to focus on labor participation rate right now it's 62.4% if there were a an increase and people coming back into the workforce, would that drive us down to the 2% you would like to achieve? >> remember, those people coming into jobs, that would be great because the economy clearly wants more people than are currently working. of course, those people would spend more so it wouldn't be a zero sum game, but it would be great for them and the country if they would come to the workforce. >> amen. i believe increase in capital requirements on financial institutions would have a chilling effect on the economy and the availability of financial services last week i joined many of my colleagues sending you a letter that if the federal reserve decides to have a wholistic review of capital standards as we heard senator scott talk about earlier. is the federal reserve concerned that the impact of economy of increasing capital requirements on financial institutions of

time when inflation remains persistently high would cause an issue? >> i think it's always a balance. we know that you will at the margin provide less credit the more capital you have to have. but i think it's never exactly clear that you're at perfect equilibrium and it's a fair question to look at that. >> i know out of respect for the chairman and trying to stay in my time, i will end by saying, i heard what you said, obviously, as you have said the federal reserve is not and will not be a climate policy-maker i just want to thank you for your public statement on that. i agree with you that there's a difference between policymakers and financial regulators and certainly look forward to working with you in the future >> thanks, senator britt senator warner is recognized. >> good to see you, chairman powell again thank you by saying, depending on who's asking questions, we're

pounding you for how quickly we're going to drive inflation back to 2% or pounding you on making sure that we don't push the economy into a recession and drive up unemployment. i actually think you've done a pretty good job in terms of ratcheting up rates and then starting to tail off a little bit. i think we all were concerned by the january numbers. it popped up a little more i wish, mr. chairman, we were actually having this hearing two weeks from now because we're going to have a lot more data later in this week and next week net-net, we've still got ways to go and the january numbers were concerning i do think your tailored approach, we can all second guess but i think it's been the right approach i want to commend you on that. i want to get two questions in one, one of the areas that i am very worried about is commercial

debt i mean, we've got a bloomberg story here showing we're going to hit a $6 trillion wall this year on refinancing. where i'm particularly concerned is the issue around commercial real estate. you know, as we recover from covid, a lot of things are getting back to normal but clearly, the transformation of where people work is going through a fundamental transition and i hope people do return more to the office, but lots of folks prefer working elsewhere that's going to fundamentally change the real estate market on the commercial side and i do believe we're going to hit potentially a cliff here of a totally unexpected problem in terms of commercial real estate. how are you looking at that issue and recognizing there's lots of bumping coming out of covid? this one seems to be more unique in nature. and how are you thinking about

that issue >> so on commercial debt, business debt generally, it's kind of business moving sideways as a percent of gdp so you don't see a big spike going on or anything like that however, of course, there are pockets of concern in particular, you pointed to the refinancing spike that has to happen. i've seen those come and go before generally markets can absorb them, maybe at a much higher rate this time it's something we're well aware of and watching carefully. in terms of cre, i would agree with you, the occupancy of office space in many major cities is just remarkably low. and you wonder how that can be over time, some of that's going to be made into condos and stuff since we don't have quite enough housing in some places the question is, what's the financial stability risk it's not great for the largest

institutions don't tend to have a lot of direct exposure to that some smaller banks do. medium and small size banks do we carefully monitor it. we agree that's an area that requires a lot of monitoring and i would say we're on the case >> that will morph me into my last question, something we've talked about and a lot of my colleagues have talked about with the large institutions. i do think even some of the biggest critics of dodd/frank would acknowledge our banking system is a heck of a lot stronger and was able to withstand covid in a very healthy way. what we've also seen evolve is a vast amount of financial institutions move beyond the regulatory perimeter the fact that we now have way over over half of the mortgage origination coming from nonfinancing institutions because a lot of the large entities, hedge funds, other

funds that may be doing some of this commercial debt or some of them, cre debt, i'd like you to talk generally in the last 40 seconds or so of how you think about this will regulatory perimeter. i'm a big believer, i know some of my colleagues are, that we ought to look less at charter, same risk regulation maybe as a guiding principle. there's a vast amount of activity that's taking place outside the regulatory perimeter. how should we be thinking about that and making sure that doesn't cause the crisis sneak-up on the nonregulatory side of the house? >> i think you articulated the principle very well. it's same regulation that covers crypto and other kinds of activities. people are going to assume when you deal with a money market

fund, so stablecoins need some attention in that respect. i just think that's the basic principle. and, you're right, so much of our -- so much of enteintermedin has moved away from banks for a long time and we need to keep an eye on that. >> senator vance -- i'm sorry, senator haggerty of tennessee. >> thank you, chairman brown thank you very much, ranking member scott, for holding this hearing. chairman, it's great to see your presence i appreciate the opportunity to talk with you about an item i'm particularly concerned about that's the wholistic review that senator britt just brought up that vice chair barra is conducting right now it's again rating a sense that capital requirements are on the horizon for us as i think about that in the context of what we weathered, you think about the situation in 2020, it was an acute, real-life stress test, if you will

i think our financial system navigated that admirably in the past, chair powell, you told this committee that our financial system has proven resilient through 2020 and the capital levels at that point in time, and i would note those capital levels are at multi-decade highs, are in aggregate inadequate i just wanted to follow up on those prior statements and see if you still feel that way >> i guess i would say it to you this way in our system we have vice chair for supervision who has statutory responsibilities and when a new vice chair of supervision comes in, generally they'll want to take a look. that's what the vice cheryl quarles did and dan sharulo had the job in an interim basis. someone would come in and take a look the role of that person is to make recommendations on regulation supervision to the full board the role of the board is to consider those when made and to

me, this just comes under that heading. >> well, as the review is under way, and i appreciate that context, one aspect seems to us an apparent unwillingness to undo the tailoring aspects i understand nothing has been finalized regarding the regulations. it's a concerning prospect if that's the case. the fed's general counsel just yesterday alluded to undoing 2155 by, quote, pushing down the basel requirements on banks intentionally given relief in that bill. i want to be perfectly clear the banking regulators themselves can't simply ignore or selectively enforce the laws again, i realize that the details of the study haven't been finalized but if they have been enforced, will you vote for it >> i'd have to -- i can't answer that in the abstract, of course.

i would say as an institution, we're very strongly committed to tailoring and anything we do is going to reflect, you know, tailoring of institutions according to their risk. i mean, that's a principle that we'll stick with. >> i think it's quite important given the legislative intent here and the concerns we maintain that in the face of what general counsel said yesterday. i appreciate your perspective in terms of keeping that in place i'd like to come -- my next question to chairman powell by underscoring the importance of the independence of the fed's monetary policy. right now the economic picture is about as uncertain as i can remember we've had large companies in the private sector, who are in the midst of planning layoffs and forecasting economic weakness in the quarters to come, yet on the other hand the current economic data seems to be robust, data shows softening in the last several releases i hope you can tell us how you

sin that size these seemingly contradictory data. >> just quickly, at the end of last year we saw a couple of very promising, modest increases -- modest inflationary readings in november and december but earlier this year, those were -- some of that improvement was revised away in addition, we got a very strong reading on inflation in january, also very strong jobs reading, also very strong retail sales. and so as i point out in my testimony, we're looking at a reversal, really, of what we thought we were seeing, to some extent a partial reversal it's still the case that we're seeing progress on inflation, we're seeing goods inflation has come down significantly. there's improvement in housing inflation in the pipeline. there's not a lot of improvement yet to be seen in the largest sector, which is nonhousing services so, we -- inflation -- core inflation is running at 4.7% on a 12-month basis i think nothing about the data suggests to me that we've

tightened too much indeed, it suggests that we still have work to do. >> and in that context, thinking about where the tightening goes and when it might -- where and when it might happen, where do you see the terminal fed funds rate landing in this cycle >> we last wrote down our assessments, individual assessments in december. and i think the median range was -- basically people were clustered between 5 and 5.5. we'll write down -- we do it four times a year. we'll do it around the march meeting, on the 21st and 22nd of march. as i indicated in my testimony, i think that the data we've seen so far, and we still have significant data to see before the meeting, suggests that the ultimate rate that we write down will -- may well be higher than what we wrote down in december. >> got it. thank you, mr. chairman. thank you. >> senator warren of massachusetts. >> thank you, mr. chairman

the fed has increased interest rates eight times in the last year in what has been the most extreme rate hike cycle in 40 years. the fed's goal is to slow inflation and your tool of raising interest rates is designed to slow the economy and throw people out of work so far, you haven't tipped the economy into recession but you haven't brought inflation entirely under control either. and maybe the reason for that is that other things were also keeping prices high. things you can't fix with high interest rates, things like price gouging and supply chain kinks and war in ukraine but you're determined to keep raising interest rates i want to take a look at where you're headed. in december the fed released its projections on the state of the economy under your monetary policy plan. according to the fed's own report, if you continue raising interest rates as you plan, unemployment will be 4.6% by the end of the year.

more than a full point higher than it is today chair powell, if you hit your projectionses, do you many how many people who are currently working, going about their lives, will lose their jobs? >> i don't -- i don't have that number in front of me. i will say it's not be -- it's not an intended consequence. >> well, but it is and it's in your report. and that would be about 2 million people who would lose their jobs people who are working right now, making their mortgages. so, chair powell, if you could speak directly to the 2 million, hard-working people who have decent jobs today, who you're planning to get fired over the next year, what would you say to them how would you explain your view that they need to lose their jobs >> i would explain to people more broadly that inflation is extremely high and it's hurting the working people of this country, all of them not just 2 million of them, but all of them are suffering under

high inflation and we are taking the only measures we have to bring inflation down. >> and putting 2 million people out of work is just part of the cost and they just have to bear it? >> well, will working people be better off if we just walk away from our jobs and inflation remains 5%, 6% >> let me ask you about what happens if you do this since the end of world war ii there have been 12 times in which the unemployment rate has increased by 1 percentage point within one year. exactly what you're aiming to do right now. how many of those times did the u.s. economy avoid falling into a recession? >> you know, it's not as black and white as -- very - >> just looking at the numbers it is pretty black and white. >> there's a book written on this -- >> there's been 12 times we've seen a one-point increase in the unemployment rate in a year. that's exactly what your fed report has put out as the projection and the plan, based on how

you're going to keep raising these interest rates how many times did the economy fail to fall into a recession after doing that out of 12 times? >> i think the number is zero. >> i think the number is zero, that's exactly right so, then the question becomes, we've got 2 million people out of work. can you stop it at 2 million people history suggests that the fed has a terrible track record of containing modest increases in the unemployment rate. once the economy starts shedding jobs, it's a run away train. it's hard to stop. in 11 out of 12 times that the unemployment rate increased by a full percentage point within one year, unemployment went on to rise another full percentage point on top of that if that's what happens this time, we would be looking at at least 3.5 million people who

would lose their jobs. so, chair powell, if you reach your goal and 2 million people get laid off by the end of this year, and then just like in 11 out of 12 times that unemployment has risen by a point in a single year, it keeps on rising. and then we've got 2.5 million people out of work we've got 3 million people who get laid off we've got 3.5 million people who get laid off what's your plan >> well, right now the unemployment rate is 3.4%, which is the lowest in 54 years. we actually don't think we need to see a sharp or enormous increase in unemployment to get inflation under control. >> i'm looking at your projections. do you call laying off 2 million people this year not a sharp increase unemployment >> i would say 4.5% taish. >> explain that to the 2 million people families that are going to be out of work. >> again, we're not targeting any of that. i would say even 4.5% unemployment is well better than

most of the time for the last, you now, 75 years. >> in other words, you don't have a plan to stop a run away train if it occurs chair powell, you are gambling with people's lives. and there's a pile of data showing the price gouging and supply chain kinks and the war in ukraine are driving up surp prices you cling to the idea that there's only one solution, lay off millions of workers. we need a fed that will fight for families if you're not going to lead that charge, we need someone at the fed who will. >> senator vance of ohio. >> thank you, mr. chairman chairman powell, thank you for being here i have a question slightly far afield, but how often do you get to talk to the fed chairman. my family comes from appalachia, they grew up in coal country, and i have the opportunity to represent southern ohio. when you study the regional

history of appalachia is it's often described as possessing a resource curse, right? there's a lot of coal in central appalachia that enables a certain amount of consumption. obviously, consumption is good people need food and medicine and other things but there's also a pretty good argument that for a host of reasons it causes malinvestment in the region and, consequently, you have lower productivity growth, lower innovation and a economy that's much less diversified and much less dynamic. i'm wondering when i hear about the history -- when i think about and read about the history of appalachia and the resource curse, i'm struck by some -- by the idea that you could make a similar argument about the reserve currency status of the united states dollar americans have enjoyed one of the greatest privileges of the international economy for the last decades, the strong dollar which acts as the world's reserve currency now, this is obviously great for american purchasing power. we enjoy cheaper imports

americans when they travel abroad benefit from lower costs. but it does come at a cost to american producers i think in some ways you can argue that the reserve currency status is a massive subsidy to american consumers but a massive tax on american producers. now, i know the strong dollar is sort of a sacred cow of the washington consensus, but when i survey the american economy and i see our mass consumption of mostly useless imports on one hand and hollowed imports on the other hand, i wonder if the reserve currency status has some downsides and not just upsides let me put a final point on this and i would love to get your thoughts on that, chairman powell we're, of course, now the main supporter of a massive land war in europe between the russians and the ukrainians i read recently, and i'm not going to comment on how perfect or precise these estimates are, but i read recently that the united states is trying to ramp up productions from 14,000

artillery shells to 20,000 artillery shells, that's per month, while the russians are firing 20,000 artillery shells in ukraine per day when i look at the american economy, we have a lot of financial engineers and a lot of diversity consultants. we don't have a lot of people making things. and i worry that the reserve currency status and the lack of control we have over our currency is, perhaps, driving that i'd love to get your feedback on that what are the upsides and downsides of the reserve currency >> that's a big question to try to answer. >> it's two minutes, chairman powell, plenty of time sfwli can't even get started on that we are the world's reserve currency, of course. and that's because of our democratic institutions. it's because of our control over inflation, over many, many, many years. the world trusts of rule of law in the united states those are the things so, once you're the reserve currency is used in -- all over the world in transactions and

it's the place people want to be in times of stress, using dollar-denominated assets. >> sure. >> so, of course we benefit by being able to pay for our goods all over the world pay for anything all over the world mostly with dollars. that's an advantage. there's some economic theory around it that it also has burdens of various kind. but i can't call it all back to mind but the other thing is, you know, it's a very stable equilibrium but it's not a permanent one. there isn't any candidate to replace the united states right now where you can have free flow of capital in and out of the country, where you can really trust the rule of law and democratic institutions and keeping price stability, which you can here. >> do you think it gives us less control over our own currency, the fact it's become the world's reserve currency

>> control over our currency essentially what we try to control is price stability no, it doesn't make it harder for us to keep inflation under control. the united states has a small external sector. mainly what affects inflation in the united states is domestic supply and demand. >> do you think it makes us harder to fight back against currency manipulation, to control the export and import flows in a way that stabilizes our own manufacturing sector >> what's important there is really the level of the dollar when the dollar is stronger, obviously our wares are more expensive abroad and that kind of thing we don't have an opinion on -- that's -- matters of the level of the dollar are really matters for the treasury department and the elected government, not for the fed. >> thank you, chairman powell. >> senator vance thank you van hollen is recognized. >> thank you, mr. chairman chairman powell, thank you and for your service i know the fed is experiencing

lots of challenges these days. i've got a couple of questions that i think are basic yes or no and longer questions would you agree changes in the size of corporate profits can be one of the factors that affects the inflation rate >> yes >> all right now, recently we saw the employment cost index grew at roughly 4% on an annualized basis in the fourth quarter of 2022 is that right? >> that's my recollection, yes >> so, if corporate profits were to decline from the extremely high levels that we saw recently, would it be possible to sustain the 4% growth rate in the employment cost index for an extended period of time even as we get inflation down to the target of 2% >> depends on what you mean by extended period of time. you would not -- without a very, very large increase in

productivity, which would be great, but that we don't expect, you wouldn't be able to sustain 4% wage inflation over the longer term. over the shorter term, though, yes. >> over the shorter term, that would be not be a justification in and of itself for raising rates, is that right, in the short term >> well, so i think wages affect prices and prices affect wages i think we do think some softening and labor market conditions will be -- will happen as we try to get inflation under control and will need to happen. >> right but that's more prediction about your efforts to fight inflation. are you saying that simply looking at the current 4% growth rate in the short term is an excuse for jacking up interest rates? >> i think the -- no what i would say is the overall -- all the data we look at in the labor market, including not just that measure of wage, but others, unemployment also, participation, job openings and

quits, all of that, you put that into the picture and i think you see a labor market that is extremely tight and is probably contributing to inflation. i've never said it was the main cause. >> right i think the larger point here, based on your response to that first question about growth and profits, is corporations have a decision as to whether or not they're going to pocket for more profit or provide higher wages to their employees and if you actually lowered your profit margins, you could sustain a higher wage increase without -- without violating the 2% inflation isn't that right >> yes i mean, when i hear profit margins, what i'm -- what we're seeing in the economy is pretty much about shortages and, you know, supply chain blockages and when there's not enough of a product, what happens, there's a lot of demand. what you see is prices going up. as the supply chains get fixed and shortages are alleviated,

you will see prices -- inflation coming down, you'll see margins coming down and that will certainly help with inflation. >> right but profits are the margin, right? they're going up beyond what they were before that means even with the increase of costs because of supply chains, they're making more profits which, again, they can do that, but my point is that as a contributor to inflation, as you indicated in response to the first question let me ask you about the tight labor market because one of the issues in a tight labor market is parents with kids a lot of moms who would like to go back into the market, but are not able to do so because of lack of affordable child care. the other issue is immigration i know you've gotten recent data on how some immigration figures actually have softened a little bit, the tightness in the labor market can you talk broadly about those two factors, affordable child care and immigration, more legal

immigration and how they could affect labor force participation, and, therefore, also reduce inflation pressures. >> on the first, we don't make recommendations or evaluate fiscal policy, but i will say there's research that shows that it helps keep women in the workforce when there's child care available, which i think is self-evident i'm sorry, the second is >> impact of immigration what i talked about with you is part of the january bureau of labor statistics report, which comes -- i'm sorry, the employment report for january comes out in early february, there's a section in there about more people. the census department has increased its estimate of the workforce by something like 870,000 and a significant part of that has been immigration and that has moved up participation by a little bit. and it may be part of why -- it

may be part of why we're hearing in the labor market that the really intense labor shortage pressures we were hearing about in 2021 and 2022 would be alleviated clearly the economy is calling for more people with essentially two job openings for every unemployment person. this can be a source of those people >> and that would reduce the tightness of the labor market and reduce pressures on inflation, right >> may already be doing so thank you. >> nor crk senator cramer of noh dakota is recognized. >> thank you i can't resist responding to a few things that my friends on the left have said for example, in his opening statement, chairman brown had a long list of things that raising interest rates won't do. interest rates -- interest -- raising interest rates won't fill in the blank. i'm going to fill in the blank with a couple things how about raising interest rates

won't stop senate democrats and president biden from overtaxing, overspending, overborrowing, overregulating chairman brown said, we should rebuild our supply chain by cushing offshoring, corporate offshoring i agree. you talked a lot about corporate greed contributing to inflation. okay how about regulatory greed contributing to corporate greed. how do you expect corporations to reinvest money if you overregulate their ability to invest that money right here in the united states of america you want to onshore some things? how about energy policy? how about instead of looking to venezuela or iran for oil supply or russia or, rather than looking to china for electric vehicles and chips and solar pa panels, how about we have a strategy that onshores those things, reducing taxes, letting those corporations reinvest their profits rather than, you know, stock buybacks or

dividends? this idea that somehow the federal reserve is supposed to keep inflation in check while half of the government works against it is mind-boggling. i know, mr. chairman, you don't like to comment on policy. you and i went around and around about this you were anxious to advise us to spend lots of money during the pandemic i don't think a lot of people blame you for that you wouldn't respond to efforts by the biden administration when we were in a robust economy from not spending money i can appreciate the change. now we're in this debate between republicans and democrats, particularly the house speaker and the president, on how to raise the debt ceiling you've made some strong comments about raising the debt ceiling, absent structural reforms that would help us get back to a reasonable growth. and so, i just -- i warn you again, if you're going to make political comments, if you're going to advise us on policy, be

consistent with it now, i want to get back to the greening of the federal reserve. and this -- i call them stress tests. you can call them whatever we call them. but i'm concerned that now the federal reserve is starting down this path, maybe it's slightly at first, about climate stress testing. i just want to ask you this. if we're going to go down that path, if the federal reserve is now going to become part of the federal climate price force, are we going to consider the ramifications of having an entire communities and economies, factories and manufacturers, you know, whatever -- energy entities, large server farms, leaving them susceptible to a very unreliable, very expensive energy source, is that part of the stress test? >> no, those are considerations for elected people, not us

we have a narrow role to play here, but it's a real role i can talk about that, if you'd like. >> well, yeah, i would like you to again, if we're going to start doing stress tests for the six largest financial institutions related to climate, which really is more weather than climate, then are we going to consider the effects of an unreliable energy source at several locations throughout our country? >> our only foeb cus is on the safety and soundness of these institutions and can they understand and manage all of the risks that they run in their business model that's our only goal we're not -- again, we're not looking to be climate policymakers climate policy is clearly going to have affects on regions, on companies, on individuals, on countries, dispirit effects. that is not for unelected people like us, who have a narrow mandate, but i think it does touch climate. you're right to be concerned that we -- you know, we find ourselves in a slippery slope.

honestly, i think the climate scenarios are something the banks are already doing themselves and climate guidance is something that they're looking for. they want to know how we're thinking about this. we will try really hard not to get on a slippery slope and find ourselves becoming climate policymakers it's just not appropriate for an independent agency. >> i completely agree. i hope you stick to that i think you ought to consider the banks to consider what the overreaction might -- what kind of vulnerabilities that might expose with regard to what senator warren was saying on her mono monologue, one thing about ideaologs, they have the binary choice you have a really big job and you have a single, in my mind, 1 one and a half, maybe two missions i think the first one handles the second okay but it has to be tough when the white house is working against you. and you don't have to comment. thank you.

thank you, mr. chairman. >> senator tester of montana is recognized. >> chair powell, thank you for being here today thank you for serving in this critical role at this critical time i have talked many times in this committee, and i especially right now cannot overstate the importance of the fed's independence i said it in the previous administration i say it now we cannot be playing politics with our economy and that is a fact from a climate standpoint, i will just tell you, it's slirly artificial right now, because if you look at the hundreds of billions that this country puts out in disaster and climate instability, we ought to be asking ourselves, is that sustainable? quite frankly t has to be done and i don't think it's sustainable. we have to start looking for solutions on the climate side sooner rather than later the reserve has a tough job.

i really appreciate how you've done it. reasonable, working together, making hard decisions for the good of the economy. we have to get this right. so, the question is, how much is inflation decreased since its peak >> it depends on the measure, but meaningfully at least a couple of percentage points. >> and has unemployment gone down as inflation has gone down? >> unemployment is going down, yes, it has, to now a 54-year low. >> yes so, the question becomes -- i think bab to 1998 i bought some property and the interest on that property was 10 in 1998 i thought i got a hell of a deal, by the way i thought it was just great. but the truth is interest rates have been artificially low for the last 20 years probably

and the question becomes, as you look at the economy and as you try to make the determination whether the inflation is caused by demand or supply, where does all that fall into you, your decision-making moving forward >> you mean the level of interest rates in theory there's this thing called the neutral level of interest we know it only by its works neutral is the level that neither pushes the economy up nor pulls it down. and it changes over time this is the thing about these important variables in economics. what's happened up until now is the neutral level of interest went down and down and down to the point many countries had zero interest rates and very low inflation. now we have this shock -- series of shocks associated with the pandemic and we have rates at 4.5% our policy rates and we have the labor market very strong and inflation reacting somewhat, but -- and is it does raise the question of where is the neutral rate?

honestly, we don't know. i think we look at the current situation and we see that there's not a lot of evidence that -- hard to makea case we've overtightened it it means we need to continue to tighten. i think we're very mindful of the lags with which our policy works. we don't think we need a significant increase in unemployment and we're certainly not aiming for one we do think there will be some softening in labor market conditions to get to 2% inflation. >> when you're looking at interest rates, i know we talked about energy prices here and the price of gasoline and then if you go over in europe is much, much higher. are we comparable -- i'm just curious. are we comparable with interest rates here as with, say, europe? >> we're very close to where canada is. we're a little higher than europe europe traditionally has low inflation.

they have now very high inflation. but they're a bit lower in terms of rates >> if we do not get the inflation under control and, like i said, i think the steps you've taken have been reasonable and measured, if we don't get it under control, really, what are the impacts of that >> the social costs of failure is one way to think about it are very, very high. if inflation were to continue, at some point it will become -- that will become the psychology. businesses will come to expect high inflation and that will make it more self-perpetuating. that will mean an up and down economy. it will mean something that looks more like what we've seen in periods of high inflation capital allocation is difficult in a world like that it's not a good time for the economy. what we want to do is restore price stability firmly back at 2% so we can have the kind of strong labor market for a sustained period that we had

before >> once again, thank you for your work. thank you for your independence. senator deans. >> thank you >> thank you, senator tester i'll be handing it off when i'm finished up as well. mr. chairman, good to have you here today back in montana, the number one issue i hear, certainly across the state is the high cost of gas, the high cost of groceries and overall how their paychecks are sh ripging because of inflation. it's a crushing ing blow it's top of mind issue for montanaens it's also important to note the devastating impact it's going to have on our nation's future. in fact, in october of last year i sent a letter to congressional budget office director regarding the impact of high inflation and the elevated interest rates would have on the cost of servicing the federal debt

his response painted a less than rosy picture, but then we got the cbo's updated ten-year baseline forecast, to confirm the dire situation we find ourselves in driven by interest payments on the debt the cbo now projects the cumulative deficits during the ten-year window, and i recognize where deficits come from it's irresponsible spending here in washington, but the cumulative deficits during the ten-year window will exceed $20 trillion the cumulative deficits, not the debt it will grow the total federal debt to more than $51 trillion by 2033. now, 2033 used to sound like a long ways away we're ten years away ten years goes by very, very quickly. within five years, we're going

tospend more on annual interes on the national debt than we spend on national defense. think about that for a moment. these are coming out of the cbo. these shocking but predictable projections go back to the debate when lawrence summers, of course, former secretary of treasury under president clinton, economic adviser to president obama, he warned us, he said -- he was practically warning my colleagues across the aisle saying, you can't move forward with these purely partisan, $1.9 trillion spending extravaganza and that passed on a purely partisan vote. we said it's going to start to ignite the inflation fires i certainly hope the president's budget, which we expect to see later this week, will promote

pro-growth policies that can get us out of this mess, and i would argue almost an existential crisis that will come at us with debt and service on that debt. unfortunately, as the president said in the state of the union address, the president said he's going to raise taxes that's atd recipe for disaster it's going to crush productivity, discourage investment, stifle economic growth even further. i want to turn to my questions now, chairman powell you're raising interest rates to combat the inflation we see in the economy over the past few years. is that correct? >> yes ail although this is a domain of treasury, a higher feds fund rate will mean a higher borrowing cost >> yes, all else equal. >> i want to connect the dots here around inflation was sparked, one of the big reasons

was massive spending here in washington and now we're going to be burying the challenges with higher debt service over the course of the next several years where we can see debt service exceeding defense spending, which we see threats around china, threats around the world. i think it's very concerning now as a grandfather of four, soon to be five grandchildren, things you think about more and more as you look forward i want to change here and talk about american energy. when the war in ukraine broke out, many feared that russia would cutoff national gas exports and cause energy inflation to spike prices didn't spike as much as anticipated, due in large part, the fact that american companies stepped up to the plate. as of late last year, the european union now receives more liquefied natural gas from the united states producers than russian producers. that's a good thing for the world to see more u.s.-produced energy chairman powell, do you believe european and american inflation

would have been manageable if not for american energy producers? >> i certainly think that our -- particularly our natural gas assets have helped europe make the transition >> any sense of how much worse the global energy picture would be if you would imagine a world we're not producing and shipping energy to other countries? >> i -- it would be hard to estimate >> probably worse? >> yeah. it's been clearly -- europe has managed better than expected and a part of that story is just u.s. energy exports. also the winter wasn't as bad and the chairman has made some good decisions >> we made some prayers. we need to pray for a warm winter for europe, i think they got one. i'm out of time here we'll send this back over to senator cortez masto. >> thank you chairman powell, good to see you. it's been a long morning

appreciate you coming to talk with us here on the committee. i want to align myself with the remarks from chairman menendez supporting a latino nominee to a seat on the federal reserve. it's been more than a 100 years. i know there are many strong latino economists and economic experts who would capably serve. i want to put that out there chairman powell, i am -- i also sit on senate finance right across the way we are talking about affordable housing. and i think for purposes of so many of us across the country, including in nevada, when we talk about affordable housing, it's also about workforce housing. it's about making sure families that are working so hard have an opportunity to keep a roof over their head right now in nevada, if you're making minimum wage, you have to work 75 hours a week just to be able to afford housing so, i want to talk to you about this i was distressed to see in the report that activity in the

housing sector has contracted as a result of the elevated mortgage rates and you've been talking about that i often hear from nevadans who say, i don't know if i'm ever going to own a home, and many feel resigned in a cycle of renting. chairman, how do the federal reserve economists and leaders think about the balance between keeping interest rates low to spur that affordable home building and home buying while addressing inflation >> we have a dual mandate from congress, as you well know, which is maximum employment and price stability. that's really what we take into account. we don't -- of course, interest sensitive spending is the thing that gets the most support when we cut rates and the thing that is most affected when we raise rates. that means housing to an extent. that's not a choice we make. that's just the way it works we have really only one tool which is monetary policy

so, you know, we don't really try to use our tools to affect broader housing policy, but really just to achieve our statutory goals. >> it happens to just unfortunately be in effect as you try to achieve your statutory goals? >> yes >> i want to have you have the opportunity to address senator warren's conversation with you earlier. about the tools that you have and the impact it has on causing potentially more people to be unem unemployed, and this, obviously, has an ability to their ability to afford homes as well. can you address that >> i'd be glad to. i want to be clear that we do not seek and we don't believe we need to have a very significant downturn in the labor market and it's not just hope i think if you look at the situation in the labor market, you got all these job openings, and in principle you could reduce the job openings without seeing a really significant increase in unemployment

also you're starting from such a strong labor market. it seems as though there's -- you're a long way away from anything that looks like a recession just looking at the labor market by itself so, honestly, we don't -- we don't know we don't know that we need -- that there will need to be a really significant downturn. other business cycles had quite different back stories than this one. we're going to have to find out whether that matters or not. i do think, and i've said all along, my colleagues and i have, too, that we believe we can -- there's a path to restoring 2% inflation with less significant effects on the labor market and have typically been seen in downturns. >> for purposes of the general public, people in nevada i know struggling thank you for always being willing to talk with me. we have one of the highest unemployment rates in the country. we're still at over 5% just in

sou southern nevada. we have high gas prices, high grocery prices, high housing prices one thing you just commented on, and you just did it again, and i know it's in your opening remarks, and let me quote, you say our overarching focus is using to bring inflation back down to our 2% goal and to keep longer-term inflation expectations while anchored. for the general public, for those working families, why 2% why is getting it to 2% so important? >> that has become the globally agreed, essentially all major central banks target 2% inflation in one form or another. and -- >> how does that help my nevada families how does it help people in nevada who are struggling? >> i guess it's obviously not -- it's not obvious how that is, but 2% inflation, to have people believe inflation will go back to 2% really anchors inflation there because the evidence is

and the modern belief is people's expectations about inflation have a real expectation. if you expect inflation to go up 5%, it will. if everyone kind of expects that because that's what businesses and households expect. having a 2% inflation goal, which we had for many years, de facto we had it and formally adopted it in 2012, but for years before that we were effectively targeting 2% inflation. and what that meant was one the reasons inflation was low and predictable having a real target and sticking to it, not changing it at convenient moments we think it's really important that we do stick to a 2% inflation target and not consider changing it we're not going to do that people will be better off if the whole question of high inflation is just not part of their lives. that's kind of the definition of price stability, people live their lives without having to

think about inflation all the time >> thank you i know my time is up thank you. >> thank you very much, madam chairman welcome, chairman powell when you're setting these rates and making these decisions and seeking that 2% magic number, are you considering the cost of borrowing for the united states knowing that congress has over borrowed and we have overspent and that the national debt is at now at least 97% of gdp, and we're going to face challenges of our own making. this is not what the fed has done

this is about what the congress has done that you have to factor in to your decisions do you think about the costs of borrowing for the united states itself >> no, we do not, and we're not going to in other words, that would be fiscal dominance if we were constrained in our monetary policy by the budgetary situation of the united states, and we're not, we're clearly not. the path we're on is not sustainable, but the level of debt we have is not unsustainable -- is sustainable, put it that way. so we don't think about interest cost when is we make monetary policy we think about maximum employment and price stability >> it's your opinion that the level of debt we have is sustainable? >> yes i mean, we clearly have the largest economy in the world we can service this debt that's not the problem the problem is we're on a path where the debt is growing substantially faster than the economy, and that's by

definition in the long run unsustainable. and the way countries have gotten -- or fixed that, is with longer term programs that have bipartisan support and address the actual problem in the budget that's really the formula. >> thank you i'm going to switch to stable coins. you're a member of president's working group on markets, called for bank-like regulation of stable coins in late 2021. then on january 3rd of this year in a joint staff statement, the federal banking agency stated that even after the banks capital and risk management, a bank issuing a stable coin on a, quote, open public or decentralized network is highly likely to be inconsistent with safe and sound banking practices. i'm going to say that again.

even after a bank's capital bsa, aml and risk management, a bank issuing a stable coin on an open public or decentralized network is highly likely to be inconsistent with safe and sound banking practices. so i'm a little confused about where we're heading on stable coins. does the january 3rd statement mean that the fed has decided that stable coins on a permissionless distributed ledger have no place in banks? >> so i think there are real concerns about permissionless public block chains, and the reason is they've been so susceptible to fraud, to money laundering and all of those things so i think what you heard from the federal banking agencies in one of their reports was that they would tend to look at those as not consistent with safety and soundness. >> and what about properly regulated stable coins do you think they could have a place in our banking system?

>> i certainly think that in a world of appropriate regulation where the same activity -- where stable coin activity gets the same as comparable products, there could be a place for stable coins in our financial services sector. >> thank you the european union, uk, australia, switzerland, singapore, and others have all moved over the last few years to create a legislative framework for digital assets the european union in particular is attempting to be a standard setter again like it was with its data protection rule is the united states in danger of being a rule taker, not a rule maker when it comes to digital assets >> i do think it would be important for us to have a workable legal framework around digital activities i think that is important, and

something congress in principle needs to do because we can't really do that >> thank you senator gillibrand and i agree with you one area we've already seen is in the committee on bank supervision. they propose prudential treatment for kcrypto networks. the framework does not impose a capital charge for digital asset custody whereas the s.e.c.'s staff accounting bulletin 121 imposes a prohibitive capital charge through the back door and places consumers at risk in bankruptcy similarly the basel committee holds digital assets on their balance sheets the fed and other bank regulators have said it is

forbidden for a u.s. bank to conduct these activities no matter the capital what does the rest of the world know about digital asset allocation that we do not? >> as we discussed this is an s.e.c. staff accounting bulletin and it's not something that the fed issued and i would be loathe to comment directly on it. >> the issue is and what concerns me is the fed and other federal banking agencies are not following international norms on digital assess regulation. that's just my comment thank you, chairman powell, for being here i now recognize senator smith. >> well, thank you chair powell, it looks as if senator britt and i are the last

standing before i get into my questions i would like to note there's been a good back and forth amongst our committee around some of the big economic challenges and opportunities we face in this country. i would like to note that the programs and the spending that the ranking member and some of our colleagues have blamed for inflation provided critical relief that kept working families and small businesses afloat during a global pandemic. many of these policies were passed on a bipartisan basis and signed into law by both democratic and republican presidents i want to add the laws the democrats passed to lower health care costs and to lower energy costs for americans are helping to lower basic costs for families, all of which, by the way, was fully paid for. so i return, mr. chair, to what you have said to me privately and to all of us publicly which

is what we ought to be looking for is striving for bipartisan solutions to find a path forward and, in fact, we were just talking about this yesterday when it kams to housing policy i just want to put that out there. when you and i spoke yesterday briefly we talked about the community reinvestment act and i know that i appreciate the chair raising this point earlier in the hearing, but i want to just return to that briefly i am very glad to see -- it's been about a year since the fed and the occ and the fdic issued the proposed rule to modernize implementation of a community reinvestment act i don't think the proposal was perfect by any means but through the cra, financial services organizations can serve and meet the needs of communities that are full of assets but lack the resources to make it happen like wealthy communities