areas of ground according to the bureau of economic analysis, since president biden took office the price of goods has continued to outpace family incomes. with prices increasing 19.3% while average weekly earnings have only increased 14.6%. so families have fallen behind with respect to their purchasing power that they're able to go in acquired goods. what role has government spending played in creating this untenable economic crisis? chr. powell: sorry i can't hear very well when the door is open. i heard you. that needs to be closed. government spending is part of the governments spend, we had our rates really low. the pandemic happened and we close the economy, then reopened it. you saw a burst of inflation everywhere in the world. certainly many contributors to that.

rep. donalds: do you think the president calling for an increase in federal spending, 5% across the board, do you think that will have further implications on stubborn inflation playing in the american people? chair powell: it would be inappropriate for me to comment on the president's budget. rep. donalds: the reason i ask, mr. powell, obviously the federal reserve is having to respond to various aspects of fiscal policy coming from capitol hill. regardless of the president's budget, would it be appropriate in the current environment for federal spending to increase 5%, 15%? chair powell: that is a question for elected representatives. we don't play a role in fiscal policy. rep. donalds: fair enough. is it the view of yourself and the federal reserve board that fiscal policy does create impacts on the fed's ability to manage monetary policy for the united states?

chair powell: we take fiscal policy as a given. we are not commentators, we are not the congressional budget office, office of management and budget. whenever fiscal policy happens here, we decline all opportunities to be a commentator on it. we take it as a given. we didn't run for office, we don't have that job. the fact that we are independent depends on us sticking to what our assignment is, which is to deal with things with the economy as it is. rep. donalds: i would argue that the fiscal policy of the united states is giving you guys a lot more to deal with and whatever the various burdens that come with it unfortunately you have to tingle with it but the american consumer has to truly deal with it. the monetary policy report cites a pickup in immigration as one of the major factors that has improved supply of labor. however, labor force participation rate remained below pre-pandemic levels. what percentage of the increase

of foreign-born labor supply to your knowledge comes from illegal immigration? chair powell: what percentage, say it again the question? rep. donalds: percentage of foreign-born labor comes from illegal immigration? chair powell: i think all foreign-born labor comes from immigration. rep. donalds: illegal immigration. chair powell: i don't know the answer to that. rep. donalds: one of the things that will be important to help advise congress on what to do going forward is if the federal reserve had some data to that regard to help us make further decisions into the future. chairman powell, one overarching question. interest rates, if you compare over the last 15 years of monetary policy, is at an elevated rate. does the fed anticipate any possibility of rates being lowered, 50, 100 basis points at

some point over the next year or two? chair powell: if the question is where interest rates going to settle out when all the effects of the pandemic are really done, no one knows. great discussion to have and my sense, people commonly think we probably will not go back to that era between global financial crisis and the pandemic where rates were very low and inflation was very low. extremely low. major european countries had negative 10-year bond rates. that was not the case here. i don't think we are going back to rates that are that low. we think things like the neutral rate are driven by slow-moving forces but ultimately you can see the effect. our policy raise over 5% now. it feels like policy is restricted but not intensely restricted. that suggests the neutral rate of interest at least as of now will have risen somewhat, which

means rates will be higher. rep. donalds: i yield back. rep. mchenry: we now go to the gentleman from california to mr. sherman, recognize for five minutes. rep. sherman? would you like us to move on? gentleman from new jersey is recognize. >> thank you, mr. chairman. chairman powell, you have said custody assets are off-balance-sheet, always have been. you stand by that? chair powell: say that again. >> custody assets are off-balance-sheet, always have been? chair powell: as a general matter, yes. >> the sec staff affects core

banking activity custody. this requires banks to put digital assets held in custody on their balance sheet effectively keeping banks out of the market entirely. have the fed and sec had conversations about the impact of sab 121? your thoughts on the policy please? chair powell: as you know, we don't comment on the sec policy. they don't comment on our policies either. i knew that you were going there with that but honestly it is the sec's business, not ours. rep. gottheimer: last month, you said when evaluating inflation data, you consider whether wage growth is outpacing productivity. from 1979 to 2019, middle-class productivity grew 16%. do you consider this historical gap when considering grades on families struggling to make ends meet? chair powell: we are looking at inflation, looking at maximum employment.

those are our goals. we don't have a bunch of tools for things like what you are talking about. really it is just those things. of course we are well aware of longer run trends like that. you also have to include benefits and that analysis which does close the gap quite a bit. you just mentioned wages. rep. gottheimer: i appreciate that. thank you. yesterday, the director of national intelligence said "iranian actors have sought to opportunistically take advantage of ongoing protests regarding the war in gaza." they have observed actors tied to iran's government posing as activists online seeking to encourage protest and even providing financial support to protesters. as a member of the house select committee on intelligence, i'm equally concerned about our adversaries meddling in our financial system. if you could discuss if you are working with other federal agencies to investigate and address for interference channels through our financial

institutions. chair powell: we do take part in many of those things, especially at the staff level. as you know, there is a lot of focus on the intelligence community and it is very helpful to the banks, commercial banks, and to us. we are certainly very focused on those issues. we had a strong team. you are never able to sleep on cyber risk but we just keep fighting it. rep. gottheimer: i would like to switch gears to the discount window. we have heard the discount window is behind the times in terms of its operations. we also hear efforts to modernize the discount window and encourage its use will be ineffective without reducing the associated stigma. usability is important for banks that need liquidity. wanted to get a sense of efforts underway to make the discount window a more realistic option for banks that need liquidity? chair powell: a couple things.

first, we need to modernize our infrastructure. the discount window in our system is not a primary source of credit. it is a source for banks, they can use under certain circumstances. we know the infrastructure is a little tired, are investing in that, making it more user-friendly and all that. that is a big project that is going on. the second point was stigma. the stigma, that is a tough one. there are a lot of ways to get after that. we are studying all of them. in a sense, if you require banks to use the discount window, that can help with the stigma. this is a big ask, but when congress required us to publish the names of discount window users, that doesn't help at all. banks basically say we are not using discount window because people might see us as troubled.

that is not what we want. we want people to freely use the discount window. we have been focusing on this issue for a long time, have not made a lot of progress on it, but right now we are very focused on it. rep. gottheimer: i yield back. rep. mchenry: a gentleman from new york, mr. lawler, recognize for five minutes. >> chairman powell, to the best of my knowledge, the last public meeting between you and president biden occurred on may 31, 2022. does that sound accurate? chair powell: i will take your word for it. rep. lawler: any private meetings with the president since that time? chair powell: no. rep. lawler:? phone calls any reason why you have not met with or spoken to the president? chair powell: i meet with any president. when they call, you come and meet. that has not happened. rep. lawler: so in over two years, with inflation still nagging us, with cost out of

control, president biden has not asked to meet with you in over two years? chair powell: i have not had a meeting, he has not sought a meeting. i do not seek meetings. rep. lawler: to your knowledge, you had not spoken with or met with the president? chair powell: i shook his hand in a line once but that was not a conversation. it was at a state dinner. i attended a state dinner a few months ago. i shook his hand. good evening, mr. president. that was it. rep. lawler: does that not strike you as that the president has not sought to meet with you? chair powell: not at all. not at all. >> mr. chairman. parliamentary inquiry please. am i recognized? thank you, mr. chairman. i make a point of order under clause 4, rule 17, that the

gentleman's words are disorderly and violate the rules of decorum insofar as they are negatively reflecting upon the personality of a candidate for president of the united states. rep. mchenry: the congressman has not engaged in any personality or has questioned anything about anyone at this point. i'm not sure where you are going. the congressman is recognized. chair powell: happy to answer your question. >> point of order please. >> what is your point of order? >> we have been admonished in this committee that we should not have words that negatively reflect upon persons running for president. this would include mr. trump as well as the current president. >> did in the ranking member do

a opening monologue, diatribe -- >> would you please rule my friend out of order, mr. chairman? >> has not admonished or said anything negative about the president at all. i just listened to his comments. i will recognize the congressman again, mr. lawler, from new york. rep. lawler: thank you, mr. chairman. mr. powell, you were trying to answer my question. chair powell: we are an independent agency. the administration had been merely reflect the will of -- respectful of the fed, not wanting to influence things like that. i don't find it at all unusual. this is my 13th year. i think i can go by long periods of time where the fed chair does not meet with the president, and that's totally fine. rep. lawler: since you made mention of the independence of the fed, and i know you pride

yourself on that independence, do you acknowledge, do members of the fomc acknowledge that a rate cut in september could be viewed as political just 30 to 60 days before an election? chair powell: our undertaking is to make decisions when and as they need to be made based on the data, incoming data, evolving outlook, risks, not in consideration of other factors, including political factors. we have a long history of doing that including during election years. that is the undertaking we will make. anything we do will be well grounded. it is just not appropriate for us to get into the business of thinking about election cycles at all one way or the other. rep. lawler: so inflation year over may 2024 -- 2023 to 2024 is

up 8.3%, overall inflation. energy inflation is up 3.7%. food inflation, 2.1%. with inflation continuing to be a challenge, do you see a rate cut as a possibility at this moment? chair powell: i think you are quoting the cpi numbers which are operating at an unusually high gap to the pce. 425 years, the fed has focused on personal income expenditures inflation. usually the gap to cpi is only 25 or 30 basis points. it is more now. the current pce numbers are 2.6% for headline, 2.6% for core. we have articulated for a good long period of our test for being willing to consider beginning to loosen policy.

that test as we want to be more confident that inflation is moving on a path sustainably to 2%. not at 2% but on a path sustainably to 2%. that is the test we have articulated. i have some confidence as i said earlier that we are on a downward path. if you look at the data, it's pretty clear. we have not said, though, that we have sufficient confidence. that is a decision our committee makes. rep. lawler: i would just note, cpi, the price of goods, the price of purchasing a home, the price of a mortgage, the cost of a mortgage has been astronomical. in westchester county where i represent, the average mortgage is up $1000 a month, over $12,000 a year. in the time i have remaining, quick question. in your meetings with the president, have you noticed any mental or cognitive decline? chair powell: no. rep. lawler: thank you.

>> point of order. point of order, mr. chairman. the gentleman just mentioned the president's cognitive capacity. i believe this to be a violation of the rules with relationship to decorum. this goes into the personality of a president. rep. mchenry: gentleman's time had expired. you are recognized for five minutes, mr. green. >> my point of order was made immediately after the gentleman statement. that is what i'm doing. rep. mchenry: i would remind members not to engage in personalities and comments about the president. representative green: i demand that the comments be taken down, negative comments about a candidate for president of united states.

rep. mchenry: the gentleman from new york, mr. lawler, is recognized. rep. lawler: i will happily withdraw my words. though everybody understood them. rep. mchenry: gentleman withdraws his comments -- rep. green: if i may, mr. chairman. his final comment was, although everybody understood them. in my opinion, that brings us right back to where we were before he made his attempt to withdraw. if he is willing to withdraw appropriately, i will not demand, but until he does so, i demand his words be taken down. rep. mchenry: the gentleman's time had expired. rep. green: mr. chairman, the time does not expire on the request that i have made. the point of order. the time does not expire on that. rep. lawler: let the record reflect i withdraw my words.

rep. green: thank you, mr. chairman. rep. mchenry: gentleman from texas to mr. green, recognized for five minutes. rep. green: thank you, mr. chairman. i think the chair for appearing today. i hope things are going well for you. i know this is a difficult time for you. quite frankly, you have been at a difficult time for a number of years and have proven to be quite resilient and effective in what you do. thank you for what you are doing. i do want to ask you about several things, and i hope i will get to them. first, there was a post failure of lessons report after the failure of silicon valley and signature bank's. i thought that report was pretty important. how important is that post failure lessons report? chair powell: it is important. we wanted to learn the right lessons and make the right

changes to both our rules but also to our supervisory practices more than anything else. we are doing that. rep. green: is this something you believe to be important after each incident such as what happened with silicon and the other bank? chair powell: i think we all have a lot to be humble about, we try to learn from events. rep. green: let me go on to the next portion which has to do with the banks that are small. let's talk about those that are less than $5 billion in total assets. yet, they are subject to the special assessments of the f dic once the exception is triggered. i would like to see them exempt from that. do you have any comments on that? chair powell: that is neither a statutory matter or matter of the fbi see's practice, so not

something the -- fdic's practice, so not something the fed has any input into. rep. green: would you kindly finish your commentary -- you were giving a comment on the pandemic, how the pandemic helped to generate this inflation. you were stopped in the middle of your comments. could you go back through that please so that the public at large can get a better understanding of what actually happened with the pandemic and inflation? chair powell: i would be glad to. we have a few years to look back. the more years that pass clear where we can see what was happening. when you look back now and you are seeing this -- probably what was happening was, governments put a lot to support economic activity during the pandemic on the theory that there could be a really serious economic time ahead. then the economy reopened.

it reopened very strongly. i think in hindsight, you can see there was a lot of support for demand from fiscal policy, from monetary policy. supply was constrained. you could admit cars. supply chains were tangled up. -- you couldn't make cars. what happened was we got a burst of inflation. the united states got a big burst of inflation more from demand than other countries did. then you have the war in ukraine which gave a big burst of inflation, more to europe than us. so you wind up with a situation where you have a lot of inflation. my thinking at the time was it will take restrictive monetary policy and it will take time for the supply side, demand-side distortion from the pandemic to unwind. 2023 was the year when that kind of happened. supply chains were fixed, the

labor shortage was greatly alleviated. unemployment remained very low. inflation came down by a very large amount last year while growth remains strong. this was the year that proved that thesis. now we are in 2024 and it's a question of finishing the job on inflation which we are committed to do, while also keeping a strong labor market which we are also committed to doing. that is a balance we have to strike in our policy. we know more now about where this came from because we can see what made it go away. it was a combination of supply and demand as we had expected. rep. green: the most significant factors were the pandemic and the war with ukraine, is that correct? chair powell: yes. and also the fact that the pandemic caused a great fiscal and monetary response which resulted in strong economic

activity and inflation. rep. green: i have to ask, if not for that monetary response, i know that it is a counterfactual, but would we have possibly gone into a depression? chair powell: that is what we thought at the time. mainstream economists were very concerned. we never literally shut down the global economy for a period and then tried to reopen it. we didn't know how long it would take or how long that would go. rep. mchenry: we now go to the gentleman from oklahoma, mr. lucas, recognized for five minutes. >> thank, chairman powell for testifying today. i realize that my questioning in the hearing today, a lot of material has been covered. but nothing wrong with asking important questions a second or third time. you have reiterated how members of the board with to see a revised basel proposal put out for public comment and you are

working through the process with fdic's and occ. from my perspective, the fbi see is in a period of uncertainty, current chairman announcing he will resign into restore confidence, and the replacement is awaiting senate confirmation. at the occ, we having acting comptroller not confirmed by the senate. at the very least, given the expected broad revisions, i hope the other agencies agree that a complete re-proposal would be appropriate. could you give me some indication of what the potential timeline around such a decision we proposed might look like? chair powell: it is pretty uncertain but i will give it a shot. i will say again, these discussion we've been having with these other agencies have been very constructive, very much want that to continue. we have pretty good agreement on the substance. now it's about the process.

a baseline might be that we agree on a re-proposal of some kind that gives the public a chance to see these changes and react to them, right comment letters. that could happen. it would take is allowed to write it up. then we would put it out for 60 days. i think that couldn't happen probably until a of the way through the ball -- fall. then 60 days of comments, we would have to evaluate the comments and think carefully about them. having done that, we have to write up the final version. that would take some time. my guess is that puts you well into next year. as i mentioned, these rules are rules of the banks will have to live with for a long time. we need to get them right. it is not something we should be hurrying on.

we need to take our time and get it right, make sure that we hear the comments. this is a very big piece of legislation. a lot of things need to be changed, a lot of good things in there. we want to come up with a good proposal. rep. lucas: the 2024 stress test focused on commercial real estate risk which is an area that we have all been paying close attention to here on this committee. do you agree that the results showed the financial system to be strong? chair powell: yes, i do. rep. lucas: the folks back home are always very concerned about inflation, not just the basic necessities that continue to explode, but the cost of doing business and all those other issues. the fact is, inflation is still running above the fed's 2% target and we have seen significant price increases in food and energy over the years.

i started out as a young farmer in 1977, inflation during the carter years, then we went through chairman voelker's shall we say dramatic tightening of monetary policy, and i still remember paying 17% to borrow cow feed money when i was a student in college. i was well collateralized but that was a bargain. i am particularly sensitive, if inflation is not effectively dealt with, it can spiral out of control. could you expand more about your approach in dealing with inflation in a way that doesn't repeat the mistakes of the past? i just want to avoid the mistakes of the past. chair powell: one of the big lessons coming out of the high inflation of the 1970's, which we both lived through, is it is really on the central bank to be on the case and do the job, make sure it is well and truly done,

and that is really up to the central bank. believe it or not, that was not necessarily not thinking. also the independence of central banks was much less respected back then. all the more credit to paul volcker for having the courage to do it. that has internalized a lesson for people in central banking these days. we understand that. we are committed to bringing inflation sustainably down to 2%. rep. lucas: one last question in my remaining seconds. you and the leadership at the fed will be there the day before the election, will be there the day after, still the same people, carefully watching the fed's possibilities? chair powell: this is my fourth presidential election at the fed. we will come to work the next day and do our jobs. rep. mchenry: the gentleman from california, mr. sherman. rep. sherman: coming out of

covid, everyone said a soft landing was impossible and a soft landing was -- recession was inevitable. i want to congratulate you. looks like we have seen a soft landing. we continue to have historically low unemployment rates, and historically low unemployment rate for people of color. in the last 18 months, we have seen a 4.7-point decline in the inflation rate as measured by the consumer price index. is that the greatest decline -- i realize you may not have done the calculations, but i did. it is the greatest decline that we have seen in an 18-month period of the century. any reason to disagree with that? chair powell: i hope that is true and i'm glad that you said it. it is certainly a lot. i cannot validate a statement, though. rep. sherman: i am sure you have a fine stat that can do the calculation and hopefully we see

the press release. when secretary yellen was here yesterday, i addressed an issue that both she and you should be concerned with. i have always opposed operation chokepoint, where for political reasons, banks might not provide financial services. florida and tennessee have passed laws giving anybody who is denied a bank account or loan a way to clean but that was for political reasons. it opens up the possibility that banks would be pressured by those laws to release their suspicious activity reports which i understand are supposed to be private. i hope you will work with the secretary and making sure that the laws of florida and tennessee do not adversely affect our ability to deal with suspicious financial circumstances. you have a dual mandate. i think you have a third mandate that is implied. because the budget deficit poses

a great risk to price stability and to employment, keeping unemployment low. if you don't deal with spending, taxation. but in two ways you would dramatically affect the budget deficit. federal government is the biggest borrower in the history of the world. interest rates affect the forthcoming budget deficit. and at times, you have turned over to the federal government up to $100 billion in profit. i hope that you would consider whether you first two mandates implied that you at least have to look at how your policies affect the budget deficit. i hope that you will go with re- publication of basel iii. a recent assessment showed that the original proposal would lead

to higher borrowing costs for small and medium-size businesses. in every way, basel three seem to be slanted toward telling the banks, go and put your money on wall street where you will have interest rate risk. and don't loan your money to local main street businesses because there is credit risk their david in fact, if you had a fair system, you would mark to bonds, not just those that are "available for sale." i hope also that as you redo basel iii, you treat energy tax credits, green energy tax credits the same way that you deal with low income housing tax credits, that you keep in mind the effect on the securities industry, particularly municipal bonds, that you don't unfairly to local business say that if it is a publicly traded company, it counts only 65%.

and that you look at mortgage servicing rights as an asset, and that you fully account for private mortgage insurance. i know that you give some credit for that. frankly, 80% loan to value, 90% loan to value that has private mortgage insurance pretty much exposes the bank to the same risk. i will ask you one question about the debit cards. you are planning to provide i believe only a 0.3 cents additional charge for dealing with fraud prevention. fraud has just skyrocketed. with the fed consider increasing the prevention of before finalizing its proposal? chair powell: that is part of the comments we have received on the interchangeable, something,

a concern we are aware of. we will take that into consideration. rep. mchenry: the gentleman yields back. the gentleman from the great state of missouri is recognized for five minutes. >> thank you, mr. chairman. certainly appreciate the thoughtful gentleman from california's remarks, curious how chairman powell -- you have a third implied a third implied duty to actually work with the budget. i really thought only the congress had the ability to impact the budget. not even the executive branch, not judicial branch, the legislative branch is the one that handles the budget. am i mistaken on that mr. chairman? chair powell: i believe that is right. rep. luetkemeyer: i don't think you want our job on top of what you've got. [laughter] one of the things that has come across my desk the last few weeks here is some of the

legislators around the country have started to ask banking laws that infringe on federal banking laws. have you seen this, where a it, have thoughts on it? chair powell: honestly, i have not seen that. it wouldn't necessarily come across my desk. it might come across the vice chair's more. rep. luetkemeyer: you handle lots of banking rules and regulations, so we don't have to want -- want to have the states usurp the responsibilities and legal ability to -- chair powell: preemption issues? that is a big deal. rep. luetkemeyer: curious if you have any thoughts on that? chair powell: no. rep. luetkemeyer: i just got done coming out of a committee hearing with small business a while ago. there was a homebuilder, contractor, talking about the

cost of regulations. $1000 increase in costs. 100,000 homes across the country not being able to be purchased because they are no longer affordable. it brings up the point with the cost of regulations. you fall under the administrative procedures act? chair powell: yes. rep. luetkemeyer: part of that is to determine the cost of the regulation, the cost of compliance? chair powell: i don't actually know the answer to that. we carefully follow the epa. rep. luetkemeyer: a really important point from the standpoint of how you look at rules and regulations to ensure the cost will not be more than an economic benefit of what you are doing. this has to be a part of your analysis i would think. chair powell: certainly we try to make our rules as efficient as possible to get the job done. rep. luetkemeyer: want of the concerns we have, the gentleman talked about the credit card situation.

with regard to the chevron doctrine being rescinded, how will that affect your rulemaking with regards to some of the more recent ones like fees, basel rule, or all of those going to be impacted by this? chair powell: it doesn't change our assignment under the durban amendment to do the interchange rules. we are always focused as an institution on compliance with the law. we are a very law-abiding group. rep. luetkemeyer: does in narrow your ability to go beyond or reinterpret laws, rules? chair powell: that is a question for the court's. the courts are asking the same question, what was congress' intent with the law? that is what we are asking. they are saying they will give the court to less differences. i was actually out of the country last week. i have had no time to be briefed on any of that.

i am kind of speculating here. rep. luetkemeyer: one last question. i ask this question yesterday of secretary yellen. what keeps you up at night, what is your biggest concern as regards to your responsibilities, in regard to the economy, banking system? chair powell: for a long time it's been cyber. the reason is we know about credit crises and things like that, financial crises, but we have not had something where there is a successful cyber attack on a major institution or financial market utility. that has always been my answer. now, the number one thing that keeps me awake at night is the balance that i talked about before. we are at the critical time of inflation coming down, labor market is cooling. we want to get it right for the benefit of the american people. we want to get inflation down to 2%, keep a strong labor market, make decisions that give that the best chance to happen.

that is the thing that i think about in the wee hours. rep. luetkemeyer: you have a tough job, trying to drive down demand, the administration is trying to drive it up. that puts you in a box, doesn't it? thank you, mr. tour. rep. mchenry: we have a gentleman from the great state of illinois, congressman foster, recognized for five minutes. >> thank you. when things are going well, as they currently are, it is all of our duty to look around the curve and see the risks that keep you up at night. i appreciate the question. over the last few years, there have been increasing interest in synthetic transfers, credit linked to notes, often used by u.s. banks to shift risk away from the banking system and as a means of managing regulatory capital. i have been concerned by reports that the buyers of some of these srt's may be investing on them,

in which case the risk of boomerang back into the banking system. when i read about this, it triggered my ptsd from the aig situation with credit default swaps during the financial crisis. i understand the federal reserve plays a role in srt approving's. issue guidance to banks last fall. could you talk about the ways these investments can be a way for banks to offload risk, in what ways they could become a dangerous source of contagion? chair powell: there could be a breakdown in a couple of places in the chain. one is that the risk is not fully transferred to the buyer. the first step is, is that risk going away off the balance sheet and an unconditional kind of way? that is a good thing if banks can do that. and the question is is it coming back through the back door with financing? we are well aware of that. banks do tend to bring those

things to us, we look at them carefully. we understand some of the ways it can go wrong. at the end of the day, if it works to reduce the risk on a bank's balance sheet, that is something we should be ok with. rep. foster: what sort of insight and control does the federal reserve have into all the connections? particularly when the connection may go through businesses that you do not have, non-bank entities that you may not have oversight over? chair powell: my understanding is this is a very active dialogue we are having with banks. they want to know how this will be treated. they don't want to do something that will come back on them or that we will deny the treatment on. i think there is a pretty transparent set of exchanges around how these things work. we are very clear on what we think our requirements are. we saw what went wrong the last time.

no one wants to repeat that including the banks. rep. foster: if you conclude, as you are actively studying it, that you need more visibility into certain areas, particularly non-bank, things are part of the contagion, let us know. it is our job to avoid a next crisis. it is my personal goal to die before we have another financial crisis and then i'll do my job well. srt's i understand the value ofsrt's in the u.s. are relatively small, the bulk is offshore. is the growth of this practice internationally something you are watching closely, is there anything that may provide a sign of early trouble in terms of international contagion that may creep back in? chair powell: i have not heard that flavor of it but i will check in. rep. foster: aig, the problem falling into bankruptcy, it would immediately put a zillion

european banks into violation of their capital requirements. do you have a sense of the timescale for the liquidity at this point? chair powell: the main thing is we have this very large, important project on basel iii. i think we are pretty close to being able to move that out into the public view again. once we have done that, we can move on to the other things that are there. one of them is the liquidity proposals. i don't want to put a specific timeframe on it but we are certainly working toward that sometime later this year. rep. foster: i understand it is still under negotiation between agencies but directionally, the basel iii, the amended proposal, is it just going to be in the direction of modern things down

toward the current capital requirements? will there be areas where it is strengthening then? chair powell: there will be a capital requirement in it that is consistent with basel iii, capital increase -- rep. foster: if you look at the original proposal compared to what you intend to put out, are you moving in the direction of more toward the current situation? if so, if you can interpolate, it seemed like you have comments on the proposal you put out, understand the comments on the status quo, somewhere between that, maybe you don't need another set of comments because everything that has been said. chair powell: that is essentially right. you have current levels of capital, you have the proposal, a lot of gold plating, and then birds shaking out -- words shaking out. there are many different pieces.

rep. mchenry: time is up. next, the gentlewoman from the great state of indiana is now recognized for five minutes. >> thank you, mr. chairman, ranking member. thank you, chairman powell, for coming to speak with us today. it has been a long day. they give for being with us. one of the greatest strengths of our financial industry is the diversity of our banking system. i know firsthand how important it is for us to maintain options and choice for americans, whether somebody looking to open up a savings account or take out a loan to start a small business. increasingly however we have seen consolidation in the banking industry, increase the for smaller financial institutions to survive. one of the reasons is an excessive regulatory burden that many of the smaller banks face. on this can come in the form of new proposals and adjustments to liquidity requirements or things like basel iii end game, it can

also be due to outdated technological abilities at the agencies, inefficiencies within the examination process. could you talk about what steps the fed is taking to upgrade technology and procurement procedures, update training practices to ensure the banks that you regulate don't face unnecessary burdens? chair powell: the number of banks in the country has been coming down for 40 years. there is consolidation going on for a whole range of reasons. we are not trying to foster that, push that, we are aware that high fixed costs of regulation may be one of the reasons for that. we try to keep that in mind particularly for the smaller institutions. on your question around i.t. and the specific things, i might take an opportunity to come back with you with somebody who is closer to the specific supervisory practices. rep. houchin: that would be great.

for reference, i was proud earlier this year to introduce a bill fostering the use of technology to uphold regulatory effectiveness in supervision act, the futures act. it is an important bill that would require our federal bank regulators to conduct an assessment to assure the technology and training systems they are using will improve and reduce the burden on especially financial institutions. at the same time the bill will strengthen the safety and soundness of our financial system by keeping our regulators up-to-date on the latest fintech innovations. glad to see the futures act move through the markup earlier this year. certainly hope to see it come to a floor vote soon. in your comments yesterday, you said basel iii would need a meaningful revamp before we proceed to finalization of that rule. i was glad to hear you say that. considering 97% of public comments on basel iii were negative with 86% of that negative feedback coming from outside the banking sector.

many of my colleagues here today have highlighted their own concerns with basel iii. given the pressure americans are already facing with inflation and increased interest rates, housing market stalls, i would urge that you take a good long look at the cumulative effect of this rule in context with the broader economy, our small and midsize banks, not just the larger financial institutions. will a meaningful revamp include consideration of the hardships that overregulation has caused for smaller financial institutions like those essential to rural communities like mine in southern indiana? chair powell: i think it will, yes. rep. houchin: are you concerned about the consolidation that we are seeing in the banking sector? i know you said it's been going on for 40 years. does consolidation in the banking sector concern you? are you concerned the broader effect of cumulative rules is potentially leading to a further consolidation in the banking sector? chair powell: again, we don't

want to be part of the reason for that consolidation. it seems to be happening organically. we are interstate banking for example. for a long time, there were not a lot of economies of scale in banking. with all the technology costs, that old learning is not really true. in fact, a lot of the sort of smaller regionals do feel they need to grow to compete with the larger regionals. also the very largest banks are also present, as you well know, in many communities where they were not 30 years ago. people are seeing a need for scale from a business standpoint. we don't want to push consolidation. i think we also don't want to stand in the way of it if that is what is necessary for banks to compete. rep. houchin: thank you, chairman powell, for your testimony. our financial system is the envy of the world. we need to make sure that small

and growing institutions have the tools they need to innovate without undue burden. i appreciate your emphasis on that in the meaningful revamp. thank you, mr. chairman. rep. mchenry: the gentleman who set a record for a run this morning, from illinois, mr. kasten is recognized for five minutes. >> you look much better and wel-coiffed then when i saw you earlier. nice to see you, chair powell. briefly the basel iii reforms, we have talked about the tax equity provisions, the fact that -- if there is a reproposal, can you give us any visibility of whether clean energy tax equity will go back to the 100% risk weighting it had historically had? chair powell: i will not give any specifics out today. the usual arrangement is nothing

is agreed to until everything is agreed to. i am hopeful that the three agencies can come out pretty soon with the whole package. rep. casten: the sooner something temporary, because there are banks that want to participate that are more cautious than they need to be right now. appreciate that. in 2021, you were a part of the fsoc report that for the first time identified climate change as an emerging threat to stability. do you still recognize that? chair powell: the conclusion being what? rep. casten: climate change is an emerging threat to u.s. financial stability. i raise that because i have been troubled from some of the letters we had written, a bloomberg report that said, number one, fed officials were pressuring the basel committee to make transition plans optional. number two, that the fed, occ were pushing to limit implementation of the basel

committee's principles to remove financed admissions. number three, the u.s., unlike other countries, did not propose any of its banks be subject to analysis of how they incorporated climate to their credit risk assessments. have any representatives from your agency attempted to weaken the basel's committees work including expressing concern about the committee overstepping its mandate with effective climate laws? chair powell: i guess i would say it this way. the fed does not have a mandate fostering an energy transition or dealing with climate change. some of the northern european banks feel that they do. they actually have that, it is in their mandate either exquisitely or implicitly. rep. casten: if we agreed that climate change is an emerging threat to the stability of the banking system, are you not acting on it because you don't have the authority or because you disagree? chair powell: i agree there is

an emerging threat to financial stability. that is over time. i think looking to the banking agencies to lead the fight on climate change is a big mistake. it is a job for elective people. we don't have that mandate in the united states. we can do a very limited thing, which is make sure the institutions we supervise are aware of and can manage those risks. we are not going to be the ones who are forcing them to adopt plans to transition. that is just not going to happen through the banking agencies without a law change. rep. casten: if it is the view of the rest of the world that climate change is a financial risk, and we are going to regulate our banks, is it the view of the fed's that you should not be required to report? chair powell: we are not going to be climate policymakers at the fed. we don't have that mandate. key to our independence is that we stick to the job that you have given us.

the idea that we should discover climate and say, we are going to lead the fight on climate -- if we are going to do things like that, we should be a part of the treasury department. rep. casten: to be clear, no one is under the illusion that you are the epa. i spoke with janet yellen about this yesterday. we have multiple states where the insurance industry is collapsing. as you know well, i 30 to 40% of u.s. wealth is tied up in real estate. ok, u.s. homeowners are not -- but in the 2008 financial crisis, we had a risk that moved out onto other entities' balance sheets. we said we are not responsible because it's insurance companies. if there is systemic risk in the system, if we know that risk is moving through the system, is

thefsoc on a term that risk, or if i'm not allowed to look at it, it is somebody else's problem? we are going to be accountable if that risk comes -- when those chickens come home to roost. chair powell: the banks know their risk pretty well. you see the banks and insurance companies pulling back from landings in coastal areas. rep. casten: i agree but where are the offloading that risk to? we have seen them putting it on fannie and freddie. fannie and freddie trying to put it on the reinsurance industry. rep. mchenry: the gentleman's time is up. a gentleman from the great state of missouri, congresswoman wagoner, recognize were five minutes. >> thank you, mr. chairman. keeping with the baseball analogies. >> questioning of jay powell live on bloomberg. >> longer-term inflation expectations appeared to remain

well anchored. could you please expand on that for us? chair powell: in our thinking, thinking of economists and central bankers, what the public expects about inflation is important. if you expect there to be low inflation, it probably will be low. you will make sure that is true when you are making decisions. we survey individuals, businesses, market participants. then we look at market-based -- you can also derive market estimates of what inflation will be through various instruments in the market. all of those suggest that people expect inflation to be around 2% over the longer-term. that is very stable right through this episode. rep. wagner: when you say longer-term, how many years would you be estimating, one year, 3, 5? chair powell: we look at short

and medium-term inflation expectations, too. they tend to be more vulnerabl -- volatile. one standard thing is to look at five-year, five-year. or longer-term than that. you just as people in surveys, over the longer-term, you don't specify, they all give you the same answer. people kind of happy that inflation will go back down to 2% level. rep. wagner: there has been some reporting lately on the shore inflation -- shrinkflation, when you pay the same price but get less of it than before. like my bag of potato chips. some have sought to take direction away from the pain of inflation and instead blame producers who themselves facing rising costs. yet, i have not seen any mention

of shrinkflation as an inflation causing any recent auditory report. moreover, the bureau of labor statistics article looked at shrinkflation and concluded "it has a minuscule impact on overall inflation." from the fed's perspective and analysis, has shrinkflation been a significant casual or amplifying factor in the runaway inflation of the past several years that has imposed may be greater pain on american workers and households? chair powell: i would have to say no. i would say it this way. packaging in the u.s. on food products, that sort of thing will disclose the contents of the thing. the price will be whatever it is. the consumers can choose to buy or not. we don't think that is a major driver of inflation, no. rep. wagner: from a producer

standpoint it probably is. if the cost of the item is exponentially higher -- chair powell: it may reflect because on the part of the producer, probably does, but it doesn't mean that it is a cause of inflation as such. rep. wagner: the federal reserve has produced volumes of research over the past decade highlighting the negative consequences of the debit interchange fee cap. some of the economists who produced that research, working on this proposed rule, reg ii, was the previous federal reserve research demonstrating regulation ii's detrimental impact to low-cost checking accounts accounts flawed? or did it have incorrect conclusions? if not, why would the fed propose this rulemaking went all of the research demonstrated detrimental