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 thinking about housing

inflation. you include the cost of financing, and the sales price? we convert ownership into a red and thence to third of homes are owned. lisa's only turnover once a year. you look at market rents and was happening with new lease signed leases is different than a year ago. we understand that in look through that and look at housing services is one of the important categories. >> thank you for that. in the line of affordability and housing, to the broad monetary policy in the state of our economy and unique to california and i raise this with secretary gatlin when she was here as

well. the insurance gaps that are presenting themselves due to the impact of climate change. one in five residents live in areas that risk flooding and we are seeing more and more insurance providers withdrawing from the state. you and i had talked about this in our preparation for today's conversation. can you share with us how it is, what you think the impact might be with this protection gap in coverage on the overall stability of financial institutions in the broader economy? chair powell: housing insurance and automobile insurance has been a significant source of

inflation and is to do with the million different factors. it's nothing we control from a regulatory standpoint. in their longer-term, companies are withdrawing from writing insurance in coastal areas. we have to think how will we get housing insurance? it's a significant issue. >> senator vance of ohio is recognized. senator vance: thank you chairman powell for being here is good to be here in these hearings are important is our opportunity to provide some oversight and have a better understanding of what you guys are doing. i one that focus on the

regulations and proposals to drop them down to focus on regional banks. to go back to one of the significant crises is the collapse of svb and first republic in you and i have spoken, one of the concerns i have is increasing capital requirements on banks. there is an argument that svb would have bought more long-term treasuries would expose her balance sheet to bond risk which would have hastened the collapse of svb and i want to start here, when you talk about the fossil basel regulation, what was the proposals for which banks would fall under those

proposal in which would escape them? chair powell: this time around? there are four categories of banks through to the fourth category. the proposal out there now is extend to category four. >> what's the minimum passed under those regulations? chair powell: 100 billion. >> when do you apply them and maybe you could walk me through that decision process at the fed, where you are and what would justify drawing down from 700 billion to 100 billion. chair powell: there is g6 and

big regionals and those tend to be the well bay regional banks and they are category three and they have different tailored levels of regulation and category four had significant tailoring we have to ask the question what if anything needs to be changed in the way that we are regulated from the capital liquidity standpoint? below 100, those are community banks which is a different regime as well. we wanted diverse banking sector and very unusual for advanced economies. >> just to put this on the record, a lot of the commercial rending and consumer lending is provided by regional banks. huntington and my home state is

one of the largest lenders in the area. you hear a lot of people talk about the economic miracle and i wonder if that's because we don't have the same financial system that's dominated in other first world economies. in the process of amending the basel requirements have you guys made a decision on where to set the threshold or where to set that threshold? chair powell: we put out proposal months ago's and we have gotten a lot of comments as i'm sure you're aware. we are chewing through those and just sitting down to talk about the changes that we will make to the original proposal. >> when do you expect to issue a final proposal? chair powell: i think it will

take time. i want to do it right rather than fast. i think it can be done over the course of this year. >> would you be willing to commit to say in the process of amending the regional bank drawdown -- given what happened with svb and first republic i don't want you to apply a regulation that doesn't solve the actual problem. with that in mind, i will you. >> senator tester is recognized. >> thank you for being here

chair powell, we appreciate your work. it's a difficult situation but i think you've done a really good job so thank you for that. the success for strong employment and stable prices is critical for small business, for farmers, ranchers. you follow all the metrics, where is the economy now and where's it going? chair powell: the economy is growing at a sustainable pace in the labor market is very strong and quite tight, 2.7% unemployment, the longest period inflation was way too high and it came down since last year. if you look at the 12 month

number it's come down from five to 2.4. in the core number is 4.8 from 4.9 last year. we will use our tools to keep the strong economy, strong labor market while we made progress on inflation. >> one areas there has been inflation is viewed. i am a farmer, we didn't get much of it. prices compared to what they were a year ago are off compared to where they were six years ago. my question to you, is there anything you can do specifically to deal with food costs? chair powell: if you look at the food cost of the consumer's commodity costs which was partially spiked because of

ukraine but the rest of it is cost from the supply chain from when it leaves the farm to get collected and processed and trucked around a put on the shelf. all of those cost are part of the general economy. as the labor market cools off, you will see food inflation flattening out. the really high rates of inflation have come down. the prices have not. >> i would say that cattle is doing better, grain has dropped. i don't want to get in that debate with you but it would take too long. chair powell: i could probably learn from you. >> you know the effect the

shutdown of supply chains has affected the global economy. how does the u.s. like today in comparison with our competitor nations? chair powell: i'll start with the advanced economies, were doing the best of any body. china is a different story. they are having significant difficulties with their economy and are in a different place than we are. >> the economy of the united states is in better shape than any other economy in the world? chair powell: yes. >> one of the other challenges as housing, here in montana, over there in ohio. workforce housing is a top priority, top commodity.

plenty of folks are working to address this. how do these housing supply issues show up in the data that the fomc uses to make decisions? chair powell: housing prices don't go into the data. housing starts, renovations are just business activity but when it comes to inflation, we convert ownership into rent and look at rents. that's how we look at all of that. were not directly affected by changes in housing prices but over time those will drive rents up. >> are there economic trends you see in housing? chair powell: there are two big things going on. we have this underlying shortage of housing due to things like difficulties of zoning, places close in the cities that were already built. more difficult to get people,

materials. then there is a ton of things happening because of the pandemic and inflation in higher rates and in the short-term, they are waiting on the housing market. as rates come down we are still going to be back to a place where we don't have enough housing. >> thank you for your work in very much appreciated. >> senator kramer of north dakota. >> thank you for being here. it's been a rather uneventful couple of days for you and i'm not going to upset that. i did appreciate your response to senator scott when he asked about immigration and you said the fed has not been assigned that. i want to ask you about something you about something

year not assigned which is the role of climate risk in banking and you have often said, we should stick to our knitting, stay in our lane. that said, in october the occ, fbi c, issued a climate guidance for the management of coverage of institutions. did congress give authority of climate policy as well or is that another thing that people took on? i know you're not the dictator of the fed but i'd be interested your viewsonic. chair powell: our assignment is the safety and soundness of banks so they can understand and manage the risks they face. in the climate world we would do to you and only two things. one was to an illustrative

stress scenario, climate scenarios, big banks are already doing this. we also said we would offer guidance not on the level of climate risk just on what you had to do to be an a position to assess. that is what we are doing. there are no new initiatives, we will not change our capital requirements to reflect climate restraining or anything like that. we are not a climate policy maker and thus the business of elected officials. >> i want to bring up one other topic which is central bank currency. i know there is some confusion, i'm easy to confuse. what is meant by the

administration's admonition to continue research and look out some sort of central bank digital currency. i think people look at the audit think they're going to control this now. could you differentiate what people think of when they think of bitcoin or digital currency as opposed to the central bank which should emulate cash. it should still be about the dollar. can you help people back home better understand. chair powell: we are nowhere near recommending, let alone adopting the central bank digital currency in any form. as technology has evolved, money has become digital but we don't issue digital money. the thought was the government could create a digital form of

money that people could transfer among themselves. that raises a concern if that were a government account, the government with cl of your transactions of us something we would not stand for or propose. that is how it works in china. if we were to ever do something like this somewhere along way from doing that the banking system. but the last thing we would want is to have individual accounts for all americans, only banks have accounts with the fed. it's a question of following technology as it evolves in a way that serves the public better. people don't have to worry about a central bank digital currency. >> that was very helpful, thank

you mr. chairman. senator cortez says acknowledge. >> i want to talk a little bit about commercial real estate. commercial real estate was identified as a financial risk and commercial real estate prices continued to decline especially in the office, retail and multifamily centers. because of the low levels of prices, can you expand on the emerging risk the federal reserve has identified in the commercial real estate market? and can you identify the compound rest and commercial real estate lending with

high deposits? chair powell: there are few transactions in commercial real estate, is not a question of prices still falling. you just have to assume the prices have come down a lot. we have a secular change and people working from home. in many cities, the downtown office district is underpopulated. there are many empty buildings in the retail that was there to serve as the thousands of people that work in those businesses are under pressure to end banks would've made loans to many of those buildings. this we have known for some years so what do we do? we have identified the banks that have high commercial real

estate concentrations, particularly office and retail. we identify them and are in dialogue with them around do you have your arms around this problem? do you have enough capital? do you have enough liquidity? are you being truthful with yourself and with your owners? we have been working with them. this is a problem we will be working on for years more, i'm sure. this is not the big banks. it's not a first-order issue at the very large banks. is smaller and medium-sized banks that have these issues. i think it's manageable but it's a very active being and it will be for some time. >> do you have concerns, as you

were talking with these small, medium-sized banks because there will always be a contagion, do you have concerns? and if they fail this is how they will impact the local sector? chair powell: we reached out to base that had high concentrations of uninsured deposits and a lot of commercial real estate in the office sector. we are will the will of that issue and just trying to stay ahead of it. and so far, we've been able to do that. >> let me jump to another issue, the federal finance housing institution report concluded the distinction between the official banks role that of the federal

reserve has not been clear especially in times of market stress. during the 2023 bank terminal -- i know you've talked about this with senator warner how is the federal reserve working with home loan banks? chair powell: we work with them because in many cases, banks were missing their loan to the fed so we need to have a smooth transfer. even more important than that that any bank in the united states needs to be in touch with the discount window, know how to access it, be able to access it and have appropriate collateral, have control of the collateral. in many cases it was incredibly

inefficient and took a long time for banks to go through that function. home loan banks are ahead of us in technology. we need to invest in technology to modernize the discount window and do more to get our banks in touch with the discount window in a way they can use it quickly should they need to do so. >> senator haggerty of tennessee is recognized. >> under your tenure, the fed has taken the stance that the 2% inflation target should be viewed as a snapshot in time but rather needs to be achieved sustainably. the fed was patient and allowed rates to offset the below target

inflation that had occurred in years prior. while we are still well above target inflation, market seem to expect the fed to cut even before we have reached the 2% threshold. if the inflation rate reaches 2% without be considered a return to normal or would they want to overcorrect to under 2% before making rate cut adjustments? chair powell: it would take us a while that inflation has been stabilized. we said we would not wait for inflation to get down to 2%. monetary policy works with long, variable logs. we said we would start restoring

the federal funds rate to an almost neutral level, we are far from neutral now. assuming the economy moves along we will dial back restrictions. >> i know we allowed the economy to overshoot when inflation was high and made it -- chair powell: we didn't actually do that but suddenly a few months later, we got an explosion of very high inflation that we were not looking for. we said modestly above 2% and this was not modestly above 2%. we thought that inflation would go away, that it was transitory. that it would go away quickly

without help from us but we discovered that was not the case. >> you don't see that dynamic again? chair powell: i think we're in the right place. we need to be more confident that inflation is moving more sustainably to 2% and then it will be appropriate to dial back the level of restriction so we don't drive the economy back into recession. >> can we go over the balance sheet. we've seen a dramatic expansion of the fed's balance sheet in 2005 it was at 800 billion, it's at 7.5 trillion. doubled since the pandemic was underway. through connotative tapering there attempting to reduce his footprint in the concern i have us on the other hand. government spending continues to be profligate and where running

a trillion dollar deficit every 100 days, flooding the market with treasury debt and what i think is lost on many of us here is his spending levels will only make your job harder when it comes to lowering interest rate there is a tacit expectation the fed will move in once we could no longer absorb our issuance. i think we're at a point where your objectives very much at odds with the behavior of our fiscal policy. am i missing something here or does increased issuance by treasury lead to higher rates? chair powell: more supplies should lead to higher rates but that would affect what we do. that's on a problem for us. our balance sheet normalization is running as expected and decrease the size of our holdings by 1.5 trillion. >> i think it's troubling that

we continue with fiscal pressure , and issuances required to deal with that puts a lot more pressure on the fed and making your job harder. another component of this topic, governor wilder said he would like the fed to shift its holdings to short-term treasuries. do you share the goal with governor weller and how long would it take to get there? chair powell: it would take a while. at our fomc meeting we will have our first deep dive on what to do with the balance sheet. that's one of the issues will talk about. i can see a case for shortening the maturity but is not something that would happen quickly. thus a longer term loss.

>> is an election year and your getting pressure to cut rates in the of the fed depends on data reading and i continue to do that. chair powell: will do. >> senator warren of massachusetts. it's been a year since we had the second, third and fourth largest bank failures in american history. greedy bank executives in the fed is the chief regulator of the biggest banks. under your leadership and direction the fed we can rules for the biggest billionaire banks, exactly the banks of vail bus barge. you failed to do your job to keep these big banks in line. you promise the fed would do

better after years of hemming and hawing you finally agreed to put in place vessel three roles that would strengthen capital standards for the biggest banks and i mean the biggest banks. these are the fed's proposed rule would apply to only 37 of the nations 4500 banks. only the banks that have 100 billion or more in capital. when you testified before this committee last june i asked you about taking responsibility for big failures. you said the main responsibility i take is to learn the right lessons from this and undertake to address them so we don't have a situation like this where we have unexpectedly a large baked fail and spread contagion into the banking system. as part of learning those

lessons you have also said, you agree with and support vice chair for supervision bars recommendation for strengthening feds rules and supervisory practice sees for the big banks and you are confident they will lead to a stronger and more resilient banking system. i just want to be clear, you have not back down from your comments from a year ago? supporting vice chair bars recommendation? you still stand by all of that? chair powell: yes. >> good. i understand those 37 big banks don't like higher capital roles because they are like insurance. it would make the banks safer

product cost the banks money. these 37 banks are swinging their weight around to tried to weaken capital roles. they spent tens of millions of dollars running ads during sunday night football and millions more for an army of lobbyists to try to twist arms in congress. who are they trying to impress? a man on the inside? despite all you said last year when the banks failed about supporting bars recommendation to strengthen rules for big banks public reporting says you are driving efforts inside the fed to weaken the capital rule. you even told the house financial services committee that you think it is very plausible that you withdraw the role.

as one analyst put it, i don't think they will pass a final rule without powell support suggesting the rules will have to be weakened to appease powell. i am having trouble reconciling the statements you made last year which you say you hold onto, statements you made when the headlines were all about three giant bank failures and now you are reporting efforts to quietly we could rules that would strike that the capital standards for diabetics and prevent more big failures. are you committed to finalizing the strongest version of the basel three capital rules this year? chair powell: let me first say we have taken and are taking many more steps to deal with the problems that revealed themselves with silicon valley bank around supervision, strong

liquidity. >> i'm just asking about the basel three roles. chair powell: the basel three roles are not directly related to silicon valley bank. they are a longer run thing and i would just say, we put them out for comment. we put them off or, in. my view is it will be appropriate to make changes said that before we finalize it. >> material abroad changes to strengthen the rules? chair powell: i did not say we would withdraw the role there is a concept every proposal and i said we had not made a decision on that but if it turns out to be appropriate, that is something we will do. >> so everything you said about supporting the vice chair.

chair powell: uni had a long call on this. i am doing exactly what i said i would do. >> you said you would support vice chair bar to get a strong rules and now he is putting out rules. chair powell: the vice chair has every right to bring proposals to the board but as i made clear in our colloquy, you're not the comptroller of the currency. i only have one vote. there are 11 other voters. >> you are the leader of the fed and when the heat was on last year you talked about getting tougher on the banks but now the giant banks are unhappy and you have gone we could meet on this. the american people need a leader who is encouraged to stand up to these banks. thank you mr. chair. >> senator daines is recognized.

>> i can tell you montana's continue to see the impacts from inflation brought on by the policies of this administration and my colleagues across the aisle and i commend you for the job you have done and trying to rein in inflation and i encourage you to continue the fight despite political pressures you may face. is going to get a little more political around here. i am encouraged by your comments yesterday that there will be broad changes to the basel three proposal which is currently proposed would have detrimental impacts to credit cost and availability to small businesses. i commend your answer yesterday that the fed is not a climate

agency and considering the impact of climate change is not a factor in achieving your given mandate, congressional mandate of maximum employment and stable prices. i recently joined my colleagues in writing to you about the long-term debt proposal that would be into a regional banks issued new long-term debt and a concern this will have a proportionate -- disproportionate impact on smaller regional banks because they are required to hold long-term debt at the holding company and an insured depository bank levels. can you explain how this aligns with the tailoring will firemen set forth in the financial reform bill passed into any 18 senate bill 2155. chair powell: that has been out

for comment and when comments are end, we are reviewing it. i don't want to say too much but the theory of it was those banks are not subject to the living will process that the g6 are. this was supposed to be a middle step to make them more resolvable without imposing the same burdens to have resolution plans. that was the thinking on the calibration of it and we have voluminous comments and we are looking at them to make an assessment and move forward is appropriate. >> i know are smaller, regional banks will be happy to hear that thoughtful deliberation. you have had to raise interest rates to fight the fires of inflation brought on by reckless spending but a major side effect

is the impact rising rates are having on the cost of servicing the out-of-control national debt. looking at the cbo interest payments on our debt will increase 32% this year and will exceed spending for the entire defense department. i have significant concerns that we reach a point where fiscal policy and monetary policy converge meaning the fed with ultimately have to worry about the fact that ratesetting would have on government that where you would eventually risk a deep. i know fiscal policy is not in your purview but could you ever foresee a situation where fiscal irresponsibility snowballs to a point that the fed would have to factor this into his

decision-making? chair powell: i think we are a long way from that and that's a terrible place to be. that's a place where emerging markets have found themselves in for the united states to get there, it's unlikely. we really need to get to that discussion about sustainability and the kinds of things that have to happen can only be done on a bipartisan basis. i really hope we go back to a place where those discussions are hot again. >> i've heard from a member of stakeholders about upcoming changes to liquidity ranks including an ultrashort term liquidity requirement. establishing the facts manners and important that financial regulators have a complete and

thorough understanding of the financial environment before releasing a half-baked proposal. what do you believe is is sufficient time period that would allow your agency to calibrate new liquidity requirements? chair powell: that is one we are struggling with with all the other things going on. this is a response to silicone valley bank. thus a question we are asking. >> prior to the federal reserve issuing any new liquidity requirements, it will first conduct necessary data collection that would allow for meaningful analysis of all potential policy options?

chair powell: maybe. we can talk about this more, i don't want to make a specific commitment without talking to the people who are carefully in touch with us. >> senator federman from pennsylvania is recognized. if senator warnock says down he can go next. you are also generous with each other. senator fetterman is struck eyes. -- recognize. all right, senator warnock. >> thank you very much mr. chairman.

interest rates are high in the interest being paid to depositors, ordinary working families, working people with bank accounts, not a lot of money and wall street accounts. chairman powell i am concerned that when banks don't increase the interest rates on accounts, is not good for the economy? are you concerned that banks under supervision are doing this? chair powell: not paying sufficient? of course they have the option of putting their money and money

market funds and banks compete with each other but i'll be happy to look into that. >> it is worth taking a look at. they don't have some of the sophisticated products in money markets are available. we saw high interest raise and that not being reflected in what depositors are able to benefit from. could those individuals and families benefit from a high interest rate deposit? chair powell: sure and for a long time, we had a lot of mail from people to say we should raise interest rates because were not getting anything on their checking accounts. >> i don't think were asking for that. but given the reality, let me pivot. the demand for housing has

fallen while the market has cap pricing high which messes what i have seen in georgia. mortgage rates were averaging around 7% last fall which is tougher lower income homebuyers. increases can be the difference between owning a home and not. are you concerned about this interplay between lower demand that stubbornly high prices and what it means for people trying to buy a home and what do you think is driving these high prices? chair powell: the housing market is in a challenging situation right now. you have this longer run housing shortage was at the same time with the pandemic and inflation. you have a shortage of homes available-for-sale because many people are living in homes with

the low rate mortgage which they can afford to refinance which means they are not moving so the supply of homes for sale is historically low. that pushes up the prices of other existing homes and of new homes because there's not enough supply. builders are running into all kinds of supply issues around zoning and workers. and rates are high. people who are buying, a lot of the buyers are cash buyers. supply is the longer run problem and the other with flow rate mortgages and high rate, those will abate as the economy normalized and rates normalized. we will still be left with the housing market where there is a housing shortage. >> there's no question we have a

supply issue and the issue of high prices disproportionately impacts on communities than others. the employment rate for the prime aged labor force between 25 and 55 reached a historic peak the gap between black and white prime age employment dropped to a 50 year low. the 3% gap is still significant. would you agree it's important to continue focusing on narrowing this cap and what tools does the federal reserve have to do this work? chair powell: the single best thing we can do is get prices under control, so we can have a long expansion which really

gives significant benefits on the low end of the spectrum because the labor market gets tight. gus where we were before the pandemic and we would like to get back to that place. >> i think there are other legislative tools like congress could use and i'm happy to work along with the chair to improve that difference. sonali: you have watched jay powell testify above the banking committee. tim scott said he was pleasantly surprised to hear powell's comments about the fed's proposed increase in big bank capital. elizabeth warren says you have gone week need on banking regulation, consistent with her attacks for years now. we will discuss powell's broader

economics with economist lawrence sandal baker. laura: powell stuck to the scrip you wanted to reassure the markets the fed is more likely to cut rates, it's a matter of how not when. sonali: if you think about what the market is still expecting it is still multiple. do you have a sense that that's even possible? laura: the fed is holding this close to the vest. he did firmly take march rate cut off the table if they don't move by june, critically i was following his comments about

gaining confidence. it is clear we don't need to see inflation reach that level but moving dramatically in that direction. he kept the door open to a midyear rate cut and i think we will see more in the second half of this year. sonali: it seems like they are not in a rush chair and he did say and acknowledge here there is a problem for holding this many securities in the longer term. are they going to have a hard time tapering. >> we have seen hesitancy to switch that balance sheet. if anything, the fed is a little more hesitant. he did try to balance his comments their service to moving

too soon in arista moving -- waiting too long. we will have to see loosening out sometime over this year. how do you think about this when it comes to interest rates. you've seen so much volatility but when we think of the balance sheet he think about the longer end of the curve. you think there will be more volatility especially when you have a fed chair acknowledging the fiscal issues as well? a lot of what he was questioned about today is outside the fed's purview. overall, this testimony today absent some blocks wanting that

the data will be crucial especially the jobs are part. i will be watching closely to see if that strengths persist. they want to see further cooling with wage inflation when you think about what one critical

question is if mortgage rates continue to come down how much will that shoot up housing prices? >> however, the longer-term structural issue when you think about the supply and demand dynamics, it's possible it's keeping some existing homeowners from selling. some amount of easing in the near term could get some buyers into the market however view way

-- how are you viewing wages? >> wages are tough and this is not an easy fix for the fed when you're struggling to hire. we have 8 million more jobs and we have jobseekers right now. there will be structural issues, it's nothing we can fix this year. i do expect the labor market to remain tight even though we have a bit of loosening this year as the economy starts to cool a long term this problem isn't going away. wages is a quick way to compete with that talent. i expect wages to be persistent.

still not easing back to the 10 year trailing average. sonali: when you think about the purpose of these hearings, are there critical things lawmakers should be keeping an eye on as we look towards the path down to inflation? >> a lot of these were things items would have answered any way, exactly how much will you be cutting rates? he's just never going to signal that as transparently as the market would like. he was as stuff that was far outside the fed's purview. affordable housing is vaguely in their purview but there were many questions on minority borrowers and that's not what the fed is here to do. i thought he handled the

political questions well. sonali: we thank you so much for your time. were going to get a check on the markets before we invite you go to see how markets are reacting. we are down to 4.52 on the day and we were at 4.60 at the beginning of the week. that doesn't for us, the markets are higher for the day. alex car is next, this is bloomberg.

>> i'm caroline hyde live from san francisco. ed ludlow is on location in palo alto. we go live to palantir headquarters where ed is sitting down with