assets in the u.s. have a market cap of around $1.1 trillion right now. do you acknowledge this asset class has staying power in the u.s. economy? >> it appears to have some staying power. the 1.1 trillion dollars, what was that a year ago? a lot higher. >> it had volatility in large measure due to the lack of legal clarity, hopefully this committee will help that quite a lot this summer with at least two bills, one on stablecoins and one on market structure. it will be clear not just for congress, but regulators, including chairman gensler and market participants, whether they are forming the ideas or investing in the ideas or participating in activities in the space. when i think about activities, one of the core functions that has taken place for a while is the reverse repo market.

just over $2 trillion for the first half of this year, it follows exponential growth we have seen the past few years. what is your assessment on the implications the reverse repo market has on our economy? >> nothing much, it is a place that holds money on the fed balance sheet. it is like a mutual fund. as the treasury has been issuing bills to refill the treasury general account, we have seen the reverse repo overnight facility declining. >> isn't there some sort of conflict with higher reserve requirements, liquidity and lending in the market? is there any tension? >> i do not believe so, it is a place for money market funds have been putting their money. as rates normalizing the economy , we are likely to see reverse repo facilities shrink dramatically, i think with

without particularly important macro economic effects. >> the fed had to intervene in december 2019 to provide stability to the market. the fact the fed needed to use an emergency facility would normally indicate some cause for alarm. do you feel that was an aberration, there is no more because, everything has been settled? >> that was about suddenly finding ourselves in reserve scarcity. we have been monitoring the level of reserves carefully and thinking that we knew where scarcity would start to appear. the problem is demand can be volatile, so demand spikes and you had a situation where we had to supply reserves in big quantities. the reverse facility was at zero for a very long time. i think it is shrinking now. we do not know how much it will shrink. >> i think the growth highlights

related concerns for inflation and tension between the quiddity. when you look at the requirements for capital in the alternative returns in the market, there is concern that all of the capital cannot be deployed in the same place. we have to pick places for it to be deployed, and it certainly has implications. i would love to follow up with you, maybe align my own views with the thinking at the fed and with market participants. when i think about the federal reserve, we think about monetary policy. we want fed a tawny on monetary policy, to some extent. a lot of nonmarket intervention that continues to be a cause for concern, continued purchases of mortgage-backed securities prevent real price discovery. as fed purchasing propping up prices or holding them

artificially low? i think it has some distortions. as chairman of housing and insurance, i continue to be concerned about that. the big concern is the regulatory side. >> time has expired, we recognize miss garcia for the old summit question of the day. >> thank you for being here today, it is always a breath of fresh air to have you here to give us the latest report on -- from the fed. i want to thank you for working on a topic that has always been dear to my heart and dear to my heart of the congressional extended caucus. several members have touched on issues related to diversity and inclusion, i was struck by the words you used. when you look at sending the interest rates, you want to reflect all americans in the

room where you do it. the best way to do that is make sure the people at the table making the interest rate decisions reflect what america looks like. so i want to thank you again for last month, joining you was the first hispanic to ever serve on the federal reserve board of governors and its 100 nine year history. it took a while, but we are there now and hopefully that will help ensure that when decisions are being made, that all americans are in the room with you. so i want to thank you and the president from making sure that happens. i know in my district that is 77% latino, we are proud of that fact. i wanted to see if you could could bribe -- provide an update on the federal workforce, particularly within the federal

work system. you may recall area to the workforce does not quite look like america. could you give me an update on where we are at with diversity and inclusion issues related to latinos in the federal workforce? >> the place i would star is a good part of the story, which is directors of the 12 reserve banks around the country. that has been an area we focus heavily on diversity and inclusion and were met with a great deal of success. we can give you the numbers, we will be happy to. relatively high numbers of hispanics and after americans -- african-americans. that is an area where we have a free hand to act. in terms of workforce, we actually had a particular focus at the federal reserve board on

hispanics and working hard, particularly devoting ourselves to a tight focus on generating more hispanic contact and employees. i think we had some success with that. we spent a whole year doing that a year or so ago, it is very important. the most successful organizations in american society -- it is not a coincidence they seem to be the ones that have advanced diversity and inclusion programs so that they have all different parts of america represented around the table. >> another area of concern is affordable housing. it is a challenge for us in houston and the challenge of combating homelessness across america. i know the ranking member chair

waters this morning found some bills related to increased dollars for affordable housing and dollars for tackling the homelessness problem. do these issues impact the inflation rate and work you are doing to lower the cost of housing for all americans? >> i think they may have a marginal effect on inflation. i would point to things like workforce participation. people need housing so they can get to the plate where the jobs are. many metropolitan areas, rent is very high, so people have to drive very long routes to get to work. labor force participation has an important effect on labor supply, which has an effect indirectly directly on inflation. >> how long have we had the 2% goal for inflation rate? >> unofficially for a quarter of a century and officially since 2012.

>> what factors have to occur for you to reconsider 2%, since it has been there for so long? >> what would have to happen for us to reconsider it? i cannot think of anything. nothing during my tenure will happen to cause me to want to reconsider. if you come back in 100 years, it will probably be different. an unforeseen circumstance, i would say. thank you. >> i would like to think chair powell for his testimony today. you can submit additional written questions to the witness through the chair, which will be forwarded to the witness for response. ed: we have been listening to the fed chair jay powell speaking in front of the u.s. house financial services committee. matt: let us get a quick check on the markets as powell wraps up his testimony here, concern that rate hikes need to continue, weighing on the s&p

500. the index now down 4/10 of a percent after a drop yesterday under the 4400 level. we are trading at 4370. 10 year yield adding three basis points to 375, u.s. dollar index comes down about a quarter of a percent to 1223. crude adding $1.32 a barrel, pricing at $72.51. >> selloff in technology stocks. as we watched the market react to that commentary from jay powell, earlier we know he outlined his thinking around the rate path ahead, have a listen. >> inflation pressures continue to run high, the process of getting inflation back down to 2% has a long way to go. we are very far from our inflation target of 2%. we are strongly committed to getting inflation back down to 2% all the time.

it will be appropriate to raise rates somewhat later in the year. earlier, speed was important. it is not important now. it may make sense to move rates higher, but do so at a more moderate pace. matt: kailey leinz was at the hearing and joins us from washington dc. jay powell is insistent the fed will continue to raise rates. kailey: he said to more rate hikes would be a good guess for the rest of the outlook for 2023. he stood firmly by the 2% target and the fed is committed to getting back down to that level when he fielded question about their ability to do so or whether that target was what they should stand by. as the chairman talks about the need to continue hiking rates, he received praise from the ranking member maxine waters for pausing rate hikes. this was not just about monetary policy, he fielded a lot of

questions around the fed supervisory role when it comes to banks, perhaps even more time was spent on that issue. the chairman did say greater supervision of regional banks is required, but wants to make sure smaller banks are not overly burdened. cap pointing back to the vice chair, michael barr, who will release a full review. they have not been shown to the board at this time. he did say that bank capital is strong. he got a lot of questions from republicans on the need to make those tighter. whether or not that was necessary. there were other topics, the issue of affordable housing, climate, how the fed can address inequality. those did not feature as greatly as other issues. he had to get a question or two on fiscal policy, though he repeatedly says that is a congressional role, not the role of the fed.

he would not comment on the biden administration's impact on inflation. matt: kailey leinz and washington, d.c.. let us see how investors are positioning. for that, we go to katie greifeld. katie: there is a disconnect between what powell is saying and with the market is pricing. investors are pricing in 25 basis points of further rate hikes, pricing and about eight basis points. you can see on both ends, the pricing has come in. if the market was taking powell at his word that pricing for hikes would be closer to 50 basis points and pricing for a cut the eight basis points in red, they probably would not exist. this is a market that has come to blows with powell a couple of times and it looks like that is still the case. jon: stay with us, we will bring in veronique de rugy with george mission -- mason university for

more perspective. we heard about powell's commitment to the hawkish path, what was your reaction to the testimony today? dr. de rugy: i thought it sounded very much like what we have heard from chairman powell for many, many months. i think it is unfortunate that he will not field questions about fiscal policy. i know it has become taboo in the last 25 years or so, but previous chairman of the fed have insisted they could not do it alone, or have hinted that the fiscal situation and commitment of fiscal stability was important in fighting inflation. matt: it is great to see you, thanks for joining us. i wonder why the market continues to doubt the fed.

after last week, we had numerous guests on bloomberg television, none of whom seemed to believe the fed was going to continue to raise rates. they all thought the fed was done, what is the problem with jerome powell and this federal reserve's credibility? dr. de rugy: it has to do -- i do not know, i cannot read their minds. this is a problem he's had from the beginning and i think it is because investors have come to believe that ultimately, the fed has their back. even though it should not be the role of the fed to have the markets back, they have learned that lesson over the years. the fed is going to come to their rescue, the fed is going to make sure they are ok. the fed is going to make sure market actors are happy. that is why they just don't

believe that he is credible. i will say also that powell has been really political in a lot of ways. some may be they believe he is going to cave under political pressure. katie: what would that look like? you have the fiscal side, maybe they should be getting help. then there is the credibility issue and political issue. what would caving to political pressure look like at this juncture? dr. de rugy: i think he has already done some of that by pausing. there is a lag, we are nowhere near being done with fighting inflation. especially with what is happening on the fiscal side. when you look at -- and he said it. to his credit, he says we are far from being done fighting

inflation. but he has paused, which is -- whatever the reason, since this is what market actors have wanted him to do for a long time and people in congress wanted him to do for a long time, whatever his reason, they make believe they have prevailed and it is the first sign that he is more flexible than he claims when it comes to fighting inflation. jon: let's come back to something you mentioned a couple of times, fiscal policy. he was asked about her today and defaulted a little bit. what are options that would be on the table if we are sitting here with a fed that cannot tackle this alone and trying to figure out how to tackle issues in conjunction with fiscal policy? dr. de rugy: the irony of the hearing is that for someone like me who believes the fed cannot

do alone and fiscal authority are going to have to step in and ease the job of the fed with fiscal consolidation is he was testifying before the people who have the power to do this. i think the problem is the failure -- it is a failure of congress to be willing to tackle fiscal sustainability problems. after the great recession, president obama, when he passed the stimulus bill, what did he say? he said yes, lots of red right now, big deficits. but we will take care of them later. after the great recession, we had a big debate. there were talks in washington about fiscal responsibility, for lack of a better word.

this time around, not at all, not a word. people who are watching should not be called crazy for thinking there is a possibility all sense of fiscal responsibility is gone and this congress, putting everything -- assuming it is entirely the role of the fed to fight inflation while they can continue spending like they are is very problematic. it does not bode well for fighting inflation. matt: could you have faith that this congress, either side of the aisle, would have the strength to focus on fiscal responsibility? dr. de rugy: it is both sides. matt: neither seems to be willing to do it. i mean, even the republicans who should normally be fiscally conservative champion subsidies

for farmers. it does not make any sense. dr. de rugy: i totally agree with you and i will go even further. when they talk about fiscal responsibility, what do they talk about? they talk about big constraint and big cuts to a small part of the budget, very small part. we know that this is not politically sustainable to exclude everything then put the big cuts on a small part of the budget, whether you call it woke and weaponized or whatever. it is politically not sustainable. on the democrat side, they want to spend a lot and when they talk about fiscal responsibility, it is about taxing a small subset of the american people, the rich. neither solution is going to work if we are going to be moving forward with putting this country on a better fiscal path. i think we need to understand

the fed can do it alone and the fiscal authority -- this is what happened, successful in the 80's. the fed did not do alone, there was some fiscal consolidation. katie: you mentioned this has become taboo. is there any political will for this? if there is no help from the fiscal side, what does that mean for inflation and markets? dr. de rugy: i do not have a crystal ball, but is there any hope? i do not think so. he is insistent that while he will admit his predecessors were on an unsustainable fiscal path, there is nothing he can say about the fiscal side, about what congress should do, even though remember during the pandemic he was cheering the

adoption of fiscal stimulus and the american rescue plan. i guess there is a double standard there. it also needs to be an understanding on the part of congress and the broader government, which is the inflation can't be fought with the fed alone. they have a job. for the last 25 years, we seem to have forgotten that message. matt: it is a pleasure speaking to you, it has been far too long. i hope we can get you back as soon as possible. veronique de rugy and katie greifeld are talking about the fed. the fiscal side and market reaction. homebuilders have been on a tear, raising the bar for one company reporting after the bell today. that is the stock of the hour next, this is bloomberg. ♪

jon: this is bloomberg markets, i am jon erlichman with matt miller. time for the stock of the hour. strong housing starts and limited home supply pushing homebuilding stocks way up. simone foxman is joining us to talk more about this. part of the irony, the fact that you have had a limited amount of supply in the marketplace, maybe opening the door for homebuilders these days. simone: the focus on homebuilders was so much about high interest rate that apparently were going to deter buyers, but now we are seeing them talk about the potential for a new normal. consumers that have adjusted to higher mortgage rates and therefore in the market, and there is no inventory. we saw a ton of optimistic data coming out, national

homebuilders sentiment survey up six months in a row. that is what is driving a lot of homebuilders shares higher. kb home is catering to move up buyers the first time buyers, that makes it a little different than some of the other names that have reported in the past. is the bar too high? that is what we see after the bell. matt: how does it compare to other homebuilders? they were all on a tear yesterday. simone: not only the sector it is aimed towards, the lower, more modest income sector. that has been the focus of a lot of retails earnings calls. but also the places where they are, they are heavily exposed to california where there have been tech layoffs. home prices have fallen substantially and that is something that could weigh on the shares if they do not meet

estimates. matt: thanks for joining us. homebuilders have been a hugely important part of the market, especially over the last couple of days. we will look to kb after the bell for earnings. i will be back in a moment with etf iq on bloomberg. ♪ oh booking.com, ♪ i'm going to somewhere, anywhere. ♪ ♪ a beach house, a treehouse, ♪ ♪ honestly i don't care ♪ find the perfect vacation rental for you booking.com, booking.

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> welcome to bloomberg etf iq. i'm katie greifeld. matt: and i am matt miller. we just got done watching drone powell finished testifying. katie: he doesn't want to raise rates. matt: not at all? we will cover that. powell testifying before the house, saying that