`[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]






                             


 
                   THE FEDERAL RESERVE'S SEMI-ANNUAL


                         MONETARY POLICY REPORT

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 21, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-33
                           
       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
       
       
       
       
                     _____
                          
             U.S. GOVERNMENT PUBLISHING OFFICE 
 53-199          WASHINGTON : 2024              
                           
                           
                           
                           
                           
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
    Chairman                         JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 21, 2023................................................     1
Appendix:
    June 21, 2023................................................    57

                               WITNESSES
                        Wednesday, June 21, 2023

Powell, Hon. Jerome H., Chairman, Board of Governors of the 
  Federal Reserve System.........................................     5

                                APPENDIX

Prepared statements:
    Powell, Hon. Jerome H........................................    58

              Additional Material Submitted for the Record

Horsford, Hon. Steven:
    Las Vegas Sun editorial entitled, ``Economy, infrastructure 
      thrive when Dems have the reins,'' dated June 16, 2023.....    63
Powell, Hon. Jerome H.:
    Written responses to questions for the record from 
      Representative Barr........................................    66
    Written responses to questions for the record from 
      Representative Donalds.....................................    84
    Written responses to questions for the record from 
      Representative Himes.......................................    88
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................    90
    Written responses to questions for the record from 
      Representative Mooney......................................    92
    Written responses to questions for the record from 
      Representative Sherman.....................................    95
    Written responses to questions for the record from 
      Representative Roger Williams..............................    97


                   THE FEDERAL RESERVE'S SEMI-ANNUAL



                         MONETARY POLICY REPORT

                              ----------                              


                        Wednesday, June 21, 2023

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick McHenry 
[chairman of the committee] presiding.
    Members present: Representatives McHenry, Lucas, 
Luetkemeyer, Huizenga, Wagner, Barr, Hill, Emmer, Loudermilk, 
Mooney, Davidson, Rose, Steil, Timmons, Meuser, Fitzgerald, 
Garbarino, Kim, Donalds, Flood, Lawler, Nunn, De La Cruz, 
Houchin, Ogles; Waters, Velazquez, Sherman, Lynch, Green, 
Cleaver, Himes, Foster, Beatty, Vargas, Gottheimer, Gonzalez, 
Casten, Horsford, Tlaib, Torres, Garcia, Nickel, and Pettersen.
    Chairman McHenry. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``The Federal Reserve's Semi-
Annual Monetary Policy Report.'' Not the most inventive title, 
but traditional; we call it the Humphrey-Hawkins hearing.
    I will note at the outset that this hearing has a hard stop 
at 1:00 p.m., which we will strictly observe. The Chair would 
further announce to committee members that the Chair's 
intention is to, in the second week we return in July, have a 
markup, and that markup will include two important bills: the 
first is giving digital assets a market structure and Federal 
regulatory remit; and the second is on a Federal stablecoin 
regime. It is the intention of the Chair to have that as two 
pieces of our committee markup in the second week we return in 
July.
    I now recognize myself for 4 minutes to give an opening 
statement.
    Thank you, Chairman Powell, for joining us today. Inflation 
remains broad-based and persistent, two troubling trends the 
Fed expects will continue. As you said last week, the process 
of getting inflation back to 2 percent has a long way to go. So 
even though the Federal Open Market Committee (FOMC) did not 
recommend a rate increase at last week's meeting, it is fair to 
say that the Fed will continue to make additional increases in 
the months ahead. We would like to hear your thinking on those 
matters.
    As the FOMC again pointed out last week, the labor market 
still appears tight, with Fed policymakers projecting a rise in 
the unemployment rate to a still-low 4.1 percent at the end of 
the year. Despite pressure from the left, the Federal Reserve 
must remain committed to eliminating this stealth tax on 
American workers and families, and I urge you to continue that 
resolve.
    A few weeks ago, Congress took the first step toward 
getting our fiscal house in order through the Fiscal 
Responsibility Act. Republicans will continue fighting for 
sensible spending reductions to combat inflation. This stands 
in stark contrast to the Democrats' spending spree that poured 
nearly $2 trillion into a supply-constrained economy that was 
already flush with trillions of dollars in savings provided by 
earlier bipartisan COVID rescue efforts.
    And after keeping interest rates too low, for too long, the 
Fed was slow to address the problem. In a stunning about-face, 
the Fed then raised interest rates by 5 percentage points in a 
little over a year, the fastest spike in modern history. This 
approach introduced accelerated interest rate risk for which 
companies, workers, and families across the country were not 
prepared.
    The bank runs we saw earlier this year are an example of 
the consequences. Now, we are told these runs represent a 
systemic threat to the stability of our financial system. Add 
in the commercial real estate exposure facing financial 
institutions, and it becomes very easy to understand the 
mounting anxiety consumers and job creators share, and I share 
their anxiety as well. The rapid rise in interest rates, 
coupled with knock-on effects of the bank failures, have led to 
signs of a credit crunch across the economy. This would have a 
damaging impact on consumers and job creators alike.
    To top it off, Fed Vice Chair for Supervision, Michael 
Barr, is undergoing a so-called holistic review of capital 
requirements, and something interesting that he mentioned in 
the press yesterday is a new approach to stress tests that I 
can't quite understand. If reports are accurate, he is pursuing 
a massive increase in capital standards for medium and large 
institutions. This would limit banks' ability to lend money, 
exacerbating the looming credit crunch, and starving families 
and small businesses of the capital they need. Financial 
markets will also bear the strain as they will be forced to 
absorb nearly $1 trillion in new Treasuries. This has led many 
to believe the Fed may be called on to help, perhaps through 
its repo or other facilities.
    Clearly, our economy is in a precarious position, from 
inflation, to a potential credit crunch, to substantial balance 
sheet risks for financial institutions. There is a great deal 
of uncertainty on the horizon. Uncertainty from the Fed's 
supervision and regulation is the last thing the well-
capitalized banking system needs now. Following numerous 
supervisory failures and a new Vice Chair for Supervision in 
the Federal Reserve injecting politics into policy, it has 
become clear that Congress may need to again examine separating 
supervision and regulation out of the Fed and gaining greater 
oversight and control by Congress and the elected branches.
    With that, Chairman Powell, thank you for being here today. 
The Chair now recognizes the ranking member of the committee, 
the gentlewoman from California, Ms. Waters, for 4 minutes for 
an opening statement.
    Ms. Waters. Thank you, Chairman McHenry. Chairman Powell, 
welcome back. First, I would like to start by acknowledging 
that the Federal Reserve made the right decision to pause 
interest rate hikes. As you know, since last November, I have 
cautioned against any approach to monetary policy that ignores 
the Fed's maximum employment mandate and results in a recession 
with millions of people losing their homes and jobs. While we 
have had strong job growth thus far, experts contend that this 
trend will not persist with more rate hikes, especially in 
light of new challenges. For example, the recent bank failures 
have resulted in the banking industry further restricting 
credit, making it even more important for the Fed to move with 
caution.
    The progress that we have made in reducing inflation is 
borne out in the latest Consumer Price Index (CPI) data. In 
fact, it has been 10 months since the passage of the Inflation 
Reduction Act, and inflation has successfully been cut in half. 
Every single Republican Member of Congress voted against the 
bill and chose to cozy up to the wealthy tax cheats instead of 
working with Democrats to bring down costs for middle-class 
families.
    However, the only way we will fully combat inflation is to 
address the primary driver of inflation: soaring housing costs. 
Congress must invest more in fair and affordable housing. Under 
President Biden, unemployment is also at a historic low and job 
growth is on the rise. So far, there has been 29 straight 
months of strong job growth. In fact, a record 13 million jobs 
have been created since President Biden took office.
    Democrats are working to build on this progress and grow 
the middle class so that everyone can share in this economic 
growth. Republicans, however, just can't seem to get their 
house in order. On the heels of almost blowing up our economy 
by forcing a national default, they are now picking a fight 
over a teeny-tiny fee of less than 1 percent of total housing 
costs, ignoring the costs homebuyers are paying with 7 percent 
interest rates, appraisal fees, and title insurance. Instead, 
they are fighting about gas stoves. In fact, just a week ago, 
Republican disarray got so bad that it halted business on the 
House Floor for the first time in 20 years.
    Lastly, as we continue to monitor the banking system 
following the recent bank failures, the Fed must act to correct 
the supervisory and regulatory failures identified by our 
committee's oversight. Committee Democrats recently introduced 
11 bills, including 3 of my own, to strengthen the safety and 
soundness of our banking system and hold executives accountable 
for their misdeeds. The Senate Banking Committee is holding a 
markup this morning on a bipartisan bill on bank executive 
accountability. So, I urge Chairman McHenry to join us in 
advancing sensible reforms to strengthen our nation's banking 
system
    With that, I yield back.
    Chairman McHenry. The gentlelady yields back. I now 
recognize the gentleman from Kentucky, Mr. Barr, who is also 
the Chair of our Subcommittee on Financial Institutions and 
Monetary Policy, for 1 minute.
    Mr. Barr. We expect proposals from the Fed's Vice Chair for 
Supervision that could increase capital for financial 
institutions as much as 20 percent. Our already well-
capitalized banks withstood the COVID shock and severe Fed 
stress tests as the economy is facing headwinds from the Fed's 
own rapid rate hikes. Now is not the time to be engineering 
massive new regulatory changes or hindering regional banks, 
which have already been under stress. New, onerous, one-size-
fits-all regulation by the Fed needs proper vetting and 
transparency. I would ask you today to commit to providing us 
with analysis done so far by the Fed on the Vice Chair's new 
proposals.
    I also respectfully ask that Chairman Powell revisit 
Section 1107(a)(1) of the Dodd-Frank Act to observe that the 
Vice Chair for Supervision is authorized only to develop 
recommendations for the Board and oversee supervision and 
regulation. The law does not give the Vice Chair special 
abilities to unilaterally write his own preferred regulations. 
It does not say that the Vice Chair should unilaterally write 
public-facing book reports on bank failures or results of 
climate scenario experiments. Consensus is----
    Chairman McHenry. The gentleman's time has expired.
    Mr. Barr. I yield back.
    Chairman McHenry. We will now recognize the ranking member 
of our Financial Institutions and Monetary Policy Subcommittee, 
Mr. Foster, for 1 minute.
    Mr. Foster. Thank you, Chairman McHenry, and thank you, Mr. 
Powell, for being here today. In the wake of what seemed to be 
endless novel problems and disruption, I believe the Fed and 
Congress have done a reasonable job given the cards that we 
have been dealt. And indeed, it looks like the widely-
anticipated recession from the endgame of COVID disruptions, if 
it occurs at all, will continue to be more of a soft landing 
than a disaster for our economy.
    While there is certainly more work to be done, in the 
immediate term, we can reflect with satisfaction on the 
historically-low unemployment, and 11 straight months of 
slowing inflation since the passage of the Inflation Reduction 
Act. However, I recognize that the necessary monetary policies 
put forth to combat inflation have not been without stress, 
including on the fraction of our banks that chose to ignore the 
Fed's clear forward guidance that interest rate hikes were in 
the pipeline.
    We on this committee remain committed to alleviating the 
financial stress on everyday Americans to pay rent and get food 
on the table. And I look forward to discussing how recent 
policies have performed and what else we should do going 
forward to ensure a strong economic rebound. Thank you, and I 
yield back.
    Chairman McHenry. Today, we welcome the testimony of the 
Honorable Jerome H. Powell, Chair of the Board of Governors of 
the Federal Reserve System. Chair Powell, we thank you for your 
time and for being here. We will recognize you for 5 minutes to 
give an oral presentation of your written testimony. And 
without objection, your written statement will be made a part 
of the record.
    Chairman Powell, you are now recognized.

STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIRMAN, BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you, Chairman McHenry, Ranking Member 
Waters, and other members of the committee. I appreciate the 
opportunity to present the Federal Reserve's semi-annual 
Monetary Policy Report.
    Chairman McHenry. Chairman Powell, if you will pull the 
microphone closer.
    Mr. Powell. Thanks. We at the Fed remain squarely focused 
on our dual mandate to promote maximum employment and stable 
prices for the American people. My colleagues and I understand 
the hardship that high inflation is causing, and we remain 
strongly committed to bringing inflation back down to our 2-
percent goal. Price stability is the responsibility of the 
Federal Reserve, and without it, the economy does not work for 
anyone. In particular, without price stability, we will not 
achieve a sustained period of strong labor market conditions 
that benefit all.
    I will review the current economic situation before turning 
to monetary policy.
    The U.S. economy slowed significantly last year, and recent 
indicators suggest that economic activity has continued to 
expand at a modest pace. Although growth in consumer spending 
has picked up this year, activity in the housing sector remains 
weak, largely reflecting higher mortgage rates. Higher interest 
rates and slower output growth also appear to be weighing on 
business fixed investment.
    The labor market remains very tight. Over the first 5 
months of the year, job gains averaged a robust 314,000 jobs 
per month. The unemployment rate moved up, but remained low in 
May at 3.7 percent. There are some signs that supply and demand 
in the labor market are coming into better balance. The labor 
force participation rate has moved up in recent months, 
particularly for individuals aged 25 to 54. Nominal wage growth 
has shown some signs of easing, and job vacancies have declined 
so far this year. While the jobs-to-workers gap has narrowed, 
labor demand still substantially exceeds the supply of 
available workers.
    Inflation remains well above our longer-run goal of 2 
percent. Over the 12 months ending in April, total personal 
consumption expenditures (PCE) prices rose 4.4 percent. 
Excluding the volatile food and energy categories, core PCE 
prices rose 4.7 percent. In May, the 12-month change in the CPI 
came in at 4.0 percent and the change in the core CPI was 5.3 
percent.
    Inflation has moderated somewhat since the middle of last 
year. Nonetheless, inflation pressures continue to run high, 
and the process of getting inflation back down to 2 percent has 
a long way to go. Despite elevated inflation, longer-term 
inflation expectations appear to remain well-anchored, as 
reflected in a broad range of surveys of households, 
businesses, and forecasters, as well as measures from financial 
markets.
    With inflation running well above our longer-run goal of 2 
percent, and with labor market conditions remaining tight, the 
FOMC has significantly tightened the stance of monetary policy. 
We have raised our policy interest rate by 5 percentage points 
since early last year, and we have continued to reduce our 
securities holdings at a brisk pace. We have been seeing the 
effects of our policy tightening on demand in the most-
interest-rate-sensitive sectors of the economy. It will take 
time, however, for the full effects of monetary restraint to be 
realized, especially on inflation.
    The economy is facing headwinds from tighter credit 
conditions for households and businesses, which are likely to 
weigh on economic activity, hiring, and inflation, and the 
extent of these effects remains uncertain. In light of how far 
we have come in tightening policy, the uncertain lags with 
which monetary policy affects the economy, and potential 
headwinds from credit tightening, the FOMC decided last week to 
maintain the target range for the Federal funds rate at 5- to 
5.25 percent, and to continue the process of significantly 
reducing our securities holdings.
    Nearly all FOMC participants expect that it will be 
appropriate to raise interest rates somewhat further by the end 
of the year. But at last week's meeting, considering how far 
and how fast we have moved, we judged it prudent to hold the 
target range steady to allow the Committee to assess additional 
information and its implications for monetary policy. In 
determining the extent of additional policy firming that may be 
appropriate to return inflation to 2 percent over time, we will 
take into account the cumulative tightening of monetary policy, 
the lags with which monetary policy affects economic activity, 
and inflation, economic, and financial developments.
    We will continue to make our decisions meeting by meeting 
based on the totality of incoming data and their implications 
for the outlook for economic activity and inflation, as well as 
the balance of risks. We remain committed to bringing inflation 
back down to our 2-percent goal and to keeping longer-term 
inflation expectations well-anchored. Reducing inflation is 
likely to require a period of below-trend growth and some 
softening in labor market conditions. Restoring price 
stability, again, is essential to set the stage for achieving 
maximum employment and stable prices over the longer run.
    Before concluding, let me briefly address the condition of 
the banking sector. The U.S. banking system is sound and 
resilient, as detailed in the box on financial stability in our 
Monetary Policy Report. The Fed, together with the Treasury and 
the FDIC, took decisive action in March to protect the U.S. 
economy and to strengthen public confidence in our banking 
system. The recent bank failures, including that of Silicon 
Valley Bank, and the resulting bank stress have highlighted the 
importance of ensuring that we have the appropriate rules and 
supervisory practices for banks of this size. We are committed 
to addressing these vulnerabilities to make for a stronger and 
more-resilient banking system.
    We understand that our actions affect communities, 
families, and businesses across the country. Everything we do 
is in service to our public mission. We at the Fed will do 
everything we can to achieve our maximum employment and price 
stability goals. Thank you.
    [The prepared statement of Chairman Powell can be found on 
page 58 of the appendix.]
    Chairman McHenry. Thank you, Chairman Powell. I now 
recognize myself for 5 minutes.
    Chairman Powell, as I laid out in my opening statement, 
inflation continues to be broad-based and persistent, both of 
which are concerning. Last week, the Federal Open Market 
Committee (FOMC) decided to pause rate increases, and at the 
same time, the Committee alluded that it would raise rates more 
later in the year. So, how should the FOMC's posture at the 
June meeting be interpreted? Will the Committee continue to 
raise rates later this year?
    Mr. Powell. Thank you, Mr. Chairman. You are right. Of 
course, we did decide to maintain the Federal funds rate at its 
current rate at this meeting. At the same time, participants 
submitted personal forecasts. Almost all of them thought there 
will be additional hikes, and I just want to say those two 
things are entirely consistent, the point being that the level 
to which we raise rates is actually a separate question from 
the speed with which we move. Earlier in the process, speed was 
very important. It is not very important now. The sense of the 
summary of economic projections and the decision really is just 
that, given how far we have come, it may make sense to move 
rates higher, but to do so at a more moderate pace. That is 
really it.
    We were at 75 basis points for several meetings, then we 
were at 50 basis points, then 25 basis points at 3 consecutive 
meetings, and now we are monitoring that pace as much as you 
might do if you were to be driving at 75 miles an hour on the 
highway, then 50 miles an hour on a local highway, and then as 
you get closer to your destination, as you try to find that 
destination, you slow down even further.
    Chairman McHenry. Okay. So, more data is necessary for the 
Fed to make these decisions, and that is one interpretation, 
but thank you for a broader view there.
    I also want a broader view on this question. The Vice Chair 
for Supervision is performing his own personal holistic review 
of the Fed's regulatory framework for bank capital and 
liquidity. In an interview yesterday, he discussed some version 
of a new type of stress test, even striking complete confusion 
in his description of it.
    And at the same time, we have testimony from you, and even 
from the Vice Chair for Supervision, saying that we have a 
sound banking system that is well-capitalized. You will sit in 
judgment of this proposal that the Vice Chair for Supervision 
will bring to the full Board on this holistic review of 
capital. There are a lot of discussions about the amounts of 
capital he is talking about. The concern that this is pro-
cyclical at a time where our economy with higher rates is you 
are measuring what is happening in the broader economy. And at 
the same time, we are going to have a major piece of capital 
required by financial institutions, which will further restrict 
lending. So, how can you tell us to think about that, given 
your seat on the Federal Open Market Committee and your 
position as a Fed Governor? How would you interpret that?
    Mr. Powell. I guess I would say that you are right. There 
are a significant number of proposals that are kind of in the 
works. They haven't been finalized, let alone brought to the 
Board yet, so I can't really get into specific details today.
    Chairman McHenry. But we would like your thinking, Chairman 
Powell. That is what we would like.
    Mr. Powell. What I can share is principles and how I will 
think about this. Regulatory proposals go to the Board. Every 
person on the Board--that is six Governors now--has an 
obligation to evaluate and vote on those, and I am one of those 
people. I also chair the Board.
    There are a couple of things I would point out. First, I 
think regulation should be transparent, consistent, and not too 
volatile, particularly as it relates to capital requirements. I 
do note the central importance of capital. We want banks to be 
resilient to shocks. We want them to be able to lend in both 
good and bad times. We want, in particular, the global 
systemically important banks (G-SIBs), which are the 8 largest 
banks, to have very high levels of capital and liquidity. 
Indeed, we have spent years raising those levels over a long 
period of time. And I think there is broad agreement, as you 
point out, that capital is strong, and the question there will 
be what sorts of increases will be justified? That is what we 
will be looking at.
    The other thing to point out is the tradeoff between higher 
capital--the benefit of it, of course, is to have stronger 
banks that can lend and maybe survive more kinds of crisis 
environments, but there are costs as well there. And I think it 
is going to be, as always, a question of weighing and balancing 
those costs, and that is what I will be thinking about. The 
last thing I will say about that is just we benefit from having 
banks of all different shapes and sizes in our system, and we 
want to be careful not to regulate the smaller banks to the 
point where their business models are challenged for all but 
the largest banks.
    Chairman McHenry. This committee would expect to see a 
quantitative analysis of whatever the capital charge is going 
to be. We expect that from the Fed, as we do from other 
regulators.
    With that, we will now recognize the ranking member of the 
committee, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much. Chair Powell, at this 
committee's last hearing on digital assets, my Republican 
colleagues proposed a stablecoin bill that would create 58 
different licenses, with Federal regulatory approval over only 
2 of the licenses. The remaining 56 licenses could be issued by 
each State, Territory, and Washington, D.C., with little or no 
Federal oversight, regulation, and enforcement.
    This proposal takes State preemption to a whole new level. 
It effectively allows every State to preempt another State. 
D.C.-based coins, for example, would be sold to individuals 
nationwide, and New York or North Carolina regulators could do 
nothing to protect their own residents, while even the Fed 
would be severely hamstrung in providing any oversight. I have 
argued that we should allow States to be part of this process, 
but we must have a strong, enforceable Federal floor with a 
role for the Federal Reserve to approve and provide oversight 
of payment stablecoins issued by nonbanks in order to ensure 
that consumers are protected. Such a framework is similar to 
our dual banking system, and it would ensure that nonbanks and 
banks are treated the same.
    We should also bear in mind that payment stablecoins are a 
new form of currency intended to allow individuals to pay for 
things with them. As such, do you agree that it is important 
for the Fed, as our central bank, to have a chance to approve 
or decline any State-licensed non-bank entity before it starts 
issuing payment stablecoins nationwide?
    Mr. Powell. First of all, let me say we appreciate that we 
have been able to offer our views on these things to your staff 
and also the Majority staff, and we appreciate the 
consideration that is given to our views. We do see payment 
stablecoins as a form of money, and in all advanced economies, 
the ultimate source of credibility in money is the central 
bank. And we believe that it would be appropriate to have quite 
a robust Federal role in what happens with stablecoins going 
forward, and that leaving us with a weak role, and allowing a 
lot of private money creation at the State level, would be a 
mistake. But nonetheless, again, I do appreciate that we have 
been able to be heard and share our views with the committee.
    Ms. Waters. Thank you so very much. I am appreciative for 
that clear answer. The next question I have for you is a bit 
unusual, but one of the reasons we push diversity is because 
issues of people of color, et cetera, have not been dealt with. 
I am going to throw you something that you would not expect.
    Earlier this week, our nation celebrated Juneteenth, which 
Congress recognized as a national holiday for the first time in 
2021. This holiday celebrates the day enslaved African 
Americans in Texas heard that they were free, 2\1/2\ years 
after the Emancipation Proclamation was issued. To this day, 
Black Americans grapple with enduring racial and economic 
inequality that has its roots in slavery, as evidenced by the 
Black-White gap in net worth and homeownership rates. My bill, 
the Federal Reserve Racial and Economic Equity Act, would 
require the Federal Reserve to carry out its duties in a manner 
that supports the elimination of racial and ethnic disparities 
in employment, income, wealth, and access to affordable credit.
    Now, the Fed has a number of duties: to pursue maximum 
employment in monetary policy; to supervise banks for 
compliance with our fair lending laws; and to ensure that the 
Community Reinvestment Act is administered in a way that puts 
an end to discriminatory redlining practices by banks. Do you 
agree with me and Atlanta Federal Reserve Bank President, 
Raphael Bostic, among others, that the Fed has a role to play 
in addressing racial and economic inequality as it carries out 
its work until Congress passes this bill? What steps can you 
take to address racial and economic inequality?
    Mr. Powell. We do consider inequality in the economy as 
part of our thinking about decisions, and those are certainly 
highly-valuable social goals to pursue. I would say our ability 
to take part in addressing those issues is fairly limited. We 
have one Federal interest rate that we set. We do try to keep 
in mind, as you know, not just the aggregate national level of 
unemployment or employment, but also that for different ethnic 
groups, so we take that into account. And I think that is just 
part of making sure that we feel like we have all Americans in 
the room with us when we are making decisions on monetary 
policy. I will say, though, I think other agencies are better 
suited to address these deep issues.
    Ms. Waters. Thank you. We must have this continued 
discussion on racial equality. I yield back.
    Chairman McHenry. The gentlelady yields back. We will now 
go to the Vice Chair of the committee, Mr. Hill of Arkansas, 
for 5 minutes.
    Mr. Hill. I thank the chairman of the committee, and, 
Chairman Powell, it's great to have you back before the 
committee. This morning, you have reiterated, and certainly 
Vice Chair Barr has reiterated a number of times that the 
banking industry here in the United States is well-capitalized. 
And, in fact, capital levels have remained robust despite 
COVID-19, with a 20-plus percent unemployment rate increase, 
and a 9-percent output gap. They have remained stable through 
government shutdowns. They have remained stable through severe 
stress testing. And maybe more importantly, just in the last 
few months, since the first week of March, you have seen strong 
capital come into play as we have grappled with the reality of 
a 40-year increase in short-term interest rates and that impact 
on banks.
    But as Chairman McHenry said, Vice Chair Michael Barr 
continues to say he wants to increase capital requirements on 
certain financial institutions. And in March, you testified 
that, ``I will do everything I can possibly do to bring people 
together--meaning on the Board of Governors--in consensus, and 
have a capital framework that could be broadly supported.'' To 
what extent have you and the other Governors been involved in 
this so-called holistic review by Vice Chair Barr? Has he 
briefed the other members of the Board of Governors thus far?
    Mr. Powell. Yes, and we have all been briefed by staff on 
the proposals, but as I mentioned, they are still somewhat in 
motion, but, yes, we have been briefed.
    Mr. Hill. So, you would say those proposals are still under 
consideration and that there is no final decision that has been 
made by the Board?
    Mr. Powell. Well, no. Once the proposals really do settle 
down and are written up, they will come to the Board for a full 
discussion and a vote.
    Mr. Hill. Has the Fed Board reconstituted the Committee on 
Supervision and Regulation, the membership of it?
    Mr. Powell. Yes. Oh, absolutely.
    Mr. Hill. And who is on that Committee now?
    Mr. Powell. That Committee is chaired by Vice Chair Barr, 
and it also includes Governor Jefferson, and it includes 
Governor Bowman.
    Mr. Hill. When you look at capital in the U.S. and look at 
the global systemically important banks (G-SIBs) here versus 
other places in the world, would you say that the U.S. banks, 
the U.S. G-SIBs are better capitalized than their global peers 
in Europe or in Asia?
    Mr. Powell. We are certainly at or near the top-of-the-
league table. I think there are a couple of other jurisdictions 
that also have broadly similar levels of capital strength, but, 
yes, we are at the top-of-the-league table.
    Mr. Hill. I looked at it this morning, and the U.S. G-SIBs 
have 11.3 percent capital without any kind of modification 
compared to their European competitors at only 9.9 percent. 
Would you say that we are better capitalized than the European 
banks, the European G-SIBs?
    Mr. Powell. I hate to call out the other jurisdictions, but 
I would say our banks are very strongly capitalized and also 
competing quite successfully globally outside the United 
States.
    Mr. Hill. Yes, I agree. And I think we have strengthened 
capital and we have strengthened our supervision, 
notwithstanding the problems that we saw this spring, which we 
have talked about ad nauseam here, but I think that capital 
standard does make American banks stand out. And as for the so-
called Basel III holistic reforms, wouldn't it be better if the 
European banks did a holistic review and actually got their 
capital up to American standards?
    Mr. Powell. I think they are bound by the same--nobody is 
bound by these, but they have agreed to follow the same 
standards, and I think they are going through the same process 
we are going through.
    Mr. Hill. Same topic. The FDIC supervisory process and the 
OCC supervisors, are they involved and engaged with Vice Chair 
Barr in looking at this, ``holistic,'' review of capital 
adequacy? In other words, are they providing their input to the 
Vice Chair for Supervision and their own views on this topic?
    Mr. Powell. On the regulatory proposals that are relevant 
to them, yes. I think on the capital proposals, yes, I believe 
so.
    Mr. Hill. And you made a comment a minute ago, I think to 
Chairman McHenry's question, that you would like to see rules 
and supervisory rules consistent over time, and I think that is 
frustrating. Here, we see change in Administrations. Sometimes, 
we see change in rules, which is, I think, frustrating to the 
private sector and to market participants. I note that the 
Biden Administration says that the Financial Stability 
Oversight Council (FSOC) should now base their decisions on 
size as opposed to activities, and for several years now, we 
have had an activities designation and a cost-benefit analysis. 
Do you think the activities designation gives supervisors more 
discretion at FSOC to select who should be deemed under their 
supervision?
    Mr. Powell. I actually think that one----
    Mr. Hill. In other words, should we be looking only at 
size, or should we look at cost-benefit analysis and 
activities? My time has expired, so if you would answer that in 
writing, I would appreciate it. I think this is an important 
issue.
    Mr. Powell. Okay.
    Mr. Hill. I yield back, Mr. Chairman.
    Chairman McHenry. We will now go to Ms. Velazquez of New 
York for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. Chair Powell, at 
your press conference last week, you stated, ``The Committee is 
completely unified in the need to get inflation down to 2 
percent, and we will do whatever it takes to get it down to 2 
percent over time.'' Some analysts have interpreted this 
statement as the FOMC's willingness to trigger a recession in 
order to get inflation to 2 percent. How would you respond? Is 
this is a fair and accurate interpretation?
    Mr. Powell. Our statutory goals are price stability and 
maximum employment, and we are dedicated to using our tools to 
achieve those goals. In the case of employment, we still have 
historically-low unemployment rates and high employment rates 
now, a high participation, and a very strong labor market. We 
are very far from our inflation target of 2 percent, and we are 
very focused on getting back to 2 percent.
    Ms. Velazquez. And how does the FOMC take into 
consideration the impact of rising interest rates on low- and 
moderate-income (LMI) communities and small businesses when 
determining monetary policies?
    Mr. Powell. We only have one main interest rate to raise or 
lower, and it applies to everyone. But I would say that 
inflation hits LMI communities and people generally at the 
lower end of the income spectrum much harder than people in the 
middle or at the high end because high inflation can get you 
into trouble right away if you are living on a fixed income, 
just to cover the basic necessities. So, it is for the benefit 
of those people that we must get inflation under control. It is 
for the benefit of all Americans, but particularly for those 
people, and we keep that in mind as we are strongly committed 
to getting inflation back down to 2 percent over time.
    Ms. Velazquez. And they are the same people who are having 
a hard time accessing loans, and it's the same with small 
businesses. Chair Powell, Vice Chair Barr's report on the Fed's 
review of Silicon Valley Bank states that while there was 
regulatory tailoring conducted in response to S. 2155, there 
was also--and this is the part that really concerns me--a 
cultural shift at the Fed under the direction of the previous 
Vice Chair for Supervision, Randy Quarles. According to the 
report, this shift included pressure to reduce burdens on 
firms, meet a higher burden of proof for a supervisory 
conclusion, and a need to accumulate more evidence than in the 
past. As Chair during that period, were you aware of this 
cultural shift and the impact it was creating?
    Mr. Powell. I think we learned from the Silicon Valley 
failure and the others that there is going to be a need for 
stronger supervision and also regulation for banks of that 
size, and I am committed to learning the right lessons from 
this exercise and to forthrightly implementing changes.
    Ms. Velazquez. But were you aware of the cultural shift?
    Mr. Powell. I can't really characterize it that way. 
Certainly, I was aware that we were trying to avoid excessive 
regulatory burden. That is always inappropriate----
    Ms. Velazquez. Do you disagree with Vice Chair Barr's 
report in that respect?
    Mr. Powell. I am sure that the people who wrote the report 
were accurately reporting what they heard from back in the----
    Ms. Velazquez. How often were you meeting with Vice Chair 
Quarles?
    Mr. Powell. Reasonably frequently. We sat quite near each 
other.
    Ms. Velazquez. And never discussed a cultural shift?
    Mr. Powell. I didn't say that. The way you are describing 
it is not what I recall. I recall Vice Chair Quarles talking 
about things like focusing on the really important issues and 
not getting diverted into other----
    Ms. Velazquez. So, the way it was described by Vice Chair 
Barr is not what you recall?
    Mr. Powell. I had no part in----
    Ms. Velazquez. What steps----
    Mr. Powell. I said I had no part in preparing the report. I 
am confident that the staff who worked on the report reported 
accurately what they heard. I am sure that is right.
    Ms. Velazquez. What steps did you take proactively to meet 
with regulatory and supervisory staff?
    Mr. Powell. I think we are taking significant steps now. As 
you know, under Vice Chair Barr's leadership, we are looking 
carefully at these events and asking ourselves what we need to 
do with supervision. I think there is a point to be made that 
there are situations in which we need to be more forceful and 
more proactive, not in all situations, but in some. In 
regulation, I think we are learning that we need to update our 
thinking around liquidity regulation, which was based on a 
certain speed of bank runs, which now looks to be outdated.
    Ms. Velazquez. My time has expired.
    Chairman McHenry. The gentlelady's time has expired. We 
will now recognize the gentleman from New York, Mr. Garbarino, 
for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman. Chairman Powell, 
thank you for being here. I just want to start off by asking a 
few yes-or-no questions. Was the Silicon Valley Bank failure a 
result of a liquidity issue?
    Mr. Powell. I'm sorry?
    Mr. Garbarino. Was the Silicon Valley Bank failure the 
result of a liquidity issue?
    Mr. Powell. Among other things, yes.
    Mr. Garbarino. Was the Signature Bank failure the result of 
a liquidity issue?
    Mr. Powell. Yes. There were also a lot of very bad 
management decisions being made there.
    Mr. Garbarino. Was the First Republic Bank failure the 
result of a liquidity issue also?
    Mr. Powell. Among other things, yes. I wouldn't say just 
liquidity.
    Mr. Garbarino. Okay. Were any of them a failure of having 
too-low capital levels?
    Mr. Powell. Let's go to Silicon Valley Bank. The issue that 
triggered the run initially was the presence of significant 
losses in their securities portfolio.
    Mr. Garbarino. Yes.
    Mr. Powell. And that is a capital issue.
    Mr. Garbarino. So, they had too-low capital.
    Mr. Powell. As you know, they weren't required to take that 
into account in their capital. If you remember, what people 
were focusing on was these portfolio losses, and then what 
people weren't focusing on was the fact that they had in excess 
of 90-percent uninsured deposits, and that is what caused the 
run.
    Mr. Garbarino. Would increasing capital requirements for 
Silicon Valley Bank or any of these other banks have stopped 
these banks from failing?
    Mr. Powell. That is a hypothetical, unknowable question. I 
think it might have helped, but----
    Mr. Garbarino. Increasing it by how much would have helped?
    Mr. Powell. It is very hard to say. Clearly, the main issue 
there was a failure of management to follow up, a failure of 
supervision to require them to follow up, and really, the 
liquidity regulation was not appropriate. We needed to have 
stronger regulation around liquidity and uninsured deposits.
    Mr. Garbarino. Last year, you said the banking system is 
very strong, well-capitalized, and highly liquid, and it does a 
much better job of understanding the risks that it runs and 
managing them, and just today, you said the banking sector 
seems to be strong. Do you still stand by those things? I mean, 
you just said it today.
    Mr. Powell. Yes.
    Mr. Garbarino. Yes. And last month, Vice Chair Barr 
appeared before this committee, and he agreed with you and 
said, overall, banks have strong capital and liquidity. 
Treasury Secretary Yellen has said similar things. Even though 
you have all said that banks need to have strong capital, you 
seem to leave us today by saying the bank is considering what 
increase would be appropriate of capital requirement. Has the 
Board already decided that an increase will happen, and they 
are just deciding what the size is of the increase for capital 
requirements?
    Mr. Powell. No. What I thought I said was that any increase 
above these levels would need to be shown to be justified.
    Mr. Garbarino. Do you personally think that an increase is 
necessary at this time?
    Mr. Powell. Do I think----
    Mr. Garbarino. That an increase in capital requirements is 
necessary at this time.
    Mr. Powell. Look, I am going to react to whatever the 
proposal turns out to be in the end and give it my best 
assessment. That is what I will say.
    Mr. Garbarino. Okay. You just also say that credit is 
tightening. Won't increasing capital requirements further 
tighten credit?
    Mr. Powell. The thing about capital requirements is if we 
put a proposal out this summer, let's say, it will be quite a 
while before that proposal is agreed to among the agencies and 
voted on, and then it will take some years to come into full 
effect. Whereas interest rates, for example, have immediate 
effects on financial conditions and reasonably quick effects on 
economic activity, capital requirements are a much more sort of 
medium-term, longer-term thing.
    Mr. Garbarino. I would like to move on to what impacts 
raising capital requirements would have. According to academic 
literature by the Basel Committee on Banking Supervision, a 1-
percent-point increase in capital requirements could 
potentially reduce annual GDP by up to 16 basis points, showing 
that higher capital requirements come at a cost and could have 
a significant impact on the U.S. economy. I discussed this with 
Vice Chair Barr last month and expressed my concerns about the 
impact of increased capital on the real economy, but he didn't 
answer the question directly.
    We are hearing from all sorts of industries that these 
increased capital requirements at any level would have a 
further tightening on lending, and I am hearing that from 
everybody. If that happens, it is going to be a real disaster. 
So, I think for anything that the committee proposes, if you 
could come back and brief us on before it is finalized, we 
would appreciate that very much, sir.
    Chairman McHenry. The gentleman's time has expired. The 
gentleman from Missouri, Mr. Cleaver, is now recognized.
    Mr. Cleaver. Thank you, Mr. Chairman. And welcome, Chairman 
Powell. Thank you very much. This is probably Economics 101, 
but a lot of people in my district are misunderstanding 
Economics 101, along with me.
    In May of this year, unemployment remained at 4 percent for 
the 16th consecutive month, and at 3.7 percent. This means that 
unemployment remained at or below 4 percent for the longest 
stretch in 50 years. In the U.S., the job openings rate has 
fallen by more than 1.5 percentage points from its peak while 
the unemployment rate has crept slightly lower. In other words, 
job openings declined but so did joblessness, and I am 
wondering if there was any expectation that this would occur?
    Mr. Powell. The ratio of job openings to unemployed people 
has been in historic territory, all-time highs for a while now 
in the last year or so, and there is an expectation that it 
will come down. A while ago, there were two jobs for every 
unemployed person. Now, we are down to 1.7, I believe, or 1.6, 
and that still speaks to a historically-tight labor market 
where the demand for labor still very substantially exceeds the 
supply of available workers. And by the way, that is a way that 
the labor market can become less tight without having 
unemployment go up.
    Mr. Cleaver. I am sure you are hearing this all over, as I 
am. I have a good friend who has a number of barbecue 
restaurants in Kansas City, and he is constantly telling me how 
difficult it is to find workers, to the point where he did 
something that he would never do: He put a sign out in front of 
his restaurants of job openings. Are there particular 
industries or sectors of the economy where we would expect this 
sentiment to be particularly true?
    Mr. Powell. No, and that is right. There is still a 
significant labor shortage. The surveys at the aggregate level 
show that it is not as bad as it was 2 years ago. And 
gradually, businesses are reporting that they are better able 
to find workers. And workers are reporting that they are not 
quitting their jobs as much as they were. A really good sign of 
how tight a labor market is, is how much people feel free to 
quit their jobs voluntarily. So, those things are all 
suggesting a gradual cooling and gradually getting supply and 
demand back into alignment, but we are not there yet. We still 
have a significant excess of demand over supply.
    Mr. Cleaver. Are we also finding that--I know in Missouri, 
in spite of the fact that there is some jelly-like movement 
with the economy, people are still willing to go out and buy 
homes. We are not having difficulty in terms of people going 
out and getting loans, even with the interest rates rising. If 
the consumers are constantly paying whatever the interest rates 
might be, are we going to get stuck just continually going up?
    Mr. Powell. No, I don't think so. The housing sector 
nationally has flattened out and maybe ticked up a little bit, 
but at a much lower level from where it was with rates as high 
as they are. Supply and demand are getting back into alignment. 
And I do think that housing inflation is set to come down as we 
move forward. There is a particular way that the inflation is 
calculated there so that you are waiting for leases to come due 
and roll over at much lower levels of increase. So, we think 
housing inflation will be coming down significantly over the 
course of the rest of this year and next year.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Chairman McHenry. The gentleman's time has expired. The 
gentlewoman from California, Mrs. Kim, is recognized.
    Mrs. Kim. Thank you for recognizing me, Mr. Chairman, and 
Chairman Powell, thank you for joining us. I appreciate your 
comment to price stability and commend your efforts to reduce 
inflation and make life more affordable for all Americans. 
Thank you for that.
    The 10,000 Small Businesses survey of 2,000 small 
businesses found that 77 percent were concerned about their 
ability to access capital. With that in mind, do you think it 
is appropriate for the Federal Reserve to increase capital 
requirements at this time? And I know this was discussed 
earlier, but what specific analysis has the Fed conducted so we 
can determine the impact of this warrantless regulatory action 
on small businesses and other marginal borrowers?
    Mr. Powell. With capital standards, it is always a 
tradeoff. More capital means a more stable, more sound, and 
more resilient banking system, but it also, at the margin, can 
mean a little bit less credit availability, and also, the price 
of credit can be affected, and there is no perfect way to 
assess that balance. Obviously, the answer is not zero capital 
and it is not 100 percent capital, so it is somewhere in the 
middle.
    Mrs. Kim. Yes. Thank you. There are estimates that about 
$1.5 trillion of commercial real estate loans that are maturing 
in the next 3 years, and a decline in demand in the prevalence 
of work-from-home policies are putting a strain on the 
commercial real estate market. The bulk of commercial real 
estate loans are held by smaller and regional banks. Is the Fed 
thinking about policies that could provide time for commercial 
real estate loans to be refinanced, and could an increase in 
capital requirements reduce liquidity in the commercial real 
estate loan market?
    Mr. Powell. We are very focused on the commercial real 
estate situation. You are right, of course, that a good portion 
of the commercial real estate loans are held in smaller banks. 
And supervisors are very much engaged with those banks, and it 
is particularly banks that have a high concentration. That is 
what we look for among the smaller banks, and there are some of 
those. But there is a playbook for working your way out of 
these loans, and it is particularly in the office sector where 
working from home is still a pretty material factor in some 
areas, as you know.
    Mrs. Kim. Thank you. The next question has to do with the 
Board's processes and procedures. What are those procedures 
that govern consideration and potential adoption of matters 
like the proposals that Vice Chair Barr is about to present to 
the Board?
    Mr. Powell. On regulation as opposed to supervision, on 
regulation, the Board of Governors votes on regulatory 
proposals, and it is a majority vote. We now have six voters. 
So, when there is a proposal, it will be briefed carefully, 
then we will have a meeting, or it can actually be done 
virtually, and it probably will be done that way, as most of 
our meetings are, and then we have a vote. On supervision, it 
is different. Most supervisory matters are really under the 
authority of the Vice Chair for Supervision under the law, so 
most of them don't have to go to the Board for a vote.
    Mrs. Kim. What percentage of the Governors must vote in 
favor?
    Mr. Powell. A majority.
    Mrs. Kim. The majority of them?
    Mr. Powell. Yes.
    Mrs. Kim. Okay. The California Governor, prior to the 
depositor bailout for Silicon Valley Bank (SVB), reportedly 
identified that he had been in touch with the highest levels of 
leadership at the White House and the Treasury. The Governor 
also, on Sunday, March 12th, when the bailout was announced, 
issued his own statement praising that action. There have also 
been reports that the Governor and his wife, with respect to 
their business and perhaps other interests, may have had 
depositor interest in SVB. So when the Federal Reserve Board, 
the FDIC Board, and Secretary Yellen, in consultation with the 
President, recommended invoking the systemic risk exception for 
SVB, and then decided to provide blanket insurance even on 
uninsured balances, did the Fed or any others, to your 
knowledge, perform any conflict-of-interest due diligence?
    Mr. Powell. No. We were in an emergency situation. On 
Monday morning, there was going to be and there was a run on 
banks that had high uninsured depositors.
    Mrs. Kim. Looking back, do you think there was any----
    Mr. Powell. We carried out our duties.
    Mrs. Kim. Yes.
    Mr. Powell. I am pretty sure we did the right thing.
    Mrs. Kim. And you don't think there was any conflict of 
interest, even looking back on that?
    Mr. Powell. I have nothing. I have absolutely no knowledge 
on that.
    Mrs. Kim. Okay. Thank you. Thanks for being here. I yield 
back the balance of my time.
    Chairman McHenry. The gentlelady yields back. The gentleman 
from Texas, Mr. Gonzalez, is recognized.
    Mr. Gonzalez. Thank you, Mr. Chairman, and Ranking Member 
Waters. And thank you, Chairman Powell, for being here with us 
this morning.
    The June Federal Open Market Committee report indicates 
inflation in the U.S. and abroad continues to ease but remains 
elevated. In response to the proposed interest rate increases 
up until June 14th, the recommendation is to pause interest 
rate hikes for the first time this year. Research has shown 
that the effects of monetary policy decisions like raising 
interest rates can take, on average, 42 months to be realized 
fully in the United States, meaning we may not fully understand 
the effects of this first increase in rates of March 2022 until 
next fall. With that in mind, how have our recently-tightened 
monetary policies impacted the strength of the U.S. dollar and 
how it is valued globally?
    Mr. Powell. Let me say that there is a lot of uncertainty 
around how long it takes monetary policy to affect real 
activity. There is no agreement on 42 months or any particular 
time, and I think most people would say shorter than that. Are 
you asking how it would affect the dollar?
    Mr. Gonzalez. Yes.
    Mr. Powell. First of all, the Treasury Department has 
responsibility for the level of the dollar and the stewardship 
of the dollar as a currency. We don't actually comment on that. 
We don't look at any particular level. To us, it is a financial 
condition. A stronger dollar means certain things and a weaker 
dollar means certain other things.
    Mr. Gonzalez. It continues to be a concern here in this 
committee. Also, Chairman Powell, as you are aware, the Federal 
Reserve's core mission is to keep employment up and inflation 
down. Although I understand the calls for climate-related 
financial risk management from my colleagues, we should be 
focusing on the economic state of our country. The credit of 
the U.S. dollar is at jeopardy. And as you know, we have had 
global pressure recently, and we need to be sending a clear 
message that the world can rely on the full faith and credit of 
the United States dollar. We should be focusing on mitigating 
the calls to reduce dependency of the U.S. dollar. Monetary 
policy changes implemented in the U.S. are likely to cause a 
ripple effect throughout the global economy.
    With that said, would you agree that monetary policies to 
directly address climate change should be made by Congress and 
not the Federal Reserve, and implementing monetary policies and 
supervisory tools to exclude energy leaders from capital and 
financial institutions would have a grave impact on local, 
State, Federal, and even global economies?
    Mr. Powell. I strongly agree that we have quite a narrow 
role in climate change, and really, the important decisions 
about climate change need to be made by elected people, not by 
the Fed.
    Mr. Gonzalez. Thank you, and I yield back.
    Chairman McHenry. The gentleman yields back. The gentleman 
from Florida, Mr. Donalds, is recognized.
    Mr. Donalds. Thank you, Mr. Chairman. Chairman Powell, 
thank you for being here. I really appreciate you being here.
    I have to say, first of all, it was good to hear from the 
other side of the aisle that the Federal Reserve should not 
even be engaging and using its tools with respect to climate 
change, or climate mitigation, or whatever the case might be. 
You have a big enough job as it is, so adding anything like 
that to your job, I think, would be wholly detrimental to the 
American economy, so I, for one, am glad to hear that coming 
from the other side of the aisle.
    You have had a couple of questions already on capital, bank 
capital, et cetera. Look, some of the current views are that 
continuous raises of bank capital will increase costs to our 
economy anywhere from $50- to $200 billion. What is your view 
of the current desire or mode of Vice Chair Barr to fully 
implement the Basel III capital standards?
    Mr. Powell. I think that is the next thing. Vice Chair 
Quarles was working on that. It didn't get completed for 
various reasons. I think that is an international capital 
standard that we should go ahead and complete. As to the right 
level of capital, that is a discussion we are about to have.
    Mr. Donalds. At the Fed, are you kind of concerned about 
the fact that it now seems like the European regulators are 
starting to pull back from that, that they are starting to 
think about capital standards being too much for European banks 
and that they are starting to recede from what was, I assume, 
kind of a handshake agreement in years gone by?
    Mr. Powell. I am not hearing that exactly. We will be 
watching that carefully, though.
    Mr. Donalds. We have, in my view, aggressively gone through 
this process of increasing capital standards and capital 
requirements on Tier 1 capital for banks. In retrospect, do you 
think that has been a net positive to the overall banking 
environment, or do you believe it has been a negative to the 
overall banking environment?
    Mr. Powell. I think it has been a net positive. And as I 
pointed out earlier, U.S. banks have competed very, very 
successfully through this period, despite what were pretty 
significant capital increases that we put in a few years back. 
So, it really has led to a very strong and also made it well 
through the pandemic period, I thought, and I think that was a 
pretty good test. So, even though the government did do a lot 
to support the economy, I still think that those capital hikes 
we made in the last cycle come through looking pretty good.
    Mr. Donalds. Do you guys at the Fed--I say, ``you guys,'' 
because I know you are the Chairman, but there are other 
members as well--have a view of the concern about community 
banking in the United States or lack thereof of community 
banking? It has been shrinking quite significantly over the 
past 10 or 12 years.
    Mr. Powell. Very much so. It is a focus for us. We 
understand the importance of community banks, that they provide 
a different service and a really important service to smaller 
businesses and communities. And community banks have been 
consolidating for 30 years now, so it is really a secular trend 
as people have moved to bigger cities and things like that, but 
we don't want to do anything to move that along. We think that 
the world is not a better place with fewer community banks, and 
we try to keep that in mind in all of the regulatory and 
supervisory things that we do.
    Mr. Donalds. Do you think that Federal regulatory policy, 
apart from Congress, has led to a supercharging effect of 
diminished community banking in the United States?
    Mr. Powell. It has probably been a factor, but I do think 
there have been important demographic factors as well, and also 
having interstate banking. Interstate banking only became legal 
quite recently, and that also has led to consolidation. You can 
look back, again, look back 30-plus years, and you will see a 
very steady decline, so I think there are demographic and other 
factors driving it. But regulation can fall as a fixed cost, 
which means that institutions need to be bigger, and I think 
that is probably part of the story.
    Mr. Donalds. I don't disagree with your conclusion. I am 
just concerned about the trajectory. I think just having larger 
financial institutions, larger banks, overall, with a 
diminishing smaller community bank infrastructure is 
detrimental to lending to small businesses, mom-and-pop 
businesses. It also could be parochial. I started my career in 
community banking, so I saw heartfelt situations.
    Last question, since I'm running out of time, the SEC has 
proposed a rule that would, among other things, require banks 
to segregate client cash held in custody, pending, custody bank 
balance sheets, and by extension to the bank custody model. Are 
you guys at the Fed concerned about this proposed rule from the 
SEC?
    Mr. Barr. [presiding]. The gentleman's time has expired. 
Chairman Powell can respond in writing.
    Mr. Powell. I will respond in writing.
    Mr. Donalds. Okay. Fair enough.
    Thank you, Mr. Chairman.
    Mr. Barr. The gentleman from New York, Mr. Torres, is now 
recognized.
    Mr. Torres. Thank you, Mr. Chairman, and thank you, 
Chairman Powell. As you know, the U.S. has foreign adversaries, 
particularly the Chinese Communist Party (CCP) that seem intent 
on de-dollarization. How seriously should the threat of de-
dollarization be taken, in your view?
    Mr. Powell. The status of the dollar as the world's reserve 
currency is a very important thing to us. I think the reason we 
have that status is largely due to our great democratic 
institutions, the rule of law, and the fact that we have, 
generally speaking, had strong levels of price stability. And I 
think that the dollar will remain the reserve currency as long 
as those things are in place.
    Mr. Torres. I want to explore that answer, because 
commenters often speak of the dollar as the world's reserve 
currency as the cause of America's economic dominance. Do you 
think of it as the cause of America's economic dominance or as 
a consequence of it?
    Mr. Powell. To me, it is more of a consequence. And also, 
there tends to be an equilibrium where one currency becomes the 
accepted global standard, and that has been the dollar for some 
time, and I expect that it will continue to be for some time.
    Mr. Torres. It is often said that the Fed has a dual 
mandate of maximum employment and price stability. Do you view 
these mandates as equally binding upon the Fed or does one 
supersede the other?
    Mr. Powell. They are perfectly equal under the law.
    Mr. Torres. And I am curious to know what it means in 
practice to have a 2-percent inflation target. The latest pause 
notwithstanding, does it mean the Federal Reserve will continue 
raising interest rates until the 2-percent target is reached, 
even if doing so comes at the expense of maximum employment as 
well as financial stability?
    Mr. Powell. No, it doesn't mean that. It does not. The way 
we think about it is, most of the time, the two goals are 
aligned in the sense that if you are achieving one, you are 
achieving the other, and if you are a little bit off, the other 
one, they move in the same direction. Today's situation is 
unusual in that we are overachieving in effect the maximum 
employment goal, but we are far from achieving the inflation 
goal.
    In our system, we have a constitutional document, and what 
it says is that when that is the case, you look at how far you 
are from the goal, and you look at the speed with which you 
would move back to the goal. And that would tell you today that 
we should focus heavily on inflation. But as it becomes closer, 
as the two things become more aligned, then then they go back 
into perfect equality under the law.
    Mr. Torres. So, the Fed engages in a delicate balancing act 
between employment and inflation?
    Mr. Powell. Yes.
    Mr. Torres. To what extent do you factor in financial 
stability, safety, and soundness when raising interest rates?
    Mr. Powell. You are right. We do have a financial stability 
mandate, but we try to----
    Mr. Torres. You have a financial stability mandate with 
respect to your role as a bank regulator when it comes to----
    Mr. Powell. Also, just generally, we are the lender of last 
resort. Central banks were originally created to support the 
financial system in times of stress and to make sure that you 
don't get into times of stress. Sorry. What was your question 
before that?
    Mr. Torres. To what extent do you factor in safety and 
soundness when setting interest rates?
    Mr. Powell. Sorry. We really try hard to use our financial 
stability tools for financial stability purposes and our 
monetary policy tools for monetary purposes. The reality on the 
ground is much messier than that. They are very much entangled 
and one affects the other. So, the separation is not at all 
perfect, but we do think of these as separate things with 
separate tools.
    Mr. Torres. Do you think that the Silicon Valley Bank 
failure revealed a deeper tension between the safety and 
soundness mandate of the Fed as a bank regulator and the 
mandate of the Fed as an administrator of monetary policy?
    Mr. Powell. I would say no, and I will tell you why. 
Interest rate risk is one of the most basic banking risks, and 
we supervise for it. Overwhelmingly, U.S. banks did manage 
their interest rate risk. Silicon Valley Bank didn't, and even 
though the supervisors were pointing that out to them, the bank 
didn't take action quickly enough. I would have thought that 
you can say that it was interest rate hikes that caused 
portfolio losses, but it was management that failed to hedge 
against those losses and failed to hold appropriate liquidity.
    Mr. Torres. In the pre-COVID world, we had the best of both 
worlds: low unemployment and low inflation for decades. Do you 
believe that we could return to that best of both worlds, or 
are high interest rates the new normal in the American economy?
    Mr. Powell. We will return to 2-percent inflation and 
maximum employment. What will be the level of interest rates 
there? That is a really good question.
    Mr. Torres. Do you suspect it is going to settle at a 
higher level than we have known historically?
    Mr. Powell. I think it is really hard to know. It is a 
great question. We talk about this a lot. The people who argue 
that rates will move back down just point to the fact that it 
was really global factors that drove rates down in the first 
place. Maybe the truth is somewhere in the middle. It is hard 
to know.
    Mr. Barr. The gentleman's time has expired. The gentleman 
from Nebraska, Mr. Flood, is recognized.
    Mr. Flood. Thank you, Mr. Chairman. Chairman Powell, I 
would like to discuss the continued efforts to unwind years and 
years of quantitative easing and what it has done to our 
Federal Reserve balance sheet. If you take a look at the size 
of the Federal Reserve's balance sheet since the 2008 financial 
crisis, we have seen an alarming increase from around $800 
million to today's $8.3 trillion in assets.
    Back in 2018, you did start the work of winding down the 
balance sheet. You managed to offload roughly $700 billion of 
assets between the beginning of your time as Federal Reserve 
Chair and August 2019. The problem was, shortly after your 
efforts began, we had another major economic shock, the COVID-
19 pandemic, that caused the Fed to once again return to 
quantitative easing as a form of economic relief. Pretty soon, 
the Federal Reserve's balance sheet had increased another $4 
trillion in size. That is how we made it to the balance sheet 
level that we are at today.
    I understand you have started working to shed some of the 
Federal Reserve's balance sheet, and I appreciate that work. 
That being said, the scale involved here, to me, is startling. 
My concern, Chairman Powell, is that efforts to shed assets 
from the Fed's balance sheet have never been anywhere as quick 
as efforts to build it back up. Our economic cycle does go 
through recessions from time to time. It is not always boom, 
but some bust, too. If we continue a pattern of rapidly 
building up the Federal Reserve's balance sheet in bad times 
and slowly shedding assets in good times, we are going to see 
the balance sheet grow significantly over time.
    Chairman Powell, is this a concern of yours? And to pair 
with that question, long term, how can we avoid an environment 
where any effort to unwind the Federal Reserve's balance sheet 
is undone anytime there is an economic shock?
    Mr. Powell. It is a concern. This time, the balance sheet 
roll-off is much, much faster than it was back in the first 
episode. We also know more. We hadn't grown our balance sheet 
like that, and we hadn't shrunk it before. Now, we have 
experience with that, so we are moving back down to a level 
that will be appropriate for our new framework. By the way, we 
won't go back to a framework where we were dealing with scarce 
reserves. We like the administrative rate framework that we are 
in now, but it is important that the balance sheet not just 
grow with every cycle, and I think I am very conscious of that.
    Mr. Flood. Chairman Powell, do you have an optimal Fed 
target for the size of what the balance sheet should look like, 
a number?
    Mr. Powell. I will give you the idea, and that is, you find 
the number, but the idea is that it is smaller than now. It is 
a place where reserves are abundant and also have a little bit 
of a buffer on top of that so that we don't accidentally run 
into reserve scarcity. Demand for reserves can be volatile, and 
you don't want to find yourself, as we did a few years back, 
suddenly finding that reserves were scarce, and we didn't see 
it coming. And we then had to put more reserves into the system 
at a time when we didn't want to be doing that. I think you 
want to have a level where we have ample reserves plus a 
buffer, and that will be a percent of GDP that we get down to, 
and we are moving in that direction pretty, pretty smartly.
    Mr. Flood. Chairman Powell, realistically, how quickly can 
the Federal Reserve unwind its balance sheet? What is the 
threshold beyond which an asset sell-off by the Federal Reserve 
would disrupt our markets?
    Mr. Powell. We don't sell assets. What we do is we allow 
them to mature and passively roll off, and that is what we are 
doing to the tune of about a trillion dollars a year, and we 
are in the middle of that process. Now, as it is an empirical 
question, you are going to find a level that is still ample 
plus a bit of a buffer, and that is how we are thinking about 
it.
    Mr. Flood. Thank you, Mr. Chairman. I would just reiterate 
my concern on this issue. I fear that having the Federal 
Reserve backstop so much of our economy through the holding of 
Treasuries and mortgage-backed securities is not sustainable 
long term. Thank you, Mr. Chairman. I yield back.
    Mr. Barr. The gentleman yields back. The gentleman from 
Nevada, Mr. Horsford, is recognized.
    Mr. Horsford. I thank the chairman and the ranking member 
for holding this important hearing, and thank you, Chair 
Powell, for appearing before the committee today.
    Before I begin, I would like to ask permission to enter 
into the record an editorial by the Las Vegas Sun, entitled, 
``Economy, infrastructure thrive when Dems have the reins,'' 
dated June 16, 2023.
    Mr. Barr. Without objection, it is so ordered.
    Mr. Horsford. During this time of increased economic 
uncertainty, it is more important than ever that the Federal 
Reserve fulfills its dual mission of maximizing employment and 
supporting price stability. There is no doubt that it is 
difficult, and the needle that has to be threaded is very 
specific. However, the human cost is simply too great for us to 
get this wrong. Sometimes, we need to be reminded that there 
are real people behind the economic data, and that the actions 
taken by both Congress and the Fed have real consequences for 
everyday Americans, everyday Americans who want to know that 
myself and my colleagues are dedicated to creating an economy 
that actually works for them, which is why I was pleased that 
last week the Federal Reserve decided to pause your interest 
rate hikes and take stock of the overall economic picture.
    Now, don't get me wrong, there is certainly more work ahead 
of us, but with 13 million jobs added since President Biden 
took office, we should be rooting for America to succeed and 
not to fail. The strength of the labor market continues despite 
the multiple concurrent shocks that continue to reverberate 
throughout the global economy. And I believe our economy 
remains resilient, thanks to the historic investments that were 
included in the legislation passed last Congress and signed 
into law by President Biden. The beneficiaries of these 
investments were the people, the middle class, not special 
interest.
    The Bipartisan Infrastructure Law is creating construction 
jobs and projects that will help ease supply chain challenges 
and ensure safer transportation for everyone. President Biden 
and congressional Democrats are investing in technology that 
will define the 21st Century, components to generate solar and 
wind energy, semiconductors, and electric vehicles that will 
all be made here in America.
    Just last week, Treasury Secretary Yellen was before this 
committee and described how the transformational investments 
from the Inflation Reduction Act are ushering in a renaissance 
of domestic manufacturing. These are good-paying jobs, union 
jobs that are expanding our production capacity here at home, 
while reducing our reliance on goods imported from abroad. As I 
indicated, the editorial by my hometown newspaper, the Las 
Vegas Sun, remarks that annual investments in manufacturing 
construction has more than doubled its pre-pandemic levels.
    Furthermore, when we narrow the focus to the region 
including Nevada, the U.S. Census Bureau estimates that in just 
2 years, private manufacturing construction increased almost 
tenfold. So, if we want to rebuild the American middle class, 
we must do so from the middle out, by investing in modern 
infrastructure and modern manufacturing facilities. But this 
does not mean that everything is improving equally. I have 
heard time and again from my constituents about the cost of 
housing being one of their biggest pain points. Our Monetary 
Policy Report points out that housing services prices have 
risen a shocking 8.5 percent over the 12-month period ending in 
April, and in my district, it is even worse.
    So, Chair Powell, at a time where it has become 
increasingly difficult for working Nevadans to purchase a home, 
I worry that rising mortgage rates will put working families 
even further behind on accessing the wealth and equity that a 
house provides. While higher rates have cooled some housing 
markets across the country, what do you see as the biggest 
remaining upward pressure on housing services, and what can we 
do in Congress to incentivize new home starts to hopefully 
moderate the imbalance between supply and demand in the housing 
market?
    Mr. Powell. I think you are talking about largely longer-
run factors here, and I think there has been for some time a 
shortage of housing. It is harder to get lots, it is harder to 
get workers, and in the pandemic, it had been harder to get 
materials and things like that, so there is certainly a need 
for more housing. I think during the pandemic, you had people 
wanting to live in houses rather than downtown in apartments 
because of COVID. You had low rates, and so you had 2 or 3 
years of very, very high price increases for housing, and now 
that has flattened out a lot as we have raised rates and----
    Mr. Barr. The gentleman's time has expired. The gentleman 
from New York, Mr. Lawler, is recognized.
    Mr. Lawler. Thank you, Mr. Chairman. Chairman Powell, you, 
the Fed's Vice Chair for Supervision, and many others have 
indicated that the banking system is well-capitalized. Bank 
capitalization remained robust during the COVID shock and 
related shutdowns of economic activity, and in severe Fed 
stress testing.
    Nonetheless, the Vice Chair for Supervision wants to 
increase capital and other requirements on financial 
institutions. This will have substantial economic effects that 
will begin immediately, while you are still focusing on 
bringing inflation back to the Fed's 2-percent target. 
Excessively-high capital requirements will constrain credit 
provision to the economy, costing jobs, incomes, opportunities, 
and living standards. As my colleague, Mr. Garbarino, pointed 
out, a 1-percent increase in capital requirements could 
potentially reduce GDP by up to 16 basis points, based on the 
Basel Committee literature.
    On January 21, 2021, a 30-year fixed-rate mortgage had an 
interest rate of 2.77 percent. Now, for the same loan, 
individuals are looking at a 6.69 percent interest rate for a 
30-year fixed-rate mortgage. For the median home valued at 
$436,800, the difference from less than 2\1/2\ years ago to now 
equates to over $300,000 more over the course of the loan. For 
the median household making around $71,000 a year, that extra 
$10,000 a year out-of-pocket in mortgage costs is crushing. 
Some areas, like my district, are even harder hit due to the 
high cost of living and the lack of housing. Combine that with 
inflation at or above 4 percent, and these factors are taking a 
real toll on the average American family, including in the 
Hudson Valley. Further decreasing the availability of credit to 
households and businesses across the country would likely only 
worsen this crisis.
    So, Chairman Powell, do you agree that excessively-high 
capital levels constrain banks' lending capacity, with 
spillover effects on jobs and living standards for Americans, 
and that effects would begin immediately independent of any 
proposed phase and timing?
    Mr. Powell. I do think that, as I mentioned earlier, there 
is a tradeoff between safety and soundness and availability of 
capital, and you want to get that balance right.
    Mr. Lawler. But respectfully, you have testified that there 
was more than enough capital in these banks. Where are we 
unsafe and unsound, that we would require more capital 
requirements?
    Mr. Powell. As I mentioned, that is the question we are 
going to be asking, as we review the proposals when they do 
come forward. We don't have a proposal in front of us at this 
point. And I think, as I mentioned, any increase in the capital 
for the large banks will need to be justified. I don't know 
that there will be much in the way of capital increases 
proposed for banks, other than the very large banks, but we 
will have to see.
    Mr. Lawler. So, you don't believe regional and community 
banks will face the same requirements?
    Mr. Powell. Very different requirements, I would think, as 
they do now.
    Mr. Lawler. But you are not looking to increase the 
requirements on them?
    Mr. Powell. We will have to see what the proposals turn out 
to be, honestly. They are still, to some extent, in motion, and 
once they are out, we can have lots of conversations about the 
specifics. But until they are, it is tough to do that.
    Mr. Lawler. And you will commit to providing this committee 
with all such analysis before any proposals come out?
    Mr. Powell. I think there will be a proposal that comes to 
the Board sometime this summer, and the Board will vote on 
that, and we will obviously share whatever analysis we have.
    Mr. Lawler. Are you concerned that any significant increase 
in capital could significantly jeopardize the Fed's efforts to 
rein in inflation?
    Mr. Powell. The thing about capital requirements is there 
would be a 90-day comment period, roughly. Something like that 
could be in that range, and then there would be a long period 
of considering the comments that are made, and then there would 
be movement toward coming to an agreement about what to 
finalize, so that would take many months. And then, you would 
be into a situation where there would be long phase ins, so I 
don't really think capital requirements play into the near-term 
economic situation the way interest rate hikes do.
    Mr. Lawler. According to the Bureau of Labor Statistic's 
CPI Inflation Calculator, it takes $1.16 today to buy the same 
consumer goods and services as $1 purchased when President 
Biden took office in January of 2021. Do you agree that the 
outsized inflation we have seen since early 2021 has caused and 
continues to harm workers, retirees, and families trying to 
make ends meet and pay their bills?
    Mr. Powell. I strongly agree with that, and that is why we 
are taking the measures we are taking.
    Mr. Lawler. Thank you.
    Mr. Barr. The gentleman's time has expired. The gentleman 
from North Carolina, Mr. Nickel, is recognized.
    Mr. Nickel. Thanks, Chair Powell, for being here with us 
today.
    Back in 1995, I worked here in Congress as an intern for 
Dick Gephardt. I was in his press office, and we had 
newspapers, and my job was to clip out the articles and paste 
them on a sheet. But when I was here in 1995, the Grateful Dead 
were playing. It was one of Jerry Garcia's last concerts, and I 
was just so disappointed that I missed that concert, but was 
excited to see from public reporting that you were at the most 
recent Dead & Company show. I have been to this version with 
John Mayer and enjoyed it, but we weren't there. How was the 
show? Did you like it?
    Mr. Powell. Oh, it was terrific. What can I say? It was 
great. I have been a Grateful Dead fan for 50 years.
    Mr. Nickel. I have found one universal truth, which is that 
I like people who like the Grateful Dead. Having said that, I 
have limited time, but do you want any time to go back to some 
of the questions that you had? Do you want to elaborate on 
anything that you have said here so far today?
    Mr. Powell. You are very kind to offer, but I am fine with 
the answers I have given so far, I believe.
    Mr. Nickel. Well, back to that show, a lot of people there 
in Virginia, like my constituents, are very concerned about 
this economy. They are worried about the cost of groceries, 
rising inflation, and interest rates going up, and when we do 
these hearings, it is always big news. Things you say move 
markets and are very important, but Fed-speak is just so hard 
for my constituents and the American people to understand. What 
can you tell the American people who are concerned about the 
economy in a way that they can really understand about where 
this economy really is heading?
    Mr. Powell. I guess I would say this economy is very 
strong, and what is driving it now is just a very strong labor 
market. There is still significant demand for workers, there 
are more job openings than there are unemployed people, wages 
are moving up, and that is really what is driving the economy 
forward. People's disposable incomes are coming up. Inflation 
is moving down gradually. The thing that troubles people, and I 
think the thing that accounts for the surveys you see, where, 
despite a historically-strong labor market, people are still 
concerned about the economy, it is really inflation.
    It is our job to bring inflation down. The way we do it, is 
by raising interest rates. And while that can be painful, what 
it does is it gradually slows down demand so that supply and 
demand can get back into alignment and so that we can have 
inflation running at 2 percent, and people can get on with 
their lives and basically not have to think about inflation. 
That is the definition of, ``price stability,'' from one 
standpoint is just that people can live their daily lives 
without thinking about inflation all the time. We want to get 
back to that place, and we are on a journey to get there. We 
have quite a ways to go, but we are making progress.
    Mr. Nickel. I have always wondered this, and I think there 
is a pretty simple answer, but if Congress was in charge of 
setting interest rates and it became a political thing, do you 
think that is something that we could handle as a legislative 
body?
    Mr. Powell. I wouldn't want to comment on that.
    Mr. Nickel. That is a safe answer. And I do want to just 
join in the chorus with a lot of my colleagues on both sides of 
the aisle here about capital requirements for banks. I brought 
this issue up with Vice Chair Barr, with Fed Governor Bowman, 
and in your written questions from the last time you were here. 
I didn't get a chance to ask questions because of my seniority 
here on the committee, but you answered in writing, and you 
said we have to be mindful of the tradeoffs associated with 
adjusting capital levels as it could, ``cause banks to reduce 
the availability of credit or to pass higher costs of credit on 
to consumers.'' And you also said, ``Capital and liquidity 
levels at our largest, most systemically important banks are at 
multi-decade highs.''
    My constituents sent me here to lower costs for working 
families, so increasing borrowing costs really hits them hard. 
As the Fed considers new capital requirements, how do you 
intend to strike that balance between the tradeoff that you 
talked about in your written response?
    Mr. Powell. That is the balance. You said it very well. 
Stronger capital requirements mean we have a stronger banking 
system, and means it is more resilient to downturns and crises 
and things like that, so banks can continue to lend during even 
stressful times. That is very important, and we put a high 
value on that. And yet, of course, we know that at the margin, 
the cost of capital goes up for banks, and the cost of credit 
will go up. So, it is a balancing thing, and there isn't any 
one simple model or answer. You just have to make a judgment 
call based on that, and that is what we will be doing as these 
proposals are made and then assessed.
    Mr. Nickel. Thank you. I yield back.
    Mr. Nunn. [presiding]. The gentleman's time has expired. 
Thank you, Mr. Nickel. I look forward to joining you at the 
next concert with Chairman Powell. We will see how that works 
out.
    Chairman Powell, thank you very much for taking the time to 
be with us here today. I recognize, first of all, that you get 
feedback from every sector on how you are doing your job. You 
are charged with two mandates: price stability; and combating 
unemployment. As my colleagues have discussed today, the labor 
market is clearly very tight, and you should be credited with 
succeeding in maximum employment and being a partner in this. 
Unfortunately, as we have also heard and as the country is 
experiencing, we haven't collectively been as lucky in terms of 
price stability. Core CPI is still over 4 percent, and services 
and housing costs remain very sticky.
    Given the economic uncertainty on how the Fed will bring 
inflation to its 2-percent mandate, can you quickly touch on 
how the bank capital requirements Vice Chair Barr is 
proposing--and I will be specific here. My Main Street 
businesses, especially farmers, family farms, and Iowans back 
in my district, really provide a backbone on this, and they 
depend heavily on this area. Do you think that they will be 
facing a more difficult and expensive credit environment as a 
result of this?
    Mr. Powell. I don't think so, particularly in the near 
term. First of all, many of those people will be dealing with 
regional and community banks rather than with the G-SIBs. But 
even with the G-SIBs, as I mentioned, the phase in for higher 
capital, the process of publishing and then getting comments 
and evaluating those comments, and then coming to a broad 
agreement and consensus on what to implement and over what time 
period, that takes time, and so it will not be important. 
During this period of the next year or two when we are getting 
inflation back down to target and the economy is kind of 
normalizing, I don't think the capital changes will have much 
of an effect in the near term.
    Mr. Nunn. Mr. Chairman, let me be sure that I am hearing 
you correctly. Vice Chair Barr is engaging with small 
businesses throughout the Midwest right now on potential knock-
on effects from this holistic review. Some economic studies 
have found these knock-on effects will increase borrowing 
between $50 billion and $200 billion. As we look to cut this in 
half, is that the right thing to be doing?
    Mr. Powell. Sorry, cut in half?
    Mr. Nunn. The inflation rate.
    Mr. Powell. Honestly, I don't think the two are really in 
conflict. We have an obligation to bring inflation back down to 
2 percent over time, and we will do that, and we will use our 
tools to do that, but I think the question of bank capital is 
real. I don't see it as a key factor in how we think about 
inflation because, again, it will take quite a while to decide 
what to do and then to implement. Some of the changes we are 
talking about will have multiple-year phase-in periods, for 
example.
    Mr. Nunn. Mr. Chairman, let me ask you on that 
implementation timeline, particularly for new capital 
standards, you said it would be some years before it would go 
into effect. According to a report published last year by the 
Federal Reserve Bank of Cleveland, in the case of the 
implementation of Basel III, banks began to increase their 
capital ratios, ``prior to the publication of specific language 
applicable to U.S. banks, and the bank responses we estimate to 
take place well before Basel III rules started to come into 
force after 2014.'' Do you agree with the Cleveland Fed, and do 
you believe that our banks will begin to adjust as soon as the 
proposal is released?
    Mr. Powell. Yes, I do, and it is not an absolute thing 
where they will wait until the effective date. They will 
certainly, and they may even be starting, but I would think the 
earlier you start, the more gradual the path will be.
    Mr. Nunn. Very quickly, I want to turn to a different 
subject which has been brought up by a number of my banks back 
home relating to a central bank digital currency (CBDC) or any 
Federal-issued coin. We have seen how this Administration in 
the last Congress wanted to require anyone who made more than 
$600 on a third-party settlement organization like an eBay 
purchase has to report that to the IRS. The existing threshold 
before the law was modified was $20,000. That is how far this 
Administration wants to peek behind the curtain of what my 
constituents are spending their money on.
    And $600 in Iowa doesn't go a long way. It is the 
equivalent of a PlayStation or paying for your kid's dance 
classes. I am a dad of six. I digress on this, but I do want to 
know, specifically for my constituents back home, your thoughts 
on creating a central bank digital currency that tracks 
individuals, and if the Fed were to offer a direct individual 
account to citizens, wouldn't that be a direct threat to the 
financial privacy of many Americans?
    Mr. Powell. Potentially, and that is why it is not 
something we support. We would not support accounts at the 
Federal Reserve by individuals. If we were to--and we are a 
long way from this--support that at some point in the future, a 
CBDC would be one that was intermediated through the banking 
system and not directly at the Fed for exactly the reason you 
point out.
    Mr. Nunn. I am very happy to hear that. I think that is a 
good partnership with the individuals there and a respect for 
Americans across-the-board. With that, I yield back.
    I now recognize the gentlewoman from Colorado, Ms. 
Pettersen, for 5 minutes.
    Ms. Pettersen. Thank you, Mr. Chairman, and thank you, 
Chair Powell, for being with us again today.
    I come from Colorado. I was in the legislature for 10 
years, and when the pandemic happened, I was one of the people 
who were unfortunately elected during that difficult time. When 
I think about what our country was going through a few years 
ago, where our economy was almost in free fall, completely shut 
down, our local governments were slashing their budgets, they 
were laying people off, and what that moment meant that we had 
to do in stepping up at the national level to infuse dollars to 
save our country's economy. My frustration here is that we 
continue to talk about inflation as if it was spending just to 
spend money, instead of acknowledging the urgent crisis that 
this country and this world was in, and what we needed to do in 
the moment to make sure that we were able to recover, keep our 
small businesses afloat, our local governments, and ultimately 
recover much more quickly than others.
    Since we talk about this often. I would like to know, if 
you look to other countries around the world who didn't infuse 
dollars like we did, are there countries that we can look at to 
compare what the outcomes would be and what their recovery is 
like now?
    Mr. Powell. Our recovery is by far the strongest of any 
country, and I would say the inflation that we have--actually, 
everybody has very high inflation, the United Kingdom, and many 
countries within Europe as well.
    Ms. Pettersen. Thank you. That was my next question, how we 
compare to other highly-developed economies on our recovery. It 
sounds like in the emergency that we were in, the hopefully 
once-in-a-century global pandemic, that the United States 
ultimately met the moment, and that when the American people 
look at what has been done, we should feel really good about 
where we are, but we know we have a long way to go.
    I also want to acknowledge something that comes up often, 
that rising debt leads to higher rates of inflation. Doesn't 
that also include tax cuts, trillions of dollars of tax cuts 
that we couldn't afford, that went on our rising debt?
    Mr. Powell. In terms of today's inflation? To your point, I 
think if you look around the world, there is a common factor 
that has driven inflation very high in lots of advanced 
economies, and it is the pandemic and it is everything about 
the pandemic: the closing of the economy; the reopening of the 
economy; the fiscal support; the monetary support; all of the 
things that happened went into high inflation. And inflation is 
coming down. We will look back on this, and we will be able to 
look back at a period of very high inflation, but I think it is 
not just monetary and fiscal policy. It is also just things to 
do with the pandemic, various shocks.
    Ms. Pettersen. Absolutely. It is hard to believe where we 
were a few years ago and where we are now, although we do have 
challenges ahead. Another frustration that I have here is our 
failed policies around immigration reform and providing legal 
pathways for workers here in this country. When I talk to 
business leaders across the country, they say that the number-
one thing that we could do to address inflation is to address 
legal pathways for people who want to work here. You say your 
job is to address inflation. You are still limited only within 
the tools that you have. My question to you is, would an 
increased labor supply help supply chain issues and inflation 
in this country?
    Mr. Powell. We are seeing that now very much. A little bit 
to our surprise, we have seen a bounce-back in labor force 
participation and also a significant return to the prior trend 
in immigration. And that, we believe, and most analysts would 
say, is part of why employers are finding the labor market to 
be a little bit less tight now. It is still extremely tight, 
but more labor supply is helping the labor market get back into 
balance, including through immigration.
    Ms. Pettersen. Great. Thank you. Another concern that I 
have is our inability to address legal pathways toward the 
United States and the consequences of not doing that to our 
economy, I really worry about, in the long term, if we don't 
address our labor shortage. I would like to know, if we are 
unable to provide these pathways, looking at the needs of this 
country, do you see this contributing to the rising costs and 
inflation here in the United States in the long term?
    Mr. Powell. I am not sure about the long term, but I would 
say that, right now still, employers are reporting a very 
significant excess of demand for workers over the supply of 
workers, and so there is a lot of demand out there for people 
to work.
    Mr. Nunn. Thank you, Mr. Chairman. The gentlelady's time 
has expired.
    I now recognize the gentlelady from Texas, Ms. De La Cruz, 
for 5 minutes.
    Ms. De La Cruz. I thank the chairman for holding this 
important hearing today. It is critical that this committee 
continue to explore how the Biden Administration's ill-
conceived policy and regulatory approaches are harming our 
nation's economy. And thank you, Chair Powell, for appearing 
before us today.
    I would like to lead off with a question that I posed to 
Vice Chair Barr when he recently appeared before this 
committee. As the Representative for a largely-rural district 
where my constituents, of which 86 percent are Hispanic, 
heavily rely on smaller institutions or community banking 
institutions for their financial needs, I am concerned about 
Mr. Barr's focus on factors that aren't necessarily material to 
the recent bank failures. His report on Silicon Valley Bank 
seemed to go out of its way to advocate for higher capital 
levels as a cure for the recent bank failures instead of the 
failures of regulators and bank mismanagement.
    In fact, one of your other Federal Reserve colleagues, 
Governor Bowman, echoed these concerns in recent remarks when 
she said, ``The unique nature and business models of the banks 
that recently failed, in my view, do not justify imposing new, 
overly complex regulatory and supervisory expectations on a 
broad range of banks. If we allow this to occur, we will end up 
with a system of significantly fewer banks serving 
significantly fewer customers. Those who will likely bear the 
burden of this new banking system are those at the lower end of 
the economic spectrum, both individuals and businesses.''
    Just a couple of moments ago, Representative Donalds asked 
you a couple of questions, and your response was that you 
mentioned how important community banks are and that you are 
keeping them in mind with all that you do. As I speak with my 
local community and regional banks, they say that the increase 
in regulations and in capital requirements will really hurt 
them. With that being said, what I find being an outsider in 
politics, new to the political arena, is I find that people 
here in Washington, people who hold leadership positions, are 
often out of touch. So I want to ask you, Chair Powell, do you 
personally bank with a community bank?
    Mr. Powell. I have, over time. Not currently, but yes, the 
last mortgage that my family and I had was--you would like the 
story; I can tell you someday--but we had a very large bank 
which sort of failed at the last minute to come through with 
our mortgage, and we went to the local community bank. And they 
knew my family and they knew the house, and they were able to 
give us a mortgage without any difficulty within a few days. 
So, I have had a very positive experience with community banks.
    Ms. De La Cruz. With your relationship with community banks 
in the past, how do you feel that increasing regulatory burdens 
would have consequences to these community banks?
    Mr. Powell. I really think that the things we are looking 
at are not about community banks. They are about the very 
largest banks, and, to some extent, banks in the Silicon Valley 
Bank range, sort of $100 billion to $250 billion. I would 
consider a community bank to be under $50 billion and probably 
under $10 billion in assets. Those are not the focus of the 
regulatory reforms, I believe, that are going to be proposed to 
the Board for consideration this summer.
    Ms. De La Cruz. And I will also hope that to be true 
because, as I said, in my district, we have a lot of community 
and regional banks that would suffer with increased regulation 
and capital requirements. I have very little time left, so I 
will yield back to the Chair. Thank you.
    Mr. Nunn. The gentlelady yields back. I now recognize the 
gentleman from California, Mr. Sherman, for 5 minutes.
    Mr. Sherman. I want to comment on one success story. 
Several years ago, there were $16 trillion of London Inter-Bank 
Offered Rate (LIBOR) instruments where the amount the debtor 
was supposed to pay the creditor was to be determined by the 
London Interbank Rate, and as of June of this year, that rate 
will no longer be published. Something unusual happened here in 
Washington. A year-and-a-half before the LIBOR hit the fan, 
Congress acted. You published your regulations in February, and 
the problem is solved.
    I want to pick up on the ranking member's comment that it 
is critical that we deal with housing. There is a lot we can do 
in Washington, but we also need to get cities to allow the 
construction of apartment buildings and condos. Someone here 
has talked about the de-dollarization. We need to compete 
against the euro and against the yuan, but one place where 
Congress can act is with regard to crypto. The crypto 
billionaires have told us they want to displace the dollar. 
They are working for de-dollarization, and when billionaires 
tell you they are trying to hurt your country, you should 
believe them.
    There has been a discussion here as to whether it is the 
pandemic or Washington, D.C., policy that has caused the 
inflation. We have a perfect test case. Our annual inflation 
rate is now at 4 percent. The European Union--where Mr. Biden 
is not President and Mr. Powell is not head of their Federal 
Reserve--in May had 7.1 percent inflation. The unemployment 
rate in the United States is 3.7 percent. The European Union is 
at 6 percent. And since the pandemic began, GDP has grown in 
the United States 5.3 percent, and in the European Union, only 
3.1 percent. I think it is pretty apparent that our policy has 
turned out to be actually better than Europe's policy.
    Banks and bank regulators have said, oh, how could we 
possibly have anticipated the inflation and interest rates of 
2023. Today, we have 4-percent inflation. That is almost 
exactly the average inflation rate over the last 50 years, much 
lower than it was in the Reagan Administration when we had 
13.5-percent inflation, and 16-percent interest rates. And that 
is why I blame the management and also the regulators at 
Silicon Valley Bank for telling us that, oh, this was an 
unanticipated circumstance. It is certainly one of the things 
they could have anticipated.
    I will point out that the Congressional Budget Office and 
the University of Pennsylvania Wharton School of Business' 
models both show that the estimated effect of the Inflation 
Reduction Act on inflation will be statistically 
indistinguishable from zero. So, we will accomplish a lot for 
the environment and not increase inflation. Of course, the 
recent action by Republicans to take away IRS enforcement will 
lead to higher deficits and higher inflation. The chairman of 
the committee tells us we don't need regulation of our well-
capitalized banks. Why are they well-capitalized? Because of 
our regulation, and I do want to focus on whether our banks 
really are well-capitalized.
    Mr. Powell, are our banks well-capitalized if you value 
their assets at today's fair market value, where we have 
experienced higher interest rates and the value of the debt 
declines? And are they well-capitalized even if you assume that 
depositors are not just going to leave their money lying in the 
banks, but that the obligation the bank has to its depositors 
is valued at full face value, but the marketable securities and 
loan portfolio is priced at today's interest rates? Under those 
circumstances, do we have a well-capitalized banking system?
    Mr. Powell. I think you have to take the capital 
requirements as they are for purposes of this question.
    Mr. Sherman. That is the problem. Our capital requirements 
hide the facts that are unpleasant.
    Mr. Powell. Right.
    Mr. Sherman. If you don't hide the facts, are we well-
capitalized?
    Mr. Powell. Traditionally, as you know, a rising rate 
environment has increased the value of the deposit franchise, 
which more than, or at least, offsets any portfolio losses.
    Mr. Sherman. So, we are well-capitalized if depositors 
continue to be lazy and stupid?
    Mr. Nunn. The gentleman's time has expired. Chairman Powell 
can submit any additional responses for the record.
    We now recognize the gentleman from Tennessee, Mr. Ogles.
    Mr. Ogles. Thank you, Mr. Chairman. Mr. Powell, as you 
know, when the COVID-19 pandemic started, the Federal Reserve 
began a round of quantitative easing referred to as QE4. Like 
many COVID policies, this program dragged on, not ending until 
March of 2022. To conduct this program, the Federal Reserve 
expanded its balance sheet with short-term, interest-bearing 
liabilities on one side, and long-term, interest-bearing assets 
on the other, and this was at a time of historically-low 
interest rates. When, predictably, expansionary fiscal monetary 
policy sent inflation to the highest level in 40 years, the Fed 
was forced to raise interest rates rapidly.
    Now, going back to one of my colleague's questions about 
the bank losses and the result of that being poor management 
and failing to hedge against the interest rate environment, is 
it a fair summation that management and failure to hedge is 
what caused some of the bank losses?
    Mr. Powell. Certainly, many banks managed the interest rate 
risk that came along through that technique.
    Mr. Ogles. But some did not. Is that correct?
    Mr. Powell. Some did not.
    Mr. Ogles. In October, the Fed suspended its remittances to 
the Treasury due to losses. The Mercatus Center estimates that 
the lost revenue for the Treasury will result in $760 billion 
over the next 10 years. So, it does concern me that Treasury is 
blaming banks for mismanagement when you, yourself, had to stop 
remittances and will suffer losses.
    When the Fed prepared its Semi-Annual Monetary Policy 
Reports through the time of QE4, none of those reports 
mentioned that interest rate risk would impact the government's 
finances. Should that have been disclosed, or did the Fed not 
understand its own risk and the correlation to the interest 
rate environment?
    Mr. Powell. What we do is, we remit all of our profits, and 
in the era of QE, those profits were enormous. We remitted 
something like $1.2 trillion in profits to the Treasury 
Department because we are funding purchases of long-term assets 
with issuance, as you pointed out, of overnight, lower-rate 
instruments.
    In a way, that is what was happening during the QE era. As 
we now enter an era of raising rates, that will turn around a 
little bit, but ultimately, we don't manage at all for fiscal 
reasons. What we are managing to is maximum employment and 
price stability, and we are using our tools to achieve that. 
So, we don't think of ourselves as trying to attain some kind 
of fiscal goal one way or the other.
    Mr. Ogles. I guess I will ask this question: When you look 
at the roughly $700 billion and below to the Treasury, how is 
that going to impact the President's and Congress' economic 
plans and policies going forward? Is it going to impact them 
negatively?
    Mr. Powell. It doesn't affect spending. Congress 
appropriates money, and the Executive Branch spends it. So, it 
will mean that more borrowing has to take place, and that could 
raise rates very marginally at the margin. That is how it would 
affect the budget, but it wouldn't have a major effect on the 
budget.
    Mr. Ogles. I didn't ask about the budget more over than our 
overall economic goals. And what I think a lot of us are 
getting at is when you look at Main Street America, and when 
you look at mortgage rates and how they are impacting a 
family's ability to get a mortgage, you will see that someone 
who was eligible for $300,000 to buy a home now is no longer 
eligible for that home. You have people who are now upside down 
due to this expansionary interest rate environment. And I have 
concerns about future raises and the impact that is going to 
have on small businesses, the availability of credit, and, 
again, your average homeowner. The people who pay that or bear 
the burden of that are your lower-income and your middle-class 
families.
    Now, when you look at Silicon Valley Bank, which is 
supervised by the Fed, again, I get back to when you look at 
the interest rate increases, why there was not more warning or 
hedging from you as to the impact it may have on the fiscal 
system, the financial system and the banking system, because, 
as we well acknowledged on both sides of the aisle, there was 
some poor management, but the regulators and the communication 
from the government was lacking.
    Mr. Chairman, I am out of time. Mr. Powell, thank you for 
being here, and I will yield back.
    Mr. Nunn. Thank you, Mr. Ogles. With that, the Chair 
recognizes the gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman, and I thank the ranking 
member. Welcome, Chairman Powell. It's good to see you again.
    Chairman Powell, I heard some of your comments over the 
last couple of days about the Fed seeking a softening in the 
labor market. And as a former union president for the iron 
workers, I always took a dim view of softening of the labor 
market because it reduced targeting power and that sort of 
thing. But I do admit that right now, unemployment rates are 
historically low all across the country.
    I think in Massachusetts, the Fed number is at 2.8 percent 
unemployment, Arkansas even less, and Alabama even less, so I 
understand the need for your position. But when you look at the 
Black and Latino unemployment rates in some of these major 
cities, they are double that. And I can't help but see this as 
an opportunity to perhaps redouble our efforts to pull workers 
who don't traditionally have strong connections to the job 
market and make things happen.
    At the Federal level, we fund about 25,000 job training 
programs, and according to the Government Accountability Office 
(GAO), we don't do a very good job. I think the average program 
produces about three workers per year, but I am aware of the 
work that the Boston Fed is doing with the Gateway Cities 
Program. Susan Collins is running that in the Boston area. And 
the Fed actually helps us with data and coordination in cities 
like Brockton, Massachusetts, in my district, but also 
Fitchburg and other more rural areas. The Fed comes in and 
actually provides a great amount of expertise and has done 
wonderful, wonderful work.
    I am just wondering, are there other tools in our toolbox 
that the Fed could use to help? You could soften the labor 
market by adding workers as well, and I would rather see that 
on the supply side than simply restrict credit and squeeze 
companies into a position where they have to lay people off. 
And I am just wondering if there are other tools that you think 
might be available to us to accomplish that?
    Mr. Powell. I will say two things. First, the softening 
that we have seen so far in the labor market has been around 
job openings declining. It has not been around unemployment 
increasing. We have seen some wages moderating back toward more 
sustainable levels. You will remember well the labor market 
before the pandemic where we had 2-percent inflation and a 
really, really tight labor market with no inflation, and a lot 
of the gains were going to people at the lower end. That is 
where we all want to get back to because what we have now is a 
very tight labor market, but inflation is so high that it is 
eating up the wage gains that these people make, so we need to 
get away from that.
    In terms of other tools, I visited East Hartford, which was 
another one of those cities. And I agree with you, we are not 
spending taxpayer money on this. We don't have the authority to 
do it. We convene people who have private-sector funds and we 
focus on a city, and I was really impressed. I don't know if 
you have--it sounded like you have visited one or more of these 
cities. It is amazing what you can do, but as a convener 
really, rather than as an agency that has the authority to 
spend money on people. We do think about these things. We think 
that the most important thing we need to do for working people 
is to get inflation back under control because it is the people 
at the lower end of the income spectrum who suffer the most 
from high inflation.
    Mr. Lynch. Yes. I just think there are deeper structural 
problems in the limitations within our workforce. I met 
yesterday with the International Brotherhood of Electrical 
Workers (IBEW) Local 103 in Boston, and I talked to new 
electrician apprentices, mostly women of color, who are working 
days and their husbands are working nights, and it reflects in 
that very, very low unemployment number. You are getting around 
2 percent. It is really people who are in between jobs, so 
there is no real reservoir of unemployed workers there that you 
can rely on.
    And I do appreciate the way the Fed came in and the Boston 
Fed came in and big-footed the situation in Fitchburg, where 
they brought a bunch of people together, and they accomplished 
a lot without spending Federal taxpayer money. And I am going 
to continue to try to find ways that we could use the resources 
that you have available.
    Mr. Chairman, I yield back.
    Mr. Nunn. Thank you, Mr. Lynch. The Chair recognizes the 
gentleman from Georgia, Mr. Loudermilk.
    Mr. Loudermilk. Thank you, Mr. Chairman. Mr. Powell, it's 
good to see you again. Thank you for being here.
    I want to continue a dialogue that you and I had about 
FedNow, and I also want to continue voicing my concern that 
this product is a solution to a problem that the private sector 
is already addressing. The Real-Time Payments (RTP) network is 
already capable of instant settlement with a much greater 
degree of connectivity than FedNow will have at launch next 
month or in years to come. And my concern is also that the Fed 
has an undeniable advantage over the private sector in the 
payment space as it can clear transactions through Fed master 
accounts. Furthermore, the Fed already has options to improve 
transaction speeds through existing services. For example, the 
Fed has discussed extending the operation hours for the 
National Settlement Service since 2015.
    My first question is, why not respond to industry demand by 
improving existing services instead of launching a new one that 
can compete with private industry?
    Mr. Powell. As you may remember, we surveyed all of the 
banks, not just the large banks, who set up RTP, which was a 
very positive development that we supported, and, 
overwhelmingly, the smaller banks wanted us to set up FedNow. 
This was a very overwhelming few among smaller banks. They 
wanted a Fed alternative to RTP, so we set it up. And I would 
agree with you that that is not a reason not to work on the 
efficiency of our other payment services, and I hope we are 
doing that--I know we are doing that.
    Mr. Loudermilk. We had also discussed in the past about 
setting up some guardrails to protect customers from accidental 
or fraudulent transactions, and we know that is a big issue 
across the entire financial services sector. And in response to 
that, you know that the banks already have procedures for 
customers to report unintentional transactions, and FedNow will 
come up with a suite of features as well to help institutions 
investigate and remedy any unintentional or fraudulent 
transactions. However, with real-time settlements, this becomes 
a whole lot more difficult than just debiting the account that 
receives funds by mistake. Can you elaborate on how you are 
going to handle this protection?
    Mr. Powell. Yes, and of course, RTP faces the exact same 
issues. It is a problem with real-time payments. You just have 
to have very high, extra high levels of security around the 
payments, whom the payee is, and that sort of thing. And we do 
think we can master that and build that in, again, as any 
faster payment.
    Mr. Loudermilk. Do you have any ideas of the direction that 
you are looking to go? How are you going to be able to resolve 
it, or is this just something you are beginning to look into?
    Mr. Powell. No, I think we have built in very strong 
safeguards. I can't give you the technology answer, but we will 
be happy to supply that.
    Mr. Loudermilk. Yes, if you could supply that, I would 
appreciate it.
    I just have a couple of other questions. Will the Federal 
Reserve itself use FedNow for real-time payments between banks 
in the System?
    Mr. Powell. I'm sorry, will it----
    Mr. Loudermilk. Are you going to use FedNow for real-time 
payments between banks within the System?
    Mr. Powell. Yes, that is what it is for, it is an interbank 
payment system that allows banks to offer real-time payments to 
their customers.
    Mr. Loudermilk. Okay. With that, I am going to diverge just 
a little bit. I have dealt, in the past at the State level, 
with government competing with private industry. We run into 
this problem where the government has an undeniable advantage. 
In this case, it had to do with internet services, where city 
governments had gotten involved in internet servicing and 
started competing against private providers. And the issue came 
that the city governments were undercutting the private 
providers because of the poll access fee. So, we passed 
legislation in the State of Georgia which required that any 
municipal government that provides a service that competes with 
private industry has to assess themselves the same fees.
    With that in mind, will transactions between Federal 
Reserve Banks be subject to the same rules and fees as other 
banks? Are you going to charge yourself the same fees as 
private industry and abide by the same rules as private 
industry?
    Mr. Powell. I don't know the answer to that. In the payment 
space, there are many, many instances of a government-operated 
payment system operating side by side with a private-sector 
one. It is not something I would advocate broadly for in the 
economy. Think about the Automated Clearing House (ACH). Think 
about Fedwire. There are private-sector and public-sector 
payment utilities operating next to each other in the United 
States and around the world.
    Mr. Loudermilk. Okay. Thank you. My time has expired, so I 
yield back.
    Mrs. Wagner. [presiding]. The gentleman yields back. The 
gentleman from California, Mr. Vargas, is now recognized for 5 
minutes.
    Mr. Vargas. Thank you very much, Madam Chairwoman. I 
appreciate the opportunity. I want to thank the ranking member, 
too. Thank you.
    Chairman Powell, I have always had great confidence in you, 
and I have told you that personally. Now that you are a 
Deadhead, though, I am not quite sure. This is after 50 years. 
Anyway, again, thank you very much for being here. I appreciate 
the service you have done for our nation.
    One of my colleagues was talking about the difference in 
inflation rates in the United States and Europe, on both sides, 
actually. One of my colleagues on our side talked about that. 
And I was wondering if you saw the headline today in the New 
York Times about the U.K. inflation rate, and you saw that they 
are running, I think, at 8-something percent.
    Mr. Powell. Yes, I did see that.
    Mr. Vargas. And you were asked a question by the gentleman 
on the other side of the aisle about how when the Biden 
Administration took over, what you could buy for $1 now costs 
$1.16, and that was hurting consumers. And you said, ``I 
strongly agree.'' But the question obviously inferred that that 
inflation was the fault of the Biden Administration. That is 
the whole point of the question.
    Mr. Powell. That wasn't the question I answered, by the 
way.
    Mr. Vargas. That is right. And I was going to say that, and 
I will give you an opportunity to answer that because you later 
said that the pandemic was the issue all around the world. Is 
the Biden Administration the cause of all this inflation?
    Mr. Powell. Just to be clear, the question I answered was, 
is inflation hurting people? It was nothing to do with the 
cause of the inflation.
    Mr. Vargas. But to infer, Mr. Chairman, when you say that 
this has happened during the time of the Biden Administration, 
I think the question clearly infers that.
    Mr. Powell. I think you understand the question I was 
really answering. I guess I would say, again, people are going 
to be unpacking the causes of this inflation. Many academic 
careers will be built on new ways to look at this. Former Fed 
Chairman Bernanke delivered a paper with a colleague just a 
couple of weeks ago at the Brookings Institution on this, and I 
just think you see inflation everywhere in the world. There is 
a common factor here, which has to do with the pandemic.
    There is also room for fiscal policy, and there is room for 
monetary policy in the explanation, and I just think it is very 
hard to unpack that. We don't render judgment on fiscal policy. 
We don't support it. We don't criticize it. We take it as 
something that arrives at our front door. No matter who is 
President, no matter what fiscal policy is, it is not something 
we play a role in commenting on or criticizing or praising.
    Mr. Vargas. I appreciate the answer. I wanted to give you 
an opportunity just to make sure if there was any confusion 
about that. The confusion was cleared up, and I think you have 
cleared it up.
    Now, I want you to answer a question that you didn't 
answer, that you passed on. The question was if Congress should 
be in charge of setting the Federal funds rate. I can't think 
of a worse idea. The only worse idea, I think, might be another 
idea that was set forward earlier, that maybe we should be 
involved in supervising the banks. In Congress, we can't even 
figure out appliances here. We closed down the government over 
appliances. We can't even figure that out. I don't know how in 
the world we would be setting rates and how in the world we 
would be supervising banks.
    Again, I think you guys can do a tighter job of supervising 
banks. I do think that there were, and you guys have admitted 
to that with the Silicon Valley Bank, and I hope you do, and I 
know you are looking at these regulations. It was brought up 
that since 2008, 2009, the capital requirements have gone up, 
and the banks generally have done well in the stress test. What 
was the law that caused the rates, the capital requirements to 
go up?
    Mr. Powell. It was a combination of the Dodd-Frank Act and 
also the Basel Committee.
    Mr. Vargas. Of course. And those are the two things that I 
have heard from colleagues on the other side, that they just 
keep beating up on. They don't do it as much now. It is the 
Consumer Financial Protection Bureau (CFPB) now. But that was 
the choir, again, once again, just saying it is a terrible Act, 
but the reality is it probably saved banking in the United 
States, and I appreciate it.
    Lastly, I would just comment, and you don't have to 
comment. I am just going to make this comment. Obviously, your 
focus is narrow and should be, but the notion of climate change 
is important. I do think that it is affecting the economy. I do 
think that it is affecting our world. And I do think that we 
have had our head in the sand for way too long on this issue, 
and we have to do something about it. Obviously, that is not 
your mandate, but obviously, it is important, and I hope we do 
something about it. We don't have the courage to do that in 
Congress. That is why I think others are doing it for us, but 
we have to do something. We see the bigger hurricanes. We see 
these things happening and it is because of our participation 
in making it happen. Thank you very much.
    Mrs. Wagner. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Oklahoma, Mr. Lucas, for 5 
minutes.
    Mr. Lucas. Thank you, Madam Chairwoman, and Chairman 
Powell, it is good to see you, as always.
    Mr. Powell. You, as well.
    Mr. Lucas. Many of my colleagues today, of course, have 
expressed their concerns about the upcoming Basel III 
revisions, and I hope you will continue this dialogue with the 
committee once the joint rule is proposed and is open for 
public comment.
    I would like to follow up with a topic we discussed back in 
March. I am sure you are keenly aware of how important it is 
for banks and companies to manage interest rate risk, 
particularly over the last several years. The Silicon Valley 
Bank made that very clear. Could you speak generally to how 
hedging interest rate risk is an important risk management tool 
for U.S. banks and companies?
    Mr. Powell. I think you see the reality of it here. When 
rates go up, banks are encouraged by their supervisors and 
their own internal personnel and risk committees that they need 
to manage that risk, and most U.S. banks did a good or adequate 
job of that. I would say it is a fundamental risk of banking, 
one of the most basic risks, along with credit risk.
    Mr. Lucas. Exactly. And on that point, I have heard 
concerns that the Fed's Basel III revisions could increase 
costs for derivatives end users. Whether hedging interest rate 
risk or commodity price risk, I am optimistic that these 
concerns will be addressed. Having said that, these revisions 
to capital requirements do not exist in a vacuum. The SEC is 
proposing major changes of their own. Last week, I asked 
Secretary Yellen if Treasury is coordinating with the Fed and 
the SEC on economic analysis as necessary to understand the 
potential consequences of U.S. banks implementing both 
significant market structure changes and increased capital 
requirements associated with market activities. The Secretary 
responded that the Fed is, in fact, coordinating with Treasury 
on this analysis. Are you aware of this coordination, and have 
you personally been a part of these conversations?
    Mr. Powell. I have not been a part of those conversations, 
but I do understand that that is correct.
    Mr. Lucas. Okay. Chairman Powell, I would like to follow up 
with you on your conversation with Congressman Gonzalez from 
earlier today. You have assured this committee that the Fed is 
not a climate policymaker, and I appreciate your commitment to 
this. However, I am concerned that the Fed's regulatory toolkit 
would be utilized in a way that would, in effect, require the 
Federal Reserve to make policy decisions on climate change. We 
have seen other U.S. financial regulators embark on significant 
climate rulemakings, such as the SEC.
    Chairman Powell, are there principles you keep in mind when 
ensuring that the Fed doesn't give in to, shall we say, 
political pressure around things like climate change?
    Mr. Powell. There are. And for a starter, one would be that 
we don't see it as at all appropriate for us to tell banks what 
legal businesses they can lend to; that is not our role. We 
don't allocate credit, so what we do is we supervise banks to 
make sure that they understand and can manage the risks that 
they are running. And we are thinking of that as our point of 
contact with climate change in the sense that it is another 
risk that over time, banks need to be able to analyze and 
assess.
    Fundamentally, though, as I mentioned earlier, climate 
change is going to be a very important issue for a long time, 
and it needs to be addressed principally by elected people 
because it has enormous distributive consequences, and we don't 
have a mandate to deal directly with climate change as a 
policymaker. It does arise in connection with bank supervision, 
but that is not the heart of bank supervision. That is just a 
small part.
    Mr. Lucas. I very much appreciate those comments. On 
another topic, I would like to discuss the Fed's balance sheet, 
which currently stands at around $8.5 trillion. As you know, 
the size of the balance sheet more than doubled as the Fed 
worked diligently to stabilize markets during the height of the 
pandemic. Now, as the Fed begins to reduce the balance sheet, 
could you explain this process and describe the levels of 
securities that the Fed would look to maintain in the long 
term?
    Mr. Powell. The way the process works is that securities 
mature and they roll off our balance sheet, and that is the way 
it works, and there is a cap for mortgage-backed securities and 
also for Treasuries so it doesn't get too large. And if you hit 
that cap month upon month, it works out to roughly a little 
less than a trillion dollars a year in shrinkage, which is a 
whole lot faster than what we did in the last cycle. But then 
again, the balance sheet is that much bigger. In terms of the 
level, we are thinking about a level that will allow us to 
operate our abundant reserves regime with enough of a buffer on 
top of it so that reserves won't accidentally become scarce. I 
can follow up more with you on this.
    Mr. Lucas. Thank you. My time has expired, Madam 
Chairwoman.
    Mrs. Wagner. The gentleman yields back. The gentlewoman 
from Ohio, Mrs. Beatty, is now recognized for 5 minutes.
    Mrs. Beatty. Thank you, Madam Chairwoman. And thank you, 
Chair Powell, for being here today. I have two questions I am 
going to try to quickly get through. The first question on the 
U.S. dollar dominance is kind of a follow-up to Congressman 
Torres' question.
    Chair Powell, in our National Security Subcommittee, of 
which I am the ranking member, we have been discussing the 
importance of preserving the U.S. dollar's status as the global 
reserve currency. Can you share with us the current status of 
dollar dominance as it stands today and whether there are risks 
to the strength of the U.S. dollar in the international 
financial system? And if so, what are some of the risks?
    Mr. Powell. The U.S. dollar is still the dominant reserve 
currency in the world, and that is principally thought to be as 
a result of our liquid capital markets, the rule of law, strong 
democratic institutions, price stability over the years, and, 
critically, its openness; money can come in and out of the 
United States without all sorts of legal restrictions and 
things like that. All of those things are necessary to provide 
the world's reserve currency. We have them. There is not 
another economy that has all of those features. So as long as 
we are a country of rule of law, and relative price stability, 
and strong democratic institutions, and open capital accounts, 
we can continue to be the world's reserve currency. History 
shows that this is not a permanent status, but it is a lasting 
one. And I think in the case of the United States, as long as 
we maintain those characteristics of our government and our 
country, then we can continue to be the world's reserve 
currency.
    Mrs. Beatty. Okay. Thank you. Let me go to another question 
that will not be foreign to you. As the former Chair of our 
Subcommittee on Diversity and Inclusion, I asked you and others 
of your colleagues, and let me just say for the record, Madam 
Chairwoman, that Chair Powell was always on point, and went out 
of his way, in my opinion, to make sure that there was fairness 
and equity for all people. In light of that, I would like to 
follow up with Ranking Member Waters' comments, and maybe 
Congresswoman Velazquez--maybe what she was talking about.
    Several of our colleagues here and in the Senate felt that 
the person who preceded you--it had been stated by many of us 
that we thought, through banking deregulation, he was enabling 
risky banking practices and failing to combat lending 
discrimination, which might have perpetuated racial inequities. 
A few weeks ago, Chairman Powell, on June the 7th, you said 
that, ``We understand at the Fed that our actions affect 
communities, families, and businesses across the country, and 
everything we do at the Fed is in the service to our public 
mission.'' Could you maybe elaborate, since the time ran out 
with Ranking Member Waters--is there anything you would like to 
share with us that you do at the Fed that would dispel that 
there are things that you are not looking at that cause one or 
more Members of Congress to think that it is perpetuating 
racial inequities?
    Mr. Powell. As you know, we do call out disparate economic 
characteristics of different demographic groups, including by 
race, and we want those facts to remain present in the room as 
we are making our decisions. We try to think of maximum 
employment, we do think of it as a broad and inclusive goal, 
meaning we are not just looking at the aggregate level. I think 
it is important to keep those facts in your head as you think 
about monetary policy. I will say, though, that we have one 
Federal funds rate, and we don't really have tools that address 
distribution and historical inequities and things like that. 
Really, the Fed is not an agency that has those things. The 
best thing we can do for everybody, including, in particular, 
low- and moderate-income communities, is to maintain price 
stability over a long period of time, and on top of that, to 
maintain a very, very strong labor market. Strong labor market 
conditions are the single biggest contribution we can make in 
this area.
    Mrs. Beatty. Thank you. And let me end by saying I 
appreciate your comments when you said that you realize that 
high inflation imposes hardships as it erodes purchasing powers 
for food and housing from the least of us. Thank you so much 
for being sensitive to everyone.
    Mrs. Wagner. The gentlelady's time has expired. The Chair 
now recognizes the gentleman from Michigan, Mr. Huizenga, for 5 
minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman, and, Chairman 
Powell, it's good to see you again.
    I wanted to follow up on an exchange that we had back in 
March, this past March, where we were discussing the parameters 
highlighted in the Federal Reserve Board's legal opinions that 
outlined how asset managers can operate without being deemed, 
``in control of a regular bank or a bank holding company.'' 
Letters from the Fed's legal division also include certain 
commitments made by these asset managers to ensure the same 
result. However, it is no secret that this percentage of 
ownership held by asset managers will constantly fluctuate as 
shares are purchased and sold on a daily basis.
    With the ever-changing ownership structure, someone must 
ensure asset managers are complying with not only these opinion 
letters--your opinion letters prepared by your own staff--but 
also with the statutory and regulatory framework that the 
letters outline.
    So, Chair Powell, I would like to ask you again, is the Fed 
taking any steps to assess or monitor whether Vanguard, 
BlackRock, and others are complying with these commitments made 
in November of 2019 and December of 2020, respectively? Is that 
ongoing?
    Mr. Powell. Can you give me one second?
    Mr. Huizenga. Okay.
    Mr. Powell. Sorry. That is a very specific question, and I 
didn't know the answer. I would say this: We are broadly 
monitoring the situation. I don't know that we have a 
particular focus on the asset managers.
    Mr. Huizenga. Okay. Those were opinion letters put out by 
your folks outlining very specific things that could or could 
not happen. And back in March when I brought this up, and now 
again today, I am looking to find out who is actually minding 
the store on that, and it is a little concerning that we don't 
have an answer on that. I guess we will continue this 
conversation, and maybe you can answer this: What Division at 
the Fed is responsible for reviewing and monitoring an asset 
managers' compliance with these opinion letters issued by the 
Board's legal division?
    Mr. Powell. It would be the General Counsel's office. We 
don't have any reason to think that they are not in compliance, 
by the way.
    Mr. Huizenga. But nobody is checking?
    Mr. Powell. We will check.
    Mr. Huizenga. Okay.
    Mr. Powell. I think we know what we are going to find.
    Mr. Huizenga. I would like to know what you are going to 
find, not what you think you are going to find on that, so 
thank you. I will be following up with a letter to include some 
more detailed questions on the topic, and I assume you will 
commit to getting us a timely answer to that.
    Mr. Powell. I think we offered your staff a briefing on 
this, by the way.
    Mr. Huizenga. Yes, and there was a briefing, and let me be 
clear, I appreciate the cooperation that has happened. We have 
also had some other briefings. There have been a number of 
briefings that we have requested, and, frankly your division of 
government has been more helpful than others, shall we say.
    I am going to quickly pivot to the committee's 
investigation of the Silicon Valley Bank failure. Your staff 
has been working to get us some answers on our outstanding 
questions. You did your own report. Now, it is our turn, and 
can you appreciate that our committee, is conducting its own 
independent review of what happened in March?
    Mr. Powell. Yes, very much so.
    Mr. Huizenga. Okay. Thank you. Will you commit to producing 
the interview notes and allow us access to the staff who 
participated in the interviews conducted for the Fed's own 
internal review of the bank supervision report?
    Mr. Powell. I am not in the middle of that discussion. I 
don't know where that stands, so I don't want to make 
commitments that I can't back up. But I will be happy to find 
out where that discussion stands and try to work with you.
    Mr. Huizenga. Okay. We are going to be following up for 
sure on that. When Vice Chair Barr concluded that a, ``culture 
shift''--his words--``happened,'' do you know if the Fed 
officials spoke with examiners of other banks, or was this 
conclusion made solely after the review of SVB? In other words, 
did they find some systemic problem throughout the Fed?
    Mr. Powell. The thing is, I didn't play any role, by 
design, in the preparation of the report, and I am reluctant--I 
think I know the answer, but I don't want to guess. We can 
provide you with a 100-percent clear answer on that, and I 
would rather not speculate.
    Mr. Huizenga. Okay. Along with the FDIC and the Department 
of the Treasury, you invoked the systemic risk exemption (SRE) 
for both Silicon Valley Bank and Signature Bank, guaranteeing 
all depositors would be made whole. For example, regulators 
could have used the Orderly Liquidation Authority (OLA), the 
very tool Dodd-Frank intended to resolve the too-big-to-fail 
institutions, while protecting taxpayers. Why was the decision 
to use SRE made, and do you think that we have now lowered the 
bar to use SRE in future bank failures?
    Mr. Powell. I hope we don't have to face that question 
again as long as I live.
    Mr. Huizenga. We all do. But has a new bar been set? No pun 
intended.
    Mr. Powell. I would say this. This happened with no warning 
in the middle of the night, Thursday night, and less than 12 
hours later, we were on the phone with the FDIC, and they were 
deciding to close the institution and to haircut uninsured 
depositors. So, it was an emergency situation over that 
weekend. We could see that there was an electronic run building 
up, and we did what we had to do to address that and, I think, 
successfully.
    Mrs. Wagner. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Illinois, Mr. Foster, for 5 
minutes.
    Mr. Foster. Thank you, Madam Chairwoman, and thank you, Mr. 
Powell for being here today.
    Wars have historically been associated with elevated levels 
of inflation worldwide, although the relationship is 
complicated and wars can have impacts on both supply and 
demand. Higher inflation may just be one of the many prices 
that humanity pays for the decision to go to war.
    Now, we don't have boots on the ground, but there is no 
doubt that in terms of supply disruption and military spending, 
both Europe and the U.S. are effectively at war in support of 
the freedom of the people of Ukraine. My question is, is the 2-
percent inflation target a realistic and appropriate goal 
during a time when much of the world is effectively at war, or 
should the 2-percent goal be thought of as a goal for normal 
times, with policies being put in place that will return to 2 
percent when the war is over, or at least when we have 
decoupled adequately from the Russian economy?
    Mr. Powell. Two percent is our goal, and it will remain our 
goal. It is a medium-term goal, so we are using our tools to 
get the inflation level back down to 2 percent. We are not 
considering changing it because of the war in Ukraine, and I 
don't know that that is playing a particularly important role 
in inflation today, although when energy prices and commodity 
prices went up at the beginning of the war, it certainly was.
    Mr. Foster. And certainly, it is an important factor for 
Europe still----
    Mr. Powell. Yes, the disruption particularly.
    Mr. Foster. Just more generally, you have been trying to 
deal with this question of how you balance your dual mandate, 
and whenever you are trying to optimize simultaneously two 
different things, the first step is to put them into common 
units. Just to be specific here, let's say that you are missing 
your unemployment goal by 1 percent, and you are missing your 
inflation goal by 1 percent in the opposite direction. At some 
point, do those two cancel each other out? Is 1 percent in one 
goal equivalent to 1 percent in the other, or do you need a 2 
percent missing of the unemployment target? There must be that 
coefficient there in the Taylor Rule and things like this that 
try to predict your behavior, but internally, how do you view 
the difference between a 1 percent unemployment missing of the 
target versus a 1 percent of inflation?
    Mr. Powell. The Taylor Rule is a pretty good place to start 
there, with the same coefficient on both variables.
    Mr. Foster. Is that really true? I don't know. I would have 
to go look at it.
    Mr. Powell. In the original Taylor Rule.
    Mr. Foster. Okay, because it is a coincidence if the 
coefficient is 1, because you could choose a quarterly 
inflation target or an annual or a decade-old inflation target 
numerically and get very different numbers.
    Mr. Powell. There is significant amount of research about 
the relative social costs of inflation and unemployment, and 
you wouldn't want to ignore that research either, so I think 
there will be a lot of judgment in this. At the current moment, 
it is not a question, because the labor market is 
extraordinarily strong, and we are very far from our inflation 
targets.
    Mr. Foster. But you are getting complaints from business 
that the labor market may be too tight. At least, it is viewed, 
from the Taylor Rule point of view, that there is a penalty 
that you pay when the unemployment gets too small. There is a 
target you are trying to hit.
    Mr. Powell. But both sides are calling for tight policy.
    Mr. Foster. Yes, that is correct at present, but you can 
certainly foresee times when they will be in tension and they 
historically have been. So, you are saying that pretty much it 
is a 1 percent on both?
    Mr. Powell. I think that is a starting place. I think it 
doesn't lend itself to that level of precision.
    Mr. Foster. It is either that or you have to face questions 
like you have been facing for the last decade, and just how do 
you balance this? In terms of the internet or electronic runs 
on banks, it seems like that is a new thing that is going to 
have to inform bank capital and liquidity providers. The first 
question is, if you get a significant electronic run on a 
significant size bank, is there anyone but the Federal Reserve 
that can provide that emergency assistance, or do you pretty 
much have to be the only line of defense against big internet 
runs?
    Mr. Powell. I think regulation and supervision can play a 
role in that as well.
    Mr. Foster. That has been stopping the run from starting, 
right?
    Mr. Powell. Yes.
    Mr. Foster. But part of that stopping the run from starting 
is knowing that if it starts, there is someone or some entity 
that can stop it.
    Mr. Powell. Or the lender of last resort, and that is 
something that only the central bank can be or do. But I would 
say changes to regulation to ensure that you don't have this 
mismatch between runnable liabilities and available cash to 
fund their running is something we can address and will address 
through regulation and supervision.
    Mr. Foster. Thank you. I yield back.
    Mrs. Wagner. The gentleman's time has expired. The Chair 
now recognizes herself for 5 minutes for questioning.
    Welcome, Chairman Powell. I want to start by asking about 
the Federal Open Market Committee's (FOMC's) latest forecast. 
It predicted the core inflation will fall below 3 percent 
within a year. This forecast has been the exact same for each 
Fed meeting over the past 2 years and has been wrong each and 
every time. Why do FOMC participants continue to make the same 
forecast, sir, and what data are they reviewing to make this 
forecast?
    Mr. Powell. In the world of economic forecasting, we don't 
really have any advantage over private-sector forecasters who 
have been at this. There are a number of private-sector 
forecasters that are well-resourced, and the data are all 
public. We don't have private data. That is not how this works. 
And I think, essentially, all forecasters have made the same 
mistake, which is at the beginning, thinking that the supply 
chain problems would be resolved quickly, and workers would 
come back to work quickly, and things like that. Inflation has 
consistently surprised us, and essentially all other 
forecasters, by being more persistent than expected, and I 
think we have come to expect that and expect it to be more 
persistent.
    Mrs. Wagner. It seems that we have moved way past the whole 
transitory thing. And for the 2 full years down, they have been 
saying it is going to be under 3 percent, and clearly, they 
have missed that, so it was just a little concerning to me if 
there was something that we are missing.
    Let me move on. In your press conference last week, sir, 
you stated that, ``The conditions we need to see in place to 
get inflation down are coming into place.'' What conditions are 
you seeing that show that we are moving in the right direction, 
because I can tell you, my constituents are still feeling great 
pain from this inflation that continues to persist?
    Mr. Powell. There are underlying conditions that I will 
mention, but the point is, you get them in place, and then the 
process of inflation moving down will take a significant amount 
of time, and we have been consistent in saying that. And the 
conditions I mentioned would be: first, we need economic growth 
to be slower than to be modest, and it has been at a modest 
level, so that is happening; second, we need the supply chain 
bottlenecks to go away and get better and improved; and third, 
we need the sort of mismatch between demand and supply in the 
labor market to diminish, and that has been happening.
    So, all of those things are happening much later and much 
more slowly than we would hope. And my Committee and I do 
believe that the process of bringing inflation down is going to 
be a relatively lengthy one, longer than we expected.
    Mrs. Wagner. It is clear that the spending on consumer 
services, for example, a car oil change, a haircut, or a 
concert ticket, remain almost unresponsive to rate hikes. Do 
you have a projection for when we might see this spending go 
down?
    Mr. Powell. Non-housing services, the broad service sector 
is famously less responsive to and less focused on rate hikes 
and the cost of capital. So, what we think that is about half 
of the core inflation, a little bit more than. We think, and I 
think broadly that this is what forecasters think, that it will 
take some softening in labor market conditions because in that 
service sector, it is very labor-intensive. By far, the largest 
cost from most service companies is labor, so what you want to 
see is rebalancing. So, the demand for labor and supply, a lot 
of that can happen through fewer job openings and things like 
that, and we do see it happening.
    Mrs. Wagner. The Consumer Price Index (CPI), which measures 
the price of everything from groceries to cars and to rent, 
has, in fact, declined from its peak. But the Personal 
Consumption Expenditures (PCE) Index, which measures, as we 
were talking about, consumer spending, remains historically 
high. How else can you account for this difference when it 
comes to a rate hike pause?
    Mr. Powell. We never used the word, ``pause,'' and I 
wouldn't use it here today. What we did was we agreed to 
maintain the rate at that meeting. Almost every single one, 16 
of the 18 participants on the FOMC, wrote down that they do 
believe it will be appropriate to raise rates, and a big 
majority----
    Mrs. Wagner. Yes.
    Mr. Powell. ----raise rates twice this year. And I think 
that is a pretty good guess of what will happen if the economy 
performs about as expected.
    Mrs. Wagner. Yes, I think it is right. More rate hikes 
likely are needed to bring inflation back down to the 2 
percent, and we are concerned about a hard landing, about a 
recession.
    Anyway, my time has expired, and I now recognize the 
gentleman from Illinois, Mr. Casten, for 5 minutes.
    Mr. Casten. Thank you, Madam Chairwoman. And thank you, 
Chair Powell for being here.
    In June of 2021, at the Green Swan conference, you said, 
``Climate change poses profound challenges for the global 
economy and the financial system.'' In October of 2021, FSOC's 
report on Climate-related Financial Risk, for the first time 
identified climate change as an emerging threat to U.S. 
financial stability. And in December of last year, the Fed 
released climate supervisory principles for large banks that 
said, ``The financial impacts that result from the economic 
impacts of climate change and the transition to a lower carbon 
economy pose an emerging risk to the safety and soundness of 
financial institutions and the financial stability of the 
United States.''
    You have made many comments today that I think are broadly 
consistent with that in your role, and I appreciate the 
comments you have made in that capacity. Can I safely conclude 
that in June of 2023, 6 months after that release, the Fed's 
position is still that climate change presents a risk to the 
global economy and the financial system?
    Mr. Powell. Yes. I hasten to add, though, that our role in 
this is an important but quite small one around bank 
regulation.
    Mr. Casten. Understood, and I am not asking for the role. I 
just want to clarify that the reason I asked that question is 
because on May 11th, your colleague, Christopher Waller, at a 
speech in Spain said, ``Climate change does not pose a serious 
risk to the safety and soundness of large banks or the 
financial stability of the United States,'' and went on to say 
that the risks posed by climate change are not sufficiently 
unique or material to merit special treatment relative to 
others. Should we understand as we sit here that Mr. Waller was 
speaking in his personal capacity and not as a designee of the 
Fed, if indeed, Fed policy hasn't changed since December 2022?
    Mr. Powell. I don't comment on any of the things that my 
colleagues say.
    Mr. Casten. I understand, but you understand the concern 
that if markets and regulators are to understand that the Fed 
has a consistent policy, and one of the members of the Fed is 
saying something that appears to be directly opposed to Fed 
policy from 6 months earlier, that is a concern.
    Mr. Powell. Again, Governors have always had the ability, 
and Reserve Bank Presidents as well, the ability to have their 
own views on things. And that is going to happen, and that is 
probably a good thing that we have a diversity of perspectives. 
I think there may be less than that difference than you 
suggest. Again, what I am saying is, to the extent we have a 
role, it is to ensure that banks understand and can manage the 
risks that they do face from climate change.
    Mr. Casten. Okay. I don't want to create internal tension, 
but I think we are all aware that you, above anyone, is aware 
that your words are closely scrutinized, and we were concerned 
with the words of your colleagues there.
    Madam Chairwoman, I would like to introduce for the record 
a working paper from the European Central Bank entitled, ``The 
Impact of Global Warming on Inflation.''
    I don't know if you saw this report that just came out 
recently, but it says, among other things, that climate change 
poses risks to price stability by having an upward effect on 
inflation, both food prices and headline inflation. And what I 
wonder is, without opining on their math, if, in fact, we are 
looking at a world where climate change for the European 
Central Bank is going to increase inflation, and were we to 
find ourselves in that world going forward, would the Fed or 
other central regulators say we have the tools to address this, 
or we are going to say, well, that is non-core inflation? What 
are we going to do in hindsight, because it feels to me like we 
have a major bank regulator saying climate change is running 
the risk of inflation? But I don't even know what tool you 
would use to address that.
    Mr. Powell. What I can just say is that for now, this 
doesn't enter my thinking in any way that we would, in the near 
term, change our inflation goal because of climate change or 
the need to deal with it. There is a lot of thinking and 
research that over a long period of time, really, the process 
of investing very large amounts of money in a green transition 
could drive inflation up, but that is not something we are 
thinking about today. During our FOMC meetings, we are not 
thinking about climate change as something that is relevant to 
current inflation or to current monetary policy.
    Mr. Casten. Sure.
    Mr. Powell. And our focus today is inflation.
    Mr. Casten. I guess what I am struggling with is that if we 
agree that this is a systemic risk, if we agree that this leads 
to inflation, and we don't really know what role you would have 
with tools, there is a concern there.
    The last thing I want to end with is, in April of 2023, in 
the report on SVB, one of the lessons that was noted in the Fed 
review said that this is an opportunity for regulators and bank 
managers to be more willing to adopt a precautionary 
perspective and that the Fed must strengthen its supervision 
based on what we have learned. I am trying to figure out with 
climate change, if we agree that this is a forward risk, how do 
we get the Fed the tools to apply a precautionary perspective?
    Mr. Barr. [presiding]. The gentleman's time has expired. 
Chairman Powell can submit an answer in writing for the record.
    And I now recognize myself for 5 minutes. Chairman Powell, 
in March, you confirmed to me that the Federal Reserve is a 
consensus organization built on garnering broad support before 
agreeing to any proposal. And given the breadth and scope of 
the potential changes to the capital framework that is under 
review right now, that consensus-driven approach seems to be 
all the more important. I am concerned that the Vice Chair for 
Supervision has seemingly been given far too much latitude to 
act unilaterally, especially in light of Section 1107(a)(1) of 
the Dodd-Frank Act, which provides the Vice Chair for 
Supervision authority only to develop recommendations for the 
Board and oversee supervision and regulation.
    Can you speak to the process that is underway? Is the Vice 
Chair acting unilaterally, or is that a wrong characterization? 
And if so, if it is just a recommendation, can you walk us 
through the steps that the Board will take from recommendation 
to a vote?
    Mr. Powell. Sure. I think what you see is very much the way 
the statute works, which is the Vice Chair for Supervision has 
the responsibility, the obligation to develop regulatory 
proposals for the Board that will be considered by the full 
Board. As I mentioned before in another context, he is not the 
Comptroller of the Currency. He brings proposals to the Board, 
and the Board votes by majority vote to support them or not, 
which is how that works. In terms of provision----
    Mr. Barr. Is he including other members of the Board 
currently?
    Mr. Powell. I think all of us have been getting briefings 
on what is developed, but ultimately, the job is to present 
something to the Board for consideration by the Board.
    Mr. Barr. Once he presents his recommendations, how long 
will there be debate/deliberation, and is that transparent to 
the public?
    Mr. Powell. There will be a meeting--it could be a virtual 
meeting--this summer to vote on these things. In the meantime, 
there is a lot of conversation going back and forth now, and we 
are sort of in that process now, but things are still moving 
around.
    Mr. Barr. Our concern, Mr. Chairman, is that it seems like 
right now, the Vice Chair is writing personalized assessments 
of bank failures and results of new Fed climate scenario 
experiments without a whole lot of collaboration with other 
Governors. And given that this new scheme could raise capital 
requirements by as much as 20 percent, in an already well-
capitalized banking system, and that the cost of such changes 
could be $100 billion or more in lost GDP, I am concerned with 
your testimony that this would only be a virtual vote. 
Shouldn't this be a more transparent public Board meeting and a 
deliberative process that includes all members of the Board?
    Mr. Powell. It is really just a question of calendars and 
where will people be in the summer. We haven't decided what 
form the meeting would take, whether it would be virtual.
    Mr. Barr. Given that it is a pretty big decision, and that 
the law requires the full Board to make this decision and not 
one Board Member to act unilaterally, we would hope that the 
Fed would hold public meetings on the new proposal. Will you 
and the Federal Reserve Board commit also, when the proposal is 
voted on, to also include your economic analysis that would 
justify whatever capital changes are made in a quantitative 
form?
    Mr. Powell. I don't know that. I am not sure we will have 
exactly what you are looking for. But we will create a public 
record that supports the proposal, whatever it turns out to be, 
and the votes will be what they are, and it will be subject to 
public comment and analysis, no doubt.
    Mr. Barr. Well, in order for the notice-and-comment period 
to be meaningful, I think market participants will need to 
understand, on a quantitative basis, what the justification is 
for additional capital requirements if, in fact, that is what 
the proposal is, given the fact that we already have a very 
well-capitalized system. I don't have much time left, but will 
you also commit to proposing appropriately-tailored regulatory 
requirements based on the complexity and size of the financial 
institution?
    Mr. Powell. I will commit to supporting that. I can't 
commit to what the final product will be, what the vote will 
be. But as I mentioned at the outset, I do think we benefit 
hugely from a very diverse banking system, and I wouldn't want 
to do anything to jeopardize that.
    Mr. Barr. Finally, earlier this week, the Wall Street 
Journal published an article that stated that, unlike your 
predecessors, you have not focused on fiscal responsibility. 
Would you like to correct the record regarding that?
    Mr. Powell. I would. Thank you very much. It was just an 
op-ed, but it was factually incorrect. There are countless 
times that--and you have heard me do this--I have said the same 
thing that my predecessors have said, which is that the United 
States' Federal budget is on an unsustainable path, which means 
that the debt is growing faster than the economy. And that we 
are going to need to fix this, and sooner is better than later.
    Mr. Barr. The time has expired. Thank you. And the 
gentleman from New Jersey, Mr. Gottheimer, is now recognized.
    Mr. Gottheimer. Thank you, Mr. Chairman. And thank you for 
being here today, Chairman Powell. I am particularly concerned 
that the current regulatory environment disadvantages small and 
regional banks. Specifically, with First Republic receivership, 
I am concerned that the largest banks were given preference in 
the bidding process, thereby enabling the larger banks to grow 
even bigger. My understanding is that certain regional banks 
were unable to bid on First Republic because of an extensive 
and time-consuming vetting process put in place by regulators 
that put them at a disadvantage in the bidding process.
    Mr. Chairman, are you aware of a regulatory-mandated, pre-
approval process that banks must complete to bid on firms going 
into receivership? And is there a notification process for 
informing banks that they can go through this process, because 
I am concerned that some who wanted to bid were unable to do 
so.
    Mr. Powell. This is entirely something within the 
jurisdiction of the FDIC. We play an important role here, but 
when it comes down to selling a closed institution, that is 
just something the FDIC does, according to our own procedures. 
To my knowledge, there were a bunch of regional banks involved 
in bidding for First Republic.
    Mr. Gottheimer. Do you know of any where they said they 
could not participate, or was your understanding that anybody 
could participate?
    Mr. Powell. I am not aware of any. That is the heart of 
what they do. They have the law. They have the people who have 
the experience and everything.
    Mr. Gottheimer. Thank you. Small and medium banks are a 
large portion, as you know, of our country's commercial real 
estate loans. The Federal Reserve's May financial stability 
report said that the higher interest rates may be increasing 
the risk that commercial borrowers are not able to refinance 
their loans, and that a correction in property values could 
lead to losses by banks that hold commercial real estate debt. 
I am particularly concerned that such a correction threatens 
the stability of lenders and thousands of jobs in my district 
in Northern New Jersey. How is the Fed looking at this and 
helping small, medium, and regional banks manage their 
portfolios or think about the risks of commercial real estate 
loans, and what guidance is being provided to banks, given that 
nearly $1.4 trillion in commercial mortgages are set to mature 
in the next 2 years?
    Mr. Powell. We are following it very, very closely, and I 
think you have put your finger on it, this is a problem more 
for smaller banks, and not for all smaller banks, but it is the 
banks that have high concentrations. There will be losses, 
particularly in the office and some of the mall sectors. And 
what we can do is, there is a supervisory playbook, so the 
supervisors are in there, and they are working with the company 
to help it preserve capital and do the right things to get 
through what may be a difficult time for some banks that have a 
high concentration.
    Mr. Gottheimer. Thank you so much. As we have discussed 
today, there are concerns obviously that the banks may be 
tightening their lending processes and tightening what is 
available. Are you concerned that higher rates and the recent 
instability in the banking system will lead to a credit crunch 
that can make it harder for small businesses to finance their 
operations, and potentially lead to rolling blackouts of loan 
defaults across industries?
    Mr. Powell. We are watching that very carefully. Bank 
credit conditions have been tightening for a year, and that is 
partly as a result of our rate increases. We are very alert to 
the possibility that the sort of shocks that happened in March 
might exacerbate that. We don't see a lot of evidence yet on 
that, but we wouldn't have expected to. So, it is something we 
are going to continue to monitor carefully.
    Mr. Gottheimer. Are you concerned at all about the nonbanks 
and the crunch that could happen on that side?
    Mr. Powell. Yes, the banks are obviously highly regulated 
and have capital and that kind of thing, and some of the non-
bank lenders are in a very different place. But we don't 
regulate and supervise them, and so it is something we are 
watching.
    Mr. Gottheimer. How do you think we as a Congress should be 
looking at the nonbanks? Are there any recommendations?
    Mr. Powell. Where there is same activity, there really 
ought to be same regulation. You shouldn't be able to conduct 
the same activity. We regulate these things for a reason, and 
if we are not regulating them appropriately, then that should 
be changed. But if you can just go across the street and start 
a business that does the same thing without the regulation, 
then that is not going to be effective or fair.
    Mr. Gottheimer. With Basel III conversations up and 
running, and obviously driving towards some conclusions or 
recommendations, is that something that you have been watching? 
Obviously, you have Fed representation there. What are your 
biggest concerns in terms of requirements, and how you are 
thinking through that right now?
    Mr. Powell. I think these are going to be very important. A 
number of very important proposals are coming, and I would just 
put out a couple of principles. And that is, our banks are 
strong, and they are well-capitalized. I think that is pretty 
broadly agreed upon, and I think we are going to want to 
understand how even higher capital is justified. There will 
need to be a case made for that.
    Almost as important as that or maybe more important is that 
we need to respect the diversity of institutions that we have 
in this country. And we benefit from having banks of all 
different shapes and sizes, and we don't want to push 
regulation or capital, for that matter, to a place where only 
the biggest banks have a viable banking model. We are a long 
way from it. I just think we need to keep that in mind.
    Mr. Gottheimer. Or be disadvantaged compared to our foreign 
banks?
    Mr. Powell. Yes. Thanks.
    Mr. Gottheimer. Okay. Thank you so much. I yield back.
    Mr. Powell. Thank you.
    Mr. Gottheimer. Thanks.
    Chairman McHenry. Chairman Powell, we have two more Members 
here, but unfortunately, you have a hard stop at 1:00. Can we 
go over just by 5 minutes? Is that okay? Okay. No good deed 
goes unpunished. So, we will go to Mr. Davidson from Ohio for 5 
minutes, and Ms. Garcia from Texas for 5 minutes, and then we 
will wrap up. Thanks.
    Mr. Davidson. Thank you, Mr. Chairman. Chairman Powell, 
thank you. Thanks for the extra time so we get all these 
questions in. And just picking up where my colleague, Mr. 
Gottheimer, left off talking about nonbanks and banks and kind 
of the regulatory framework, you recently published online the 
list of master accounts that the Fed has. Are any of those 
master account holders, non-FDIC-insured entities?
    Mr. Powell. Are any of them? I don't know.
    Mr. Davidson. Could you get that answer back to us, please?
    Mr. Powell. Sure.
    Mr. Davidson. Okay. Thanks.
    When I think about some of the dynamics that are going on 
in the market related to banks, nonbanks, securities, not 
securities, one agency in particular has been very active in 
this space over at the SEC, and it is kind of tangentially 
related to the Fed. But crypto and digital assets in the U.S. 
has a market cap of around $1.1 trillion right now. It has been 
there for a bit. Do you acknowledge that this asset class has 
staying power in the U.S. economy?
    Mr. Powell. It appears to have some staying power. Of 
course, that $1.1 trillion was--what was that, a year ago--a 
lot higher.
    Mr. Davidson. Yes, it has had some volatility, in large 
measure due to the lack of legal clarity. So hopefully, this 
committee will help that quite a lot here this summer, with at 
least two bills, one on stablecoins and one on market 
structure. And it will be clear, not just for Congress, but for 
regulators, including Chairman Gensler and obviously, market 
participants, whether they are forming the ideas or investing 
in the ideas or participating in the activities in the space.
    But when I think about participating in activities, one of 
the core functions that has taken place for a while now is the 
reverse repo market. It has hovered just over $2 trillion for 
the first half of this year, and it follows kind of exponential 
growth that we have seen over the past few years. What is your 
assessment on the implications that the reverse repo market has 
on our economy?
    Mr. Powell. Not much. It is just a place that holds money 
on the Fed's balance sheet. It is like a mutual fund. In fact, 
it is, as the Treasury has been issuing bills to refill the 
Treasury General Account, we have actually seen the Overnight 
Reverse Repo Facility declining.
    Mr. Davidson. Isn't there some sort of conflict with higher 
reserve requirements, liquidity and lending in the market, or 
is there any tension there?
    Mr. Powell. I don't believe so. It is just a place for 
where, largely, money market funds have been putting their 
money. And as rates normalize in the economy, we are likely to 
see the Reverse Repo Facility shrink dramatically, and I think 
without particularly important macroeconomic effects.
    Mr. Davidson. When you think about the implications, the 
Fed had to intervene in September of 2019 to provide stability 
and liquidity to that market. The fact that the Fed needed to 
use an emergency facility to intervene in the market would 
normally indicate some cause for alarm. Do you feel like that 
was an aberration, and there is no more cause for alarm, that 
everything has been settled?
    Mr. Powell. That was about suddenly finding ourselves in 
reserve scarcity. We had been monitoring the level of reserves 
really carefully, and thinking that we knew where scarcity 
would start to appear, and the problem is that demand can be 
very volatile. So, demand spiked and there weren't enough 
reserves, so you had a situation where we had to supply 
reserves in big quantities. The Reverse Repo Facility was at 
zero for a very long time, and I think it is shrinking. Now, we 
don't know how much it will shrink.
    Mr. Davidson. I think the growth of it kind of highlights 
some of the related concerns for inflation and tension between 
liquidity, and, frankly, when you look at the requirements for 
capital, in the alternative, returns in the market, there is 
concern that all that capital can't be deployed in the same 
place. When you have to pick places for it to be deployed, then 
it certainly has implications. I would love to follow up with 
you on that, and maybe align my own views with the thinking at 
the Fed and with some market participants.
    When I think about the Federal Reserve, of course, I think 
about monetary policy. And we want Fed autonomy on monetary 
policy to some extent, a lot of non-market intervention that, 
to me, continues to be a cause for concern, continued purchases 
of mortgage-backed securities, for example, prevent real price 
discovery. Is Fed purchasing propping up prices, or is it 
holding them artificially low? It is a non-market influence, 
and I think it has some distortions. As Chair of our Housing 
and Insurance Subcommittee, I continue to be concerned about 
that, but the other thing is really the big concerns of the 
regulatory side.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Davidson. I yield back.
    Chairman McHenry. We will now recognize Ms. Garcia for the 
ultimate questions of the day.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you, 
Chairman Powell, for being here today. It is always a breath of 
fresh air to have you here to give us the latest report from 
the Fed.
    I first want to thank you personally for working on a topic 
that has always been near and dear to my heart, and near and 
dear to the heart of the Congressional Hispanic Caucus. I know 
several Members have already touched a little bit on issues 
related to diversity and inclusion, and you, yourself, said 
something, and I really was struck by the words you used, that 
when you look at setting the interest rate, you want to reflect 
all Americans in the room when you do it. And in my view, the 
best way to do that is to make sure that the people at the 
table making those interest rates decisions reflect what 
America looks like.
    Last month, joining you was Adriana Kugler, who was 
nominated as the first Hispanic to ever serve on the Federal 
Reserve Board of Governors in its 109-year history. It took a 
while, but we are there now. And hopefully, that will help 
ensure that when decisions are being made, all Americans are 
indeed in the room with you. So, I want to thank you and the 
President both for making sure that that happens. I know that 
in my district that is 77-percent Latino, we are really proud 
of that fact.
    But, Mr. Chairman, I wanted to see if you could provide me 
an update on the Federal workforce, particularly within the Fed 
System, because I think in that area, and you may recall we 
have discussed it before in prior times that you have been 
here, the workforce doesn't quite look like America. Could you 
give me an update on where you are at with diversity and 
inclusion issues related to Latinos in the Federal workforce 
for the Fed?
    Mr. Powell. Sure. I guess the place I would start is a good 
part of the story, which is with the Directors of the 12 
Reserve Banks around the country; that is an area where we have 
focused heavily on diversity and inclusion, and I think met 
with a great deal of success, with relatively high numbers. We 
would be happy to get you the numbers. Relatively high numbers 
of both Hispanics and African Americans and other minorities, 
and women, so that has been an area where we have a free hand 
to act and we can do that. I think in terms of the workforce, 
we actually had a particular focus at the Federal Reserve Board 
on Hispanics and working hard, particularly devoting ourselves 
to a tight focus on generating more Hispanic contact and more 
Hispanic employees, and I think we had some success with that. 
And it is very important. It is not a coincidence that the most 
successful organizations in American society have seemed, to 
me, to be the ones that have pretty advanced diversity and 
inclusion programs, so that they do have all different parts of 
America represented around the table.
    Ms. Garcia. Great. Another area of concern for me has 
always been affordable housing. I know that this is a challenge 
for us in Houston, and also the challenge of combating the 
homelessness crisis across America. I know that this morning, 
Ranking Member Waters filed some bills related to seeking 
increased monies, dollars for affordable housing and dollars 
for tackling the homelessness problem. Do these issues impact 
the inflation rate and the work that you are doing to lower the 
cost of housing for all Americans?
    Mr. Powell. I think it may have a marginal effect on 
inflation. I would point to things like workforce 
participation; people need housing so that they can get to the 
places where the jobs are. And in many metropolitan areas, the 
rents are very high, so people are having to drive very long 
routes to get to work. And labor force participation has an 
important effect on labor supply, which has an effect 
indirectly on inflation as well.
    Ms. Garcia. How long have we had the 2-percent goal for 
inflation rate?
    Mr. Powell. Unofficially, for a quarter of a century, and 
officially, since 2012, and other central banks----
    Ms. Garcia. What factors would have to occur for you to 
reconsider the 2 percent, since it is been there for so long?
    Mr. Powell. What would have to happen for us to reconsider 
it?
    Ms. Garcia. Yes.
    Mr. Powell. I can't really think of anything. Nothing 
during my tenure will happen to cause me to want to reconsider 
it. If you come back in 100 years, it will probably be 
different, but it is some unforeseen circumstance, I would say.
    Ms. Garcia. Thank you.
    Chairman McHenry. The gentlelady's time has expired.
    Ms. Garcia. Thank you, Mr. Chairman. I appreciate it.
    Chairman McHenry. I would like to thank Chair Powell for 
his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    Chair Powell, I ask you and your team to please respond no 
later than July 30, 2023.
    And with that, this hearing is adjourned.
    Mr. Powell. Thank you.
    [Whereupon, at 1:08 p.m., the hearing was adjourned.]
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                             June 21, 2023`