level are you talking about making decisions on architecture for a cbdc, a retail cbdc. >> we're not at the stage of making any real decisions. what we're doing is experimenting in kind of early stage experimentation, how would this work? does it work what's the best technology what's the most efficient. really at an early stage on -- but we're making progress on sort of technological issues the policy issues are equally important, though. we haven't decided that this is something that the financial system in the country would want or need. so that's going to be very important. >> right >> well, i think i speak for the chairman as well, we'd love to have more dialogue with the fed on that. and maybe bring in the folks from m.i.t. as well, and just make sure that congress and this committee is up to date as others let me switch over to fed now. there are some champions of digital currency and stable coins in particular that continue to site the need for

faster payment systems however, as was earlier mentioned, the fed now is a service that the fed is working on to finalize that will allow for instant payments between bank accounts. and the fed has a target release data of for the fed now between may and july, which is right around the corner. do you see any reason why cryptocurrencies would provide faster payments than the fed now system and would this offer what the transparency of fed now, would it offer distinct advantages over some of these stable coins that are touting faster payments >> what fed now will do is it will enable all of the banks, any bank in the united states, not just the big ones to offer instant, you know, instantly available funds and real-time payments to their customers. that's what it will do that's a great thing you know, at cbdc, i think you're asking whether a cbdc would serve some of that but cbdc is going to be years in

the evaluation and i think we can get this into the hands of the public very quickly. and i think we'll have realtime payments in this country very, very soon. and so that's a good thing >> it is you know, i do have an overriding question. that is, before the greenback, everybody had their own currency you know, you had rail companies, you had coal companies, you had state banks that were authorized to issue their own currency but when the greenback came out, all of those various currencies went down to zero, because everyone had, you know, because the green back had the full faith and credit of the united states behind it i'm worried about a lot of these stable coins and other crypto cryptocurrencies, do they go to zero when we come up with the cbdc that has the full faith and credit of the united states behind it? that's -- and we've got

thousands of these out there and you've got people investing millions and millions of dollars in these, well, trillions right now. and i'm just -- i'm just thinking, if we had those advantages built into a, you know, a cbdc, wouldn't those alternatives go to zero if they didn't have the transparency and the full faith and credit that we enjoy >> certainly, unbacked cryptocurrencies that don't have any intrinsic value, but more or less trade for a positive number, those, i've never understand the valuation of those. stable coins, many of them are really drawing on the credibility of the dollar. they have dollar-based -- they're dollar denominated mainly, and have dollar-based reserves, although we don't know what's in the reserves, because there's no regulation. >> the gentlemen's time has expired. the gentlemen from missouri, mr. luke myers recognized for five minutes, the chair of the

national security subcommittee >> thank you, chairman pow powellpowell, for being here this morning. the reserve for the dollar is financial. in the wake of russia's unprovoked invasion of ukraine, the fed took action to prevent the kremlin from accessing more than $300 billion in reserves, nearly half of russia's reserves however, this led to an accelerated effort by countries like china to de-dollarize their official foreign exchange reserves just last week, there was an article in the "wall street journal" entitled "russia turns to the yuan" in an effort to ditch the dollar not only that, but china's xi jinping pushed for the settlement of energy trades in the chinese yuan at a summit with arab leaders in december. the question is, are you concerned about these actions by russia and china to push to establish different reserves and conduct transactions in non-u.s. dollars?

>> so the u.s. dollar is the widely accepted and really the only serious candidate for the world's principle reserve currency and that's because of our liquid institutions, the rule of law, and the fact that the dollar has held its value over time so other countries who are competing on other playing field may want to -- they want to establish different currencies, but really the dollar is the one that's going to be used more broadly in international commerce, because we have those aspects and other countries don't. >> that's true for now, but my question is, are you concerned about the actions of these countries, because if they see themselves being challenged or concerned, for instance, if china would invade taiwan, as russia invaded ukraine, there were some sanctions put on and i don't disagree with the sanctions. the last time you were here, though, i asked the question, because it's an instructive moment for us, from the standpoint that knowing that we put tensions on russia and all

of their different accounts as well as oligarchs from the country, are we thinking about doing the same thing to china, when they invade taiwan? and your answer at that point was "no. we passed a bill out of this committee last week to ask the administration, basically, to start thinking about in those terms. what kind of situations can you come up with are you talking to allies, beginning to talk to them, starting to put together a list of how you would start sanctioning the different individuals, the different accounts, things like that have you started thinking about that at all yet? >> let me see. the business of sanctions is entirely in the hands of the elected government and the treasury department. we are an implementer, as it relates to banks, that's it. >> but we're going to take your advice on different aspects of this -- >> sorry >> we're going to take your advice on different aspects of this >> honestly, when the sanctions are being put in place, treasury was doing it, we weren't doing it that's the way it works.

>> next question there was an article in one of the political newspapers yesterday, i guess it was, and it talked about the problem that we have here with the fed's balance sheet, it says, it now appears similar to a hedge fund whose long-term assets are financed by short-term borrowing. and the bottom line is that it's going to cost money. the fed now has a negative income, as a result of having to do this. and so, it says here that the fed will simply borrow the money to pay the bills is this true that the fed is losing money right now as a result of the way that you've got your -- the debt borrowings that you've purchased structured >> the place i would start, we turn over our earnings every year, we've turned over something like $1.2 trillion in earnings just in the last decade or so. we always know that when you

raise interest rates, you'll lose money >> so you agree that we have negative impact. the cbd gets their money to run their agency from the fed. so there's no money to pay the bills, if this is the case, unless you continue to borrow, which is basically what's going to happen. you'll have to borrow money to pay the cfpb's bill. >> we don't borrow money we don't shut down the fed when you have negative impact >> so my follow-up question then is, do you have any -- you do any accountability or assessing of the cfpb's spending of these dollars at all >> no, we don't -- >> so this is a blank check -- you just told me they just got a blank check, you send them a bill, they send you a check. >> i think there are limits built into the law which i don't have in the front of my head

>> i have yet to see a limit, mr. chairman i have yet to see what the limits are i don't think they've ever agreed to have that. i see my time is up. i yield back >> mr. foster, the ranking member of the financial institution's monetary policy subcommittee >> thank you and just a quick comment i think it's a mistake to imagine that you can completely hide from the macro economic effects of technology in your major planning we just talk briefly about health care costs, and there are treatments in these gop-1 receptor agonists that look like they're a home run against obesity. so these will be near-term impacts, which will make macro economic effects so just to comment i hope you have a certain fraction of futurists in the room when you're talking about your scenario program. a lot of that future is now. back to economics. so we have this historically low unemployment rate, 3.4%. and historically, those would be considered to drive runaway

inflation. you know, your predecessor, alan greenspan, repeatedly referred to dangerously low levels of unemployment and yet, we see inflation is coming down. so what is going on here how can we have these historically low levels of unemployment without have inflation take off is it possible that we simply have less frictional unemployment in our system due perhaps to the fact that people have their new jobs online and have a job lined up before they quit >> so inflation is coming down, but it's very high, is the thing. and some part i've never part all of it, some part of the high inflation is very likely related to an extremely tight labor market more to your point, there was a time when there was a tight relationship between inflation and unemployment in other words, the phillips curve was steep. and that went away over the period of the great moderation

and really, in our thinking, that's because people came to expect 2% inflation. and we had 2% inflation, and then people just stopped focusing on inflation and it stayed very low. so there was really no relationship or very, very tiny relationship, we could have very weak economic growth or very strong economic growth and we wouldn't have inflation respond very much. that was before the pandemic, though >> okay. i hope you don't overlearn, you know, some of the lessons there. it's one of my worries there have been a number of shocks to the system here. and it will take a while to go through them and you want to be careful there. now, in a related issue, when you say you refer to the totality of factors, you're looking at a mixture of leading and lagging indicators, when you look in this totality of factors. and my question, perhaps you might be paying too much attention to the lagging indicators, and not enough to the leading indicators

you know, the example that you reference in your remarks, and is in more detail in the report, about the difference between using current rebel payments versus the amount that you pay for a new rental contract, and the difference of how much they lag, had you paid more attention, for example, to the leading indicators like current rental contracts, then you probably would have picked up and not gotten so far behind the curve on that. and secondly, there are policy implications going forward, if you look at current rental prices for new contracts, you're much farther along in fixing inflation and you can take the foot off the break so what's your thinking on that? whether you may perhaps be systemically not paying enough attention to leading indicators versus lagging ones. >> so we've been -- we've had our eyes on the whole housing inflation thing from the very beginning. and right now, what i would say

is that every forecaster is baking in higher -- sorry, lower rent increases that's a big part of why people think inflation is going to come down to 2023 i think the thing with transitory is more, it more had to do with goods and it had to do with the thought that these supply side disruptions would go away much quicker than they would. that the labor market disruptions would go away much quicker than they did. and in hindsight, it just took much longer for those disturbances to go away. >> so with hindsight, and if you allow yourself to monday morning quarterback yourself, you probably would have gone up to 4% earlier, and not had such a big problem with inflation so what is your -- are there structural things you can contemplate or even after-action reviews to say, what would have happened if we would have paid more attention to the leading indicators

or improved the band -- in an engineering term, improved the bandwidth of your feedback regulator. that, you know, this is something, if you want to get the best result, you need a high bandwidth feedback in the system, even when there's averaging on the back end. >> so this is something that we only think about during waking and sleeping hours, as you can imagine. it's really hard to know what the lessons are. again, we -- you know, we really thought things would -- nobody had seen the supply chains collapse no one had seen labor force participation plummet. we didn't know or unemployment go to 14% and higher than that, really -- >> gentlemen's time has expired. >> and if we ever see this pitch again, we'll know how to swing at it. >> we'll now recognize -- >> -- the first. >> the gentlemen's time has expired. the gentlemen's time has expired. we'll now go to the gentlewoman, miss wagner for five minutes

>> dhar powell, welcome. thank you for your service and for being here today yesterday, i was pleased to hear you discuss how inflation is severely hurting the working people in america and in your testimony, you also state that strong wage growth is good for workers, but only if it is not eroded by inflation. and that is key. inflation is a tax, a hidden tax on every american. if the federal reserve were to shirk its mandates to stabilize prices, leaving inflation alarmingly high, what would it cost america's hard-working families in missouri's second congressional district and beyond >> so i think the costs of failure to restore price stability would be extremely high, and while there will be costs to success, the cost of failure will be much higher. you would be looking at an -- an

extended period where people learn to expect and live with high and volatile inflation. and it's very, very hard to have rising real incomes during such a period so it would be a bad thing for the country. >> can you reassure the committee that the fed remains committed to bringi ing prices down for our constituents? >> yes, i do i can hereby assure you. >> thank you in changing topics here a bit, as china's economy reopens, and about 18% of the world's population resumes its consumption of oil, and other key goods, what sort of inflationary impact will we see here in the united states, sir >> so, a stronger, a faster reopening of china, which we -- it looks like we may be seeing, it does have the potential to put upward pressure on commodity prices, but it also would mean a

faster sort of unraveling of the problems in supply chain those would be offsetting effects. i think sitting here today, we don't expect the net effect to be big, for the united states. it might be bigger for other parts of the world but we think it ought to be moderate overall >> china is one of the world's top oil importers. and do you expect any inflationary effects on global energy markets, as china's oil consumption returns to their previous levels? >> so i think oil prices could be affected. and that's -- i think that's a big concern in europe, for example. we have our own domestic oil and we've got a lot of natural gas, as well. >> we seure do i wish we were actually harvesting more of that liquid natural gas. chair powell, you, vice chair barr, and many others have recently identified that the banking system is well capitalized and strong bank capitalization remains

robust during the shock of the pandemic, and related shutdowns of economic activity capitalization of large financial institutions weathered severe stress testing mandated by the fed and despite all of that, as also previously mentioned by chairman mchenry, vice chair barr insists on conducting a review of capital rules. i'm concerned that this review is being conducted in a silo and that the findings will not be made fully available to the public taking an approach in the context of this holistic capital requirement review would make it impossible to conduct a transparent rule-making process, denying the public information necessary to consider and to comment. i think this is just simply not appropriate in this situation, and i'm concerned by the lack of

clarity, i think, is the best word, perhaps at this point, by the vice chair a couple of questions. you've served on the fed board for over ten years since the financial crisis, regulatory framework has been put in place and over that period, have you seen any real-world evidence that america's banks are undercapitalized >> so, american banks are strongly capitalized and i believe that vice chair barr has said that, as well. >> yes >> but the point is, there haven't been any real proposals to evaluate yet. and when there are, that will be done in a highly transparent matter >> i hope so i'm glad to hear you say, in a highly transparent matter. do you agree that excessively high capital levels can strain banks' lending capacity, with spillover effects on jobs and living standards for americans >> i think it's always a balance. more capital means for safety and soundness and more ability

to withstand terribly stressful periods, but it also, it's more expensive -- equity capital is more expensive u.s. banks have competed incredibly well around the world -- >> yes, they have. internationally. >> so that's a trade-off that you are always going to be making when you think about capital. >> i will now recognize the gentlewoman from ohio, the chair -- i'm sorry, the ranking member of the national security subcommittee miss beatty for five minutes >> thank you, mr. chair. and i like that tie. for chairman powell, thank you for commenting and have such a good colleague and friend. i have a couple of questions i'll try to get through quickly. chair powell in a press conference last month, you stated, quote, there is a lot of spending coming into the construction pipeline, both private and public so that's going to support economic activity, end of quote. how do you think the strong

pipeline of funding from what the democrats put together in passing the inflation reduction act, the infrastructure investment jobs act, and the chips science act will do to have economic activity this year and moving forward >> so, i guess i was making the point that there are a lot of sources of demand that we can rely on, even though demand has been relatively -- increasing at a relatively modest rate >> will this help in that demand >> yes i mean, there is state and local governments, i mentioned, are about -- >> so what you say, this is a great thing that we've done, coming from the left -- >> not for me to judge the merits of what gets done, but i'm just saying -- >> but it will contribute? >> it will support it. >> so i'm going to assume from that that that's a positive. let me go to the second question chairman powell, the federal open markets committee is

projecting that unemployment will increase to 4.6% by the end of the year. and those costs, as we know, won't be bore equally. if we look at the ratio from the last time unemployment was 4.6%, and compare it to our numbers now, it would mean that white unemployment would go up to about 0.9, but black employment would go up by 2.3% does that sound somewhat accurate to you? >> yes can you address the disparity impact with that and before you answer, let me go to the book that was put in our places together. you made, in this book with your signature on, it is stated however, while disparities in unemployment have largely returned to pre-pandemic levels, there still remains significant disparities and absolutely levels of employment across groups like african-americans

and hispanics. so, can you address that >> i can so, right now, to your point, actually, african-american unemployment is, i think, 5.4%, which is just about as low as it's been since we started tracking in 1972 >> but differential from majority -- >> i was going to say, so that's 5.4, whereas the overall is 3.4. and that includes -- so that means for whites is well lower than that. so what happens is, there's a persistent gap between black and white unemployment and also, when unemployment goes up quickly, in a recession, it goes up much faster for african-americans. when the economy grows again, it comes down faster. so that's just -- that's somehow embedded in our economy. we don't really is the -- the best thing we can do is achieve stable prices, so that we can have a long, long expansions and what happens in those long expansions is that the labor market get tight, sustainably tight, and we have, you know,

historic lows in unemployment, including for african-americans. >> let me say thank you and let me also again thank you, as you know, in the 17th, i was the chair of the dni committee and let the record state that you always pushed for making sure that you understand and respected that and in that, this is very minor and certainly personal to me in this report, maybe those who helped you author it, i would like to see the areas that talks about unemployment not under a title of "special topics," but something that draws a little more attention to it, as some of the others just very minor. last question i have, can you tell me if the fed is committed to working with the other agencies likethe fdic and the occ to finalize a rule soon on cra? certainly, that's something of great interest to many of my colleagues so can you give us any updates on it or how the process is going or what we can expect?

>> yes so, with governor brainerd's departure from the white house, i've asked vice chair barr to take the lead in moving it forward. i would characterize it that there's essential an agreement between the three banking agencies on the changes to be made that's all being written up and vetted and at a certain point, members of the board of governor will be briefed on it and will vote on it >> is there anything we can do to help with that? >> i think we're hard at work on it, it's going to take some months, but we're seeing the airport and will be landing -- >> the jegentlewoman's time has expired. mr. barr is recognized for five min minutes. >> thank you, chairman mchenry on the one side, strong consumer spending and persistent core

inflation and a cpi that's more than your 2% target suggests more economic tightening is warr warranted. because it kept interest rates too low for far too long, and failed to end quantitative easing soon enough, the fed has been forced to raise the fed funds rate and reduced the m2 money supply at the fastest rate since the 1930s. as a result, wage gains have slowed, credit card debt is at an all-time high the housing market is in a slump, and the yield curve is inverted i agree with you that the historical record cautions strongly against prematurely loosening policy, but what would you say to those who caution about the lag effects of monetary policy? the precipitous decline in liquidity? will the economy have to suffer

a recession in order to bring inflation down to 2% >> we are very well aware of the lags with which monetary policy effects economic activity and inflation. those are long and variable and i would stress highly uncertain. there is nearly no agreement on exactly how long they are. but we know that slowing down the pace of rate hikes this year is a way for us to see more of those effects, as they come in >> in december, most fed officials expected to lift rates this year to between 5 and 5.5%. is that still your estimated terminal rate? or does the data suggest that the terminal rate could be higher than 5.5% >> my colleagues and i will write down new forecasts and release them to the public on march 22 but as i mentioned in my testimony, the data we've seen so far this year suggests that the ultimate level of rates will need to be higher. but we still have some more data to come in between now and the

meeting. as of today, it suggests a higher level than that >> let's go to vice chairman bar's review of the capital framework. a lot of questions for you on that when governors brainerd, corals, clarida, and wallard made up the board under your leadership, major changes many policy were addressed following board consensus, and not when there was significant dissent. will you commit to not implementing a new capital framework, following this holistic review or the basel end game if there is considerable dissent from the board >> i can't really commit to that we are a consensus kind of an organization, and that's what we'll work toward. but ultimately, you know, we -- >> would that be a break from your prior practices you're a consensus builder, mr. chairman you pride yourself in that, and we credit you for being a consensus-oriented chairman. will you commit to continuing that practice and not allow

major changes to the capital -- the bank capital regulatory framework to be made by one per person >> well, they can't be made by one person but i do commit to that. and i commit to bringing people together, something that can be broadly supported. >> thank you >> earlier this year, and you said, i quote, we will not be a policy maker however, the fed's draft principles, one proposed principle suggested that boards of directors or of a financial constitution should consider ma making changes to its compensation policies. it appears that the federal reserve wants to begin implementing climate policies. which is it? there seems to be a disconnect between your statements publicly and the rules that the board is putting forward for comment? >> i feel strongly that climate change is an important issue that needs to be addressed by

elected people it's about -- it's just not something that we've been charged with, by congress, clearly. so we have a narrow role and that role will be around making sure that banks understand and can manage the risks that they're running and that's going to be it and as i said before, we don't want to drift into becoming a climate border >> did the board vote to approve the creation of that pilot program? >> i would have to check, but i don't think so i think it was already authorized >> this is a concern i have. i'm concerned that one governor acting unilaterally without board consensus is a problem and so i would urge you and your colleagues on the board to continue a consensus-oriented approach and i yield.

>> thank you, mr. chairman thank you, chairman powell thank you for your careful conduct of monetary policy, independent of the many political desires that circulate in this building i want to reflect for a moment in another bedrock and the full faith and credit of the united states government. my republican friends know how very dangerous a game they are playing. they know that salary payments to our soldiers are at risk. they know that their irresponsibility will raise mortgage rates for new home buyers but they say this is the only time we focus on spending in the debt, which of course is ber loany. the time to focus on the deficit is when you are voting for the spending and the tax cuts that create the deficit when you're voting for the trump tax cuts, which the cbo said would add $2 trillion to the national debt. that's the moment to consider

whether you want to do that. not when the good name of the united states is hanging in the balance. this stuff gets a little complicated, but the american people need to understand what's happening here the congress sits down to a huge ten-course meal of tax cuts and spending and expansion of this program, all of which we vote for, collectively. first course, second course, red wine, white win, four courses and dessert, then the bill comes and my republican friends say, wait a minute! hold on! look at this bill. this is irresponsible. do we really want to pay this bill that's not the moment for the consideration. the moment is when you're ordering four helpings of dessert. that's when we should be talking about it and taking responsibility for the choices that we make, without pulling the full faith and credit of the united states at risk. here's where the hypocrisy comes in my republican friends like to point the finger and blame us.

the chairman is fully one quarter, 25% of today's united states debt was accrued in the four years of the trump administration this country has been around for 246 years. and fully one quarter of the united states debt was accrued under president trump. speaking of hypocrisy. the debt ceiling was raised three times. but now we have a different president, so the calculus is different. i don't think i'll persuade the joirmt to act responsibly, i think the markets will persuade them december 29th, 2008, the republican house of representatives voted down the great recession/rescue package as the vote was going down in the house of representatives, the equity market dropped 7% 1.2 trillion lost in people's

retirement accounts. there is a question here and the question is this you and i both watch the market pretty quickly the treasury tells us on june 5th, just three months away, on june 5th the treasury runs out of money my question to you, mr. chairman i know i'm asking you to be a little speculative here, but what should we watch for what market signals could indicate that the market is getting fed up with the manifest irresponsibility around this give us some things that we should be looking for? >> i'll limit myself to what other fed chaser have said about the debt ceiling and that is that it needs to be raised by congress in the end. there are no rabbits and hats, as i mentioned and also that no one should assume that we the fed -- this is the fed's business. is to protect the economy from various events and i wouldn't assume, no one should assume that we have the tools to protect the highly

uncertain effects of that kind of an event. >> so monetary policy is obviously very concerned with interest rates if global capital markets begin to decide that we're really serious about hurting ourselves this time, is it possible that we could see interest rates rise more, because borrowers of united states debt decide that we're actually a little risky? is that possible >> i think that and many other things are possible. we've never crossed that line, and if we cross that line, we'll find out i think it's highly uncertain. >> and you said this and many other things are possible. do you want to elaborate on what would be in the category of many other things >> i would rather not, actually. >> i figured thank you, mr. powell, again i really thank you for your

responsible conduct of monetary policies i appreciate that. >> the gentlemen yields back we'll recognize the chair of the small business committee, mr. roger williams of texas. >> thank you, mr. chairman chairman, it's good to see you always good to have you here in past congressional testimonies, you've repeatedly stated that you would support the tax-based system of regulation in my home state of texas, is the world's servant largest insurance market proving the success of this system now in november, there is the opportunity to have the u.s. state-basedin aggregation metho. we should not be following the european model and we should prioritize a model that encourages deregulation, competition, and less government involvement in pricing so my question is, chairman, can you highlight the benefits of

the u.s. state-based aggregation method compared to the european model, regarding market resiliency and systemic risk and can you confirm that you will push for the aggregation method to be deemed equivalent by the iais >> i can say this. i do think that our insurance regulatory system is proved itself appropriate and adequate and gotten the job done for a long time. and we don't need to be copying other countries or other regions' insurance regulatory system i'm a little rusty on the details of the capital ro requirements but that sounds right. >> bottom line is, our side works, the other doesn't we need to stay where we are >> our side works. >> thank you >> also in the past, you stated that banks were well-capitalized we talked about that today but now sl have been increased conversations about raising capital requirements numerous economic studies have found that raising capital requirements for banks will increase borrowing costs for their consumer and commercial customers and i'm somebody that's owned 50 years, i've

never had a day i wasn't out of debt, so i'm concerned about this and implementing additional regulatory capital requirements will slow economic growth and limit financial institutions' lending ability. so do you believe that raising capital roequirements would rais the cost of borrowing and add costs to our economy and main street america >> well, it depends on which banks experience higher capital requirements and there isn't any proposal to evaluate right now, of course. but it's always a trade-off. higher capital is good in a sense, because it keeps banks able to lend during bad times. that's really a good thing too much capital, though, probably limits credit availability so we're trying to strike that balance, always. >> and this has been touched on a little today, but let me come from a different angle on it the reserve was created to act as a nonpartisan entity that remains separate from party politics we talked about that and unfortunately, through the recent years, the fed has gotten caught up in politically charged

issues like economic inequality, gender and race discrimination and climate change it further proves the fed is giving into some political pressure and operating outside its intended purpose and responsibilities our countries' financial leaders in my mind should be focused on addressing runaway inflation, instead of worrying about the financial institutions are doing to monitor climate change. so, we touched on this a little bit, but how can the fed ensure that they're not placing undo regulations and guidance on banks. and how is the federal reserve ensuring that they remain separate from political influence? >> it's absolutely critical that we do. our independence is partly founded on the idea that we will stay out of stuff that you have not assigned us to do. and if we're going to wander all over and take on the hot issue of the day, our case for independence is dramatically weakened on climate change, i think we do -- you mentioned the guidance, and then there are also the stress scenarios.

those are the two things that we've done and we've tried to keep those tightly focused on -- on the bank's understanding and being able to manage the risks that they'll run over the longer time periods, on climate, and not slide into, you know, a broader sort of policy-making role on climate change and i accept that that could be a slippery slope, and a moving border and i just want to say, and i think my colleagues feel the same way, on the board, that we're going to guard that carefully and we'll stick to our role and not try to be policymakers, the way in many other countries, the central bank is out there in the lead, with the support of the public, doing climate policy but that's not where we are in the united states, and we're not going to pretend where it is >> we've got some time left. i yield back but i want to say, i'm looking forwarded to first day of that rate cut thank you for being here we appreciate it >> the gentlemen's time is expired. we'll now go to the gentlemen

from california, mr. vargas, for five minutes >> thank you very much, mr. chairman and again, thank you for holding this hearing chairman powell, a pleasure to see you again. i've said it before and i'll say it again, it's always great to see you, because i always think of the old republicans, the ones who are very noble, did the right thing, didn't play chicken with the economy, very forthright and so, anyway, i appreciate you being here very much like some of my colleagues on the other side, i would say the same thing about some of them. and i appreciate you so we heard today that the inflation is biden's fault so what is the inflation rate in the european union today >> it's high >> it's high is it 10%, possibly? >> i think if you're talking about headline, i don't have this figured in my head, but it's very, very high from a headline standpoint. and they've had core inflation move up too. >> so are they following biden's then policies? is that what caused the

inflation? because it seems to be biden's fault. >> so i think inflation is everywhere and it has to -- it must have to do with a common factor, and that common factor has to be the reopening of the economy after -- and the things that were done on covid on the other hand, each country that has a little bit different case, and i think you have to be careful. we had much more of a demand-oriented issue than they did. now they have -- their inflation looks like ours did a year ago >> right yeah, i just had to bring it up, because, again, mr. sherman brought it up. it's interesting every time i hear inflation is caused by biden, i wonder why is it all over the world it's not because of the pandemic, of course, or, you know, europe's at war. i mean, that wouldn't cause it, of course. it would have to be biden's policies that's ridiculous. and i think the voters saw through it last time so i haven't been here 15 years as my good friend mr. foster i've only been here 11 but when i first got here, the

bogeyman, and i heard all from my friends on the other side was dodd/frank dodd/frank was going to be the end of banking and in fact, some of my colleagues would almost scream how horrible this was. then we got the bankers up here during a real stress test, which was the pandemic and asked them, has it been helpful to have dodd/frank do you know what they said >> i don't >> they said, it was helpful in fact, it kept the banks capitalized. it was fascinating to be fair to them, they did complain about some of the smaller issues, but not dodd/frank in general, the bill. then it seemed that cfpb, that became the next bogeyman but they're starting to seem to fade on that, and the reason for that is the cfpb has helped so many people, a lot of their own constituents now are getting help by the cfpb, so all of a sudden, there's not quite the energy so now they're tacking esg

esg. and they're saying that you and everybody else is somehow conspiring to make sure that they don't buy their oil or their coal are you conspiring to do that? are you conspiring -- >> i don't believe we're conspiring >> now, i heard it was a supposed climate risk. is there a risk in the climate change >> yes >> there is? could it affect the bank >> certainly, in the longer run, yes. >> yeah, of course it can. do you think insurance companies take this into account >> yes, actually, i believe they do >> they absolutely do. >> long-duration liabilities, they certainly do. >> of course, they do. they're very concerned with it weather is a big deal. i was a vice president of liberty mutual and their corporate legal department, and i can tell you, weather and the changing of the weather. we used to have what we called catastrophes and these catastrophes happened every 25, 50, 100 years.

now those 25, 50, and 100-year events happen every five years, every two years. of course it is. it's ridiculous not to take a look at these esg factors. we have to and again, i'm glad that you guys are taking a look at it, because it's real. i'm glad that, you know, the president's taking a look at it. and it's sad that my colleagues on the other hand just want to stick their head in the sand and say, no, climate change, supposed climate change, no, the reality is, it's real climate change and it's costing billions and billions of dollars and if you don't believe it, go ask all of those poor people in florida who had those huge hurricanes come through and wipe them out. so, again, i appreciate very much the work that you've done the only thing i hope is, as you said, if we receive this pitch again, we'll know how to swing at it. and i hope we don't get the pitch of defaulting, because i'm not sure we'll know how to swing at that one. so thank you, again, mr. chairman thank you for being here >> thank you >> i yield back. >> the gentlemen yields back the gentlemen's time is expired.

we'll now go to the chair of the oversight subcommittee, for five minutes. >> thank you very much, mr. chairman i'm going to move quickly, and good see you again, chair. you know, i caught a little bit of the senate hearings yesterday, and you had a lot of pressure to keep the sugar high going. and frankly, if the fed and many of our colleagues had listened to what many of us were saying, we should have been weaned off of that artificially low cheap money that kept the party going. and frankly, we wouldn't be in this position. to reference chair greenspan's punch bowl analogy, not only did no one have the courage to remove the punch bowl, you had people cheering on the pouring of another bottle of 151 rum into the punch bowl and here you have people wanted to go the exact same thing let's spend more now here we are, you have an impossible decision to slow the economy or let everyone get

crushed by inflation and we know tightening means a slower economy, slower economy means fewer jobs, fewer jobs hit those who can least afford to lose a job so in short, the lower rungs of the economic ladder will suffer more than the rest of the ladder so that's the state of play where we're at i have to hit a couple of quick issues here. i wanted to start off by discussing climate, especially given the fed's announcement in january that they're going to conduct a pilot climate analysis exercise the fed along with the ioc and fecc have issued climate risk principles for banks that you are attempting to finalize those by the end of the year and the requirements don't stop at the border. the uk and the eu central banks are moving to require significant esg disclosure regimes as well. the fed is taking a look at commodities capital charges in the holistic review, but even though the fed isn't forcing banks to encompass climate analysis in their stress tests, there are many initiatives at the fed that are going to make

it more costly for banks to finance traditional fossil fuel companies. so i want to ask you a very specific question. will you commit that you will withhold support for a new capital rule that increases capital charges on bank activities in traditional energy companies? >> you know, i can't sit here and promise what i will and will not vote for, because i don't know what's going to be in the proposal but that's not the kind of thing that i think we're looking at. >> i'm sorry, it's not the kind of thing -- >> this isn't about, you know, this is about overall capital levels, more than anything else, i think, rather than the specific thing you're talking about. >> okay. we're going to follow up on that because we need to have a realtime conversation about what is going on there. i want to quickly switch topics and go to a different direction for this next question i want to ask you about two opinions issued by your legal staff, in november of 2019, and december of 2020, to the asset managers vanguard and blackrock.

mr. chairman, i would like to submit the two letters for the record >> without objection >> thank you these opinions appear to be -- to outline the parameters of both -- of how both vanguard and black rock can operate without being deemed a bank holding company. in addition to the legal restrictions outlined by the bank holding company, these opinions listed here in detail, list out commitments that the companies would need to take to avoid being viewed as having, quote, control these opinions also appear to provide assurances that the federal reserve board staff would not recommend that the board find the asset managers to be bank holding companies. further, it is unclear whether the board will take any steps beyond a periodic self-certification by the asset managers to monitor compliance with the condition that they, quote, not take any action to control a banking organization as some asset managers play a larger role in clearly strive to

influence policy in companies across the free market, we need to remain vigilant chair powell, is the board taking any steps to assess or monitor whether vanguard and blackrock are complying with commitments made in november of '19 and summer of 2020 december respectively >> i would have to check and get back to you on that. >> okay. i appreciate that. but that says to me it doesn't sound like there's an assessment taking place ongoing or scrutiny of that. is somebody reviewing that, or is somebody in charge of reviewing that >> honestly, that's a very specific, narrow question. i'm quite familiar with -- >> it's specific and narrow to two companies but not to an industry i mean, that's what we need to be driving at, and, i guess, we need to find out if there's somebody proactively reviewing

these commitments that the companies have made as well as the fed has made so, how often do you think they should be re-assessed? annually monthly? bi-annually? >> this is a very narrow set of questions. i can get you great answers really easily, but i don't have them in my head. >> i look forward to those great answers and i yield. >> to the gentleman from new jersey for five minutes. >> thank you, chairman powell, for joining us today when you testified before the committee last june, inflation was up 6.3% year over year a few weeks ago data showed the numbers decreased to 5.4%. we're moving in the right direction, but despite the federal reserve raising interest rates at the highest rates since october 2007, we're still far off from the 2% inflation that the federal reserve is targeting. do you believe 2% is still the right target for inflation, and given the ongoing energy transition the push to shift supply chains out of china and the labor shortage here in the

u.s., should the fed consider adjusting its target to avoid overly burdening americans would a decline of 3% be enough without excessive economic pain? >> no, 2% is our longer range inflation goal. >> are you concerned given all the other factors that i mentioned, or do you think we have to keep sticking with that? >> i think that has to remain our longer term inflation goal it's the global standard and our standard, and this is not a time we can start talking about changing it. we have no instinct to do that >> thank you, mr. chairman the gig economy has grown significantly in recent years as more americans are working as contractors or running small businesses the dow and federal reserve has said they are not counted among the unemployment and this may understate the number of americans who could be counted as unemployed. the fed has noted a large amount missing after the workforce after the pandemic do we need to rethink -- change

the way we think about measuring unemployment to account for these changes? >> i didn't catch -- what was the word >> gig >> gig workers i'm sorry. that's the word i didn't hear. we clearly need to incorporate gig workers both into the labor force and whether they're working -- and they certainly are working. we try to do that. it's not that we're not trying to do it we may not be doing it perfectly. >> is there a better way to capture them we're still using older measurement ways are we updating our measurement? >> we absolutely are definitely trying to get those people, self-employed people they do report in the household survey, i believe. i can get more for you on that i'm sure we're not doing a perfect job because it's a relatively new thing we're very well aware of it and they're supposed to be included. >> that would be great i would love to talk to you more about that thank you. as you're also aware many of us are having discussions about the long-term fiscal health of our country, our economy like many, i worry higher

interest rates will put upward pressure on the debt cost also triple over the next decade you said to the senate yesterday interest payments are not a consideration of the fed, but are you concerned that higher interest rates will more rapidly make payments on the debt unsustainable, and are there actions congress should consider to address this issue? >> i'll say what my predecessors have said which is we're on an unsustainable path, and we really need to -- ultimately we will get back on a sustainable path and the sooner we get to work on that, the less painful it will be >> and rates, of course, were low between the financial crisis and the end of 2021, particularly low after the target inflation rates hit, what do you think the new normal looks like in terms of rate and the fed balance sheet over the next five to ten years >> a really good question. there was a secular decline in normal interest rates we don't control for 40 years to the point where the ten-year treasury was at 10% and then at the end of 40 years it was quite low. at higher levels, levels we

haven't seen since earlier in this century, i don't think anybody knows what this is going to look like five years down the road so you have to ask demographics haven't gotten better. globalization may actually move a little bit in reverse which would tend to produce higher inflation and thus higher rates. you have to ask the factors that caused lower rates how much that have has changed, and some of it has but much of it hasn't. >> building on that a little bit, what's the right metric, do you think, if you were in our shoes for assessing our fiscal health do you think we should have a specific debt to gdp ratio or other numbers lawmakers should focus on >> we focus on debt to gdp but many pointed out before the pandemic that rates were secularly lower and, therefore, you could look at real debt service. there was a lot of research on that by those measures, actually debt service was much more easy to handle now we have the ten year back close to 4% and i think we need

to be careful not to assume that these secularly low longer term rates are going to continue indefinitely because that doesn't look likely now. and, frankly, most forecasts have always shown things like the ten year going back to a higher level so it won't be that big of a change. i think it's more or less handled, for example, by cbo >> thank you so much i yield back >> now to the vice chair of the housing subcommittee mr. davidson of ohio for five minutes. >> thank you, chairman chairman powell, thank you it's an honor to be able to talk with you today and i appreciate the work you and monetary policy focused portion of the fed does. we're rooting for maybe a more consistent input from our bank regulators, so for the regulatory side, i've spoken with multiple bankers who tell me that they've never seen a higher degree of regulatory

burden steering guidance, shaping activities in the market, from regulators. i don't think that's just narrowly focused on the fed, but i would ask you to look into it. a lot of people feel there's not operation choke point 2.0 going on . and it's particularly focused on debanking people who are disfavored by the current executive branch primarily just like the previous operation choke point was. and so to the extent you yield any influence over the regulatory component of the federal reserve, i think that would be meaningful and important because our monetary system, part of the strength of the u.s. dollar is, of course, a stable store of value. currencies around the world are wrestling with that and inflation and you guys are working to tackle it but the other part is, it's an efficient means of an exchange and when people really feel like some third party is going to steer or shape their money, they don't trust it

i mean, the unbanked and the underbanked fundamentally that's lack of trust is part of why they don't use our banking system, part of the appeal of the digital asset space is the permissionless nature of it. it seems that a lot of people in the financial services space that have grown up in it, that are leading it today, feel threatened by the prospect of change and if they've maybe reluctantly concluded you can't bancrypto, they at least want to keep it account based so some third party can control the assets, which is a polite way of saying we don't actually trust our citizens to control their money or their assets, we'll let somebody else do it for them, because we can control those third parties. and, in fact, that's what the regulators do, isn't it? >> isn't what? >> they control the third

parties. i mean, if you don't comply with the regulatory regime, you don't get to operate a financial business, right? >> that's right. >> at the end of the day i think a lot of people were concerned by your remarks yesterday. i know i was, by saying permissionless digital assets poses systemic risk to the financial system >> well, i think what we said in our guidance -- by the way, if you read through the digital guidance, which i did before the hearing. of course i did the first time to say we don't want regulation to oppose innovation and thus entrench incumbents and things like that, it's pretty balanced language i think it essentially goes to the question of protecting the safety and soundness of institutions, and there is one -- i think what we say about -- i'll paraphrase it, about permissionless block changes, they have been vehicles

for fraud -- >> 0.4%. if you follow your own report on fraud, it's a fraction of what it is with the u.s. dollar speaking of the dollar, is there any real current threat to the dollar's preemninence >> you're asking a question? >> is there a threat >> the status as world currency is not under particularly strong threat right now i think it's a pretty stable equilibrium, not a permanent equilibrium, but there's not a serious competitor and that's not because of any of this it's because of our democratic institutions and the rule of law and the fact that we -- that the dollar's value is pretty stable. >> okay. so, quickly, on the repo market, any insight into that, and then i'll have my last comment here and leave the last word to you particularly curious about the