>> we are 30 minutes into the u.s. trading day and it is thursday, march 7. here are the top stories. more questions for powell. he is taking congress for a second day of testimony before the senate. president biden delivers a much-anticipated state of the union address days after the presidential race has narrowed. the ecb hold steady with expectations met in europe there are warnings of price pressures on the horizon.

welcome to new york, in new york , filling in for katie greifeld. we are looking at an smp back on the rise in the second day of gains and .7% rise in the s&p 500 and further gains in the tech heavy industries in the nasdaq 100 and sox semiconductor index flying. that is bringing it on track for a second week of gains with the rebound. the two year yield is only down about one basis point for .53. we started the week above 4.60 and last week above 4.71. some serious cooling and a bid that remained into the powell testimony. we will talk about the ecb leaving rates on hold for a fourth straight meeting. traders are boosting their bets for a june rate cut as president christine lagarde spoke. pres. lagarde: inflation is

continuing this downward trend and continuing to decline to our target as labor costs marked -- moderate and supply bottlenecks and the reopening of the economy after the pandemic faded. sonali: now joining us for more is a la sondra. when you look at the pressures and the expectation for a june cut, how much risk is baked in when we hear from the ecb president? >> we heard from lagarde that basically inflation is doing well meaning it is slowing and they think that by june they will have enough information. a little bit of information in april and the main data that we need to ensure that inflation is slowing and wages are going down. it is not just part of the prices going down in june. the market was predicting a lengthy june cut and it is

likely to be a june cut. now, how much for how long and the other question is what is the fed going to do. is the ecb going to cut before the fed. that is the other question that looking forward we will be talking about. sonali: thank you so much for your time. president biden preparing for consequential state of the union address coming days after his rival, donald trump all but clinched the republican nomination. annmarie hordern joins us here. i am wondering from your perspective. i heard you talk about this idea of are we better now than four years ago. how do we expect president biden to address the question? annmarie: this very famous line that reagan used in talking about president jimmy carter is something that i've heard from republicans and democrats. and when biden is set to give his speech what he is trying to do, not just give a report of the state of the union to congress and the american people

but pivot to the election. and this idea are we better now than four years ago will remind people that four years ago was march 2020 when the world health organization said that covid was a pandemic. he is going to want to frame that the trump administration, in his mind did not put out the correct strategy and policies when it came to covid. he will talk about people going back home. and if he does not go on this directly on the offensive with the former president there will be signals of that as we head towards this kind of rhetoric ramping up when it comes to november. you wants -- he wants to paint this different picture and of course he will want to highlight what he would do if you got another four years. a big part of that for the markets is going to be tax policy. because the trump era tax cuts end at the end of next year. whether or not we get biden in the white house or trump, some

of those tax cuts will still continue to live on because president biden has said he does not want to raise taxes on americans that make less than $400,000 a year. there is a lot of debate and differences between these two individuals and it comes to tax policy for corporations, not just the minimum tax but things like buybacks and a potential billionaire tax. sonali: thank you so much for your time and we look forward to your coverage tomorrow on bloomberg surveillance. you can catch full coverage tonight at 8:30 p.m. eastern tonight on bloomberg. as we wait from testimony from jerome powell on capitol hill let us welcome back michael mckee and liz mccormick. we were talking a little bit earlier about how we have seen a bid back in the bond market. do you think that to some degree this cooling of rates is conflicting with the path and message that jerome powell is trying to send across? michael: i do not think so. what you have is the market reacting to events today in the

european union, and the euro area with madame lagarde talking about rate cuts and may be putting more of a date on it that jay powell has done and then also some economic data today that did show that the economy is status quo at this point. we are still 10 to 15 days out from the fed meeting on march 20. and the fed has told us that they will not do anything. what you are really talking about you are talking about markets in the fed is a may meeting which is such a long way away. i do not think we are really trading on what the fed will do on may 1. sonali: how are traders positioning? we talked about this on the long end of the curve. powell got awkward questions when you thought about balance sheet reduction. how do you expect an answer today? liz: i hope there are more questions. the focus was on broadly --

regulation. i expect we will get more macro questions and on the balance sheet. yields like you said went down across the board yesterday. because people feel like, he was not to hawkish and continuing to lean into that we will have rate cuts sometime this year. we are still looking to get more insight on could he talk a little bit more on what is the plan to start tapering and how much qt they are doing. that is debt rolling off the balance sheet. there is a lot of focus on the market that it will reduce the amount of rolling off may be starting in june and be done by the end of the year and early next year. that connects to how much issuance the u.s. treasury department has to do. because when the fed is letting the debt rolloff that adds on the margin to what they have to borrow from the public. there is a lot of moving parts for the treasury market we will be watching that.

we did not get that much yesterday but we are hoping to get more today. sonali: we barely got any questions when you think about the regional banking system and i was losing my mind when i was watching these bank headlines and the testimony. you think he will get more questions given the capital infusion? michael: he might get a question or two on that but the fed does not regulate nyc b. he does not have a dog in that fight. the issue would be whether there is a systemic problem and the general feeling there is that it is not. this is a unique bank situation because of their portfolio and construction. and now they do say he has a cast -- they do have a cash infusion that will keep the problems isolated to the bank. he said yesterday that he does expect some cre problems among the banks. and largely among smaller banks. but he thinks that those will also be worked out.

there might be some losses, but they will not be a systemic problem from that. he did say it would take some time or years for the cre issues to be worked through. overall the fed is not concerned at this point about kind of systemic saying that we went through in 2008 and then almost went through last year. sonali: it is interesting and it has become a cocktail party conversation if you will. the fact that he hinted at the loosening of some of these rules. do you think you will get serious pushback? michael: you set me up for that one. of course. she is also complaining about high interest rates hurting the housing market. so in her five minutes her remarks could go either way. but i suspect that she will land on the fed chair on the idea that they might rollback

some of these tightening regulations and raising capital standards proposals. and if she does, that will make some headlines. it will probably not change the fed's mind. interestingly enough the chairman of the committee who has also wanted stricter banking regulations and did not really touch on that all that much, he spent much more time talking about the need to lower interest rates to improve housing and the fact that inflation is because companies are greedy rather than anything else at this point. sonali: liz, this is a highly watched testimony and there is a lot at stake from regulation to interest rates moving forward. what are bond trainer -- bond traders looking for especially knowing that we have the payrolls report at the end of the week? liz: traders will be careful not to go over the excuse too much.

we have payrolls and the cpi report. there is a lot of data even if the fed will do nothing in march. i think they are looking, there was one question about the so-called dot plot, the quarterly forecast and powell mentions that the last one is a few months old and it is not exactly a prediction. but i would like to see if there is more on pacing that they might do for cuts once they start. i think they would like to see insights on that. we might not get it that it would be nice to get details. sonali: when we think about the data we are getting in the coming days or weeks, is there something that the fed chair has said that would point traders to more data? liz: what is interesting is that he has continued to stress both mandates. inflation and getting that back confidently towards the 2% target, that is the most important. he talked about the dual mandate

and he was pressured a little bit about the economy and rates being high. and i do not think -- he was asked to defined a soft landing -- to define a soft landing. there is no data showing a recession. he is looking at the jobs data tomorrow from the actual numbers to the wage numbers and they on cpi -- and then cpi. austan goolsbee talks about the school -- the golden cap about not turning the economy on his head. he is all saying we will take the data and that makes it harder and my colleague mike will remind me that the blackout period starts on saturday so a lot of data and no more fed speak so people are hoping to see what they can get from chairman powell and other speakers for the rest of the week. sonali: as we watch the fed chair speak we have to understand that there are others elsewhere including today, but where else are your attentions?

michael: to the extent we get additional fed speak questions will be asked about the summary of economic projections in the dot plot and whether they think any changes are justified. raphael bostic said that may be he might dial back his prediction for the fed would -- rate cuts. if we get a couple more that could change the dot plot and then you get a new plot from the mark -- for the markets to figure out. beyond that, you do not have a whole lot going on. i do not think that jay powell will give us a lot of direction in that regard either. that is what you would look for at this point. sonali: michael mckee and liz mccormick, a busy couple of days and hours. we will go to capitol hill where the fed chair is testifying to the senate banking committee. >> why shouldn't the fed act now for workers to lose their jobs rather than reacting after the fact? chair powell: we are well aware

and very conscious of avoiding it. what we expect and what we are seeing is continued strong growth and labor market and continuing progress and bringing inflation down. if that happens and the economy evolves over that path and we do think that the process of carefully removing the restrictive stance and policy will and can begin over the course of this year. sen. brown: i know we have had this conversation publicly or privately, and also that you know that working people are hit the hardest with inflation and when companies try to cut costs with layoffs. this town seems to too often forget that maximum employment is part of the fed's dual mandate. let me ask you about bank supervision. senator scott mentions that. the bank failures illustrate the need for strong oversight. svb grew too big and too fast

and supervision did not react. the fed and response undertook a supervisory process to address gaps related to the speed, force, and agility if that is the right word, explain what concrete steps the federal reserve has taken to strengthen supervision and any specific areas or work to make improvements is ongoing? chair powell: this is a broad area. there are many people in the resource system involved in supervision, thousands of them. and there is a rulebook. there has been careful study, thought and listening to understand how we can meet the goals of being quicker and more effective which is how i would say it. as you look at silicon valley bank we were not a quick and effective enough. we are working hard to develop a new rulebook and another set of practices, which is still going to be evidence-based and fair. it will involve early interventions and more effective

ones. this is work that will all -- that is ongoing and will be for some time. sen. brown: thank you. the job of the fed and all officials is to serve the american people and not stop work folios. we have seen abuses in this body and at the federal reserve. i wrote you asking the fed to identify sums it -- substantive penalties for board officials who violate the trading rules. where is that? and i expect this in six months. chair powell: the inspector general gave us six things to work on. i read the list from beginning to end and the sixth one was what you said and i said we will do all of those and let's get going. we have done five and we are working on the sixth. sen. brown: it will be finished within six months. chair powell: i want to get it right and i hope so and expect so. sen. brown: expect is better than hope. more and more companies use

algorithm that combined competitor's price information to engage in dynamic pricing or surge pricing. you know that corporate pr teams worked hard on this, just another way for corporations to make it harder to seek out lower prices. are you concerned that the wide adoption of these price gouging strategies and schemes, if you will will contribute to inflation? chair powell: i think it works both ways. let me say this, we are well aware of the trend in monitoring this. i member that prices go down when there is no one in the store and they go up if you are doing dynamic pricing. same thing with the ride companies. i do not know in implication for inflation. it would certainly have implications for consumers. sen. brown: you think that this kind of surge pricing might lower prices overall? chair powell: that is my understanding, the idea is that

in slope -- in slope periods -- slow periods prices go down and in busy periods they go up. sen. brown: this is sophisticated economists and they will not do something to lower profits. chair powell: the price mechanism is important and as long as they are not failing to disclose price changes to the public. sen. brown: constraints apply was -- the constraint change with more housing availability and major job easier. his -- without make your job easier? chair powell: a big part of the inflation was when supply chain problems unwound and when the labor supply shock unwound and

we saw inflation come down very quickly. it is also down to tie -- tight monetary policies. sen. brown: that leads me to the plea to speak out about inflation and corporate profit and greed through inflation. thank you. i'm done. sen. scott: sen. brown: oh i know you are. sen. brown:do you find yourself agreeing with me more often? sen. scott i listen to what you said, which was remarkable. the fact that 60% of americans an cannot afford a thousand

dollar emergency. i cannot see how they take in a snapshot of their financial future fixing, repairing or having a plan that happens for every homeowner in the country. i think the issue is far more complicated and i would love to delve into that over the next four minutes and 18 seconds. but, my first question is a combination between the challenges of illegal immigration and crime. it seems like every single week there is another story of another city underwater attempting to feed and house millions of illegal immigrants and american taxpayers are footing the bill. like i mentioned just recently in denver we saw city workers having their hours essentially zeroed out so that the city can

allocate more resources for the illegal immigrants. in san francisco, they say that the average cost between san francisco and oakland because of crime is almost $4 billion. couple that with in new york, you say governor hochul bringing out the national guard and the state police to help the impact of crime at the same time mayor adam says that he needs more money because the state of affairs from illegal immigrants in the city is devastating the economy, scaring the citizens and reducing the opportunity for business as usual to return to new york city. so my question is, can you explain how our economy is expected to continue shouldering the burden and cost, because of

illegal immigration, and then what if any -- information do you have as it relates to the impact of this surge of crime in major cities on the economic outcomes of those cities? i heard the discussion that when you have more folks in the store you have more shoppers. these days when you have more folks in the store, sometimes they are the just there to steal . chair powell: you quoted my statements and that was accurate but i would say right before that what i said was immigration policy is very important and under discussion and is not of our business. we do not set immigration policy or comments on it. chair powell: you commented on -- sen. scott: you commented on immigration. you tell a story tell the whole story especially when the nation is frustrated by nearly 10 million folks coming into the country and having the kind of

negative impact on prices, crime and on the challenges that everyday americans especially those living in the poorest parts of america face on a daily basis. chair powell: as you accurately quoted i said over time so i was referring to history with which you agreed. i was staying as far as possibly i could from the current political context. it is really not appropriate for us. we are independent and we would like to remain that way and one of the ways we do that is staying out of political issues that we are not assigned. and so, the kinds of issues you are talking about are very real. i do not deny that. but they are not for us. sen. scott: the fed does not consider the impact of 10 million illegal immigrants coming to our country and the cost of them coming or the impact on states like new york, california or illinois where the devastation of crime is ravishing the poorest americans. we do not take that into consideration?

chair powell: we do and so does the congressional budget office tried to us -- estimate population and the effect of immigration on workforce and gdp. the congressional budget office has a detailed assessment of all the things. we really do not have away and we do look at the finances in aggregate of state and local governments in the hiring that they do. that is something that we look at we do not do a very specific assessment. we would not do that. sen. scott: thank you. sen. menendez: i want to celebrate that in the past year we have seen the service -- the first latino federal reserve governor in the first ever latino federal reserve bank president. these are historic milestone showing that we are making progress, something that i have been at for quite some time. to the leadership of our

economic institutions, so i want to applaud that. and mr. chairman, i hope the progress can continue to the rest of the federal reserve staff. chair powell: thank you. sen. menendez: i agree with my friend the ranking member that when you tell a story, you should tell the whole story. mr. chairman, are you aware of the "washington post" february 22 article that says the economy is roaring and immigration is a key reason? chair powell: i do not recall that but i would have read it. sen. menendez: "immigration has propelled the u.s. job market further than anyone has expected, helping cement the country's economic rebound from the pandemic as the most robust in the world. it goes on to say, economists and labor experts say that this surge was ultimately key to solving unprecedented gaps in the economy that threatened the

country's ability to recover from prolonged shutdowns. would you take issue with those statements? chair powell: there are a lot of adjectives and adverbs that you would not see in bed world -- fed world. the story i think is broadly this. it is that there was a very significant increase in the size of the workforce last year. and it was happening during the year and we were wondering what it was the answer was two things. it was labor force participation but also immigration. and if you look at the congressional budget office numbers it makes sense because there was a lot of growth. wages were coming down and the economy is bigger and those are probably and partially affecting it. this is not making judgments on immigration and immigration policy. sen. menendez: i am not suggesting that. i am subjected -- suggesting

that the facts are that we had jobs going unfulfilled that lacked the productivity necessary for success economically. and as part of that, clearly, immigration helped fuel part of our revival coming out of the pandemic. in fact, those were the people and the essential workers while the rest of us were staying home. i agree that we need to do what is necessary to have a regularized border. but, just to create the context of immigration as a scourge is absolutely wrong. let me turn to another question. in my view the sticky inflation in the housing sector is due to the massive nativist -- nationwide housing shortage. the monetary policy attributes to restrictive zoning, high interest rates and tighter underwriting. i would add to that underfunding of key programs that shore up

and expand our supply of affordable housing. if the housing supply shortage continues to grow, are we likely to see continued inflation? chair powell: yes we are. sen. menendez: housing is becoming less and less affordable for low and middle income americans. according to the national low income housing coalition out of reach report, a worker earning minimum wage in new jersey have to work two full-time jobs to afford a modest one-bedroom rental home at fair market rent. do you agree that increasingly unaffordable housing is a problem for the economy? chair powell: i think there are two things going on, one is a housing shortage and then the pandemic effects and associated higher interest rates. when all that passes through we will still have the underlying housing shortage causing upward pressure on housing prices. sen. menendez: the monetary policy report noted that "

purchases by home -- purchases of homes have fallen more because they have imposed maximums to the ratio." i am worried about how this will react with the recently proposed capital requirements proposal, which recurred which according to analysis would increase the cost of mortgages for black, hispanic, and low and income moderate our wares. given this, is there a risk that the capital rules implement it without changes that it could make it harder for disadvantaged borrowers to obtain homeownership? hopefully you're working to mitigate this. chair powell: yes. chairman brown: senator rounds from south dakota. sen. britt: -- sen. rounds: i appreciate the way you approach the discussions in front of this committee and i understand your desire to stay as neutral as

possible with regard to politics involved in an election year. i have some questions with regard to the basil three -- basel 3 endgame proposal. it found that 97% were opposing it or expressing concerns. in a hearing last march on monetary policy stated that the federal reserve is a consensus organization and you said "i will everything -- i will do everything i can possibly to bring people together, in consensus, and have a capital framework that can be broadly supported." my question is that do you believe that there is a consensus on this capital framework? chair powell: i believe that we will have one. i will believe that we will have such when we move forward. sen. rounds: you will

>> thank you. as you are aware i have weighed in several times on the concerns i have with regard to the basel 3m game i'm concerned about the lack of transparency, disincentivizing banks from loans that help first time loan buyers and low to moderate income buyers. i'm concerned it will make it harder to buy and disincentivized mortgage lending from the learnest bank with regard to the second dare market. would you be willing to withdraw the proposal or repropose with

significant modifications particularly addressing the concerns that i and others have on this committee raising specifically with regard to the impact and i'm thinking of gray and fanny and what the impact might be. with would you see as the process involving those particular issues? >> on those issues we are well aware of and very focused on the issues. we haven't decide wad to do about that yet. in terms of process we are not in the stage of making that decision. if it turns out to be proposed and we get to that upon the for us to repropose parts or all of the thing, then we won't hesitate to do so. >> thank you. i think there are serious problems that would occur if the basel 3m would go in effect and i hope that the federal reserve will find a consensus and it sounds like that it could

include significant modification if graduate. >> i expect material and broad changes to the proposal before it comes back to the committee for conversation, to the board. >> thank you, sir. with regard to the economy a limited level of price growth is believed to help facilitate economic expansion, reduce the rink of recession and help businesses appear consumers plan. but during the biden administration we saw inflation climb to 13% and those prices are the new norm. i know you make it a policy not to comment on the administration fiscal policy but it is well known that i really do believe that high inflation, high prices, have been a direct result of president biden's policies, failed in many cases, that the federal reserve has limited tools to address some of

the problems these policies created. we talk about supply side versus demand side on these costs. what have been some of the unintended consequences from raising the federal funds rate as rapidly as you felt you had to as the chair and committee? what are -- i know we talked about s.v.p. and their inability to look at treasuies but can you talk about things you have seen that were negative with regard to trying to respond to those high inflation issues? >> lie interest rates are hard for businesses and people. they are the thing -- they are the two that we have to use to bring inflation down and our job at this time when high inflation comes is to restore price stability and that is what we are doing. you point to the losses in banks. that was a very substantial thing and the supervisors -- and

that was us -- didn't get to that problem the we were aware of it but probably didn't appreciate it enough. another thing is we got there far and got inflation down there quickly without seeing a big increase in unemployment and that is a great result. that is a positive thing. >> i note the only tools were demand side tools. >> that's right. >> thank you. >> senator warner of virginia is recognized. >> thank you, mr. chairman. chairman powell, it is great to see you. i would point out to my good friend from south dakota i do think that if we had gone back a year to 18 months ago nobody would have predicted the soft landing and i know you are not ready to declare victory but the fact that inflation is down i think some of the things like the slips bill, infrastructure bill and president biden's

policies have kept the economy growth rate at the levels that have allowed you to bring down inflation without a dramatic rise in unemployment. that will be something we will probably have the opportunity to litigate over the next eight to nine months. i want to take my time on issues around less about monetary policy and more about regulation. we can never presume we are out of the woods on stability as we saw the bank in new york yesterday the stock plunge and capital infusion. one issue i raised with you a year ago and will raise again today is nonbank lending, the fact to unanimous financial firms is exceeding regulated bank left-handing and the nonbank financial sector has done productive things in our society over the years, but we

folks like former new york fed president dudley and fed governor said they had worries about the reliance on the nonbank financial sector could lead to instability, three part question. what do you think are the risks of this push out expect of more lending outside the regulated parameter to the nonbank sector? how much do we really know about these institutions? and one of the things that they have very smart sophisticated investors but if those very smart investors say we don't like the lending profile right now and we don't want you to makish lens the next six to nine months could our system pick up the slack?

>> we have the regulated banking system where you have a lot of transparent si, deposit insurance, access to the discount window and all of those things, regulation. if you go outside of that most of the funding in these vehicles is sophisticated investors who are limited partners meaning they have funded the deals and so they can't pull their money out. what you see now in the nonbank financial sector is significantly that kind of thing. so it doesn't have the run risk. the point is the bigger it grows and more diverse it gets it is happening outside the regulatory perimeter and you worry that when there is another crisis you will be surprised but there will be ways that that financial structure can break down and it does break down in ways we don't anticipate. so i think we need to be smart about the way, about intermediation is moving out of the banks into the capital markets and unanimous bank

financial institutions. s that been happening a long time. i think we need to be thoughtful of where the -- >> that sophisticated investor might say we don't want you to lend any more for x period of time but at that moment of crisis may mean the lending capabilities dry up. one thing i never understood until i got a better explanation why the large regulated banks weren't more complaining about this but as i got to understand more of the -- again i'm not per se criticizing the nonbank lending but many of the regulated banks left-hand to the large institutions so they make money off of those relationships and maybe that is again an explanation of why they are not more critical. i only have 40 seconds left but i would like to come back to another thing we talked about a lot and that is the question of use of the discount window.

i believe one of the original tools the fed had, i know banks say we are concerned about the stigma, i have legislation that with require mandatory use of the discount window. i would love you to comment on that and the idea of having the mechanics of the discount window open potentially 24-7 because we saw what s.v.b. they didn't know how to use it but if they wanted to in the nonbank hours could they get access. >> there's a lot of work to do on the discount window it needs to be brought up into the new age and we need to do more to eliminate the stigma problem and that banks can use it when they need to use it. those things -- that is a broad work program that we are on right now and it is very important. >> i know you are working on it but i would like to work more

and i would invite other colleagues before we add a host of other regulatory issues we should use some of the tools that are out there. >> i was about to take control, senator warner. welcome, chair powell. if you have time after the hearing you need to see him. he is a dog in our office. >> i don't want to disturb his nap. >> i want to get back on the basel 3 promise. several of us sent a letter indicating our concerns with the current proposal. it is worth noting the number of other organizations, the tkwrs group not normally aligned on policy, you have bank trades, national housing conference, naacp, the list goes on. who have concerns with the current proposal. here is my concern.

i think that we are trying to make the best of what was foundation a bad proposal. one reason why i did not support mr. barr's nomination is i felt we were going to be here. it was pretty clear that we were going to be in this place some months or years later and here we are. i think that the industry felt the same way. all of them some in banking trades and others on the other side of the spectrum so i would like to provide some weight to the idea that we should repropose it. with we ought to do is talk about the reality of increasing or that the prospect of increasing capital requirements doesn't concern me. i think the prior fed supervisor

made comments that maybe we needed to raise capital standards. but what we didn't hear it this proposal is deal with puts and takes. let's talk about raising capital requirements but let's also talk about reducing the cost of the regulatory burden today. there is no evidence of that in the current proposal, and i think that may actually produce a different set of comments that would be instructive to a final proposal that i think realistically will include some increase in capital requirements. over what time horizontal do you think we would expect to see try to make the best of this foundation or go back and look at a new foundation and repropose it? >> we are going to work through it as quickly as we can and should. i will say it is more important to get it right than to do it fast. we are not in a hurry. but my guess is well work it out

over the course of this year. >> if you take a look at the outsized cost of operational risk the long list of rinks i publicly and privately expressed on the current proposal i do think sometimes it is easier to knock down what is a foundation and build a better house. justmented to make that comment publicly. i have a question of shrink-flation and chastising manufacturers for creating smaller portion sizes for potato chips i will use that as one example. if you have rising input cost and you are not able to control that and you are in a marginal business to begin with and now you are saying you can't even reduce the quantities how does a business that is not making a

profit make that work? >> you know, we see inflation as they aggregate level as a mismatch between supply and demand. as we have seen supply get better and demands cool off, it was very hot out of the pandemic -- >> we saw food inflation between 2010 and 2021 at 18% over 11 years and the last three years it has been 21%. i think that we have an industry that is trying to provide products that consumers want and now they are being chastised for trying to figure out how to make numbers work so the idea of shrink-flation is confounding to me. i have a question, i think the chair mentioned -- if i misunderstood this i'm sure the chair will clarify -- i thought he suggested stock buy backs and

paying on dividends were a key factor of unnation. do you as a matter of policy see of the top five reasons we are experience the inflation we are having right now? >> stock buy backs and tkeupbtsdz are the same thing in a different form and i wouldn't comment on anything the chair may have said. i would like to avoid that. >> i'm not going to ask you about e-mails but i think you are consistent on that, but i can't imagine if we decided to outlaw stock buy backs and dividend payments it would have a material fact on inflation. i won't ask you to respond to that but some people by inference you could assume they think that would be helpful. i'm not an economist but i can't imagine it would be one of the things to make your job easier. can you at least opine on that. >> i think that would be quite a change in our capital markets. shareholders -- this is just

money going back to shareholders. >> thank you, mr. chairman. >> well done. senator smith of minnesota is recognized. >> khaeufrpg you, mr. chairman. great to see you chair powell. i appreciate your testimony. i will focus my questions on housing and housing affordability. as you have well pointed out overall prices have moderated consider my since the fed began to raise rates but housing costs have been resilient, high. leading us no closer to addressing the affordability crisis that i think we have and it was here well before the pandemic. shortly before the chair began tightening i asked you about how higher interest rates could exacerbate this unaffordability problem by making mortgages more expensive and hindering housing development. i think at the time you argued we have an excess housing demand

during the pandemic and that was at the root of higher cost and the fed goal was to bring demand closer in lane with supply. my first question is this. the housing market has cooled significantly over the last two years. is it your view that it has cooled enough so that housing supply and demand is better in balance and following in that, given the fed's limited tools, understanding, that at what point do you think you have done all you can to lower housing demand? my view is we are well past time in congress to talk action on the housing supply side but i'm interested in how you see this dynamic. >> we are not focused so much on housing and housing inflation. we are focused on the aggregate which is goods and housing service. there are things that in the housing sector that we didn't fully anticipate.

one of them just was that people in very low interest rate homes with low interest rate mortgages are not selling so the quantity of homes venable is incredibly low. that is why there's very little in the way of existing home sales and that drivers up the prices but new home sale prices. so there are two sets of factors. it is a longer run issue but the factors associated with the pandemic and inflation and our response to it. as the overall inflation continues it come down and rates come down, you will seal the housing market start it heal and get better and housing affordability should go up again. but you are still left with the longer-term problem of supply. >> right, i think that is right. what i see in minnesota is that higher interest rates are driving up the cost of construction, they are driving up the cost of mortgage rates. you see people not leaving a house that is a little small

because they can't afford it, as you are saying people are staying in their homes longer. so, there's this double whammy of construction slowing at the same time that there is this great need to address housing supply. one of the things that is happening, a recent analysis by zillow found that the monthly mortgage payment on a -- let me get there rate. the monthly mortgage on a $343,000 home assuming 10% down payment is about $2,200 a month. that means that the cost of owning a typical home is higher than 30% of median income which is kind of the measure of affordability. so we have a lot of issues with people just being priced out of the housing market. from where i sit, the cumulative

issues of higher mortgage rates are really a challenge, and until we can get to the bottom of that we will have a hard time addressing the housing affordability challenge we have. would you like to comment on that? >> i agree with all of that. home prices actually don't go into the price of inflation it is rents but it is very difficult situation and the sooner we can get back to price stability and restore interest rates to lower levels the sooner it can start healing. >> thank you. thank you, mr. chairman. >> senator kennedy of louisiana. you are recognized. >> mr. chairman, thank you for being here and thank you for your service. i think i said before, i believe you and your team probably saved the world economy during the pandemic economic meltdown we

the well worldsmented dollars by establishing the currency swap line. so i thank you for that. you gave an interview, mr. chairman, on february 4 of this year to cbs, "60 minutes," i think. is that right? >> yes. >> i ordered a transcript of that and i read it. you were asked a question about inflation, and you were asked a question about prices declining. here was your response. i would like to quote you if that is ok. "so, the prices of some things will decline, others will go up. but we don't expect to see a decline in the overall price level. that doesn't tend it happen in

economies except in very negative circumstances." did i quote you accurately? >> i believe you did. >> ok. later in the interview you were asked about the national debt. do you recall that? >> i don't, actually but i'm sure that is right. >> at least according to the transcript your answer was and again i'm quieting you, "in the long run, the united states is on an unsustainable fiscal path. the u.s. federal government is on an unsustainable fiscal path. and that just means that the debt is growing faster than the economy. so, it is unsustainable." do you remember saying that? >> i have said that many times. i think that is uncontroversial. >> ok. layer in the interview -- letter

in the interview you said, "you know, i would just say this. integrity is priceless. and at the ends that is all you have -- at the end that is all you have. and we plan on keeping ours." is that an accurate statement? >> yes, it is. >> ok. that is why i want to ask you about the fdic. have you read the article in the "wall street journal" entitled strip clubs, lewd photos and boozy hotel the toxic atmosphere at bank regulator fdic. >> i think i did read that a couple of months ago. >> did you read the article fdic lawyers stayed on leave for weeks after chilled porn arrest. >> i don't remember that one. >> did you read the article

entitled in the "wall street journal" fdic chair none for temper ignored bad behavior in workplace? >> honestly, i don't. i read so much. i remember the broad story but not particular stories. >> did you read the article in which a former female employee of the fdic allegedly recalled her male colleagues saying women needed to use sex to get ahead at the fdic if >> i do not recall that. >> did you read the article in which a female risk management examiner during a lunch with a male examiner said she had become friendly with that examiner and he complained to her about his marriage allegedly telling her he wasn't getting enough sex and she allegedly

said quote obviously if i -- he allegedly said obviously if i walked into this office and you were naked i would [bleep] you right here. >> i do not remember that and i think i would. >> do you remember the article about mr. randall different a supervisory examiner in denver who allegedly was demeted in 2014 to a nonsupervisory examiner position in tulsa after having section twice with a subordinate female employee and a number of other rule violation in this article it says allegedly mr. different had urged the woman to not quote be a pussy and drink a shot of whisky during work hours the records show, do you recall that? >> i do not recollect that. >> here is my question. i could go on for a while. >> could go on you are past your

five minutes. do your question once. >> sir. >> your time has expired. you did five minutes, consumed the well five minutes with your monologue -- >> you did six minutes. i timed it. >> senator kennedior months i have let you go way over the five minutes. you get your question. >> but you did six minutes. >> i chair this committee. >> i understand. you still did six months. >> you are going to be at section minutes in 15 seconds. are you going to ask your question? >> i will ask my question. i just want the record to be clear, mr. chairman. mr. chairman, in light of these allegations, if they are proven, how can the fdic lead this charge for basel game three that will turn the banking community up side down? >> i don't know how i would make the connection to basel three.

i would say these are deeply troubling things but your point is if proven. and i mean i think we have to decide basel 3 on its merits and we are not looking to the fdic to leads this. we are looking to the fed to do what the fed thinks is right and they don't look to us to lead them. >> thank you mr. chairman. >> senator butler is recognized. >> thank you, chair and chair powell, good to see you in person and thanks for the time it talk. i want to pick up a little bit where senator smith was in relationship to housing, housing affordability and hopefully draw a little on the point you were making about rents. it definitely is an important crisis in my state of california and i know across the country where at least according to the california department of housing and urban development renters in

san diego are paying about 50% of what is -- they are spending more than 50% of what is considered affordable and more than 3 million households are spending more than 30% toward rent. nearly one-third, one in five million households paying more than 50% of income toward rent. and in the chicago fed president referred to housing as a missing piece of the puzzle to the path of lower inflation. so in a continued conversation and point you made about how inflation has a disproportionate impact on lower income households who are focused of spending in the fed's path to lowering inflation.

to continue the conversation and the point you have made about how inflation has a disproportionate impact on low income households focused on spending their monthly budgets on housing. how is the dad's monetary policy impacting the supply of affordable rentals? chair powell: if you think of affordable housing is something connected to a government program, that is not our bailey weight. interest rates do affect the affordability of housing. >> there was a key point you made in an earlier reference about the monetary policy and calculation of rents. can you briefly talk about that? chair powell: it's actually very conceptually challenging

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