervision
(BCBS) consulted on proposed guidance for the prudential treat-
ment of crypto assets, including stablecoins.
Do you agree with the proposed recommendations regarding
stablecoins and Group 2 crypto assets such as Bitcoin?
2 The Secretary of the Treasury, the Chair of the Board, the Chair of the Securities and Ex-
change Commission, and the Chairman of the Commodity Futures Trading Commission.
64
How does the Federal Reserve plan to work with the BCBS and
other international bodies with respect to digital assets and
stablecoins?
A.3. The Basel Committee on Bank Supervision (BCBS) received a
wide range of comments on its consultative document, which are an
important input to the Basel process. The Federal Reserve and
other regulators are in the process of analyzing those comments. As
the BCBS process continues, we expect the proposed capital frame-
work will evolve to reflect stakeholder input.
As a general matter, BCBS takes a ‘‘same risk, same activity,
same treatment’’ approach which the Federal Reserve supports. De-
veloping a clear risk profile for crypto assets, however, is com-
plicated by the novel nature of these assets and the lack of histor-
ical track record.
For that reason, it is important to approach bank activities with
respect to these crypto assets carefully as the market grows and
evolves and their risks are better understood. The Federal Reserve
has significant resources dedicated to better understanding this
asset class.
It is critical that the global regulatory community seeks to ap-
proach crypto asset related issues together to avoid fragmented ap-
proaches that lead to harmful arbitrage opportunities. Global en-
gagement and consistency are critical, and the Federal Reserve
Board (Board) continues to work with international bodies, such as
the BCBS and Financial Stability Board, on crypto asset related
issues as a mechanism for coordinated action.
Q.4. What steps are being taken by the Federal Reserve and the
interagency groups in which the Federal Reserve participates to re-
main accessible to innovators and support the responsible growth
of financial services and products enhanced by distributed ledger
technology?
A.4. Please see response to Question 2.
Q.5. As of the termination of the Main Street Lending Program
(MSLP) on January 8, 2021, the MSLP purchased a total of 1,830
loan participations totaling $16.6 billion. As of October 31, 2021,
the MSLP experienced $12 million in loan losses and reserved an
additional $2.3 billion as an allowance to cover estimated loan
losses throughout the life of the MSLP program.
Please provide a list of MSLP borrowers responsible for these
MSLP loan losses and identify the main factors contributing to the
losses incurred (e.g., bankruptcy of a borrower).
A.5. The $12 million in Main Street Lending Program (MSLP) loan
losses were recognized due to events such as bankruptcy filings or
other material adverse business events that make liquidation or
bankruptcy appear imminent for the borrower or have otherwise
led to the acceleration of a loan by the lender. Due to ongoing loan
workout activity and in light of other policy concerns, the Federal
Reserve does not plan to publicly release the names of individual
borrowers that have triggered loss recognition.
Q.6. Will the Federal Reserve pursue recovery of these loan losses?
What are the policies and procedures governing those recovery ef-
forts?
65
A.6. Since the beginning of the MSLP, the Federal Reserve has
stated that ‘‘the Main Street SPV will make commercially reason-
able decisions to protect taxpayers from losses on Main Street loans
and will not be influenced by non-economic factors when exercising
its voting rights under the Loan Participation Agreement or the
Co-Lender Agreement, including with respect to a borrower that is
the subject of a workout or restructuring.’’ 3 In pursuit of recovery
consistent with these principles, the Main Street SPV relies on
lenders to service each Main Street loan in accordance with the
standard of care set out in the Main Street loan participation
agreement and in light of the duties of the lender under the Main
Street servicing agreement. The Main Street SPV will also work
with each lender in evaluating each credit situation and engage
independent external workout advisory and legal services as appro-
priate to pursue recovery.
Q.7. Did the internal credit scoring model used to evaluate MSLP
loans identify the loans that led to $12 million in losses as risky
in advance of those borrowers defaulting?
A.7. Most of the $12 million in losses relate to loans that were
rated as doubtful before the relevant event of default. The loans
not categorized as doubtful defaulted due to unforeseen adverse cir-
cumstances that would not be considered in a credit scoring model
(e.g., the unexpected death of a business proprietor).
Q.8. Did any lenders contribute to an outsized volume of loans in-
cluded in the MSLP’s $2.3 billion allowance for estimated loan
losses?
A.8. At this time, the Federal Reserve staff does not see evidence
of an individual lender contributing to an outsized volume of loans
in the MSLP’s allowance for estimated loan losses. The $2.3 billion
allowance for estimated loan losses incorporates an amount for
each loan in the Main Street portfolio. In accordance with the ac-
counting policy of the Main Street SPV, loans with outstanding bal-
ances of $15 million or more that also meet certain triggers related
to performance, credit rating, or value (generally those loans rated
doubtful) are subject to an individual review and loss assessment.
All other loan losses are estimated on a pooled basis using internal
risk rating models that assess probability of default, loss given de-
fault and exposure at default for each loan given the rating and
consideration of internal and external factors. Accordingly, each
and every loan contributes at some level to the overall loss esti-
mate.
Q.9. As you are aware, the Federal Reserve has had an increasing
number of bank merger applications pending for many months
without resolution. The longer the Federal Reserve takes to review
and decide on merger applications, the greater the uncertainty it
generates for applicants, potential applicants, and bank customers.
The potential effect of this uncertainty is particularly concerning
given the challenges currently facing the economy from inflation,
ongoing effects of the pandemic, supply chain disruptions, and
other economic uncertainties. As a prudential regulator, the Fed-
3 See FAQ J.6.
66
eral Reserve should support, rather than impede, the functioning
of the banking system and the economy.
What are the reasons for the widespread delays in the Federal
Reserve’s decisions on bank merger applications?
How will you ensure the Federal Reserve reviews and resolves
pending and future merger applications promptly and efficiently?
A.9. The Board continues to process each application as expedi-
tiously as possible and within the applicable statutory deadlines,
while ensuring that decisions are based on a complete record. In
December 2021, the Board approved three bank merger applica-
tions, and the Reserve Banks approved 17 additional bank merger
applications under delegated authority.
The Board takes seriously its responsibility to review bank merg-
er and acquisition (M&A) proposals under the relevant statutory
factors set forth in the Bank Holding Company Act and the Bank
Merger Act. These factors include the financial and managerial re-
sources of the organizations involved and of the proposed combined
organization; the convenience and needs of the communities to be
served by the resulting institution; the Community Reinvestment
Act performance of the involved depository institutions; the effec-
tiveness of the parties in combatting money laundering; and the ef-
fects of the proposal on competition and financial stability. Every
M&A application before the Board is reviewed carefully in view of
each of these statutory factors. The Board will continue to focus on
processing M&A applications in accordance with its statutory obli-
gations.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM JEROME H. POWELL
Q.1. Earlier this month I sent you a letter along with Chair Brown
and several of our colleagues asking you to work closely with the
Boston and Dallas Boards of Directors and search committees to
find and select diverse candidates for the open president positions.
Can you give us an update on how that search is going, including
what specific steps you have taken to ensure diverse candidates are
considered?
A.1. As you know, the appointment of a Reserve Bank president is
formally an action of eligible Class B and C directors of the Bank’s
board, with the approval of the Board of Governors (Board). Before
a final selection is made, a diverse pool of candidates is very impor-
tant to a strong search process. The Federal Reserve Banks of Bos-
ton and Dallas (Banks) launched their president searches in Octo-
ber and November 2021, respectively.
Most recently, on February 9, the Federal Reserve Bank of Bos-
ton announced its selection of Dr. Susan M. Collins to serve as its
next president, CEO, and participant in national monetary policy-
making on the Federal Open Market Committee. This decision was
reached after a rigorous search, selection by the eligible (non-
banker) members of the Bank’s Board of Directors, and approval by
the Board.
The Banks have both articulated strong commitments to conduct
nationwide searches for highly qualified candidates from a broad,
diverse slate of backgrounds from inside and outside the Federal
67
Reserve System. Furthermore, both Banks formed diverse search
committees and hired national search firms to help identify can-
didates. In addition, the Office of Minority and Women Inclusion
(OMWI) directors at the Board and the two Reserve Banks have
served as advisers to the search committees. The Banks also have
used diverse interview panels to ensure that different points of
view and opinions are part of the hiring decision. Additional search
committee efforts have included outreach to stakeholders and the
public for feedback and input through public websites and town-
halls, and both Banks have invited the public to submit potential
candidates for nomination. For example, after a broad and diverse
public outreach effort seeking input on desired characteristics in
candidates; inviting referrals, nominations, and applications; and
encouraging sharing of the opening within networks, on October
25, the Federal Reserve Bank of Boston’s search committee and
search firm held meetings with three of the Bank’s advisory coun-
cils (the New England Advisory Council, the Community Develop-
ment Advisory Council, and the External Diversity Advisory Coun-
cil) and gather additional input and perspective on the attributes
and skillsets that advisory group members see as important in the
next Boston Fed president. And, on January 13, the Federal Re-
serve Bank of Dallas hosted a virtual town hall that was open to
the public to discuss and answer questions about the presidential
search process. Panelists included the cochairs of the presidential
search committee, and a representative of the global search firm
Egon Zehnder that is assisting in the search for candidates. Partici-
pants were able to submit questions during the moderated discus-
sion, and the recorded discussion is available on the Bank’s public
website. 1
I would note that experience in recent years has shown that di-
verse boards and diverse search committees tend to consider and
appoint diverse leaders. Relevant research also underscores the im-
portance of diversity—background, experience, and profession—on
boards and search committees. Such diversity has been achieved in
recent years in the Federal Reserve System, as the Board of Gov-
ernors through its direct appointment of Class C directors has fos-
tered appreciable new diversity in Reserve Bank boards, including
those in Boston and Dallas.
The Board, through our Committee on Reserve Bank Affairs, has
been involved in ongoing communication with the respective search
committees about the recruitment process, including public engage-
ment strategies.
Q.2. What lessons have you taken from this process for improving
minority recruitment at the Fed, particularly for senior leadership
positions?
A.2. The Federal Reserve and other organizations make better deci-
sions with a diverse group around the table, and I remain com-
mitted to working with Reserve Bank directors and presidents to
further our engagement with various communities throughout each
of the 12 districts to develop pipelines for future leadership roles
at the Federal Reserve.
1 See https://www.dallasfed.org/fed/presidentialsearch.
68
To foster diversity, we must develop an overall culture of inclu-
sion at all levels, starting at the top. As Chair, I have internally
and externally stated my strong personal belief in and support for
a diverse and inclusive environment, and I have taken a number
of steps to work towards achieving greater diversity and inclusivity
that is also part of the Board’s 2020–23 Strategic Plan. I have led
quarterly meetings with staff at many levels from within the Board
and the System to discuss and assess our progress in advancing di-
versity and economic inclusion. These meetings are a priority for
me and my colleagues on the Board.
I also speak regularly with staff about the importance of fos-
tering diversity and inclusion. I meet with the Board’s Director of
the Office of Women and Minority Inclusion on a quarterly basis,
and I have met with the chairs and cochairs of each of the Board’s
seven Employee Resource Groups on a number of occasions. To see
where the Board could learn from others, we have also hosted busi-
ness and nonprofit leaders who served on Reserve Bank boards of
directors to discuss what has worked well in developing a culture
of diversity and inclusion at their organizations.
I have encouraged and strongly supported the considerable out-
reach we do to diverse candidates in our recruiting of staff. This
includes participating in minority recruitment events at Histori-
cally Black Colleges and Universities, Hispanic-Serving Institu-
tions, and Hispanic professional conferences and career fairs. Our
outreach is particularly notable as we hire recent college graduates
as full-time research assistants, a position which can be an impor-
tant step towards a career in economics. I would note that the
Board has shown a significant increase in Hispanic hiring from 4
percent in 2020 to 10 percent in 2021. To build on this success, we
will work to strengthen outreach and networking initiatives with
organizations such as American Society of Hispanic Economists,
Association of Latino Professionals for America, National Hispanic
Corporate Council and Prospanica.
We are also reviewing our recruiting and hiring practices to iden-
tify and implement ways in which we can further increase the pool
of diverse qualified candidates. As a result of our ongoing review,
we have started to broaden the research specializations within eco-
nomics from which we have typically hired economists. Recruiting
from a broader set of research areas not only may draw more di-
verse candidates, but also better supports our mission by giving us
broader skill sets and perspectives.
Under my leadership as Chair, the Board has leveraged its
award-winning internship program to offer students on the job ex-
perience and learning and to create a diverse job candidate pool for
our entry-level positions. The Board has also implemented job
board and resume database access to expand diversity sourcing ini-
tiatives with the National Black MBA Association and the National
Society of Black Engineers.
Over the past 4 years, my colleagues and I have worked to de-
velop the pipeline of economists from under-represented groups, in-
cluding through outreach to students at many levels. We have wel-
comed diverse groups of high school, undergraduate, and graduate
level students to the Board, both in person and through online
events, to discuss career opportunities, the work that we do, and
69
diversity in the profession. We are collaborating closely with the
American Economic Association (AEA) and with Howard Univer-
sity, including by committing staff resources over the next 5 years
to teach an Advanced Research Methods class to undergraduate
and masters level students at the AEA Summer Training Program,
which is being hosted by Howard University.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM JEROME H. POWELL
Q.1. I am concerned that bank employees do not feel adequately
empowered to utilize whistleblower processes, given the ongoing re-
ports of systemic wrongdoing at megabanks that were not discov-
ered by regulators until the problems had already become major
systemic problems, such as the fake account scandal at Wells
Fargo. Do you agree that stronger affirmative protections for work-
ers who speak up about wrongdoing, such as ‘‘just cause’’ protec-
tions against wrongful terminations, would help address this issue?
Can you commit to working with other prudential regulators and
the CFPB to develop stronger protections for frontline employees
who speak up when abusive managers or bad business policies
drive bank wrongdoing?
A.1. The Federal Reserve encourages any person with information
regarding possible unsafe or unsound practices or violations of law,
including consumer abuses or financial mismanagement, by any in-
stitution the Federal Reserve supervises or any director, officer, or
employee of such institution to report that information to Federal
Reserve staff. Whistleblowers may elect to report information anon-
ymously to the Federal Reserve, and in all circumstances, the Fed-
eral Reserve will protect the whistleblower’s identity as confiden-
tial supervisory information to the extent permissible by law. 1
Congress has granted whistleblowers employed by insured depos-
itory institutions certain statutory protections against retaliation.
Under section 932 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, a whistleblower employed by an in-
sured depository institution may not be discharged or otherwise
discriminated against for providing information to the Federal Re-
serve and other agencies with supervisory and law enforcement re-
sponsibility. 2 The Federal Reserve takes seriously claims of retalia-
tion against whistleblowers and encourages any claim of retaliation
be reported to Federal Reserve staff.
Whistleblowers take substantial professional and financial risk to
bring forward information regarding potential misconduct in the in-
stitutions that the Federal Reserve supervises. The Federal Re-
serve is committed to ensuring that they are protected from retalia-
tion.
1 There may be some circumstances where the identity of the whistleblower may be disclosed,
including in response to other Federal or State financial institution supervisory agencies, other
law enforcement agencies, or in response to Federal or State grand jury, criminal trial, or Gov-
ernment administrative subpoenas. See generally Rules Regarding Availability of Information,
12 CFR Part 261.
2 See 12 U.S.C. §1831j.
70
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR VAN HOLLEN FROM JEROME H. POWELL
Q.1. Chair Powell, Acting Comptroller of the Currency Michael Hsu
has announced that the OCC plans to issue climate-risk manage-
ment supervisory expectations for large banks by the end of the
year. Does the Federal Reserve intend to join this guidance? Why
or why not?
A.1. Climate change poses significant challenges for the U.S. econ-
omy and financial system, with implications for the structure of
economic activity, the safety and soundness of financial institu-
tions, and the stability of the financial sector more broadly. While
primary responsibility for addressing climate change itself rests
with elected officials, we are committed to working within our ex-
isting mandates and authorities to address the implications of cli-
mate change.
We are focused on addressing the implications of climate change
through the lens of our mandates related to supervision and regu-
lation of financial institutions and the stability of the broader fi-
nancial system. The Federal Reserve is committed to ensuring that
supervised firms have strong risk management capabilities to pro-
mote their resilience to all risks, including climate-related financial
risks. From a financial stability perspective, we are working to rig-
orously identify and measure links between climate change and fi-
nancial stability, including by examining how climate change can
increase financial sector vulnerabilities.
We look forward to reviewing comments on the draft principles
released by the Office of the Comptroller of the Currency for com-
ment on December 16, as we continue to move toward the develop-
ment of an interagency set of supervisory expectations for the man-
agement of climate-related financial risks with a focus on large
banks. We believe that a consistent approach across bank regu-
latory agencies will best support the effective management of these
risks.
Q.2. Chair Powell, Acting Comptroller Hsu has also announced
that the OCC will begin examining how large banks are addressing
climate risk as part of their examinations starting in 2022. What
is the Federal Reserve planning to do on assessing the climate risk
that banks face in 2022?
A.2. In 2021, the Federal Reserve announced the formation of the
Supervision Climate Committee (SCC) to promote the resilience of
supervised firms to climate-related financial risks. The SCC is ac-
tively engaging with a wide range of stakeholders to understand
the potential impact of climate change on the banks we supervise.
Our engagement includes in-depth discussions with large super-
vised firms on their current approaches to managing the financial
risks associated with climate change and their use of scenario anal-
ysis to better understand physical and transition risks. We are also
engaged in international work on these topics through our partici-
pation in the Network for Greening the Financial System, the Fi-
nancial Stability Board, and our leadership role in cochairing the
Basel Committee on Banking Supervision’s Task Force on Climate-
Related Financial Risks.
71
We are planning to continue this external engagement this year,
including in-depth discussions with large supervised firms on a va-
riety of climate-related topics. The SCC will also continue to under-
take its own analysis to better understand bank exposures to phys-
ical and transition risks. Our engagement and analysis will provide
the necessary foundation as we move toward the development of an
interagency set of supervisory expectations for the management of
climate-related risks with a focus on large banks.
Q.3. Chair Powell, last year the Federal Reserve joined the Net-
work for Greening the Financial System (NGFS) and has since
formed a Supervision Climate Committee. Other members of the
NGFS have released supervisory expectations for how banks will
address climate risk and have begun conducting examinations of
how well banks align with supervisory expectations. The results of
the European Central Bank’s initial supervisory review reveal that
banks face material risks from climate risk, yet have failed to meet
the supervisory expectations laid out by regulators.
Do you have similarly comprehensive information about how U.S.
banks are positioned on vulnerability to climate risk relative to
their European counterparts?
A.3. The SCC is actively engaging with a wide range of stake-
holders to understand the potential impact of climate change on
the banks we supervise. As noted above, our engagement includes
in-depth discussions with large supervised firms on their current
approaches to managing the financial risks of climate change and
their use of scenario analysis to better understand physical and
transition risks. From these discussions, we know that large banks
are developing frameworks and tools to assess the financial risks
and opportunities related to climate change. Large supervised
firms are actively incorporating physical and transition risks into
their existing risk management frameworks, with emphasis on gov-
ernance, risk identification and risk measurement. The measure-
ment of climate-related risks, however, poses unique challenges
that supervisors and supervised institutions are working to over-
come, including those related to data, uncertainty, and time hori-
zon.
The SCC is undertaking its own preliminary analysis to better
understand bank exposures to physical and transition risks, poten-
tial indirect effects of climate change that can impact supervised
firms, and trends in insurance markets and risk mitigation. This
analytical work leverages expertise from across the Federal Re-
serve System (System), including knowledge of the effects of phys-
ical and transition risks on local economies, households, and busi-
nesses. Scenario analysis—where the resilience of financial institu-
tions and the financial system are assessed under different hypo-
thetical climate scenarios—is an emerging tool in assessing cli-
mate-related financial risks. The Federal Reserve is developing a
program of scenario analysis to evaluate the potential economic
and financial risks posed by different climate outcomes.
Q.4. Chair Powell, the New York Department of Financial Services
(NYDFS) recently put out guidance requiring State-based insurers
to conduct scenario analysis for climate risk. In its guidance, the
NYDFS wrote ‘‘Technology exists today—provided by rating agen-
72
cies, asset managers, and specialty service providers—to quan-
titatively assess the resilience of investment portfolios to transition
and physical risks under a range of scenarios.’’ Moreover, financial
regulators internationally have already begun developing climate
stress tests for banks, and according to a recent report by Reuters,
many big bank CEOs see climate risk regulation as inevitable.
What is your plan for utilizing available technology to develop
the strongest possible climate risk supervision framework?
A.4. The Federal Reserve leverages expertise from across the Sys-
tem to undertake its own analytical work to better understand ex-
posures of supervised firms to physical and transition risks, poten-
tial indirect effects of climate change on the broader economy, and
trends in insurance markets and risk mitigation.
The Federal Reserve is also working to develop an effective sce-
nario analysis program around climate change separate from our
existing regulatory stress testing regime. This is a complex under-
taking, and we are identifying additional data, technology, and
modeling resources that are needed to support our efforts to under-
stand the financial and economic risks associated with climate
change. The Federal Reserve is also developing our capacity to in-
corporate climate-related data sets that will enhance our under-
standing of these risks. This includes, for example, increased gran-
ularity on geographic exposures of supervised firms and new ap-
proaches to estimate exposures to transition risks. These insights
will inform the development of our supervision framework.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM JEROME H. POWELL
Q.1. Do you anticipate that tapering corporate bond purchases at
the pace you outlined to the Committee in February will help ad-
dress inflationary pressures, and if so, to what extent?
A.1. The elevated levels of inflation we have experienced reflect a
mismatch between demand and supply. Some of the sectors of the
economy that have experienced very strong demand, especially
those involving goods, have hit supply constraints. We expect infla-
tion to start coming down this year as a result of both an increase
in supply and a moderation in demand. That said, we do not think
that the current imbalance between demand and supply will be
fully resolved this year. Elevated inflation is currently the foremost
threat to the achievement of maximum employment.
The effects of monetary policy on inflation and the labor market
generally depend on both current and expected future settings of
the Federal funds rate as well as how the size and composition of
the Federal Reserve’s balance sheet are expected to evolve over
time. The Federal Open Market Committee’s (FOMC) policy actions
and communications with both the policy rate and balance sheet
tools help ensure that our policy addresses inflation pressure, sup-
ports progress toward maximum employment, and is positioned to
address the full range of plausible outcomes.
Our asset purchases were enormously important at the begin-
ning of the recovery in restoring market function. Thereafter they
were an important macroeconomic tool to support demand. In light
of inflation developments and improvement in the labor market,
73
the economy no longer needs this highly accommodative policy. Fol-
lowing our November FOMC meeting, we started tapering our
asset purchases, and at our December meeting we decided to step
up our pace of tapering. At our January meeting, we reaffirmed
this plan, which will see our net asset purchases conclude in early
March.
As always, the FOMC’s monetary policy actions will be guided by
our mandate to promote maximum employment and stable prices
for the American people. The Federal Reserve is committed to
using its full range of tools to support the U.S. economy in this
challenging time.
Q.2. There has been speculation about what ‘‘full employment’’ in
the Federal Reserve’s dual mandate may now mean, given that the
economy may have been permanently altered by the pandemic. Do
you believe there have been structural changes to the labor market
due to the pandemic, such that the Fed may need to look at a new
understanding of what constitutes ‘‘full employment’’?
A.2. The maximum level of employment consistent with price sta-
bility evolves over time for reasons unrelated to monetary policy.
Various factors that affect labor supply, including those related to
the pandemic, are important drivers of the level of maximum em-
ployment. In addition, maximum employment cannot be directly
observed. We therefore consider a wide variety of indicators in as-
sessing where the economy stands in comparison with our goal of
maximum employment, including headline unemployment rate,
other official measures of unemployment, labor force participation,
measures of hours worked and part-time work, and outcomes for
various demographic groups.
The kind of labor market we had before the pandemic will re-
quire a long, sustained expansion, which will in turn require main-
taining price stability and well anchored longer-term inflation ex-
pectations. In that sense, higher inflation may be the single biggest
threat to a lengthy, sustained expansion and to getting back to a
strong labor market and keeping it for as long as possible.
The postpandemic labor market may look different from before.
We will continue to do our best to understand the changes in the
economy and remain committed to adjusting our policies as appro-
priate to promote achievement of both our maximum employment
and price stability goals.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM JEROME H. POWELL
Q.1. I am not unique among my colleagues in my concern that
banking services in our communities not suffer interruptions or im-
pairment, not just because of the pandemic directly, but also be-
cause of upheavals in hiring markets and other parts of local
economies. A number of bank merger deals that were announced
many months ago still await Federal Reserve approval, and these
banks in the meantime have to deal with uncertainties for their
customers, communities, and especially their employees.
What will the Federal Reserve do to resolve these matters
promptly and put an end to these uncertainties?
74
A.1. The Federal Reserve (Board) continues to process each appli-
cation as expeditiously as possible and within the applicable statu-
tory deadlines, while ensuring that decisions are based on a com-
plete record. In December 2021, the Board approved three bank
merger applications, and the Reserve Banks approved 17 additional
bank merger applications under delegated authority.
The Board takes seriously its responsibility to review bank merg-
er and acquisition (M&A) proposals under the relevant statutory
factors set forth in the Bank Holding Company Act and the Bank
Merger Act. These factors include the financial and managerial re-
sources of the organizations involved and of the proposed combined
organization; the convenience and needs of the communities to be
served by the resulting institution; the Community Reinvestment
Act performance of the involved depository institutions; the effec-
tiveness of the parties in combatting money laundering; and the ef-
fects of the proposal on competition and financial stability. Every
M&A application before the Board is reviewed carefully in view of
each of these statutory factors. The Board will continue to focus on
processing M&A applications in accordance with its statutory obli-
gations.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM JEROME H. POWELL
Q.1. As reported by the Minneapolis Fed, commercial banks in
South Dakota and across the Ninth District have experienced un-
precedented deposit growth and lower demand for loans since the
onset of the pandemic. The combination of relief efforts, shifts in
spending by consumers and businesses and the search for profit-
ability in a low-interest-rate environment has led to significant
changes in bank balance sheets. Specifically, banks have had fewer
options for deploying cash. To address this problem, around this
time last year the Fed provided regulatory relief to banks by allow-
ing institutions with under $10 billion in assets to calculate their
asset size for applicable thresholds based on total assets as of De-
cember 31, 2019. That relief expires at the end of this year. Al-
though many thought this problem would have taken care of itself,
banks are still feeling the temporary unintended consequences of
the Government aid provided during the pandemic. The NCUA has
already announced that credit unions will receive extended relief.
Is the Fed considering extending its regulatory guidance issued in
November 2020?
A.1. Community banking organizations experienced substantial
asset growth at the beginning of COVID–19, in part due to partici-
pation in various programs instituted by the Federal Government.
In response, the Federal banking agencies promulgated an interim
final rule in December 2020 that provides temporary relief for com-
munity banking organizations that crossed certain asset-based reg-
ulatory and reporting thresholds of $10 billion or less after Decem-
ber 31, 2019. The interim final rule provided that the relief lasted
through December 31, 2021, therefore allowing community banking
organizations sufficient time to either reduce their balance sheets
or prepare for higher regulatory and reporting standards. The deci-
sion to provide further relief reflected a balance between certain
75
community banking organizations’ need for additional time to pre-
pare for higher regulatory and reporting standards and the con-
sequences of the unlevel playing field that further relief would
cause for similarly sized banking organizations. While the Federal
Reserve Board and other Federal banking agencies did not extend
the temporary regulatory and reporting threshold relief, certain
regulatory and reporting requirements within the scope of the in-
terim final rule provide a banking organization that becomes newly
subject to a requirement a transition period before it must comply
with the requirement. Banking organizations that become newly
subject to requirements due to the expiration of relief under the in-
terim final rule would qualify for those transition periods.
76
ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD
WASHINGTON POST ARTICLE SUBMITTED BY SENATOR TILLIS
77
78
File and source
- File
- CHRG_CHRG-117shrg52248_CHRG-117shrg52248.pdf
- Size
- 2,881,661 bytes
- SHA-256
- f8a042983004cfdd4a9b8259c1e4e8c4f829b0ea95421ac286dce926a450263e
- Original
- www.govinfo.gov