tv Confirmation Hearing for Federal Reserve Vice Chair Nominee CSPAN January 13, 2022 10:00am-12:32pm EST
we'll consider dr. lael brainard to be vice chair of the board of governors. and acting director sandra thompson to be director of the federal housing finance agency. it is amazing what a difference a year makes. we have today safe and effective vaccines that are saving lives that are getting people back to work. 207 million american americans are back fully vaccinated. our economy has weathered the storm and rebounded in 2021 we added a record 6.4 million new jobs, more than any year since 1939. it isn't just the jobs numbers. it is the quality of those jobs. workers demanding raises are finally getting them. they are changing jobs at record rates because people finally have some options. the past year has illustrated our economy works best when it works for everyone. not just wallace. not just the top 1%.
everyone. whether you punch a clock or swipe a badge, whether you earn a salary or make tips. whether you raise children or are caring for an aging parent. no matter who you are, where you are you live, what kind of work you do, economic growth won't mean much fit doesn't reach all workers. families in and communities all of size all over the country. the president's nominated dr. brainard and director thompson to important roles to put workers and their families at the center of our government and at the center of our economy. to deliver results that actually improve their lives. dr. brainard's leading economist who understands a strong economy is one where workers have power. she's committed to a worker-centered monetary policy that boosts employment and lifts wage, something every member of the fed's rate-setting committee rearmd. she's led the way in modernizing
and vengening the very important community reinvestment act. a landmark civil rights law passed to begin to undue the shameful legacy of red lining and spur investment in all neighborhoods and communities. -- she brought everyone to the table. she's working to ensure banks meet the needs of all of our communities. during this pandemic she served as a steady hand working shoulder to showed we are chair powell to stabilize our economy and steer the country out of our abyss. dr. brainard has a distinguished record of bipartisan service and government. she joined the fed in 2014 from 2009-13 she was under secretary for -- department treasury. worked in the first bush administration.
as deputy -- i'm sorry, she worked first bush administration as staff economist for the council economic advisors and deputy national economic advisor in the clinton administration. testifies professor at the massachusetts institute of technology. as vice chair tasked with supporting efforts to empower workers and refocus our economy on main street and make sure all americans have good jobs with growing paychecks and affordable costs of living. that also means supporting efforts to close racial wallet and incomeealth and income gaps that have barely trunk shrunk in decades. only about 15-20% as much net wealth as one of our colleagues once said when we all do better, we all do better. with governor brainard as vice
chair of the fed we'll have someone who understands workers create economic growth for commitment to the success of all americans from all walks of life and every rights of the country. it is clear in all the work she's done throughout our distinguished career. acting director thompson has a similarly long and distinguished career in public service and time as acting director she's macon meaningful steps to put renters homeowners and families first. acting director thompson directed the gs es to strengthen plans to preserve affordable housing and support manufactured housing in rural areas. she's expanded opportunities for middle class and low income homeowners to save money on mortgages through refinance and she's increases the focus on fair housing at the gses. i can think of no other nominee as kwofd to work to make homes more affordable and available to families throughout the country while strengthening the financial standing of the guest
gses. she served for eight years as deputy director of division of mission and goals at --. housing and regulatory policy under directors of both parties to ensure the safety and soundness of fannie mae and freddie mack and home loanbacks. prior to joining she spent 18 years at the fdic where she worked for seven different chairpersons from each of the political parties and senior level positions including director of -- consumer protection and director of risk management and supervision helping to stabilize her nation's banks. earlier in her career she served at the resolution trust corporation cleaning up and restoring faith in our financial crisis after the savings and loan crisis. in a nutshell you can see how
qualified she is. she'll be in a position at the fhfs to -- stability of housing financen system whether you are looking to rent or buy housing has become too expensive and too hard to find long before the pandemic began. more than 50 years after the passage of the fair housing act people of color are far more likely to be denied a mortgage. far less likely to own their own home. far more likely to pay more in rent than they can afford. just the past week, tragic niers in the ranking member's home state and in the bronx have reminded us of how far we need to go to ensure that everyone had safe affordable places to live. important role to play in addressing challenges. actor director thompson has distinguished herself as the persons we need to lead this. these nominees each understands the challenges our economy faces. they understand the people who make our economy work like so
many of the president's nominees. it is notable as we recover from pandemic delayed -- how hard women especially work at jobs and labor and taking care of families. we have two women poised to take leading roles in our recovery. i want to thank both nominees for their exceptional and lengthy years to commitment to public service. ranking member. >> thank you mr. chairman. you both have experience in your fields and i commend you both for your commitment to public service. congress has given the fed very narrowly defined monetary and regulatory missions. first the fed's been tasked with conducting monetary policy to promote stable prices and maximum employment.
but the fed's recent actions have failed to maintain price stability. last year governor brainard repeatedly insisted inflation was transitory. we've now had nine consecutive months inflation has been more than two times the fed's 2% target. that makes it pretty clear that inflation is not transitory. yesterday's release confirms further. inflation is attacks eroding american's paychecks every day. even though wages are growing, inflation is growing faster and causing workers to fall further and further behind. i appreciate that the fed has pivoted towards normalizing monetary policy to tackle inflation but the fed also needs to learn from its mistakes. and i think that begins with the fed's new policy framework of which governor brainard as an advocate. try and maximize employment by allowing inflation that run hot.
under this approach the fed looked beyond employment as a whole to consider whether employment was broad based and inclusive. this meant is the fed would sacrifice stable prices to see if it could achieve higher employment gains in certain demographic groups. as governor brainard explained the fed should look at employment numbers on a disaggregated basis. and use monetary policy to narrow employment gaps between different racial and ethnic groups. this framework risks keeping in place an inflation tax on all americans while the fed decides which subgroups of people should have faster job growth than others. one of the problems is that monetary policy can never equalize employment rates among different groups. in the end the fed would run the risk of failing on both fronts of its dual mandate because you need stable prices to achieve a strong economy and max employment. given this fact the fed should
really evaluate this new framework. urn chairman powell the fed enacted reforms that reduced regulatory burdens and helped spur economic growth. governor brainard was the sole dissenter over 20 times on regulatory matters at the fed. she argued fed reforms of capital liquidity and stesz tests smaller banks would weaken the safeguards at the core of the system, yet the economy nearly collapsed at the start of the pandemic the banking system emerged -- demonstrating the sensibility of these reforms. in addition to opposing those reforms, governor brainard has urged the fed to take an activist role on global warming which is beyond the fed's expertise and mission. according to the "new york times" she's, and i quote, endorsed the use of supervisory guidance, the feds recommendations to banks to
encourage financial institutions to curb their exposures. i'm particularly concerned she's advocated for the fed to shape environmental policy through so called climate scenario analysis. not only does the fed lack expertise in environmental matters. there is no reason to believe global warming poses a systemic risk to the financial system. as i've noted we haven't found a single bank that's failed in the modern era due to a severe weather event. there is a transition risk for banks associated with global warming. but that's political and regulatory in nature. it is the risk that unelected bureaucrats will attempt to impair the valley of energy related assets by cutting off credit to the energy sector. it isn't about whether climate change is a threat to society. it is the fact that tradeoffs between costs and benefits and these are inherently political decisions which is why they blockage firmly in the domain of officials who are elected and directly accountable to voters.
now turning to ms. thompson. he's been nominated to serve as director of the fhfa where she's had a busy six months as victories director. -- just like affirmative action in the housing space. and increase gse's affordable housing goals. unfortunately she's not prioritizing ending the gse conservatorships. i'm concerned the administration is seeking to use fhfa and the gses to take on more risk for taxpayers and expand affirmative action into housing. that makes ms. thompson's nomination, notwithstanding ore experience, a referendum on the housing policy. this contemplates more mortgaging for higher risk borrowers.
repurposing gse as instrumentalities of social policy and disappointing embrace of the failed gse model. in a break from decades of bipartisan housing finance reform efforts, this administration is using the power of the gse's conservatorship to command and control a huge swath of the american economy. and we're now asked to ratify this policy and take ownership of the bail outs and forecloses that i'm afraid o likely to follow. especially given where we might be in the housing cycle, we should be reluctant to do so. mr. chairman, i look forward to hearing from today's nominees. >> thank you, senator toomey. will the witnesses please rise and raise your right hands. do you swear or affirm the testimony you are about to give the truth the full truth and nothing but the truth so help you god? do you agree to appear and testify before a dually confirmed committee of the united states senate? please be seated. thank you.
>> governor brainard and acting director thompson, welcome to the committee. if you would like to introduce family or friends in your testimony i invite you do that at the beginning or whenever you want to. governor brainard, please begin. >> is this working? yes. chairman brown, ranking member toomey, other members of the committee, thank you for this opportunity to appear before you. i'm greatly honored to be nominated by president biden to serve as vice chair of the board of governors of the federal reserve. i'm delighted to be here alongside acting director thompson. if confirmed i look forward to continuing to work with members of this committee. we're seeing the strongest rebound in growth and decline in unemployment of any recovery in the last five decades. over the past year unemployment
has fallen 2.8 percentage points and growth estimated around 5 1/2% according o variety of private forecasts. but inflation is too high and working people around the country are concerned about how far their paycheck wills go. our monetary policy is focussed on getting inflation back down to 2% while sustaining a recovery that includes everyone. this is our most important task. when the pandemic struck in 2020, i worked closely alongside chair powell, secretary mnuchin and many others with the support of congress to calm financial market turmoil and save american jobs and businesses. when markets stabilized i worked to responsively wind down the emergency facilities that were established, and today the economy is making welcome progress but the pandemic continues to pose challenges. our priority is to protect the gains we've made and support the
recovery. since 2014 as a member of the federal open market committee, i've supported monetary policy that's responsive to economic conditions as they evolve. our approach helps sustain the longest recovery on record with low inflation and millions of jobs. more broadly i've worked to saflgd and grow our academy in the administration's of five presidents from both parties, i've worked on the u.s. policy response to every major financial crisis over three decades. in some foreign countries i've seen up close how high inflation hurts workers and families, especially the most vulnerable. i'm committed to pursuing the federal reserve's congressionally mandated goals of price stability and maximum employment and to maintaining the strength and resilience of our financial markets. i'm committed to the independent and non partisan status of the federal reserve.
if confirmed i look forward to supporting chair powell in carrying out responsibilities assigned to the federal reserve and in fostering transparent communication and accountability to you and to the american people more broadly. i will bring a considered and independent voice to our deliberations drawing on insights from working people, businesses, financial institutions and communities large and small around the country. before closing, i want to thank my husband curt, daughters kay lin, keira and chloe. and thank to the many who work so hard every day to serve the american public. senators i thank you for your consideration and i look forward to answering your questions. thank you. >> thank you. dr. brainard. acting director thompson. >> chairman brown, ranking member toomey and members of the committee, i first want to thank president biden for nominating me to serve as director of the
federal housing finance agency. it is the greatest honor of my career to appear before you today. thank you to the senators and the staff members with whom i've met in advance of this hearing. if i'm fortunate enough to be confirmed, i look forward to working with all of you on the important issues at fhfa. i would like to introduce my sons who are here with me today. and i'd like to recognize and thank my parents. while due to covid considerations they are not able to be here in person, the fact that my parents are still alive to witness today's hearing is very meaningful to me. i was born and raised on the southside of chicago to my extraordinary parents who came to chicago from mississippi as part of the great migration. my parents and family, along with the chicago public school system and my beloved howard university right here in
washington taught me hard work, dedication, determination and perseverance. i would specifically like to recognize schools in chicago that helped me succeed. mcdade elementary school, gillespie junior high school and lin bloom technical high school all on the south side. my nomination for director of the fhfa is a great privilege. i recognize that it is rare for a career public servant to have the opportunity to lead a federal agency. and as the first african american woman nominated for this position, i appreciate the opportunity to demonstrate my expertise, good judgment and leadership in this position. i am proud of the work we've done at fhfa in my eight years there. the agency plays a vital role in promoting access to mortgage credit nationwide and protecting the safety and soundness of the housing finance system through our supervision of fannie mae,
freddie mack and the federal home loan bank system. throughout my 40 year career, my experience in mortgage markets and financial regulation at multiple agencies, i've seen what it takes to lead a federal agency and be effective in that role. in my work at fdic, and fhfa i've demonstrated leadership, management ability and understanding of the secondary mortgage markets and industry, a fair and balanced perspective and strong belief in the importance of the safety and soundness of america's financial institutions. during my time in federal financial institution regulation i've witnessed and worked in several financial crises, these crises expose some truths in housing finance. when i served as fdic head of supervision and consumer protection throughout the 2008 financial crisis, i witnessed first hand the consequences of irresponsible lending when hundreds of banks across the
country were closed and record number of homes went into floerkz. i saw how the borrowers who received unsustainable and predatory loan products were devastated in the downturn and historically underserved and disadvantaged communities were hit especially hard. years of progress and closing the home ownership and wealth gaps were erased as a result. today the black/white home ownership gap is wider than in the 1960s when lending discrimination based on race was still legal. as a financial regulator, i have long believed that safety and soundness and access to credit are not mutually exclusive. broad fair access and the ability of financial institutions work together as pillars of the nation's housing finance system. indeeds sustainable access to credit requires sustainable lending standards. fhfa will continue to promote
sustainable and equitable access to credit in a safe and sound manner. we will responsibly focus our efforts on the safety and soundness mission congress gave to the fhfa and on the mission that congress gave the housing gses under our supervision, providing liquidity across the nation and especially supporting underserved markets like rural and tribal areas, manufactured housing and preserving affordable housing. if confirmed it would be an honor for me to serve as the fhfa director. and i will continue to be fair, balanced and transparent. thank you for the opportunity to testify before you today. and i'm happy to answer any of your questions. >> thank you. i appreciate both of you came in under your five minutes and i ask you to continue -- rarely do people do that. i ask you to continue to be brief. i have two questions for each of you. as brief as you can. governor brainard. thank you for your work during the pandemic. the fed took extraordinary
action as we know so forth the economy. some of my colleagues team to have forgotten what a critical state our economy was in when the pandemic first hit. workers in small businesses in this country certainly haven't forgotten. why were those actions necessary? and did you support all of them? >> right thanks for asking the question. so i worked day in and day out, alongside secretary mnuchin at treasury. chair powell and other colleagues to stand up the necessary facilities to calm financial markets as you no doubt recall our financial markets were in turmoil as they absorbed the news of the pandemic. a lot of workplaces had to shut down because of the risk of infection before vaccines were available. and millions of americans
overnight were placed on layoff. and we really risked losing small businesses around the country. we risk losing medium-sized businesses and the tens of millions of americans that those businesses employed. so i think due to the very important actions that congress took we worked closely with treasury to make sure that there was financing available for small banks and cdfis and mdis to get loans in small businesses around the country. and worked to ensure mainstream financing was available. and worked to make sure financial market turmoil was calmed. and we provided a lot of support to the economy. and here we are two years later. and we've regained all of that massive loss of gdp. we have businesses that are thriving around the country. people are back to work.
so i was proud to work on that alongside all of my colleagues. i did not disagree with any of the actions that we took. in fact i strongly supported them and worked hard to make them work. >> thank you governor. actor director, you know better than almost anyone how critical it is that financial institutions to have appropriate capital to be transparent about their risk. what have you done so far? and what more needs to be done to make sure gses have the capital they need to continue providing access to housing in good and bad times? >> thank you for the question. i firmly believe in the safety and sound onset of the housing gses. fannie mae and freddie mack specifically. they have been allowed to build capital and retain earnings. and we they that is very important. one step we've taken encourage the use of the credit risk transfer program. which as you well know fannie mae and freddie mack.
moving that credit risk off the backs of taxpayers and into the hands of the private sector and we believe some of the changes that we've made to the capital rule will help facilitate the credit risk transfer program and move credit risk away from the gses and the taxpayers and into the hans of private investors. >> thank you acting director. dr. brainard, for the first time in decades workers are seeing a bit more power in the economy. we need to continue that progress. you will work closely with chair powell if you are both confirmed and oversee the fed's monetary policy, how does the fed's monetary policy framework allow us to ensure we have stable prices in an economy where all workers have a good job and reap
the defendants of economic growth. >> so our monetary policy framework puts stable prices and maximum employment on an equal footing. and i think we are taking actions in the monetary policy front that i have confidence will be bringing inflation down while continuing to allow the labor market to return to full strength over time. so we're going to achieve that maximum sustainable employment while we bring inflation down to 2%. >> thank you, governor brainard. last question, acting director thompson. gses have reported about 4% of their new mortgages over the past two years went to black belowers. fewer than 11% when the to latino borrowers for refinance loans shares even lower, compare that to fha which recently reported 17% of loans went to black borrowers and more than 25% to latino borrowers. what should gses do to make sure they are serving borrowers of
color equally? >> thank you for the question, senator. certainly we believe every american ought to have sustainable and affordable housing and also places to live if they are renters. with regard to the black and ownership gap, one of the things we've done is we've asked the enterprises to come up with some equitable housing plans. and they are supposed to focused on and identify barriers that underserved communities, particularly in communities of color have as it relates to getting a mortgage. they are supposed to identify barriers and come up with specific plans to execute the requirements they have developed. we also have a focus, as you all know, on all underserved communities whether rural or tribal and other areas around the country. but we think that these housing equitable plans will go a long way to help minority home
ownerships in underserved communities across the country have access to mortgage credit. >> thank you acting director. >> i was encouraged to hear you say that you are committed to the independent and non partisan status of the federal reserve. it's very important that fed decisions on monetary and regulatory policy are entirely free from political interference. so i think this is a simple yes or no question. will you commit to considering yourself independent from the white house regardless of which party occupies it? >> yes. >> thank you. and will you commit to make your decisions without regard to political or electoral consequences? >> yes. >> thank you. so i think you have acknowledged the importance of the independence of the fed, how crucial that is for maintaining
the trust and confidence of the american people. in light of that, i wonder if you could tell me how you view the coup by three men including one who is serving on a term that expired three years that forced out a well-respected regulator from the once independent fdic. >> i can't speak to the fdic. i can tell you've enjoyed working with jelena, continued to work with chair mcwilliams on issues such as community reinvestment act. we have a very different institution. and it is a very collegial institution. it is non partisan. and i can tell you a little bit about how i work in that institution to give you a sense. >> very limited on time here. you commented on jelena mcwilliams and i appreciate that and i do understand you have had a good working relationship with her. but i think -- i would suggest
and ask you to reflect on what happened there. and i think it is relevant. the fed as you know is also a multi member agency. it has prided itself on operating free from political interference and following norms of governance for many years. that used to describe the fdic and unfortunately it doesn't anymore. and there are people on the left and in this administration who want the fed to become more political. to become advocates for the causes and agenda that they support. and i have warned, and i'm concerned that the feds daliance with those issues totally irrelevant to the dual mandate will undermine the fed's credibility and threaten its independence. and i think that is very important. let me move on to climate risk as you know the fed has consistently stated that there are two categories of climate related financial risk. the first is physical risks. and the second is transition
risks. now the actual data shows that physical risks, that is, actual severe weather events, do not threaten financial stability. this week chairman p powell said the possibility of financial stability disruptions from physical risks, quote, doesn't seem likely in the near term, end quote. well that's obvious. recent report from the new york fed that backs up this according to the report. weather disasterers from the last quarter century had insignificant or small effects on u.s. banks performance. so do you acknowledge that the likelihood of weather risk is virtually zero based on historical data. >> to be honest i think it is important for us to understand potential implications of tale risks. tale risks are risks that very low probability of happening but have extreme damage. and of course and i wouldn't
have expected us to have to study pandemics five years ago either and yet a lot of policy making the last two years has been under the cloud of a very complicated set of economic conditions and financial risks associated with an a natural event. so it is our job just to be very attentive to financial risks to the -- >> here is my concern and i'm certainly not alone in this. the other risks, the actual evidence shows that there is no real physical risk. the transition risk though is real. and chairman powell explained the source of that. it is really government policy. and this is what's concerning. there are lots of risks out there. there could be a trade war with china. there could be geopolitical turmle from a russian invasion of ukraine.
i would argue each poses a greater risk to the financial system than some sort of climate event which has never resulted in the failure of a major bank. but you haven't advocated doing stress tests around the other risks. the only one i know of you have advocated is stress tests for the less likely risk which is the climate-related risk and the concern many of us have is that this whole construct, unique to climate risk, even though it is really not a threat certainly in the foreseeable future to the financial system it is all about a precursor for using the regulatory power of the fed to direct capital away from politically disfavored industry. so sarah bloomraskin by some accounts might be president biden's next nominee vice chair for supervision. now he's sbn explicit on this point and she's argued regarding
plems of c.a.r.e.s. act that the fed should not be -- money to further entrench the carbon economy. explicitly allocated the fed --. my question, do you agree with ms. raskin that the fed should play that role? >> thank you for asking, senator. i have not suggested that we should do stress tests for climate. stress tests are very specific. they are related to if capital planning of large financial institutions. we do actually include geoeconomic risks in those stress tests. so we have included things like brexit in our stress test. but i certainly have not stated that we should do climate stress tests. in terms of supervisory guidance what we tend to do is ask large
institutions in particular, do you have a good risk management framework for assessing all of your material risks. we would not tell banks which sectors to lend to or which sectors to not lend to. but we do want to make sure they are measuring, monitoring and maine managing their material risks in many large financial institutions. >> so to be clear you disagree with ms. raskin on this point. >> so i honestly have not studied her positions. and i would simply say i can speak to what we do in our supervisory guidance. and you know, it is pretty meat and potatoes. it is very well known to the large institutions. and not that -- really not that different from what they are doing today. the one thing i would also just want to clarify is i don't think that is appropriate for small institutions. i think small institutions don't have as big a footprint. i think they will decide what
their risks are. but i'm really more focus opds the large institution who is themselves come in to tell us that they would like to have more consistent expectations in this area across jurisdictions. >> thank you senator toomey. senator menendez is recognized. >> thank you governor brainard let's me first thank you for your leadership on the community reinvestment act the past several years. it in middle of 2020 when the trump administration was ramming a flawed rule through the occ, civil rights advocates, banks and other affected parties looked to you as a serious voice in the room. and if confirmed, i have no doubt that you will continue in that spirit. as we approach dr. king's birthday, commemoration this coming week, i think about this as one of the essential elements of a move towards a more just
society. so let me first ask, during the past few years, as you were engaging in that work, what did you hear from minority-led organizations about the cra changes needed to further incentivize investments in minority communities who were disproportionately impacted during the pandemic? >> thank you for your question. and yes, i was very pleased the board unanimously put out an advance notice of proposed rule making that i think, you know, really does provide a nice foundation for community groups and banks to give us feedback on what would be some good modernization measures. so what we hear still from many communities around the country is that they still don't have similar access to credit. there are still barriers in terms of getting that access. they really like having bank branchs in their neighborhoods. but particularly in rural areas, that's not always the case. and they want to be able to have
more interaction with financial institutions. they want minority depository institutions and community development financial institutions which do tend to be very good at serving those underserved communities to be strengthened. and they just really care deeply about the community reinvestment act, as do many banks. >> so would you commit to making it a top priority to work with the other regulators to issue a strong new rule in a timely fashion? >> i'll certainly support that effort at the board and with the other regulators, yes. >> okay. i appreciate that. because minority communities are hurting right now. and this needs to be a priority. the pandemic has brought to light how severe the lack of credit and investment dollars problems are for minority small business owners and i think it is past time for our regulators to work together and issue an updated and effective cra rule.
so i look forward to your leadership. ms. thompson, new jersey is what i call a blue chip state. a state that spurs innovation and drives the nation's economy. according to u.s. news and world report, new jersey has the second best public school system in the country and highest per capita income in the country. in other words we do a great job educating kids and giving them the ability to reach their potential. that is just because new jerseyans are smarter than their fellow americans. but it is because we invest in our people. so this is a state part of a region that generates 20% of the gdp for the entire nation. so we make money for the federal treasury. but as we met yesterday, and i appreciated our visit, i explained how many new jersey homeowners are being hit with a one two punch of rising flood insurance rates and unfair cap
on state and local tax deduction. the oldest deduction in the federal internal revenue code and based on thanks to the trump tax bill, which i'm -- we're fighting to reverse both of those bad policies. but i want to make sure that as director of the fhfa you are sensitive to the concerns of homeowners not just in new jersey but other high-cost state. yes we want to be fiscally responsible to the entities, the gsas under your purview. but we can't simply do it on the backs of those that are actually generating revenue for the federal treasury. can you comment on that. >> sure, senator. and thank you for the question. certainly we care very much about the high cost loans. as you know, last year we had a historic increase in home prices. and that hit states that have high cost areas probably harder
than most. one of the actions that we undertook was to increase the fees for some of the higher balance loans. and that made unduly impact a number of country -- a number of counties across the country. i think most of the country is not impacted but there are about 104 counties across the country that are. having said that, we do recognize that there is a difference between buying a home in new jersey versus buying a home in aiken, south carolina. and we have excluded from this fee first-time home buyers with median incomes less than 100 percent. and we've also excluded our affordable products so there is no fee associated with first-time home buyers who live in high-cost areas. but we know there is a huge
affordability issue, especially with first-time home buyers and we did not want to exacerbate that problem. >> thank you. finally governor brainard, the fed has a serious diversity problem. something i keep pressing. i had it with chairman powell and i'm compelled to raise with you as well. if you are confirmed, what steps are you going to take to improve minority representation? particularly latino representation, which is among the worst of the diversity that exists at the federal reserve. >> well thank you for you question. so i think the federal reserve was actually founded on recognition of the importance of bringing a diversity of perspectives to the table. that is why we have 12 reserve banks all across the country and we have branches in communities all across the country. so we have regional diversity. we've always valued sectoral diversity. it is very important to have different kinds of backgrounds. but we really have lagged on
racial and ethnic diversity. we're seeing some very important changes that we've worked very hard on at the reserve banks in terms of the boards of directors if you look there at latino representation. its gone up threefold just in the last four years. and so now we have about 25% of our class c directors are latino. we have about a third that are black. and we have now than half or minorities of one sort or another. so we've made progress there. but in terms of actual leadership positions, we've only ever had one black president. we've never had a latino president. and so you know, that remains a very high priority. many of those boards have spent a great deal of time making sure that we have more diverse pools of candidates and that our procedures in hiring are as good as best practices everywhere.
and why? because we know as those who wrote the federal reserve act knew, is that having more diverse perspectives at the table, diversity of every type leads to less group think and better outcomes. >> thank you. >> senator rounds of south dakota is recognized. >> thank you mr. chairman. let me begin by saying thank you to both of you for your continued participation in public service. ms. thompson, in september the fhfa under your leadership proposed a capital framework which offers a stronger incentive for the gses to create credit risk transfer, or crt, relative to the counter capital regime. i think you began to visit a little about that with the chairman of the committee here. i'd like to explore that a little more because i believe this is a legitimate tool. and i'm just curious. can you share with me briefly your philosophy on the crt and how you might utilize it further
if confirmed. >> sure, thank you for the question, senator. i firmly believe the credit risk transfer program is very important for the enterprises, as i mentioned earlier, fanny and freddie are the largest holders of mortgage credit risk in the world and right now they are able to retain capital but they don't have enough capital to withstand a severe event. so if something really really bad happens, the event will have to be paid for once again by the taxpayers. and it is important for us to continue to encourage the crt so that tax pacer are not on the hook for any extreme events and private investors are having to engage in the credit risk decisions. we just believe that it is
critical for the enterprises, especially while undercapitalized to continue to transfer credit risk away from the taxpayers and into the hands of private investors. >> thank you. governor brainard, thank you for the meeting the other evening in my office. i most certainly appreciated our conversation. i think a number of the concerns that that our ranking member has shared with you, you have had an opportunity to respond. i am curious, specifically on an item you and i spoke on very briefly. but i'd like to have a conversation here as well. and i made a similar request like this to chairman powell on tuesday. i believe the adjustments to the supplementary leverage ratio or the slr are necessary in order to account for the large influx of cash that has become challenging for banks to manage. would you be willing to work to
address the liquidity issues? >> thank you senator. i certainly share that view that because of the need to respond to the pandemic, there is a lot more reserves in the system. and i supported the the removal the reserves from the leverage ratio for custodial banks. and i think it makes good sense to look for ways, while keeping capital strong, to find a way to adjust that supplemental leverage ratio because of the much larger amount of reserves in the system. >> thank you. >> i do commit to working with you. >> thank you. also, let's talk a little bit about inflation. this is critical. we're at 7% right now. stated goal is 2%. 5 percentage points. critical. i think in our discussion with chairman powell, he made it
pretty clear the fed could manage the demand side. i think you would agree with that. demand is where you work at, not necessarily on the supply side. fair enough? >> absolutely. i think over the medium term, inflation is a monetary phenomenon and we have tools that operate on the demand side. >> okay. in order to move that back, and i know that you've made it very clear that this is a critical priority, how much of the inflationary trends that we see today do you think you can actually manage with demand side policy only? >> so i think we have a set of tools that are very effective. and we will use them to bring inflation back down. sector to sector, there are microeconomic market structure, other issues at work, supply disruptions at work. that's not where our tools are effective. that lies elsewhere. but we are committed to using the tools that we have to deal with inflation, which is fundamentally a monetary
phenomenon. >> what i'm trying to get at, and this is not a gotcha question. my question really is, with inflation where it's at, we know it's supply side and it is demand side. but clearly there's been discussions, and clearly you have research done as to how much of the inflationary trends that we have are attributable to demand side policy. can you share with us what you believe the percentage or at least the amount of inflation would be attributable to demand side? and the reason why i ask is because if you overreach, or if you don't do enough, you're never going to get it down. but at the same time, with supply side, and we both recognize, you can't do much about supply side, and this is critical, the price of gasoline is going up because we've got restrictions on the availability of new gasoline being put into the system, and high demand for gas. but simply telling a consumer that the price has gone up and so we're going to make it more
restrictive for you to buy it, they're still going to buy gas because they've got to get to work. in this particular case, as we look at food prices going up and we look at gasoline going up, price of rents is going to be going up, price of housing is going up. how much of that interest on inflation do you have the responsibility or should you be looking at in terms of the demand side of the equation? >> governor, be as brief as you can in your answer, please. thanks. >> well, i'll certainly -- just looking at prices at the pump, prices at the grocery store, that is clearly hurting americans all over the country. that's about a quarter of the very high inflation that we see. so i think you're certainly right to focus in on those areas as particularly difficult and very rooted in supply side constraints. >> thank you, mr. chairman. >> thank you. senator tester from montana is recognized from his office. >> well, thank you, chairman brown. i would to thank director
thompson and governor brainard for being here today. you know, director thompson, you said something in your opening statement that is something i think we need to pay attention to, and that is the ownership gap today is wider than it was in the 1960s when discrimination was legal. this is a question for you, but then if governor brainard wants to add to this, i would certainly like to hear her opinion too. what can you do about closing that ownership gap in the position that you're going to be hopefully confirmed for? >> thank you for the question, senator. access to credit is really important especially in minority, underserved communities generally. and i mentioned earlier that we asked the enterprises to develop equitable housing plans that focus on some of the inequities that have taken place.
they were supposed to identify barriers for underserved communities, particularly black and brown communities, to engage in home ownership. and we're looking over those plans now. and some of them focus on education and making sure that opportunities are available for people to understand what the home ownership process is, how it works, what it does. and then if there are other issues like appraisals that come into play in terms of a bias that may or may not exist, we want to make sure that the enterprises are focused on identifying barriers and focusing on coming up with plans to address and identify those barriers to really close the home ownership gap, because as you know, senator, a home is the greatest asset that most people own, and we believe that home ownership will go a long way towards closing the racial equity gap. >> governor brainard, would you like to respond to the same
question? what can you do in the position you're going in for to solve this ownership gap? >> thanks for the question, senator. so we are well aware of that home ownership gap. we collect those statistics. and it's been very, very stubborn. we do work with banks, trying to provide help and incentives under the community reinvestment act to increase the supply of affordable housing, workplace housing. we know there are shortages in all of the communities represented by members of this committee, i've visited many of them. in particular we have community development financial institutions who are very good at using litech subsidies.
we're looking at naturally occurring affordable housing, that's one of the questions we asked in the cra. native cdfis, for instance, are very good on working at very particular issue affecting tribal nations. so getting incentives for banks to partner with those institutions can help on the margins. >> thank you for that. i would also say that, you know this, i think you both know this, there is an incredible supply problem out there across this country which has caused housing prices to go up. if you have any ideas, any recommendations about what congress can do to help solve this problem, i would certainly love to hear them. i know the build back better proposal that may or may not be going at this moment in time had some housing initiatives in it that i think would have been positive if they had been passed
as i saw them toward solving supply problems. governor brainard, you and chairman powell had a pretty good partnership during your time at the fed and i know this will continue. i gave powell the opportunity to share his view earlier this week and i want to give you the same. i remember very clearly the pressure that president trump put on the fed for his own political gain, not for the world or the economy. i'm thankful for you and your colleagues' commitment that you maintained your independence through the pressure. why is this independence important? >> i think it's a long-established tradition at the federal reserve. it certainly is important to be able to set monetary policy in a way that is closely related to the goals that congress set for us. and we need to make judgments in
the committee free from political pressures. and that's what we've been able to do under the independence of the fed. and it's important to keep doing that. i'll certain continue to support chair powell in that. >> thank you both. >> thank you, senator. senator kennedy from louisiana is recognized. >> thank you, mr. chairman. governor, director, congratulations on your nomination. governor, i realize at the federal reserve that you have a big staff that advises you on inflation. and based on their track record, my guess is they also advised people to buy condos in las vegas in 2007. but you don't have to accept their advice. so with regard to your predictions on inflation, how did you get it so wrong?
>> well, senator, thank you -- >> could you move closer to the mic for me? >> yes, of course. thank you for the question, senator. >> you're welcome. >> nobody got the pandemic right. the pandemic is unprecedented. >> but i'm asking you about inflation. >> yeah, so i think as forecasters, private forecasters, certainly the forecasters, the sep, the whole committee, we thought that perhaps we would see a more rapid resolution of the pandemic. and the supply demand mismatches in particular -- >> excuse me for interrupting, but i don't have much time. are you saying that inflation was caused by the pandemic? >> so we certainly have seen the perpetuation, for instance, of the delta variant leading to -- >> yes, ma'am, but are you saying that the inflation is caused by the pandemic? >> i certainly think the
supply/demand imbalances that have been the biggest contributors to the very high inflation we've seen are directly attributable to supply chain issues, distortions in demand. >> but here's what troubles me about that. i'll agree that inflation is spreading. but i don't see people going around coughing inflation on each other. i think -- and i understand supply chains matter. but so does the demand side. and so does too much money chasing too few goods. and -- and, uh, i don't think -- and i don't think any fair-minded person thinks that inflation is solely the result of the pandemic. let me move on. do you think that federal regulatory authorities should use their considerable power,
not just the federal reserve, but federal regulatory authorities, do you think they should use their considerable power to discourage private banks from lending money to oil and gas companies? >> no. >> ma'am? >> no. >> okay. do you think that those federal regulatory authorities should use their power to discourage private banks from lending money to gun manufacturers and dealers? >> it's not our job. we don't tell banks what sectors to lend to. we just ask them to risk manage and we make sure they have good processes -- >> i agree with you, and i thank you for that. will you issue a statement to that effect, if you're confirmed? >> i certainly have made that statement. we'll continue to make -- >> yes, ma'am. would you issue a separate statement saying, i want to make it clear for what it's worth to all of my colleagues in government, i don't think that you should use your power to discourage private banks from
lending money to oil and gas companies and to gun manufacturers? will you do that? >> i won't tell other regulators what to do, but i will be happy to talk about what our statutory authorities require us to do. >> okay. i'm going to follow up with you on that. okay? >> senator. >> i take that as a yes. and i'm looking forward to that statement. director -- gosh. this is -- this is america's debt. i'm not going to have time to ask you about it because i want to ask director thompson a quick question. i mean -- yes, director thompson. madam director, are you familiar with president biden's risk rating 2.0 pricing scheme for the national flood insurance program? >> sir, i am not familiar with the details of that program.
>> well, i need you to take a look at it. you talk about affordability. president biden is about to make housing for at least 500 -- 5 million americans unaffordable by raising their flood insurance from $1,000 a year to 5 and $6,000 a year. and you're going to have a problem. really quickly, madam governor, do you think -- we've got four big banks. they have market share between 30% and 50%. in the greatest economy in all of human history, they're not really banks, they're countries. do you think power, economic power is too concentrated in those four banks? >> well, i certainly think that from a financial stability point of view, when you have very, very large institutions that are systemic, you need to have very,
very big capital buffers and liquidity buffers and risk management, because it would be very, very difficult to resolve those banks in a moment of financial stress. >> okay. thank you, mr. chairman. you've been very -- >> thank you, senator kennedy. >> my office will work with you on that statement about oil and gas and gun manufacturers. >> thank you, senator. >> senator warner from virginia is recognized. >> thank you, mr. chairman. i want to first of all take a moment, i know normally in the banking committee we don't introduce our witnesses but i want to take a moment to add to your comments about dr. brainard. i've known lael and america -- and her family for more than 20 years. she's done a great job on the federal reserve. she's been the representative from the federal banks' fifth federal reserve district. she cares deeply, as you indicated in your opening statement, about working families. she's ready to roll up her sleeves to take on the
challenges that our economy faces. and i think a prime example of that is what happened during the last year of the trump administration, when we got hit with covid, and candidly, if that administration had responded quicker, we might not have been in as deep a hole as we were. she worked with the fed, she and chairman powell worked closely with secretary mnuchin and i think in many ways prevented what would have been an economic catastrophe. so i look very much forward to supporting her. i would say to my good friend from louisiana that when we were passing unprecedented amounts of money to put that capital into american families' pockets, i didn't hear anybody complain about inflation. the first $3 trillion, $2.2 trillion, a hundred to nothing, i think the next was 96, i'll
give senator kennedy credit on that but the vast majority on both teams said it was the right thing to do and i think history will treat it as the right thing to do. and i hope the fed moves aggressively on dealing with what it can do on monetary policy. but what i would say, and i wish we had all been a little more prescient about the challenge of inflation. we know when gas prices go up. but if we were looking at the indicators, if we were looking at the indicators, for example, that president trump always used as his best weather vane, when he stuck his finger in the air and said, how is the economy doing, he would look at the stock market. inflation hit 7% the other day, what did the market do? it went up. again, i'm not saying that the market makers are smarter than us senators. but the market's weighed in on this. if we look back as well to like the early '80s, when we saw -- or late '70s when we saw the kind of inflationary pressures kind of -- inflation hit i think
7%, 7, 8%, before it went up even higher, interest rates were about 16%. they went higher than that, but they were about 16%. right now the interest rates are at about 3%. boy, oh, boy, i bet dr. brainard and jay powell wish they had never heard the word "transitory" because we'll probably continue to fry them on using that term, but i would say that the indicators, the market, interest rates, and candidly, the fact that most of us on both sides were all in on making the investments to deal with covid, i want inflation to go down, but i think -- and i do think we will start to see it move down, incrementally, if you look at the rise and the slow declines, but we do want the fed to act.
my friend, the senator from louisiana, and the senator from north carolina, one of the things i think we did that was really bold, along with help from all the folks on this side of the aisle, was we said we have been to get more capital out to disadvantaged communities during covid. i think, director thompson, i want to commend her, i may not get to my question for her but i want to thank her, i'm not going to get to gse reform, but i commend you for saying you're still open for that and the fact that in-house finance reform, as someone who worked with my friend bob corker on gse reform and still have the scars to prove it, the fact that you have the bankers and civil rights community supporting you, i do want to get my one question is, one of the things we came up with, working with secretary mnuchin, was trying to put more capital into minority depository institutions and cdfis. i want to thank my republican friends for helping on that, we
put $12 billion out, we'll almost double tier 1 capital in that sector that by definition lends to low and moderate income individuals, more than 60%, and director brainard, if you could just weigh in on what other things we can do, because there are certain things, there are private capital that wants to go into these institutions but can't because they're afraid of the change of control rules. will you commit to work with me and others on this committee on a bipartisan way to make sure that this piece of our financial sector, cdfis and mdis, get the regulatory and capital relief to continue to provide critical services? >> yes, we were, senator. >> that was a pretty quick answer. thank you, mr. chairman. >> both witnesses are good at quick anniversary. senator tillis from north carolina, who always stays within his five minutes. >> thank you, mr. chairman, i do, and i will. congratulations to both of you on your nominations. it should be a proud moment. ms. brainard, consensus has long been a top priority of the fed board as it works on an apolitical and largely unified
front on monetary policy and regulatory decisions. if confirmed, you're going to be elevated to the position as vice chair. so with this in mind, would you believe the elevation of your role to vice chair provides you with any special power or authority to set board agenda items? >> no, quite the reverse. the vice chair role traditionally is a role that supports the chair in the formulation of monetary policy and achieving agreement. >> you've been called the fed's great dissenter. your initial dissent in 2018 was the first time in over six years that a governor has issued a dissent. you have since set a new precedent with more than 20 dissents, none of which i believe were joined by another fed governor. the fed is meant to be a
collaborative institution. i think we all know that. given the long-standing precedent consensus had on board activities prior to your term as vice chair would you push for policy changes, you know, like board consensus? >> no, i always work really hard, in fact have put forward a number of rules that did achieve consensus. it's always my preference. i dissented rarely. i always supported implementation of the law, especially s. 2165. there were some provisions i particularly liked in that, and i've said that publicly. you know, i only dissented on areas where i thought they went to the resilience of the largest institutions, because of the potential financial stability implications and only in areas that were outside the implementation of the law and really in the judgment of the board. and when i did, i always worked with vice chair quarles, chair
powell, to let them know what concerns i had, you know, to see if we could arrive at an agreement. i would always give them my statements ahead of time to let them correct me if i got something wrong and to rebut it. so, you know, i always tried to be extremely collegial. i did not have -- did not relish dissenting at all, and only did it in a few cases that were around those core issues around the largest institutions. >> i want to get on your political activity. i think that you may have said that your behavior would be different going forward. we know you gave the max contribution to the presidential campaign for hillary clinton in 2016. and i think that's probably the only fed governor that's done that in nearly 22 years. i know of some who were politically active but after they were confirmed as governor
they eliminated their political activities. so why did you think donating to the clinton campaign outweighed the importance of maintaining fed's independence? >> i actually did that in consultation with our ethics officer. of course we -- >> did they make it clear that that hadn't occurred in quite some time? >> no, unfortunately, you know, it is rare, it has occurred. it's certainly not something i've done since then. i do not think the appearances issue, you know, is a good one for the fed. so i haven't done it. but yes, it's clearly permissible, not something that i would have done had i been there longer and understood that that was not customary. >> thank you. ms. thompson, can you provide more clarity about the prospect of fhfa eventually releasing fannie mae and freddie mac from conservatorship and are you concerned about any negative market impacts? >> senator, that's a great
question. i'm certainly -- we would defer to congress on the exit from conseratorship for the gses. in the meantime there are a number of things that we're doing. enterprises are building capital. we are encouraging the credit risk transfer program. and we're establishing pricing. so we are also supervising them in a safe and sound manner and making sure they meet their mission so whenever they exit from conservatorship they will be ready. i would also mention there are a number of stakeholders that would likely need to be involved and engage in a discussion before that ever happened. the treasury certainly as the owner, majority owner of the gses, we certainly want to make sure the taxpayers are adequately compensated. we would probably have conversations with the fed and also the justice department on outstanding litigation. so just a number of steps that
would have to take place before the enterprises would be able to exit conservatorship. and they have to meet their capital targets, which are quite vast. >> thank you. again, congratulations. thank you, mr. chair. >> thank you, senator tillis. senator warren from massachusetts is recognized. >> thank you, mr. chairman. and congratulations, governor brainard, and congratulations, ms. thompson, on your nominations. so i would like to talk a little bit about inflation and about the fed's tools to deal with it. governor brainard, let's start at the beginning. if the economy is overheated, what is the fed's primary tool to cool it off? >> the federal funds rate. >> yes. so increasing interest rates, in other words. but what if inflation is caused by kinks in the supply chain, prices jump because the supply chain is just not functioning? does the fed have a tool to deal with that? >> no, we have a tool that operates on the demand side, which is the federal funds rate.
>> in other words, interest rate adjustment is your tool and it doesn't work on things like supply chain kinks. when chair powell was here on tuesday, we discussed how market concentration can lead to increasing prices. while consumers are facing higher inflation, profit margins for corporations have surged to their highest levels in 70 years. now, inflation hasn't gone up because one day corporations woke up and said, hey, today we're going to be greedy. no, inflation has gone up at this moment because of the way that prices are passed on in a more concentrated market. in a highly competitive market, when costs go up, businesses pass those costs along to their customers. but they can't expand their profit margins because other competitors are just going to beat them down on prices. but in a very concentrated industry, one with only a few
competitors, a dominant corporation can use the excuse of inflation for passing along rising costs and then add in an extra bonus for themselves to increase their profit margins. as chair powell put it on tuesday, those firms are, quote, raising prices because they can. so, governor brainard, would you agree that increased market concentration has allowed some corporations to profit off pandemic disruptions by raising prices on consumers beyond the increased costs that the corporations have to deal with? >> it's certainly a lot of economic research would suggest that in concentrated industries, individual producers have more pricing power. so that kind of dynamic is certainly possible. >> okay. so i know that the fed has a
role in approving bank mergers. but with respect to broader concentration throughout the rest of the economy, does the fed have the tools to deal with increased concentration there? >> no. >> no. and that's really the point here. dealing with inflation requires the fed to act if the problem is an overheated economy. but dealing with rising consumer prices also involves the ftc, the department of justice, and breaking up monopolies and investigating crooked price fixing schemes that also increase costs for hard working families. and that's why it is so important that the biden administration is taking action to fight corporate power by enforcing antitrust laws and boosting competition. now, governor brainard, do you think that the steps that the
administration is taking to address market competition and price fixing have a role to play in helping families that are facing rising prices? >> well, i certainly think that, you know, we're hearing from working families around the country about inflation, and some of it is in areas where we're seeing those kinds of supply dynamics. but again, we do have a powerful tool and we are going to use it to bring inflation down over time. >> good. look, i understand that. but price stability is a core part of the fed's mandate. and i know you care about that. and i just want to make sure we keep our eye on all of the things that affect prices for consumers. today's price increases have many causes. and i hope that the fed treads carefully in using its tools to
help lower prices for american families. i am glad to see that the administration is using all the tools that it has to bring down prices over a longer arc. that is our collective job. and i appreciate your help in this and your thoughtful comments here. thank you, and again, congratulations to both of you. i'm sorry, ms. thompson, that i didn't get to questions with you but i'm looking forward to supporting both of you. thank you. thank you, mr. chairman. >> thank you, senator warren. senator hagerty from tennessee is recognized. >> thank you, chairman brown, ranking member toomey, for holding this important hearing and i would like to congratulate our nominees, governor brainard, acting director thompson, thank you for being here and i appreciate your time. before we start i would like to highlight the fact that we're in an unprecedented time. governor brainard and i talked about this yesterday. if you look at the consumer price index that was released for this month, over december
over the prior december, we're at a high that hasn't been seen in almost four decades. the median age in america is 38 years old when you think about it. the average american has never seen inflation at this level. so i want to underscore the fact and appreciate the confidence you reflected, governor brainard, in your ability to deal with this very carefully as we try to undertake the challenge and get price stability back under control. for both of you, i have a housekeeping question to ask before we get started, for both governor brainard and acting director thompson. as a matter of housekeeping, have either of you ever, currently or in the past, embellished any part of your resume, your background, your publications, or any other aspect of your accomplishments? just a yes-or-no answer will suffice. >> no. >> no. >> i expected that to be the case, thank you. governor brainard, i would like to turn to you. again, i appreciated the conversation we had yesterday. one of the topics we discussed is one i raised with chairman powell on tuesday when he and i
discussed, that's regarding the actions of director chopra and director grunberg in their attempt to force out the fdic chairman before her term expired. this undermines the independence and the integrity of our financial regulators. i want to ensure that a similar situation does not occur at the fed. so my question, governor brainard, is slightly different from that you answered with senator tillis. do you believe that the fed chair has the ultimate discretion to set the fed's regulatory agenda? >> it's certainly the case that the vice chair for supervision and the chair work together. but yes, the chair determines what goes to the board for votes. >> thank you. i appreciated your answer yesterday, and thank you for being clear today. acting director thompson, i would like to turn to you about the stewardship of the fha, if i might. as director of the fha -- fhfa,
you're meant to carry out the law, not to be a policymaker. the housing and economic recovery act does not permit indefinite conservatorships. by definition, no conservatorship is meant to be permanent. so my question of you is will you commit to do everything in your power to fulfilling your statutory mandate to end the conservatorships? >> sir, that's a great question. certainly no one ever expected the enterprises or any financial institution to be in conservatorship for 13 years. certainly we believe congress has a role and we'll be working to help in any way that we can facilitate any questions that you have. we think that this is something that congress needs to work on as well. >> well, is there any point in the law that says that congress must approve an conservatorship? >> i don't know that they must approve an exit from
conservatorship but there are a number of issues that congress will have to address, specifically if the enterprise's exits a conservatorship, will the companies be private, public? what form will they be in? there's a host of issues that would have to be considered, that congress must weigh in on. certainly fhfa can get the enterprises ready. >> well, acting director, if you're concerned that the act does not provide adequate clarity, i hope you'll get back to me and my team as quickly as possible with the areas that you see inadequacy in the legislation because my view is that an exit is called for. another point is the recent reductions in gse capital requirements and how you see that reduction fit with the mission of working toward exiting conservatorship. >> it's a great question, senator. and i can assure you, i firmly believe in safety and soundness
of the gses and that would be really backed by the capital requirements. i made two minor changes to the final -- the capital rule that was finalized at the end of december. and those changes were really designed to promote the utilization of the credit risk transfer program. and again, the credit risk transfer program transfers mortgage credit risk from the enterprises to the private sector. we also made a change to not the leverage requirement but the leverage buffer so that the buffer would be -- would not be static, it would be more dynamic. and i believe the banking regulators are also looking at the supplementary leverage ratio on the banking side as well. the changes that i made, just for context, before the crisis, the required capital for the enterprises was about $55 billion. right now, even with the proposed changes that i've
recommended, the required capital is about $300 billion, which is over five times what it was before the enterprises went into conservatorship. >> i just think we need to be careful in this regard because in my home state of tennessee housing prices are up 20%. that's the case across the board. back to your overarching objective of getting these out of conservatorship, i applaud a careful balancing act, an independent perspective on that as well. and i look forward to very conservative management there. thank you. >> thank you, senator. senator van hollen of maryland is recognized. >> thank you, mr. chairman. congratulations to both of you on your nominations. you're both eminently qualified for the positions you've been nominated to. and i look forward to supporting your nominations. dr. brainard, let me thank you for your leadership in getting the fed to adopt a real time payment system through fed now. as you know, people living paycheck to paycheck are
spending billions of dollars in overdraft fees or payday loans because of the lack of a real time payment system. and they're bearing the costs of this up efficiency in our system. so i have a very simple question. are we on target for launching fed now next year? >> we are on target. and as you say, it's something that many community banks, other payments providers and community groups are very supportive of. and i think larger banks are very supportive now as well. >> good. i'm glad that more and more people are supporting the effort. as chairman powell acknowledged in his testimony before this committee on tuesday, because of the american rescue plan, we've been able to lower unemployment in the country way ahead of projections, at the 3.9%
unemployment levels we saw in december. that was a full year, hitting that target, a full year before what the fed had projected, and four years before what the congressional budget office had projected. so that's the good news. on the other hand, we see disparities behind that number. black american unemployment is at 7.1%. and while long term unemployment has been cut in half over the past year, we still have about 2 million americans who are long term unemployed, looking for work and not finding it for over 27 weeks. so how will these facts factor into your analysis in considering whether we have achieved one of the main fed goals of full employment? >> well, as you noted, unemployment has come down very rapidly, which is very welcome. but we still have between 3.5
and 5 million fewer jobs than we would have in the absence in the pandemic. and some of those are going to come back more slowly. as we look at labor force participation, we just haven't seen the improvements there. it's between 1.5 percentage points, looking at the total labor force, 1.1 percentage force looking at the prime age labor force, behind where it was pre-pandemic. so that unemployment rate is higher when you take into account nonparticipation. where are those people? we see very big concentration of missing jobs in leisure and hospitality despite a lot of openings. we have parents of young children, when we look at the data, who still can't quite go back because you've got school closures and particularly for young children, still very, very limited childcare options. similar -- and of course that hits black and brown parents more in terms of the statistics.
and also concerns about the virus. some sectoral reallocation. so we're going to see that participation cycle lag the unemployment cycle. but i have really strong confidence that we are going to see that improve more slowly, overcoming quarters and years. >> thank you, dr. brainard. as you know, when we look at those figures, over 7% for black american unemployment, those are people who are looking for jobs and unable to find them, on top of that we have the issue of people who are not looking for various reasons. and many of us are pushing very hard to pass legislation to dramatically lower the cost of childcare for those families. ms. thompson, thank you for your current stewardship at fhfa. and as you know, and we've been back and forth on this, one of the major costs, household costs faced by moderate and low income families are their energy costs.
in fact for low income households, the share of their budget on energy is three times higher than for higher income households. and if we can make energy efficiency improvements, we can cut those bills by 35%. i wrote to you last august about this issue, urging you to take actions to encourage more loans for energy efficiency. thank you for the actions you took in october. can you just elaborate a little bit on the importance of this issue and whether there are other measures we can take to reduce these costs for households? >> sure. thank you for the opportunity, senator. we believe that the energy standards have come a very long way since the enterprises started engaging in ensuring that the affordable housing units in particular, on the multifamily side, had these energy efficiencies. we are encouraging the enterprises to, especially in the low income and affordable
space, make sure that the loans that they purchase have a component of energy efficiencies. and i do believe that they give discounts for purchasing those loans. >> we'll continue to work with you on that and other aspects of affordable housing. thank you, mr. chairman. >> thank you. senator lummis from wyoming is recognized. >> thank you, mr. chairman, and congratulations on your nominations, both of you, acting director thompson, we haven't met, i hope we'll have an opportunity to do so in the near future. governor brainard, thank you very much for the time you've spent with me and the conversations we've had in the past year, i appreciate that very much. governor brainard, my questions are for you. as we've discussed, wyoming is the largest exporting state of energy in the nation. and that's because of our small
population. we don't consume very much of the energy we produce. we export it. it is critically important to our economy and to our job base and to american energy independence. do you believe the federal reserve has the authority, either through rules or guidance, to broadly curtail community banks' investments in oil, coal, or gas exploration? >> no. no, senator. >> thank you. do you understand the regulatory burden that incorporating climate risk into bank regulation may have on community banks in wyoming? >> i do. and i don't favor asking community banks to put in place those kinds of risk management. i think to the extent that a
supervisory guidance is appropriate, it's really appropriate for the large banks that have a big imprint, not for small banks. we don't want to burden community banks in particular. >> thank you very much. community banks in my state are the backbone of banking. again, because of our very small population. so thank you so much. as you know, i have a keen interest in wyoming's special purpose depository institutions applications. and is it a fair characterization to state that the federal reserve is currently making progress on the important legal and supervisory issues surrounding the wyoming special purpose depository institution? >> yes, i think that's an accurate characterization, senator. >> thank you. tell me why you believe responsible financial innovation is important to both monetary
policy and bank regulation. >> well, we're seeing quite a bit of innovation associated with technology. consumers now have access to their ability to make transactions using their mobile phones. these kind of things i think are very important. they're going to continue to evolve. the financial sector has been a very dynamic sector, i think it will continue to be. and we just want to make sure that's done within the existing guardrails so that like activities are regulated in a like manner, consumers are protected. and that's really our focus on responsible innovation. >> do you believe it's important that innovative financial technologies like digital assets and distributed ledgers be inside the regulatory perimeter? >> yeah, i do believe that --
again, you know, the focus should be on like activities, like risks being treated in a like manner. and of course our existing regulatory structure was designed for different kinds of charters and institutions. and so that needs to be evolved. and of course we welcome congress taking a very important role in updating that statutory framework. >> china has produced a digital yuwan, a central bank digital currency. it seems to be available to the retail customer, allowing the communist party of china to surveil the uses of its central bank digital currency. as the fed and the congress
considers a central bank digital dollar, do you believe it should be available to the retail customer? or should the fed's cbdc be available only as it is now, to the banking industry? >> well, this question about digital currency is a big question. and we really are looking to congress in the first instance and the administration to give us guidance in this area. we want to make sure that we do the requisite research on policy and technology. so we're in a position to move forward if congress decides it's important to be able to compete with china in this regard. of course privacy protections are very important in any kind of approach that might be taken. >> thank you very much. again, congratulations to you both on your nominations. mr. chairman, i yield back. >> thanks, senator lummis. senator smith from minnesota is recognized. >> thank you, mr. chair and ranking member and welcome to
both of you. it's wonderful to have a chance to see you in person after our virtual meetings and i want to thank you so much for your willingness to serve our country. ms. thompson, i'm going to start with you. as i said when we spoke on the phone, it warms my heart to see a career public servant have the opportunity to -- and for us to have the opportunity of you leading this agency. so thank you so much. i want to follow up on a question that senator brown started with, touching on issues of gaps in home ownership. in minnesota, we have much to be proud of. we also face significant challenges around racial equity, which is essentially the proposition that prosperity in our state should be equally shared. and the reality is that in the minneapolis metro area, as you may know, the home ownership rate for white families is one of the highest in the country, about 70%, while home ownership for black families is closer to
barely 20%. this is the largest gap in the whole country. and i might just note that this is the legacy of old federal policies that contributed to this, in addition to old redlining. the university of minnesota has done a fascinating study which tracks specifically that legacy in home values. today you still see the legacy of disparities in home values because of this. so, director thompson, if you're -- can you just talk to us, if you're confirmed, which i hope you will be, how you see the work that we have to do ahead to address this home ownership gap which contributes directly of course to wealth inequality that we face in our country? >> thank you for the question, senator. and there is quite a bit of work that needs to be done in that area. we do believe that qualified borrowers ought to be able to, if they can, afford a home mortgage loan.
one of the things that's taken place at fannie mae in particular is, many potential homeowners are now renters. and when you're looking at credit scores, one of the things that a traditional credit score does not take into consideration would be rent payments. and typically, a rent payment or a mortgage payment is the largest payment that most people have for their households. and so fannie mae has taken the step to incorporate 12 months of positive rental payment into their credit scoring, so that the typical requirement of something being a debt as opposed to an expense, which is what a rental payment is, is now taken into consideration in a positive way, to help improve the credit scoring process. so we think there are a lot of little things around the edges, looking at nontraditional credit scores, and not using them as
sole factors but as additional factors in really providing access, sustainable access to credit and to home ownership. >> i look forward to working with you on these things. i think you're pointing out how we have sort of old systemic way of doing things that end up having a discriminatory impact. and if we look at them, we can change them and then start to change the path, create a much better path for people in this country, which is why we're here. so thank you. dr. brainard, you and i had a chance to talk about a variety of things when we spoke on the phone the other day. many of my colleagues have also raised some of the questions that you and i were discussing around full employment and the disparities in employment amongst black families versus some white families in this country. and i want to just drill down on a bit of what senator van hollen was asking about. as you pointed out, the fed has
limited tools in this category. but could you just tell me, if we were to see interest rates increase, what impact would we anticipate that having on employment, particularly as we try to look at getting broad based employment? >> certainly today we see an economy that's grown about 5.5% over the last year. and we've seen those broad unemployment numbers coming down really quickly. so there's a lot of underlying momentum in the economy. and so, you know, as we go forward on our plans to end asset purchases, to begin to raise interest rates at some time beyond that, to shrinking the balance sheet, i think we'll do that in a well-communicated way, a transparent way to allow markets to react in a measured way to it. i believe we'll be able to see
inflation coming back down to target while the employment picture continues to clear. there are some short term constraints there that i think are limiting people from coming back into the labor market as those are lifted. i think we'll have continued gains on employment. >> thank you. i'm out of time. i just want to take a moment to say that one of the biggest constraints, as you and i have talked about, is that people don't have any access to affordable childcare, so they're left being unable to work even though they want to. that's one of the things we would address in the build back better act which i hope we pass. thank you. >> thank you, senator smith. senator crapo is recognized from his office. >> thank you, mr. chairman. and let me start out with you, director thompson. first of all, i very much appreciated our visit last tuesday. i just have one quick question for you which we discussed then. housing finance reform, which as you know is a top priority of mine. and it's been my view that
congress must find a pathway forward to resolve the conservatorship of our gses and do so expeditiously. in that context, i applaud ranking member toomey for releasing his housing reform principles last march which reflect many of the goals i outlined when i addressed this issue as chairman of the committee. these principles include establishing stronger levels of taxpayer protection, preserving the 30-year fixed rate mortgage, increasing competition among mortgage guarantors, ensuring a level playing field for lenders of all sizes and providing affordable housing. if confirmed as the fha director, would you be willing to support legislation that is consistent with these principles? >> absolutely, senator. thank you. >> thank you. a nice, brief answer, and the right answer. i appreciate it. let me move on to you, governor
brainard. again, welcome to you too, i appreciated our visit the other day as well. the first question i have for you is on inflation, which you've already talked about today, but i, like all of us here, are concerned about december's 7% rise in consumer prices. and today's record high producer price inflation reading of 9.7%. these high and persistent inflation numbers are i think the greatest threat to our economic recovery and household budget. and it's clear that we have more federal deficit spending or tax. the question i have on this is, if i understood you earlier in your testimony, you said that you were confident we were going to get back to the 2% rate. the question i have is, how quickly do you see that happening? is this something that could be done in months, or are we talking years? or what is the time frame you
would expect to see us face in trying to get control brought back to about a 2% target? >> well, thank you, senator, for your question. so i certainly also am very concerned about the high level of inflation. and we are committed at the federal reserve to bringing it back down to target. and we're taking a number of actions. we've already decided to end asset purchases in the first quarter. you've seen that the committee has projected several hikes over the course of the year. of course we, you know, will be in a position to do that i think as soon as asset purchases are terminated. and we'll simply have to see what the data requires over the course of the year. and, you know, we started to discuss shrinking our balance
sheet. in terms of the projections on inflation, i think it will remain high throughout the first two quarters. certainly in the committee's projections, you saw it coming down closer to 2.5% by the end of the year. but i think we should all take these projections, you know, with a fair amount of caution. >> sure. >> and we'll obviously try to bring it down as quickly as we can but consistent with a sustained and strong recovery. >> all right. thank you. and i realize it's hard to predict these kind of things, but i appreciate your projections. last question, you've been asked about this also, senator toomey talked to you about the pressure to choke off credit to traditional energy companies. and i know senator kennedy talked about the same thing. and i understood your answers to that.
i personally believe that choking off credit to industries viewed as unfavorable or politically unacceptable and controlling the allocation of capital is not a new concept. you'll recall operation choke point from the obama administration years. and i certainly hope that president biden will consider this as he nominates those who deal with policy at the fed, regulatory policy at the fed. you've already indicated that you don't believe the federal reserve should act in a way to try to choke off credit to traditional energy companies. my question, though, is, if policies such as those senator toomey was talking about with you are utilized in our stress testing processes, does that not in and of itself select specific types of industries if they're
going to be selected in that way and subject them to the potential for increased capital requirements or some other type of regulatory burden that would not be there had they not been in that particular business? >> yes, so i think about superv guidance, simply asking institutions, large institutions, to be measuring, monitoring and managing their risk. it's what we ask them to do across the board. so i don't think it has a particular sectoral cast to it. similarly on scenario analysis, if i think about concentrations of areas where, you know, wildfires are becoming more frequent or flooding is becoming more frequent, if insurers are pulling back from covering those properties, our scenario analysis would simply allow us to see where are those risks building up, and are there certain counterparties that are
exposed for covering those risks, and might they be subject to a shock that can amplify financial instability throughout our system. that's how i think about climate scenario analysis. it's quite different than the stress test that banks have undergone under the traditional capital planning framework. >> thank you. >> thank you, senator craig. senator reed is recognized. >> thank you, mr. chairman. first let me commend the president for his nomination. governor, congratulations, and also miss thompson, congratulations as nomination for permanent director of the lfha. you all touch on the critical role of housing in our economy, and i know ms. thompson has already talked about some steps she would take to expand the supply. one of the interesting things is this ties in also to the inflation problem we're seeing right now as i believe,
governor, that 30% pricing index is based on housing prices, and as a result, if we don't get a handle on housing, we will not get an effective handle on inflation. and with that in mind, raising interest rates, will that help us, hurt us, will it make it more affordable for working families to get good housing? >> so i think the question about work force housing and affordable housing to the extent that we look at it at the federal reserve is really very much a supply side question. we do meet regularly with the homebuilders, and they have been telling us even before the pandemic that shortage of lots is an acute problem, so we went into the pandemic with a shortage of affordable and work force housing, and of course the pandemic has exacerbated
materials, delays and skilled tradesmen availability. so all of those things, i think, on the supply side are exacerbating these issues. our tools are very limited on the supply side. we have some incentives under the community reinvestment act, and we are trying to improve the credit that we give there for naturally occurring affordable housing as well as shoring up those really important institutions that use housing subsidies in partnerships with banks, but our tools are limited on the supply side. >> thank you. governor burnett, are you aware of the announcement yesterday that bank of england is incorporating climate as part of this stress test thing for all their institutions? >> so i have not studied their
most recent statement there, no. >> but i would presume that their major motivation is the economic impact, not on anything else? is that your view? >> when we've talked to counterparts, regulars in the bank of england, administrators and others, they're certainly taking on board just the financial risks associated with climate change and trying to incorporate that into their supervisory frameworks. >> and we've already seen some aspects of the financial issues, particularly in california with wildfires, and so there is definitely an economic effect that's being generated, i think with more frequency, by climate. is that your sense? >> i think the statistics i saw recently were about $36 billion
worth of damages over the last five years from severe weather, and that is a historic high and, of course, we all see it in our home areas. >> one of the other aspects of inflation, which is the most obvious one, is at the gas pump. that's something, again, really beyond the specific control of any agency in the united states government because basically pricing is set by a cartel. but what struck me is the production is not even up to the levels that they set for themselves. so do you have any insights on what's going on in that market? >> so we don't have a lot of insights. our dallas reserve bank tends to be closely studying trends there. it's certainly true that about a quarter of consumer inflation over the last year has come from food and energy, but really more
proportionately from energy. those prices at the pumps is hurting working americans across country. >> thank you. a quick question, ms. thompson. one of the things we've seen recently is a trend for private equity to buy up lots of homes. they have the resources to do that, and take them out of the purchase market and put them into the rental market. in some cases with the ability to dictate higher prices. is there anything you can do at your agency to look at that? >> sure. thank you for the question, senator, and we are taking a look at the private equity participation in a couple different areas in the manufactured housing communities where we are very insistent they have protections, and fannie and freddie will not purchase loans unless there are protections for the communities, the owners and the renters. we're also looking at reo
inventory. between fannie and freddie, there is probably 9,000 properties. we've established a first look program that allows owner occupants and non-profits to have the very first look at all the reo properties that are available. we've increased the number of days from 30 to 45. we have been looking at the nonperforming loan sales as well, and what we require is that any buyer has to go through a waterfall where they have to offer borrowers in these pools loan modification. and some of these borrowers have been delinquent three or four years, but they still have to offer these borrowers loan modifications. we've also asked the enterprise to structure smaller pools so that non-profits can start buying and working with these loans. >> thank you, and i apologize for running over. >> thanks, senator reed.
senator cramer from north dakota is recognized. >> thank you, mr. chairman, ranking member toomey, and congratulations to both of you on your nominations. and governor, thank you for the discussion yesterday. i found it interesting. i liked most of your answers, interestingly. now i'm going to try to reconcile them a little bit after yesterday's meeting. and given today's conversation, you've been quite consistent, and particularly in the last couple. you referenced in response to a climate scenario analysis as opposed to climate stress test the example you used with me yesterday, and that is fire. so if you have a forest fire situation and insurers are backing out, that represents a risk. but you use that in response to a climate question, not a fire
question. i want you to be definitive about this issue, maybe as definitive as you were yesterday. are you in sync with chairman paul's question? would you say you're pretty well in sync with his analysis or his assessment of climate and where it belongs in your mandates? >> yes, senator, thank you for the question. yes, i am. >> so he said to fit in with your mandates, climate is one factor. important but a very narrow one. so how is it you get so much -- now i'm asking you to analyze your support.
i'm wondering why so many friends on our side of the aisle think you're wonderful on climate but they're not going to support chairman paul for the same reasons. i'm not asking you to be my psychologist, necessarily, but do you have any facts or theories on why that might be? >> we do operate within our statutory mandates, and we talk a lot about what those are and what those mean. so i think, generally speaking, those are the guardrails that we operate within. i do try to be aware of emerging risks generally. i thought it was important to develop research in the area of digital finance, for instance, several years ago. so i am looking out over the horizon sometimes, and perhaps, you know, talk more about the research, but we're very in sync in terms of what we actually think our responsibilities as an
institution are. >> now, i want to just do a little bit of opining on the recent question senator reed asked you on the supply side and particularly gasoline, fuel. you rightly recognize that is probably a quarter of the inflation. by the way, it's going up as fast as the rest of inflation, if not faster, as you probably know. i come from a state that is now producing about 400,000 barrels of oil less than it did before. it has a lot of capacity for more. deboken is cash starved, actually, and some of that is because of signals they're getting from banks and that banks are getting from others that investing in oil production is persona non grata. the supply is being held down by
both rhetoric and policy. most of it is not your policy's, but it is the president's. and i worry that, frankly, we want to transfer our climate guilt by suggesting that we shouldn't produce so much in the united states while global demand goes up and our adversaries who are not nearly as environmentally friendly as we are produce. does that matter, do you think, in these climate scenarios that we may very well be hurting our own economy and our own production and our own job creation while transferring both the opportunity and the guilt to another company? >> your question is not something i generally study, but i will say when we do supervise institutions to see that they are managing their material risks, it's pretty pedestrian stuff. it's do you have a risk
management committee? is that risk management committee well informed? do you have the right data? do you have the right models? do you have the right controls? it's really not specific in any way to particular, you know, borrowers or sectors. so i understand the concern that you're raising, but our supervisory guidance is very much around making sure those guardrails are there. >> thank you. thank you, mr. chair. >> thank you, senator. the congresswoman from nevada is recognized from her office. >> thank you, mr. chair. congratulations to both nominees and thank you for your co t moving forward. let me start with acting director thompson on the federal home loan banks. thank you so much for taking the time to talk with me earlier about this particular issue.
as you well know, and discussed this, the third g regulated by the financial agency, in our discussion i noted that my office's research discovered that the federal home loan bank that serves nevada had long neglected investments in our state. as you well know, this has been an issue for me. so my question, director thompson, is will you commit to working with my office to ensure that the federal home loan bank of san francisco improves on its record on investment in nevada? >> that's a great question, senator. thank you for bringing this issue to my attention. it's my expectation that the federal home loan banks will serve each state within their districts. i would mention to you that the home loan bank of san francisco did change the scoring mechanism
so that nevada is able to get their portion of an affordable housing program, but there should not be a case where there is a state that does not get a portion of the affordable housing program from the banks. >> that's right, thank you. i know they made that change, and that was at my request. they've been working with me and i appreciate that. i know there is a role for you to play as the director. in that role, i also know that in reviewing the federal home loan banks' federal plans, only one makes investments in native american communities. so my next question is will you ensure the lending plans are appropriate to the needs of their communities? >> yes. thanks, again, senator, for the question. as i committed to you, i will have conversations with all the bank presidents and the
community investment officers that reside in each of the federal home loan banks to talk to them about filling the snisk speeds in their respect active communities. there shouldn't be a case where there is a tribal community that is not being recognized in the community lending plans for the federal home loan banks. we are going to have those conversations and that won't be the case. >> thank you. and, director, one final thing. beyond the affordable housing programs, volunteer programs, thank you for your commitment there. i'm curious, do you have any other priorities with respect to the oversight over the federal home loan banks? >> sure. so we are looking at -- right now -- i should say the federal home loan banks play a huge role in the financial system. during the pandemic, they certainly were very much utilized. but the advances right now are relatively low, so we're looking
at ways to just oversee the home loan banks and make sure that the advances and the earnings are appropriate. so i've got my supervisory team working very closely with the home loan banks to make sure they are supervised in a safe and sound manner. >> thank you. i look forward to working with you as well. as we move through this process. governor brainerd, thank you as well for speaking with me. it's a pleasure to welcome you back to the committee. i know in your decades of career and public service you represented on the international stage. i also know it lasted a few years and they have also instructed you to work closely with secretary of treasury
mnuchin and setting up the federal reserve's response to the covid-19 pandemic. clearly you've played a critical role in the committees you chair for. very quickly, because my time is running out, can you tell me how you've worked with the other board members and agency heads to not only respond to the pandemic but also bank regulatory challenges as well. >> well, you know, we were as surprised, i think, as everybody by just the incredible turmoil we saw in the markets, so we need to respond very quickly. we just work seamlessly across the regulatory agencies. we did need to relax some bank shafguards to make sure they
could continue lending to make sure their existing loans wouldn't be considered impaired and we stood up facilities very quickly, and also once the turmoil passed, we were very quick to wind them down. i think generally speaking we're in a much better place today. as a result we have -- many americans have jobs and, you know, balance sheets that are much healthier, and many more businesses are thriving today because of the efforts you did here in congress and the efforts that we did to carry out those programs you asked us to undertake. >> thank you. thank you both again. mr. chair, thank you. >> thank you, senator cortez. senator daines from montana is recognized. >> chairman, thank you. welcome, governor brennard.
we had quite the financial report yesterday. in montana and other mountain states, inflation is actually 6.8%, which is nationally higher than the average of 7%. on a year to year basis, real average weekly earnings declined by 2.4%. i heard colleagues on the other side of the aisle saying inflation is reaching a peak. i remember being here not long ago challenging this notion from transitory. we heard from very smart people sitting where you are rejecting that notion and we pushed back and said, i don't think so. granted, forecast to forecast, you don't always get them right. i hope inflation is nearing its peak, but i didn't see anything in this recent report that provides any sort of confidence that inflation is fading in a
meaningful way. in fact, to the contrary, peeling it back, what's going on right now in china with the zero covid policies for xi jinping, i think the supply chain disruptions will only increase. i met with them a while ago. they told me they fired some drivers because they broke the covid mandate. this is a problem in the economy. chairman powell told the committee on tuesday that high inflation is a severe threat to the labor market. i agree with that, and i hope you do as well, governor brainerd. i would like to follow up on senator toomey's points about financial risk. over the past year, you have
delivered a number of speeches suggesting the fed will take a more active role in environmental policy. specifically you announced the fed is, quote, developing a scenario analysis to monitor the possible financial risks associated with climate change, end quote. however, the fed lacks both the experience and the expertise in environmental matters. further, actual climate researchers have found that current climate models cannot be used to provide financially meaningful information. this raises the troubling prospect for many of us here today that the feds' work in this area is politically motivated rather than based on actual data or expertise. and i say that respectfully as a chemical engineer by degree. my question for you, governor brainerd, on what basis do you believe the fed is positioned to shape environmental policy given its lack of experience and expertise in this area? >> well, thank you very much for
your questions. first on inflation, couldn't agree with you more. it's very high, and we have a responsibility to bring inflation down. we are orienting monetary policy to do that. we have accelerated the tapering of asset purchases so we can be in a position to move on increasing the federal funds rate, and we have projected several increases this year and also talked about having the balance sheet starting to shrink sometime thereafter. so we're very focused on that, as chair powell said. with regard to the issues surrounding climate, we don't do environmental policy at the federal reserve. it's not our expertise. what we do have responsibility for is that supervisory agencies are planning and we do sort of
have a responsibility of understanding implications of a host of different kinds of things, and that's where scenario analysis comes in. it turned out the pandemic had enormous financial consequences, so it's on us to do research to understand how shocks could affect our financial system, and that could include severe weather events and other aspects. >> speaking of shocks, i think we all remember the war of yom kippur. some of us are old enough to remember what happened in 1973 and the shock that had when oil prices quadrupled. in 1981, it was 18.64% of wages.
it was devastating for the folks working hard every day to make ends meet. speaking of politically motivated, with my distinguished colleague mark dakota sitting next to me, when we watched this president with one stroke of a pen stop the keystone xl pipeline, which actually reduces carbon emissions, because it is the most environmentally sound limited amount of carbon emissions way to transfer oil versus using trucks, count us in as skeptics for this political motivation, and i hope you will guard the fed and i hope you ensure they stick with their dual mandates. so i asked this question of chairman powell. i would like to ask it of you as well. do you think rolling blackouts -- and i went to a hearing before i came to this
hearing, we had people literally talking about breaching dams in this country. these are radical ideas. do you think rolling blackouts due to a lack of base of power is a threat to the basic financial system? >> we try to take into account a whole host of different risks to the system, so we are trying always to kind of look out over the horizon and take into account a whole host, including from abroad. we do try to do that. we're not very successful always, but we certainly try. >> well, thank you, and again, my final comment here, on the one hand we have our colleagues who are sending the strongest message possible that we should stop production of oil, natural gas, coal, even breaching dams in some cases here. you can't have it both ways. this is what the energy crisis will do to this economy and inflation. that's why this car is spinning out of control on the highway. the fed has its role, but i'm
very concerned about the policy coming from this administration that are creating severe harms now for the american people, and we're seeing it at the gas pump, we're seeing it with inflation in this economy. thank you. >> senator ossoff from georgia is recognized from his office. >> thank you, mr. chairman, thank you to the nominees. what tools would you have at your disposal at the federal finance agency? what would my congress be able to strengthen or offer to the agency to increase the supply of housing in communities where there is an acute housing shortage? do you agree that increasing supply, adding units, adding density is key to resolving the crisis of affordable housing? when i look around the state of georgia, i speak with community leaders, look at the housing market, 48% of folks in the city
of augusta say that affordable housing is a very high need. georgia has lost 11,000 affordable housing units through the qualified contract exception, a low income housing tax credit in recent decades in atlanta, in rome, in savannah, in rural communities. the rents and prices of homes are increasing at an alarming rate. so the question again is what tools will you have at the agency and do you believe increasing housing supply is essential? and finally, will you work with me and community leaders in those cities and communities across the state of georgia to identify solutions particular to the needs of my state to help bring more housing supply online at units and help folks afford homes? >> it's a great question, senator, and absolutely, supply is a major, major issue in
housing. and the supply issue really is exacerbated with respect to affordable housing. we certainly are -- we don't have direct influence on supply, but one of the things we've done through the affordable housing program, they're able to contribute to affordable products around the country, and we've also increased the enterprises of allotment for low income housing tax credit, and we increased a lot to help with affordable housing supply and affordable housing preservation. we're really focused with working on our regulated entities to do what we can in this space. we also have allowed the enterprises to purchase manufactured housing, and we also have allowed them to purchase these accessory dwelling units. but in many cases, there are
local zoning ordinances that get in the way of some of the affordable houses that could be built or the types of affordable housing, but we are very much committed to working with you and all members of this congress to try to do what we can to address this issue. >> thank you, ms. thompson, and my time is limited, but just briefly, i mentioned atlanta, albany, augusta, columbus, savannah. this is a serious issue in communities across the state. will you commit to working with my office, elected officials, community leaders in those communities and others, to establish systems more collaboratively to bring down the cost of housing, the cost of rents so people can affordably live? >> governor brainerd, i'd like to ask the question about
prevalence of stock trading in the federal reserve. i want to commend senator brown allowing his legislation to address this. is there a cultural problem? is there widespread trading potentially on the basis of proprietary abatements in the area? >> i don't believe there is, but we've all been surprised and dismayed by some of the financial disclosures. >> dr. brainerd, will you help to ensure that the fed complies with demands for records, information of former officials should congress choose to review those trades in their entirety? >> yes. >> what is your view of the distributional effects of quantitative easing over the long run, that the relative
benefit to employment against the exacerbation of inequality by driving up asset prices in a way that may favor those who hold equities, hold assets on homes as liquidity is added to financial markets? have you conducted any research, has the fed conducted any research? >> i know there is some research on this. it's not clearcut. it tends to be the case that during recessions, wealthy inequality diminishes and then it tends to increase during recoveries. you know, we use quantitative easing only when we've run out of room on the interest rate and the alternative of allowing unemployment rates to skyrocket would be very, very bad, i think, for working americans who really rely primarily on their jobs for income. so we stay very focused on that dual mandate and try to protect employment in downturns to the
greatest extent possible using whatever tools we have. >> thank you, dr. brainerd. my time is up. i'll send you some additional questions for the record and look forward to your responses. congratulations again to you both for your nomination says. i yield back, mr. chairman. >> thank you, senator. the chairman has some closing comments and so do i, and we'll wrap up. >> some seem to be suggesting that inflation is the result of greedy companies in highly concentrated industries. in fact, i don't think the data supports the contention. i don't think that's well correlated, that is to say, the rate of inflation and the extent to which an industry is consolidated. and, in fact, one that i can think of that might be among the least concentrated industries that i know of, the retail sale of used cars is experienced among the highest rates of inflation, 37% over the last year.
i also want to respond to governor brainerd's statement that the climate center analysis she's been advocating is not a stress test. it seems to me that is little more than a semantic difference. of course, the whole purpose is to test whether banks are prepared to address perceived risks associated with climate change. then if the fed determines they're not to promulgate new regulatory requirements, that sounds exactly like stress testing whether or not you call it a different name. i'm not alone in that view. the "new york times," not exactly a conservative paper, said the same thing when it reported on a speech that dr. brainerd gave last october about climate scenario analysis at the feds' annual stress testing conference, the "times" wrote, as brainerd said, they are creating scenarios for bank checkups which are often called stress tests, end quote. the concern is there are many
categories of risks to banks and the financial system that nobody is advocating a separate scenario analysis for. but there is an advocacy for the scenario analysis for even lower risk, lower probability risk problems in the climate space. the fact is the transition risk associated with climate change is a political risk, and the danger is this becomes a self-fulfilling prophecy, and the fed says do a scenario analysis, and the scenario you need to analyze is the scenario in which we impose new regulations on you that are problematic for your portfolio. finally, let me turn to ms. thompson. you and i may have a different understanding of the harris statute and other statutes because it's my view that harris does legalize the fha to take gncs out of conservatorship.
can you tell me, is there something lacking in legislation that is required for you to move in that direction? >> sure. thank you for the question, senator. it's my belief that the enterprises -- actually, fhfa is going to have to have a conversation with treasury. >> i agree with that. >> at the end state of the enterprises is something that congress would have to legislate. so if the enterprises reached their capital requirements that we've established, we certainly would be having conversations with lots of different stakeholders, but the end state, if congress wants the enterprises to come out as is, that's, i think, do believe within the statute. but if there is another outcome, if they want it to be a utility or if they want other charters, those are things that congress is going to have to -- >> sure, if we wanted to change the existing statutes and change existing charters, we would have to pass legislation to do so.
but my point is that's not the only option available. would you commit to going as far as you legally can in moving in the direction of coming out of conser conservatorship? >> senator, that's a great question. i will commit to energizing the enterprises and working with congress to do whatever is necessary to move them out of conservatorship in a responsible time frame. we would certainly wanting to be working with congress and other stakeholders on this issue. >> i appreciate that, and i look forward to working with you toward that end. thank you, mr. chairman. >> thank you, senator toomey. a few closing comments. thank you, both, by the way, for being here. for reform which i hope we can reach consensus in this committee. my colleagues and i have talked about the importance of housing finance and reform before the pandemic. as you know, acting director, we had a series of hearings and reform consensus was emerging.
i'd like to put out a list of priorities where i think we can reach agreement. there will be some differences of degree, i'm sure, between some -- well, between and among all of us. one, protecting asset of 40-year mortgages. constructing loan guarantee is like public utilities providing a regular rate of return, serving a broad national market, serving lenders of all types and sizes equitably, maintaining a duty to serve, all markets and borrowers maintaining housing goals and metrics, expanding investments and affordable housing, maintaining the family business models in ensured continued or better financing for affordable rental housing. these reforms would create a sound system that meets the needs of renters and homeowners across the country.
i'm certainly happy to engage with the ranking member and others on this committee in both parties and getting -- as we spoke on the phone, getting the kind of technical assistance you are so good at, acting director, to provide to us. i would also make one comment that chairman powell raised the same thing on tuesday as governor brainerd today on stress test and climate scenarios. i applaud the biden administration for the nomination of these two eminently qualified women to these vitally important divisions in our government. i look forward to supporting the nominations of each of you. i urge my colleagues on both sides to join me. senators who wish to submit questions, these questions are due at noon on the 18th of january. to the nominees, we need your responses on friday, january 24. thank you for your testimony and appearing today. the committee is adjourned.
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