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tv   Federal Reserve Chair Testifies on Monetary Policy  CSPAN  July 14, 2021 12:01pm-3:00pm EDT

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gerrymandering? gerrymandering for most people, it is when the other side draws the line that you don't like. now, if i had a magic wand and i could do one political reform in this count >> we are leaving this segment of washington journal so we can bring you a hearing with federal reserve chair jerome powell. live coverage from the house financial services committee, here on c-span. >> there is inadvertent background noise. members are also reminded that they may only participate in one remote proceeding at a time. if you are participating today, please keep your camera on. if you choose to attend a different remote receiving, please turn your camera
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off. as a reminder to all members, we will conclude today's hearing -- i better check the time before i give you that time -- members who are unable to ask questions in our february 24 hearing with chair powell will be given priority to ask their questions today. we will return to our normal order of recognition once those members have asked their questions. before we begin, i will recognize myself to call up the resolution offered by ranking member mchenry. copies of the resolution will be made available in advance. without objection, the resolution is adopted.
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this hearing is entitled "monetary policy and the state of the economy." i now recognize myself for four minutes to give an opening statement. first, i would like to welcome back chair powell. we are delighted to have you with us today. much has happened since the last time you testified on the fed's monetary policy report in february. since then, democrats passed and president biden signed into law the american rescue plan. more than 58% of adults in the united states have been fully vaccinated, and businesses are reopening. more than 3 million jobs were added to our economy in the biden administration's first five months, the most in any president's first five months. compared to over 2 million jobs created during the first 12 months of trump's reckless
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tenure. as the latest jobs report shows, 800 50,000 jobs were added to the economy in june alone. a tremendous increase that beat market expectations. simply put, without the american rescue plan and the extraordinary leadership from the biden administration and democrats in congress, our economy would not be on the track to recover. but we still have more work to do. to put this crisis firmly behind us and build a more resilient economy for the future. for example, while the unemployment rate continues to fall, joblessness remains higher for black and latinx workers then it does for white workers. to be clear, we will not have a full recovery without closing this gap. while inflation has risen in recent months, chair powell, you
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and other experts have attributed this to short-term factors. consumer demand is way up. with people once again dining out, buying cars, and purchasing homes, the supply chains have kept up with this pace, which, as a result, has led to higher prices. i think the data is right when they say that this dynamic will subside, but i expect the fed to continue to monitor high prices along with the dual mandate to promote price stability and full employment. at the same time, congress should be considering whether it's better to address them a shortages and soaring home prices through smart investment or higher interest rates from the fed. the covid-19 pandemic disrupted life for all of us and shifted the way we think about the economy.
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we see this in the huge number of women and people of color who left the workplace. we see this in a generation of young people weighed down by student loan debt. and we see this in the surprising percentage of workers who have quit their jobs, even as the unemployment rate remains elevated. we are in a moment of transformation that requires a fresh approach and investment that will close the racial wealth and income gaps, address climate change, and health care prices. and finally, and homelessness. the fed must also play a central role in this economic transformation, but they must ensure that our economy recovers equitably. first, the regulatory actions that rollback rules for wall street, so our financial system is less vulnerable to shock.
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weather by partnering with the treasury to implement a framework focused on climate change and financial stability, exploring the central bank's digital currency, or strengthening its outdated approach to bank mergers, the fed must fulfill its role in ensuring a strong and inclusive government. chair powell, i look forward to your testimony this afternoon. i now recognize the ranking member of the committee, the gentleman for north -- from north carolina, mr. mchenry, for four minutes. >> chair powell, welcome back, albeit virtually. you have earned and deserved another term as chair of the federal reserve, as far as i'm concerned. you have proven to be a steady hand throughout this pandemic, our ongoing recovery, and you have defended the independence of the fed. thank you for your service and
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leadership. now, we are going to spend the next three hours telling you everything you have done wrong, but you do deserve another term. in all seriousness, though, the federal reserve needs to be laser focused on our economic recovery. instead, i am seeing more issues to address the fed's view on climate change. this should be something originating in congress, not the central bank. as far as our economic rebound, we are facing some very serious challenges. put simply, america has a jobs problem. not long ago, there weren't enough jobs. but that's not the case this time. there are more than 9 million jobs waiting to be filled. employers across the country are competing for labor, offering signing bonuses, back to work incentives and higher wages. the national federation of independent businesses released a survey yesterday, reporting
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that 63% of small businesses have already increased wages drew attract workers. we should be seeing a boom and return to work, but we are not. throughout the spring, job numbers continue to fall short of expectations. the june report showed 850,000 jobs were added, but this misses the larger picture. the labor force participation rate remained unchanged. the number of long-term unemployed americans have increased by 233,000, and companies continue to struggle to hire enough workers to meet their business needs. we need a plan to get people back to work, not just in the short term, but in the long term. that's what we should be focused on. i wish my democrat colleagues felt the same way. they want to continue the spending binge that they are all about well and -- on a laundr y list of progressive ideals.
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the covid bill passed back in march was not enough spending for them, so senate democrats want as much as $3.5 trillion in new spending and increased taxes on businesses of all sizes. on top of that, another $1 trillion for hard infrastructure. none of this is sustainable. the spent first, ask questions later approach to fixing our economy will not work. our economy cannot handle this level of spending. long-term, it will lead to sluggish growth, persistent unemployment, and a declining standard of living. simply put, the democrats are addicted to spending. taxpayers, business owners, and others will bear the consequences. we should instead be focused on creating real economic oath that has proven to be enduring and stable. that means a focus on regulatory relief and a competitive fact system. this will deliver the kind of
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broad prosperity that defines our uniquely american system of free enterprise. to have a recovery that works for all americans, we need to get americans back to work. madam chair, i thank you for holding this hearing and i would like to welcome our newest republican member of the committee, a gentleman who is not new to congress, but a returning member of congress who has been on leave when he left the house banking committee, was on leave with the rules committee. under our rules, he gets to come back to his homebase that he left years ago. we are grateful to have pete sessions back with us on this committee and in this room, and i look forward to his service. we have so many great texans on this committee. we are proud to have him on the committee as well. with that, madam chair, i yield back. >> welcome back, mr. pete sessions. we are glad to have you back. i will recognize the gentleman from connecticut, mr. hines, for
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one minute. >> chair powell, welcome once again. we will be hanging on your every word today with all that is going on out there. mr. chairman, three weeks ago i had the religion of being appointed to chair the select committee on economic disparity and fairness and growth. i have reason to believe that the ranking member may come from this committee as well. mr. chair, i was normatively gratified to see a statement you made in may to the national community reinvestment coalition when you said, the fed is focused on these long-standing disparities because they weigh on the productive capacity of our economy. we will only reach our full potential when everyone can contribute to and sharing the benefits of our prosperity. mr. chair, you know we see economic disparities in this country we have never seen before, and you make the case that apart from the moral issue, there is a profound economic reason to address those
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disparities, inasmuch that it is damaging our productive capacity. the committee looks forward to working with you on this issue in a bipartisan way and i thank you for highlighting that. we will ask you to continue to reflect on what the fed can do to reflect those sorts of disparities. i look forward to your testimony and i yield back. >> thank you very much. i now recognize the gentleman from kentucky, mr. barr, for one minute. >> welcome back to the committee. i joined the ranking member's view that you have earned another term. the cpi paints a grim picture -- inflation is accelerating at the highest point since august 2008. core cpi surged to 4.5%, and 47% of small businesses raised
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average share prices to the highest since 1981. inflation is a tax hike on everyday consumers and small businesses. while this is associated -- factors associated with reopening the economy are contributing to inflation, people not working is exacerbating the problem. the biden administration has compromised any hope we have that this inflation is transitory and paints us into a corner of lasting inflation that will disrupt the purchasing power of america's consumers and small businesses. i look forward to your testimony about the real and immediate risk of higher inflation. i yield back. >> thank you very much. i would like to take this moment to welcome our distinguished witness for today, the honorable jerome powell, the chair of the board of governors of the federal reserve. without objection, your written statement will be made part of the record. we will have five minutes to
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summarize your testimony. you should be able to see a timer on your screen that will indicate how much time you have left. the timer will go off at the end of your time. i would ask you to be mindful of the timer and quickly wrap up your testimony if you hear the chime. chair powell, you are now recognized for five minutes to present to her oral testimony. >> thank you, chairwoman waters, ranking member mchenry, and other members of the committee. at the fed, we are strongly committed to achieving the monetary policy goals that congress has given us, maximum employment and price stability. we pursue these goals based on data and objective analysis, and are committed to doing so in a clear and transparent manner. today, i will review the current economic situation. will for the first half of 2021,
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there has been a reopening of the economy and strong economic growth, supported by accommodative economic and fiscal policy. growth appears to be h -- on the fastest pace in decades. demand remains very strong and overall business investment is increasing at a solid pace. as described in our monetary policy report, we have been constraining activity in some industries, most notably the automotive industry. conditions in the labor market have continued to improve, but there is still a long way to go. labor demand appears to be very strong. job openings are at a record high, hiring is robust, and many workers are leaving their current jobs to search for better ones.
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workers added 1.7 million workers from april through june. but the unemployment rate remains elevated at 5.9 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that prevailed over most of last year. job gains should be strong and -- in coming months, as some of the pandemic related factors currently weighing them down. as discussed in the monetary policy report, the declines were largest for workers with lower wages and for african-americans and hispanics. despite substantial improvements for all racial and ethnic groups, the hardest hit groups still have the most ground left to regain. inflation has increased notably and will likely remain elevated in the coming months before moderating. inflation is being temporarily boosted by base effects and sharp, pandemic related price
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increases from last spring drop out of the 12 months calculation. strong demand in sectors where production bottlenecks or other supplier constraints have limited production has led to a specially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks on wind. prices for services that were hard-hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy. to avoid sustained periods of low or high inflation, the monetary policy framework seeks inflation expectations that are well anchored at 2%, the longer run inflation objective. members of longer run inflation expectations have moved up from their pandemic lows and are in a range that is broadly consistent with the fomc's longer inflation goal. recent discussions on inflation
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and inflation expectations have shown that sustainably in -- achieving -- as we continue to monitor vulnerabilities here. while asset valuations have risen with improving fundamentals, as well as increased risk appetite, following household balance sheets are on average quite strong. business has been declining from high levels, and institutions at the core of the financial system remain resilient. turning to monetary policy, the fomc kept the federal funds rate near zero and maintained the pace of our asset purchases. these measures, along with our strong guidance on interest rates and balance sheets, will ensure monetary policy continues to deliver powerful support to the economy until the recovery is complete. we expect it will be appropriate to maintain the funds rate until inflation has risen to 2%
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and is on track to moderately proceed to percent for some time. within inflation below 2%, we will attempt to keep inflation above 2% for some time, so the average is 2%. we will also continue to monitor the implications of information's to the economic outlook, and would be prepared to adjust the stance of monetary policy if we saw signs that the path of longer-term inflation expectations were moving materially and persistently along levels persistent with our goal. we are continuing to increase our holds of securities and nbs until further progress has been made towards our price stability goals. these purchases have materially eased financial conditions and are providing substantial
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support to the economy. at our june meeting, we discussed the economy's progress towards our goals since last december. while reaching the standard of substantial further progress, participants expect that progress will continue, and we will continue these discussions in coming weeks. as we've said, we will provide advance notice before announcing any decision to make changes to our purchases. to wrap up, we understand that our actions affect communities and businesses across the country. the resumption of our fed listens initiative will strengthen ongoing efforts to learn from a broad range of groups about how they are recovering from the economic hardships brought on by the pandemic. with the federal reserve will do everything we can to support the recovery and the progress towards our goals of maximum employment and stable prices. thank you, and i will look forward to our discussion. >> thank you, chairman powell.
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i would like to clarify that the end time for this hearing is 3:00 pacific time and 12:00 p.m. eastern time, so thank you very much. at this time, i would like to recognize myself for five minutes for questions. chair powell, i want to understand some of the data behind the recent inflation figures, specifically as it relates to housing and home prices. according to the monetary policy report we are discussing today, "new construction, home sales, and residential improvements have all been well above pre-pandemic levels and demand is outpacing supply as construction has been limited by material shortages and sales have been constrained by low inventories." so demand clearly outweighs the supply of housing. chair powell, you have said this
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is a problem for first-time homebuyers for sure. can you elaborate on what you meant by that? chair powell, will you unmute? >> i'm sorry, madam chair. housing prices are moving up across the country at a high rate. i suppose the good news is that this is not driven by the kind of reckless or irresponsible lending that led to the housing bubble that led to the last financial crisis. those kinds of things are not happening, at least so far. nonetheless, asset prices are moving up, making it more difficult for entry-level buyers to get into the housing market. that is a concern. i will also point out, though, that a number of things are driving up housing prices. low rates are part of that, there are also changes in preference. people have wanted to move out
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of cities because of covid into surrounding areas, so single-family housing demand has been quite high. prices have also been driven up by material shortages and things like that, which we would hope would be alleviated. >> chairman powell, a lack of supply and constraints around housing stock are a factor in the recent increase in housing costs. if the fed were to raise interest rates, what do you think would need the impact on addressing the housing supply challenges? >> it wouldn't have any effect on the supply side, as i think you are suggesting. there are limitations around the availability of some raw materials, of labor and zoning and things like that, and nothing we can do to really affect that. it is true that interest rates are one factor in this, that is supporting demand, but we cannot do much about the supply side. >> do you expect increasing
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housing supply would help alleviate inflation? >> sure. i do think that more housing supply, if demand were to remain constant, would certainly imply that prices would stop going up as much as they have been. >> the great recession was long, slow, and an in part because fiscal support provided by congress was insufficient. we left too much up to the fed to stimulate the economy through low-interest rates. i believe strongly that we cannot repeat that mistake. as i look around at what is causing surging prices, i see a lot of places where more investment would help with long-term economic growth, especially more housing. congress and the biden administration have a job to do right now. it is for this reason that i am reintroducing a housing infrastructure act. to ensure that congress finally makes long-overdue investments
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in the housing markets. this would provide a historic investment of more than $600 billion to ensure that affordable housing is available all across the country. so, as you know, i am focused very much on housing, and i understand that there is a great need for affordable housing. as you know, homelessness is increasing all over this country , and some cities had given up on trying to control the camps that are popping up on sidewalks and under bridges. how important you think housing is, investment in housing is to this economy? >> the housing industry is a big one. the problem of affordable housing is a big one too, although it is largely outside of the ambit of the fed's
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responsibilities. but certainly a very important issue. as you point out, the rise in homelessness in the face of a very strong recovery is actually evidence of the unevenness of recovery. that's something we try to keep in mind as well. >> thank you very much. i will now call on the ranking member for five minutes for questions. mr. mchenry? >> chair powell? thank you for being back. we have a lot of debate about monetary policy, but fiscal policy is also an important discussion. chair powell, when congress -- and i recognize, chair powell, you have say over monetary policy but not fiscal policy. chair powell, when congress enacts new spending, does the fed incorporate that new spending into its economic projections?
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>> yes, we do. as you know, we don't comment on or try in any way to play a role in fiscal policy. in particular, fiscal policies. but yes, we take it as an external factor that we would factor into our models and into our assessment of the economy. >> that spending impacts the course of the fed's decision-making. the fed will follow in essence, right? you have no say over it, but you will incorporate that into your decision-making. will adding another $4.5 trillion in new spending impact the fed's decision-making? >> i should be clear, it's one of many factors we consider. our focus is on maximum employment and price stability. we would tend to look -- one thing would be, you would want to know how much of it is paid for and that type of thing.
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the net deficit spending would enter into anyone's projections, really, of the economy and ultimately into projections of the labor market and inflation over time. it's hard to say exactly how without knowing a lot of the details, because it also depends what money is spent on and over what period of time, that sort of thing. >> sure. but fiscal rate policy, including tax and, effect the fed's decision-making. for those saying this will not impact the fed's decision-making or our economy in the long term, it's certainly not keeping within how these decisions are made. i want to switch subjects a little bit. chair powell, there has been a great interest in central-bank digital currencies. many countries like china in particular focus on establishing the eb d.c.. you said earlier this year that
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the fed would issue a white paper on the subject. what's the status of that report? >> we expect to publish a report around early september, plus or minus in that timeframe. the status of it is, we are working hard on it right now. but let me tell you what it is, really. we are going to address digital payments broadly. so that means crypto assets, the cbd c, that whole group of issues and payment mechanisms, which we think are really at a critical point in terms of the appropriate regulation and, in the case of the cbdc, the central-bank digital currency, laying out questions for the public to respond to. i want to have a major public consultation across many different groups, including congress, of course, on cbdc
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and crypto. >> there are certainly advantages to central-bank digital currency, or a faster payment system. but there are certainly risks. that's the case, right? this is not a riskless proposition. a pretty bold proposition for the federal reserve, is it not? >> yes, and we will lay out the possible potential benefits, put those on paper, and the potential risks that are undertaking. i think those have been written up in many forms around the world, and i think both are real . a lot depends on the u.s. institutional context and on why we would need to central-bank digital currency, and how you weigh those costs and benefits. that's really the nature of the exercise. >> stable coins have some
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advantages in terms of a faster payment system, and have some of the attributes of a cbdc, but there are concerns you have about stable coins? >> i think they are a lot like money market funds or bank deposits, but without the regulation. i think we have a tradition in this country where the public's money is held in what is supposed to be a very safe assets. we have a strong regulatory framework around bank deposits or money market funds. that doesn't exist for stable coins. if they are going to be a significant part of the payment universe, which we don't think crypto assets will be, but stable coins might be, we would need an appropriate regulatory framework, which right now we don't have. >> thank you. >> thank you very much. clarification, this hearing will
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and 3:00 p.m. eastern time and 6:00 p.m. pacific time. why didn't anyone say something? >> we don't like interrupting our chairwoman. we knew you would figure it out. >> thank you. -- is now recognized for five minutes. >> thank you for that correction. chair powell, it's very good to see you again. last month, when you testified before the select subcommittee before coronavirus, we discussed the current economic recovery and expressed concern, along with other members, about prematurely cutting off this recovery by raising interest rates too soon. i want to touch on a related topic today, and that's the fed's asset purchases.
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as you know, the fed is currently supporting the economy by purchasing $120 billion a month in treasuries and mortgage securities, and the fed said it will continue these purchases " until substantial or further progress has been made towards our goal." the minutes from last month's meeting stated that the fed is continuing its asset purchases because participants generally did not believe that the goal of "substantial further progress has been made yet. and i agree. i think it's far too early for the fed to start tapering these asset purchases and holding back on its support for the economy. german powell, would you please elaborate on what you believe "substantial further progress" looks like?
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what do you need to see happen before you will support tapering the fed's asset purchases? >> i would say this -- we did not try to write down a particular set of numbers that would capture that. it would have been complicated and not particularly worthwhile, so we said substantial further progress, which is similar to what we did during the recovery from the global financial crisis years ago. we had a similar set of words for when we would taper asset purchases. the thing is, it's very difficult to be precise about it, because with maximum employment, there are no 3, 4, five or six metrics you could point to. it is a broad range of things, including wages, levels of employment, participation, all those things. so we just said substantial
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further progress. and we provided advance notice well in advance of tapering, understanding this is somewhat of a discretionary test and that we don't want to surprise markets or the public. so we will provide lots of notice as we go forward on that. by the way, we have another fomc meeting a couple weeks from today and will have another round of discussions on this very topic. >> great, thank you. in may, president biden took action through an executive order to address a serious threat that the climate crisis poses to our economy. we are seeing numerous examples of that change in extreme weather events that result. we saw extreme heat across the pacific northwest, which will have cascading effects on the u.s. economy. part of that executive order was assisting secretary yellen with
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fsoc. can you provide us with an update on the fed's current work on this topic and the fed's broader work to address climate change in our financial systems, particularly with how these risks can impact our broader economy through supply chain disruptions or disruptions to massive industries such as agriculture? >> sure. the feds's work on climate change exists for supervising financial institutions. as far as individual financial institutions are concerned, as supervisors, we want them to be aware of and capable of managing all the risks that they run, including the risks to their
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business models from climate change. we are in the beginning stages of working on a program that will engage with the financial institutions and make sure that happens. on financial systems more broadly, we have an overlapping effort that looks carefully at the broader financial system and asks, how will climate change affect financial markets and other financial institutions that are not banks, for example? insurance companies and asset managers. those are two assets we are working on, and that's what we reported on for the fsoc. >> my time has expired, i yield back. thank you. the gentleman from missouri, wiss -- ms. wagoner, is recognized for five minutes. >> thank you for joining us today.
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we have discussed at length my very great concerns with higher inflation and the increased costs that consumers and businesses are experiencing today. in february, you appeared before this committee and reiterated that the price hikes are only temporary, and said they will decrease in time as inflation moves towards your goal of 2%. i can tell you that the families and businesses i represent in miseries second congressional district are not feeling that these spikes are very temporary. i am concerned with the most recent consumer price index data, showing price increases that are much higher than expectations. housing costs art skyrocketing, food costs are higher, electricity and gas prices are up. even travel and hospitality costs have seen a great increase. i understand that some of these
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increases are due to supply chain disruptions and labor shortages, but to have prices across the board consistently higher then they were forecasted to be is deeply troubling, as we look towards a strong economic growth towards the rest of the year and beyond as we pull out of this pandemic. chairman powell, is it the fed policy or the biden administration's policy that is surrounded with massive spending that is causing consumer prices to skyrocket? >> again, i can't really address that. i can tell you why i think we are having this inflation we are having now. what's really happening, first of all, you are right. the incoming inflation data has been higher than expected and hoped for, but is still consistent with what we have been talking about, the very high inflation readings are coming from a small group of goods and services that are
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directly tied to the reopening of the economy. it's new cars, used cars, rental cars, hotel rooms, airplane tickets, things we understand -- >> with all due respect, it's housing, appliances, food prices, electricity, gas. what extent is the federal reserve willing to see consumer prices increase before intervention is necessary? >> we are monitoring the situation very carefully, and we are committed to price stability. if we were to see that inflation were remaining high and remaining materially higher above our targets for a period of time and it was threatening to uproot inflation expectations and create a risk of a longer period of inflation, we would absolutely change our policy as appropriate. >> unemployment is still well
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above the 3.5% figure it reached before the pandemic, and the labor participation rate remains lower than february 2020. that's because the administration is still, frankly, paying people not to work while job openings remain high, at 5.2 million. in the fomc minutes from june, some participants believed that the unemployment rate of 3.5%, that the previous administration achieved is not feasible. chairman powell, with 9.2 million job openings and many employers raising wages and offering hiring notices, etc., what is causing some members of the fomc to believe that 3.5% unemployment rate is not achievable? >> i don't know that anyone said that. i didn't hear anyone say 3.5%
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unemployment rate was achievable. >> it's in the minutes. >> no it's not. it must be something else. you might say that about labor force participation, for example, or deployment of population, but i didn't hear anybody say that we couldn't get back to 3.5% unemployment. in any case, i don't believe that. i think it's a long road, it took us eight years of an expansion to get to three point 5%, but there is every reason to think that we can get back to that level. >> small business businesses and unfilled positions, what do you believe is causing unemployment rates to remain steadily above 2.5%? >> i think you are right, that the demand for labor is very high. there are all-time record job openings. but i think some are weighing on
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labor supply, people going back to work. we think factors such as school reopening's and unemployment insurance, we think those things will pass and as a result, there will be very strong job creation. >> thanks, chairman powell. my time is expired and i yield back. >> mr. meeks is now recognized for five minutes. >> thank you, matta speaker, and welcome back, chaired -- madam speaker, and welcome back, chairman powell. we have updated existing guidelines [inaudible] i support this executive order, considering the impact that they can have on communities of color. compliance with the communities of the investment act is an important measure, if the be
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-- doj unfed consider doing the merger. the fed should modernize regulation, but it seems like the bank merger can adequately deflect it today. can you explain how the fed plans to coordinate with the doj in light of the bank merger and executive order, and [inaudible] >> thank you. we coordinate pretty closely with the department of justice over the years. on banking and on trust standards. we eh look at each merger, so we understand each other. we would look forward to extending justice under the executive order, to take a fresh look at merger standards. we would, of course, closely
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coordinated and try to understand what is going on. we have made no attempt to change our merger standards, but we would certainly monitor that carefully and act appropriately. again, i can't presume to know what will happen out of this, but it is a process we will go through in coordination with justices. >> i believe they should act in tandem so [inaudible] i appreciate that. the pandemic has really disrupted, i believe, the housing market, as indicated by the chairwoman. the number of homeowners, especially in my district of black and brown homeowners, our
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-- in new york city at large. but the fed integrated mortgage-backed securities to keep the interest rates low. we have also experienced a rise in housing prices, which some attribute to the fed's purchases. i understand the debate at the fed as to how quickly it should take these purposes, but what are some of the economic factors you are considering as you hear both sides of this argument? >> housing prices are going up because of demand and supply reasons, and you touched on them, congressman. it's prices of raw materials, labor costs, zoning difficulties, all those things. it's not just a demand story. on the demand side, rates are certainly making mortgages
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cheaper and therefore supporting prices in housing, that is certainly a factor. there are other factors too, changing preferences, household balance sheets are strong right now because they were forced to save. they couldn't go on trips or go to restaurants for a year. all of that balances into the demand for housing. sorry, your question? >> what are some of the economic factors that you are considering and that argument -- >> mortgage-backed securities. mortgage-backed securities in particular, interest rates are low interest rates and treasury purchases and mbs all go into creating a low interest rate environment and going to mortgage rates. mortgage-backed securities
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really work a lot like treasury purchases, but they aren't especially important in what's happening with housing prices. nonetheless, they clearly are a factor among factors. this is one of the things we will be considering as we go through the process of evaluating what to taper and in what form, what will be the composition of asset purchases going forward. those are all issues that we will be discussing in this next meeting in the coming weeks. >> that's my time. i yield back. >> thank you very much. the gentleman from indiana, mr. hollingsworth, is recognized for five minutes. >> thank you, chair powell, for being here and thank you for answering our questions. our collective understanding about the feds understanding and reasoning here is very important. i have a long preamble that i hope ends in a question, so take a bit of a journey with me. first and foremost, i am in no
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way besmirching the good work the fed has done over the past year, which nessa -- which necessitated extreme action, and you took that action. secondly, i don't want to imply that you need a hawkish stance. i think policy is very accommodative at present, as it is conceivable. i am questioning the degree of accommodative stance not asking to return to a restrictive side of the respect from. third, on many occasions i have endorsed your new symmetrical approach to inflation targets. i believe this is the right answer. my question is not tied to recent inflation numbers, nor what i prognosticate about whether it is a demand phenomenon, a supply phenomenon, or what magnitude this might reach. i think there is a lot of data in the economy showing it is awash in liquidity, statistics not only indicating the tremendous/unprecedented
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increase in liquidity over recent years, but you have raised the repo rates to 0.25 percent and the uptake on that product has been tremendous. that's a reaction to money markets being overwhelmed, which is a reaction to bank deposits being overwhelmed. the ultra accommodative stance by the fed continues. when asked about this over the last few months, i have heard you say that they need necessary further healing in the labor market for that stance to change. i agree with this, but what i don't understand about that answer is a cornucopia of evidence suggests the challenges in the labor market are not related to monetary policy and are not susceptible to monetary policy. no indictment on the fed, monetary policy writ large does not have the right tools to resolve skills mismatch, work-no work incentive balancing, and geographic mismatch.
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as you said earlier, there is not a lack of demand in the job market. getting to the specifics of my question, i believe the fed is distorting significantly the financial economy for very little, if any, marginal impact on the real economy. are you jeopardizing long-term full employment and price stability by virtue of extreme monetary policy and picking up very little short-term benefits? i wonder if you might talk about your reasoning and your colleague's reasoning for maintaining an extreme accommodative stance. i think you are muted. >> sorry, i did it again. i would just say, policy is highly complicated. that is correct. we are a long way from full employment.
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as you know, we have 5.9 percent unemployment and the true number is substantially above that. so we have a ways to go. we see everything that you see, but i guess what we see is that our test for tapering asset purchases is an appropriate one, and we are considering -- >> just to needle into that for a second, we are making progress. i do not believe that progress is a result of that monthly asset purchase. i think i have seen significant evidence that indicates monetary policy is not making an impact on that, other factors are making an impact on that. i am wondering if the financial distortion that is occurring is not causing long-term problems? >> i do think monetary policy is supporting demand, and demand broadly in the economy. recovery of the week sectors --
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weak sectors and all that. >> you believe the difference between $60 billion and $120 billion is a material impact upon which we will reach full employment? >> as you know, we are very much in the process of walking down the road and asking these very questions. i think we are a good ways to -- away from maximum employment, and one of the reasons for lifting this, we are at labor market conditions that are comparable in the range of maximum [inaudible] >> thank you very much. the mental men's time has expired. the gentleman from massachusetts -- the gentleman's time has expired. the gentleman from massachusetts
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is now recognized for five minutes. mr. lynch? >> can you hear me? >> now i can. >> thank you so much. thank you, madam chair, and chairman powell, for your willingness to help the committee with its work. i was pleased to hear in your opening remarks that the fed plans and open dialogue with the public and with stakeholders regarding cbdc's and cryptocurrency generally. i think that is much needed. i am very proud of the fact that the boston fed, under the leadership of mr. grant, has been working with m.i.t. in their cryptocurrency lab on working on this digital model for the united states and for the fed. i am a little bit worried about the pace, though.
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we see -- i think there is 86 separate central banks that are already engaged in this. do we risk sacrificing the reserve currency status by -- i think some would argue, slowness in response to this. does this dialogue that you envision stretch out the timeline for adopting --, or delay that considerably? >> i would agree. i think this is the beginning of accelerating that decision process. we have a lot of work left to do on the technical side and the policy side, but a critical part of it is the public consultation. on reserve currency, the u.s. is
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a reserve currency that really isn't a good competitor out there. all the things you need to be the reserve currency, the united states has it. we are not in danger of losing it, certainly not to china, which does not have an open capital account. it's the kind of status that lasts for many, many years, so i am concerned about getting this right. it does carry risks, it does have benefits. it's quite specific to the context of each country, and i want to get it right. we are the reserve currency, and i think it is way more important to get it right then it is to do it fast. >> let me ask you another question that is a little off topic, but recently, china has taken somewhat hostile action against ipos being launched in the united states, didi, the
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right hailing business in china, is one of the recent examples. the chinese government has offered several different reasons for wanting these chinese companies to register in china versus in the u.s. . they have given various reasons for that, the security of data being one of them. i was wondering if you had -- this is probably a better question for mr. gansler, but i was wondering if you had thoughts on that about what the ultimate reasons were for china taking that action? >> i would pass that to my friend, gary gensler. it's right over his home plate for him. i would say, it's important that we have open capital accounts
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and open capital markets, and global rules we all abide by. i don't know how to address that one, because it's really for the sec. >> lastly, i have one minute left, do you think that may be swift action on digital currency for the fed, would that have a calming effect on the variety and the number of cryptocurrencies and stable coins that we see coming out? wouldn't that be a more viable alternative than having all of these hundreds, perhaps 1000 different of cryptocurrencies and coins we see coming out. wouldn't that me -- with that be a more reliable alternative then these thousands of front
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cryptocurrencies -- different cryptocurrencies emerging? chair powell: i think that is the case and that is one of the arguments being offered in favor of a digital currency. you would not need cryptocurrencies if you had a digital is one of the stronger >> manager, i >> the gentleman from ohio -- digital currency is one of the stronger arguments. >> i yield back. >> the gentleman from ohio. -- >> right in your wheelhouse. they are all virus related. early retirement, fear of covid and early expanded unemployment
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benefits. using those factors as responsible for diminished employment, would you agree the diminished rate posture is not a driving factor of getting people back into the workforce? chair powell: let me try to answer that this way. i would agree with you that it would be very important if we were to see a significant increase, as we expect we will see, in labors just showing up in the form of better matching in the labor market there are all of these open jobs and many unemployed but they don't seem to be matching. as those factors wayne, we should see more of that and that is probably first order importance at this time. >> the rate of interest i think
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is a because the commitment is to keep rates at zero until we get back to full plan but we know it is inflating asset pushing people further out on the risk. -- risk curve. i would argue it is creating risk in a variety of markets and i would urge consider. -- urge you to consider that. the common thread is that you will maintain rates for some time. we are looking at four consecutive months, including the previous month at over 5%. how long is quote some time what factors are you look that will tell you if this is transitory or something more systemic? chair powell: first on maximum employment, even after this expected wave of some by, is
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likely will -- we will still be short of maximum limit and at that time it would be appropriate. we think it will take some time even after. getting to your inflation question. >> how long is sometime? chair powell: the answer is it depends you are really asking about that part of the guidance and how we think about right now inflation is not moderately above 2%, it is well above 2%. it is nothing like moderate so the question will be, if this is for the committee, where does this leave us in six months or so as inflation does move down. and it will depend on the path of the economy.
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it may be we will look back at the moment not having been but we are not going to address that right now. >> i want to switch to stable coins and where esther mchenry left off -- mr. mchenry left off. there has been scrutiny regarding the assets backing the coin. present rosengren said heather does great a child that we need to take seriously. that people run from these instruments very quickly do you share these concerns and is that the sort of thing you will be looked providing guide on -- guidance on? chair powell: yes. most of the time these papers are investment grade and all good but during the acute phase
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of the crisis, the market disappears and that is when people will want their money. it is simple. these are economic activities very similar to bank deposits and money market funds and they need to be regulated. that's just how i see it. >> thank you. the gentle from a new -- from new jersey is now recognized for five in its session five minutes -- is recognized for five minutes. >> the salt deduction jammed through congress raised taxes for a majority of families in my district. these are teachers, first responders, all groups who are struggling in the pandemic. when you work with this committee earlier, the treasury
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secretary said the salt cap lead to disparate treatment and she would work with me to ensure the inequities would be remedied. is increasing disposable income households a crucial tool to stimulate the economy and ensure our unities get the economic activity necessary to help businesses come back from the pandemic, and you think salt is part of that solution? chair powell: we have important jobs and powerful tools but one of them is not fiscal policy. we don't play a role and want to leave that with you. >> i will turn to inflation. lots of questions today about that. given the movement we are seeing, should we be concerned happens to long-term interest rates?
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and what will happen? chair powell: i would not want to make a forecast. it is very hard to forecast long-term rates. if anyone had been able to forecast we could borrow the amounts we wanted to borrow and the treasury would be at 1.4%, i mean no one would have forecast that so it is really hard to say. there is tremendous demand for u.s. treasuries around the world. we are the safe asset, the reserve currency. our role is the maximum employment and price stability, not fiscal policy. >> the fed is by far the largest buyer. you don't think long-term rates will go up? chair powell: they may or may not. markets work through expectation.
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if markets see what we are going to do, presumably to some extent what we do should already be baked in. it is very hard to protect market reactions to these things. . one reason we are being very transparent is markets willing operate the timing and form of the taper we are ultimately going to undertake. >> chairman, you said that one of the causes of inflation consumers are experiencing is from supply bottlenecks. some of these are being attributed to supply's because america's infrastructure is unable to take on the increased demand. few believe these would be alleviated in part to a robust investment in infrastructure and that long-term and structure products would help in keeping inflation under control? chair powell: i would not want to be seen as supporting any
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particular bill or form of spending. i do think it is clear that investments in good infrastructure can add to economic attention, provided the money is well spent. again, it's not appropriate for me to get involved in these discussions. >> i understand. i will espouse one bipartisan infrastructure package where a bipartisan group in the house is working with senate to get the structure into law and our economy back on track and set us up for long-term success. i believe that will help with some of the challenges we are facing in making these investments. it's crucial to make sure america remains competitive on the global stage. last question china spent $3.7
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trillion in infrastructure outside of the united states last year. are you concerned at all about china's activity on this front and the spending they are doing? chair powell: issues of international economic relations are really what the treasury department -- with the treasury department and state department, not with us. >> i will yield back chairman. thank you, chairman powell. chair powell: thank you. >> thank you forgot to add housing. >> you are right. >> the gentleman from tennessee is now recognized for five minutes. >> thank you chairwoman waters and ranking member mchenry and thank you chairman powell for being here today and for your leadership reppo pandemic and now during our economic recovery.
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in november, the fed took steps to provide temporary relief for certain community banking organizations that experienced an unexpected and sharp decrease in assets do -- increase in assets do to their participation in federal programs. that regulatory relief is in effect until december 31 of this year and since that deadline was put into place, the biden administration along with house democrats passed a $2 trillion bill that will have an impact that extends past the end of the year. you believe that the end of your deadline is sufficient and would you be open to extending the regular tory flexibility past that date? -- regulatory flex ability past that date? chair powell: -- flexibility past that date? chair powell: i will have to get back to you. i don't have an informed view of
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whether they would be extended. >> building off of that, i hear constantly with community banks back here that regulatory compliance continues to be one of their top expenses. i think this brings up the broader question of if we should be looking into permanently raising the threshold for increased regulatory and reporting standard for community banking organizations. what are your thoughts on that? chair powell: i would have to look at that. i will say that we are very well aware of the pressures that are added to community banks because of fixed regulatory cost. we see banks under pressure and we have a whole subcommittee here led by bowen, a former
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banker, that is designed to stop that sort of thing from happening but it is something we worked on all the time. >> i would encourage you to do that. what i hear repeatedly and is the former director of bank here in mike, it appears the dramatic increase in assets resulting from fiscal stimulus and other measures may not be as transitory as we would have first expected and yet has increased the balance sheets of these banks dramatically so i hope you will take a look at that. in june, the employment rate was a far cry from the rate pre-pandemic. labor force participation has not moved up from the low rates that have prevailed much of last year. in the policy report, you write that enhance and employment benefits have allowed workers to reduce the intensity of their
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job search. do you believe that the most recent stimulus in the american rescue act is the reason for high unemployment rates and has it in fact slow down our economic recovery? chair powell: there are a bunch of factors. mr. gonzales or somebody went through them and it is very hard to untangle them. it may be that unemployment allows people to look a little bit longer and find a better job and in the long run it's better for the economy. we will find out because the enhanced unappointed insurance will be gone in 60 days and in many states is gone already. it's too early to say, by the way. we have been able to see a difference in states that have unlimited that. -- eliminated that. i think it is a number of
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factors and it will be hard to get a clear answer. >> how could $3.5 trillion posed by senator sanders further stifle our economic recovery? chair powell: that seems to be a question for you. i don't comment on fiscal policy and i will leave that one with. >> switching gears a little, i want to talk about the surcharge. our banks remain strong and stable due to high asset quality and robust asset and the position. i believe that the g6 surcharge has worked as was intended and if they do not maintain these under charges, it could undermine our economy i welcome your response. . i yelled back -- undermine our
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economy. i welcome your response. i yield back. >> miss dean is now recognized. >> thank you, madam chair it is always good to do with you and learn from what you are doing in your role i to benefit from your steady leadership and stewardship over your tenure but maybe never so important is over the last 18 months. i also thank you for your recognition that this recovery has not been even. i appreciate you recognize it has not been even across all sectors. i wanted to continue the conversation around inflation and i say that as somebody who wants to be able to translate this to mike scituate. -- my constituents. i appreciate your testimony around inflation but if we talk
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about the supply chain and vulnerabilities that come in, the supply chain drives what is called transitory inflation. you cite in your own testimony the car industry. the biggest example may be the price of used karst -- used cars up 10% in april alone and a number of factors. a worldwide shortage of semi conductors slowing down. the rate of new car manufacturing driving dealers to have fewer cars and buyers moving towards preowned. all of these things are inflationary. what are your thoughts and how can i explain it to my constituents, this level of inflation in smaller groups like goods and services. what should we be watching and
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in plain english, what is the fed doing in this transitory or temporary inflation? chair powell: we always have this issue and central banks generally have the issue of looking at price increases and asking whether they are really threatening. by inflation, we mean it year after year after year prices go up. a one-time price increase but you don't react to it with monetary policy because the way monetary policy works is by slowing down the economy and therefore reducing inflationary pressures so you would not react to something that is likely to go away. so we have to look at the situation where we have a number of categories where inflation is moving up higher than expected and little more persistent than we expected but we look at them and we look at the story and the story you mentioned around used cars and new cars, it is all the
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same story. if there is a shortage of semi conductors, there is also high demand. it is just a perfect storm of high demand and low supply and it should pass. unless we think there will be a multi-year many year shortage of used cars in the united states, we should look at this as temporary and we very much think that it is and so do all of the forecasters. they think that the price increases for cars will top out and in all likelihood they will decline. >> i appreciate those recommendations and your actions. when you see these kinds of transitory inflation, is this a
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time for greater public or private investment? chair powell: what investment does is it raises the potential growth rate of the country and makes workers more productive and companies and countries more productive and that raises living standards. more is generally better, as long as it is money well invested. then it is worth looking seriously at at any time. >> i agree, and i would not call any of the things we are trying to do irresponsible spending. you went to the have demonstrated that our investment has been responsible spending, from the growth of our economy to the growth of working-class families. i want to pivot to credit rating agencies. last session, i have the opportunity to work with chairwoman waters and representative are to introduce
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a bill which requires the fed to treat all nationally recognized statistical rating agencies. i don't know if you would be able to speak to the expansion. chair powell: just briefly. at the very beginning of the crisis, we really had to get these facilities up and running and we worked with the big three. we then consistently expanded over and over the group of agencies that we work. i can talk about this more off-line, if you would like. >> the gentleman from this -- from wisconsin is now recognized for five. -- five minutes. >> thank you for being here today. as you know, i have been up of a rokita record on this issue
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because it is so important to families across wisconsin. the prospect of rising inflation, i brought this up last december and in those meetings you continue to suggest you are not ready to take actions ahead of inflation and yesterday we received more data suggesting prices are continuing to rise and inflation is not a concern. the white house social media team put out information and the biden administration can say what they want but families are seeing price increases before their eyes. i'm concerned with bidens spending plan and its impact on inflation. it was the largest jump we have seen over the financial crisis and in the past year, used cars have gone up, plane tickets have gone up, shoes are up.
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we have seen increases in coffee, cotton and propane and high material costs have added $36,000 to the price of a new home and i know you have responded to concerns by saying price increases are temporary and they will subside after code but even if it is partially a case that inflation expectations maybe changing and rising, -- in fact a poll suggested 87% of americans said they are concerned about nation. on monday, consumer said they are expecting inflation over the medium-term. can you respond to that consumers are expecting more inflation? chair powell: we think inflation expectations are very important. if businesses and households
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think inflation should be 2%, it probably will be because they will expect that and demand that in effect so we monitor inflation expectations, surveys of experts. as you know, you can get inflation compensation reading. -- readings. i would say they all went down as a group at the beginning of the pendant and all moved back up as a group just about to the level that i would say is within range of consistent with our 2% inflation goal over time. so we watch this very carefully and we would be very concerned if they were to move insistently and materially over 2%. >> i want to build into the distinction between transitory and percent.
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home prices have risen more than 14% over the past year. that is a significant increase and enough to put homeownership out of the reach of some american. meanwhile the fed is continuing to buy 40 million mortgage securities and here's my concern if inflation is in fact temporary, does the potential abatement affect the potential for a resettlement of housing prices and what is the likely impact on homeowners and what will be the impact on the fact -- the fed? chair powell: housing prices, as i'm sure you know, don't go into inflation. what is a factor is rent, and then in effect what economists do is they take the value of the home and added in a rental cost. housing prices went up overall
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15%. that is much higher than what would be expected. i don't know what housing prices will do in the future there is just a lot of demand. people want to live in the suburbs now, they want to move out of the cities. they have saved all of this money because they could not travel so there's a lot of demand. even if mortgage rates go up, we will be looking at a lot of demand and then the question will be how much supply can be brought to the market and that is really out of our control. looking at the district, it's a question of zoning and materials and all of those things. >> but if we zero into the material cost, we are seeing an increase in cost due to materialization. we will continue this discussion off-line as i amount time
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dashcam out of time -- as i am out of time. >> miss adams is now recognized for five minutes. >> thank you, adam chair and thank you, chairman powell. my colleagues want to touch on inflation. you have described current inflationary pressures as transitory and factors like inflation has been high in recent months and though it may be temporary, these bottlenecks have had real-world consequences. my local housing partnership had to pause the construction of affordable housing sites because of a funding gap caused by the spike in lumber prices and wall lumber prices can be tied to the previous administration's actions, i know many are still concerned about the rise and.
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i'm hoping you can help us put some of these concerns to bed. can you tell us why you believe current inflation trends are temporary as the economy reopens and what other factors are in play? >> i would be glad to try. as you know, all of these industries kind of shut down a little more than one year ago on the expectation that we were looking at a really bad, difficult time and sooner than expected, the economies reopened and demand for housing and many other things is really high. people saved money. more than 100% of income lost was replaced so really the consumer is in good shape. what is happening is there's a lot of demand but on the supply side, it is hard.
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they can't build enough houses, there's not enough lumber, mentioned lumber prices, they have gone up and are still twice as high as they were. they are way off of their house. we think that will be the pattern for at least some of these things, where they go very high and then come down as supply and demand come together as more supply comes online to meet the higher demand. we have a large but ultimately flexible economy is not one of these economies that is rigid and has a lot of structural rigidity. it will react much better than people expected and when that happens i would say prices will come back down but the level of inflation will return to more normal levels. >> even with the on employment rates still elevated, employers
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are offering higher wages and incentive. i would say that working hard is not enough if you don't make enough. what would you attribute to workers, and as the fed do you view conditions as favorable? chair powell: we are seeing this particularly in service industries where there are still lots and lots of job openings. there clearly is a high level of demand for people to come into these jobs and people are taking a little bit of time to look and for better jobs.
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these are people who want to work but they maybe taking a little extra time to look for a job that pays better or they like better. their preferences for working from home might've changed. who knows, but in any case, we are seeing a difficulty in matching jobs and and there really is just not a precedent. there is no last time this happened. so we are kind of finding out as we go but i really do think come back in six months, there will be a whole lot of these people to work. wages will have moved up a little bit for people at the low end and that is not a bad thing. >> thank you for joining us today. i yelled. -- i yield back. >> the gentleman from south carolina is now recognized for five minutes. >> thank you for being with us
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today. we have all seen the inflation numbers, some may say it is temporary but this was bound to happen coming out of the pen. any economic observer realizes that usually there is not a singular issue causing our troubles but rather several converging factors. what is most frustrating to me is despite the real inflation we are experiencing, temporary or not, and that has yet to be determined, and what seems you are still firmly in the transitory nation can't, the minutes show there is increasing disagreement in the board of governors on how temporary it may be and what is most frustrating to me about this episode is after all of the stimulus congress has since march of last year and now even with greatest levels of inflation we've seen since the financial crisis, this congress is seriously considering
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spending several trillion dollars more. i know you will not speak to the merits or lack thereof of any specific piece of legislation and i'm not asking to, but as the chair of the federal reserve were one of your statutory mandates isn't nation control, could you provide us an expectation of the type of inflation we should be prepared for congress were to spend another 3 trillion in the next few months and let's just say that only one trillion of that be paid for with an assortment of tax increases? chair powell: no. that's what the congressional budget office will be able to do and make that forecast aired that's not something i can do on the spot. i had a feeling that would be the answer but the answer is obvious. i levels of inflation will only increase and stick around longer. we would not have transitory inflation report that amount of fiscal gas on the fire i also
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think the labor shortage is a big piece of this puzzle that several of my colleagues have already alluded to. dozens of businesses in my district cannot get people to return to work and there are critical businesses with the same problem. in south carolina, we are returning to work at a drastically higher rate than the rest of the country. unemployment claims are down from the high last year. a recent survey show that 1.8 million have turned down work because of the overly generous unemployment benefits and that is a large chunk of that labor gap. in this problem be avoided if congress simply removed disincentives to return to work that in many states are in place through september? chair powell: well, that has already happened. those will be expiring by the end of september.
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all of those benefits are gone and in many states they are already as you know south carolina. -- in south carolina. whatever is happening now it won't last much longer. >> south carolina depends on other states and when they lose that it is creating a problem for my sake. i worry we have created a disincentives to return to work that is not good. -- and that is not good. >> if the fed moved to increase interest rates, one result would be the debt service cost. is that a factor you would take into consideration when deciding to change the benchmark rate? chair powell: absolutely not. >> hundreds of billions of dollars in increased costs is not a factor? chair powell: no.
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first of all, the market will anticipate that we are raising rates so it is probably baked into some significant step. second, we borrow across the curve so when we race short-term rates, it does not have a big effect on the government borrowing cost in any case, we are here to achieve axonal employment, price stability, supervise the banks and look after the payment system. we are not in a position of considering -- in the united states does not have to be in a position with that kind of consideration gets into monetary policy. >> the united states senate has to right now. i have westerns on cybersecurity. i will submit that for the record and thank you for your time on the. -- on that. >> thank you very much. the gentleman from massachusetts
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is now recognized for five minutes. >> thank you for being with us this afternoon. many of my colleagues have asked terrific questions about inflation in the short-term and the effects on our economy and on getting back to work. i wanted to zoom out a little bit and ask about more long-term effects. one of the trends over the last 25 years has been increasing returns to capital relative to the returns to labor and there are a lot of good theories about why that is happening, from undermining workers organizing power to increase automation and technology but it is clear that it would require a discontinuous event to erase that trend and the pandemic seems like it. we're seeing businesses struggle to get people back to work, better benefits both unstated
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and nonquantitative for employment. do you think the covid-19 pandemic would be a discontinuous event that could change the balance from return to labor or return to capital, whether it can give a second jolt to bargaining power in the long-term? chair powell: i don't know. there are so many things that are possible. there will be things that cut in different directions. a lot of what we've seen are just increasing returns to education and people with relatively low skills in education having stagnant incomes and wages and people at the high-end with lots of education receiving very high levels of compensation. a lot of that is just productivity is amplified by technology, the ability to use
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it and by globalization. there are a lot of factors that go into that. the pandemic will do a number of things it is hard to assess which way. it's a good conversation to have. >> i hear your point about increasing technology and education. certainly that has been evident in massachusetts, but there is also a huge portion of the workforce, primarily service economy workers, whose jobs are not automated and cannot be automated and even they have had downward pressure on their wages. now we are starting to see an uptick of what we can command in the labor market. >> i know the research you are
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referring to. it is very important research that shows exactly what you suggest. if you saw people at the lower end getting paid more, i mean it would be hard for anybody to be against that, right? what we are seeing is sort of people going into jobs in the service sectors tend to be relatively low paid. that's where we are seeing pay increases. it is hard to say that is a bad thing in and of itself. you want to see people getting paid well. everyone was celebrating when wages were going up for people in the bottom quartile. i don't know anybody who did not sell that -- celebrate that. >> let's put forward as a premise that we do see some of that wage inflation the service
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economy -- for the service economy. how concerned should we need that wage inflation will eat up that purchasing power and actually be in negative -- be a negative? chair powell: it is hard to say. service companies, a lot of them do operate on their emergent and pass those costs along over time so these are hard questions to answer in the abstract part of what is happening is there will be more automation in these jobs and we are seeing that. we will find out how much those jobs can be done with automation because we have been hearing this for a year and have, businesses are really looking forward to that now. over time, that can make the people who remain in those jobs more ducted and wages will go up as a result. >> i will yield back my time as i believe i am at the end.
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>> thank you very much. the gentleman from oklahoma is now recognized for five minutes. >> thank you, chairwoman. chairman powell, it's been my observation that we are all the products of our experiences and the things that happened in our younger lives can scar us forever. my grandparents were men and women in the dustbowl. scar them for life. my grandparents were afraid the great depression was coming back. my parents were young men and women in the 1950's with the horrific drought in the southwest. my father was convinced this rain was the last. i was a farmer when we went through what i would describe as a super inflation spike coming out of the carter years and when your predecessor decided to
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strangle inflation out of the system it was hard on me and a lot of people across this great country. so as i see this 5.4% year over year number, i am a nervous -- i am nervous about this. when i borrowed at 21%, that made an impression on me. my question is how much longer can we sustain numbers like this before you become nervous? chair powell: sorry. well, as i've said before, we do expect that we will be able to see whether the narrative we are feeling turns out to be right. it wont take forever for us to see the. if we do see that inflation is
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moving up or on a path to be well above our goals for the risk of sending us of on high inflation then we will use our tools to guide inflation back down, so in the end, it will be transitory and people need to have faith in the central bank that we will do the. -- do that. but it would honestly be a mistake to do it at a time when all forecasters believe these things will come down of their own accord as the economy reopened. it would be a mistake to act prematurely. we really have to weigh the risks of the two things and at a certain point they may flip right now the risks to me are clear. >> i understand. like the generation before, i will sleep with one eye open until these numbers come down and if they do not, i realize
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like my predecessors you will have to take the necessary action. along those lines, you made clear the federal reserve expects labor force per dissipation to gradually improve. the monetary policy report also highlights maximum employment could look much different than it was prior to covid-19. could you discuss what you see is long-lasting effects on the labor market and how the fomc would approach the question of what maximum employment should be moving forward? >> -- chair powell: patients will characterize our approach on that but what we saw at the end of the last expansion was people staying in the labor market more than what had been redacted by the numbers labor force participation cap moving up to numbers people do not think we would see and sustained there for a couple of years.
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what we have seen since the pandemic is a wave of retirement. we won't really know the implications of that for some years but it could be that was a catch-up for people who stayed in the labor market. the point is we can't really know what labor force participation is going to be and what the trend will be. it will be a real feature of one of our new three frameworks. if we don't see upward pressure on inflation and wages we are not going to the labor market is right unemployment low and legion is but if we do, it will tell us that maybe it is and we have to see where those numbers are. there is a degree of humility
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that forecasters have. we have much to be humble about. this is another area where that is appropriate. >> thank you, chairwoman. i yelled back -- i yield back. >> thank you chairwoman. thank you, chair powell, for being with us today. throughout this hearing, we've seen that bottlenecks and pandemic factors have been one of the primary things that led to price increases whether it's the land used vehicles, prompting a rush on used vehicles, the price of lumber, shipping logistics etc..
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we know that these increases were not caused by changes in in tryst rates they were caused by supply and test supply chain implications. you have set up these increases are transitory, correct? chair powell: we have said we think they will be. we do believe that is the case. >> and its drivers of inflation car supply chain issues and areas of underinvestment, do you think these issues are best resolved through investment making that supply chain more resilient or higher interest rates? >> if we see things that are temporary or transitory and should move through or go away, then it would be inappropriate for us to tighten policy, the point of which to slow down the
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recovery. it is a difficult adjustment to make. >> the bls reported that the first months of 2021 where the best quarter of wage growth since 2001. my concern is that a misplaced diagnosis playing out with inflation could cause the federal reserve to prematurely raise rates and constrain wage and employment gains that have been beneficial for millions of americans. this means that if we do take that step back, millions of americans will be left with limited opportunities to be employed at an adequate and livable wage. the fomc is projecting multiple interest rate increases for the end of 2020 read and before achieving the pre-pandemic unemployment rate. at the june meeting, the fomc
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member projections of the longer run on employment rate was about 4%, correct? chair powell: that is right. chair powell: before the pandemic, the on employment rate reached 3.5% without triggering inflation, correct? >> that's right. and -- >> before the, the unappointed rate -- unemployment rate reached 3.5 percent without triggering inflation, correct? >> that's right. >> and that there is plenty of room to build on the impressive gains achieved so far. if there is room to expand in the months before covid, that suggests that with time, the economy can return to a trend of
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gdp and employment before the pandemic -- that it was experiencing before the pandemic. do you believe this to be the case? do you think we will be able to reach lower unemployment and higher labor force participation levels than pre-pandemic once? chair powell: i have every reason to think and do think we will get to 3.5% unemployment. i am quite sure we can get to high levels of participation again. >> thank you. and to disaggregate this line between monetary and fiscal policy, we saw the world bank recently summarized estimates from market forecasters that the united states may be the only country that will leave the pandemic with higher gdp than
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pre-pandemic estimations had estimated. that is that gdp is higher as a result of after code. would you say that fiscal policy and preventions like the american rescue plan played a role in that outcome? chair powell: oh yes. the forecast of many is that by the middle of next year, we will be above the prior growth trend which is an incredible achieved and i attribute it to the cares act and fiscal policy. >> thank you very much. >> the gentlelady's time has expired. the gentleman from texas is now recognized for five minutes.
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>> i am not hearing mr. sessions. >> is that better? >> yes. >> thank you for joining us. i wanted to have you take the majority of my time to talk to us about your 12 regional banks and what they are seeing across the country for recovery. as you see it and banks reporting of their successes and the things that they see is perhaps things that are inhibiting or causing you to think about your plan around the country.
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chair powell: you would like me to talk about that? >> yes, sir. chair powell: i would be glad to. this is one of the great features of our system is we have 12 reserve banks around the country. they are in every community in the country and come back and extract a lot of information. the story they are telling is like what we have been talking about today. you have a very fast growth and a lot of money to spend on the part of people. people are quitting their jobs at incredibly high rates.
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typically that happens when labor markets are tight. typically that happens when labor markets are tight. chair powell: to some extent, in wages, you will see that as well. all of the things your talk, it is hard to summarize it but you do get a nuanced picture around different areas of the country, different sectors of the economy which i think is a tremendous benefit to our policymaking process and to the public. i hope that is helpful. >> i represent the first city in texas to get back to the
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employment rate pre-covid and it was due to a series of things, but mostly because people did not have the opportunity to have an underpinning of money coming in. they had to go to work. we are a big government town where people go out and work and i want to join my colleagues and saying first of all, thank you for taking the time to be before the committee. but in this process, i hope that there is healthy debate that you not only encourage within your system that you also recognize there are a good number of republicans who believe the government propping up the system is inhibiting actually paying jobs, gdp as opposed to consumer price index for his and we think the short and long-term
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answer would be people getting jobs, schools reopening success of not only the marketplace but the stability of the mayor. i appreciate you taking time today. i would be interested over the next few months to hear your evaluation of what is working and what is not working if you are able to spot that in markets and give feedback states and governors and certainly this committee on the facts and factors that seems to be successful. i don't have any problem with that all i can buy that but getting to necessarily us because -- with all that.
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i can buy that. but getting to necessity, because of jobs. i yelled back my time. >> the gentleman from new york is now recognized for five minutes. >> thank you, manager. -- madam chair. i have a few sins for you. in this op-ed, they point out that low interest rates deepen inequality. do you agree with that assessment? chair powell: no, i don't agree with that assessment. the final line with interest rates is low-interest rates supported strong -- support a strong labor market. he saw this during the course of the last strong stanchion.
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all of the people that we talked to, we talked to many, many people out in the country who either live in or represent low income communities were both. -- for both. -- or both. they never say that we should increase interest rates. what we do here is they like our policies that focus on employment. that goes in the direction of having supportive monetary policy. that's what i would say. wealth inequality is something that goes up over the course of a business expansion. because people who own homes and businesses and things like that, they are going to benefit in their wealth. does anybody seriously argue that we should try to stop that from happening by raising rates at the cost of feeding that are
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putting people at the bottom end of the income spectrum back to work? of course we would not do that. i think we're doing the right thing and ultimately giving people a shot to get a good job and get a good a good wage and accumulate that. >> companies are taking out finance investments. routing to finance markets, what is your response to that? chair. powell: i think businesses make rational decisions generally about what they should invest in. what that has to do with monetary policy is not clear to me. i see an economy that creates three and half percent unemployment. it wage gains for the -- wage gains for the lowest paid people over the last few years, all of that in the context of
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low-interest rates that accommodate monetary policy. >> when does the fed have an obligation to promote maximum employment -- what are your thoughts on the relationship between monetary policy, what do you take [indiscernible] chair. powell: we don't take inequality as a mandate. we have these outcomes in the economy, which frankly have gotten worse. we see that as weighing on the potential for the economy. i think everybody does. if you do not have a chance to take part in contribute into and benefiting from the economy, the economy is not doing what it should do. we can push the job market to a place where it is sickness -- where it is that jobs are widely
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available. we can't get a lead on that. really, it is fiscal policy and education, things like that, van monetary policy. i think it is appropriate for us to use our tools as we can. >> my final question before my time expires is about the housing market. in new york city, we have more than half of our revenues from real estate. real estate sales have implications for tenants, implications for property owners . and implications for a financial system that might have interest in those properties. -- ensuring up properties?
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chair. powell: what we do is supervise banks through lending, we make sure they have good risk management practices. and conduct themselves professionally with appropriate care. >> thank you, very much. the gentleman's time has expired. the gentleman from missouri is not recognized for five minutes. -- is now recognized for five minutes. >> thank you, madam chair. chair powell, good to see you again. you have been asked questions on a wide range of topics, we get to the end of the day and it seems like everything has been asked. i have a whole bunch of topics here. let me go back and clarify a few
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things i have on my end. these things affect small businesses as well. one of them has been the unemployment benefit. one point 8 million people turned down jobs due to unemployment benefits. 40% can make more from staying home then they can by going to work. you have said long ago that you -- this will be a volatility you need to be factoring into your equations. it would you agree with that? -- what you agree with that? chair. powell: the thing is, enhanced unemployment benefits are lapsing now, in many states already lapsing and lapsing at the federal level by september. in macroeconomic context, that
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is a short period of time. i think unemployment insurance has been interacting with other things like the lack of child care, schools being closed in a lot of places. i think you will see that is no longer a factor. it may take a while -- >> i would agree with that, but i would hope you would also agree that it is a factor. now, in your projections when you see -- and in fact i have an article here from the wall street journal just a couple of weeks ago that indicates americans unemployment rates going down in states coming off benefits. it seems to me that would be something you would be taking into consideration. that is my point. it is staggering when you start looking at the concerns they have.
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i have another issue i want to talk to you quickly on, i saw an article today with regards to the biden administration backing a mutual fund proposal to issue an unprecedented $650 billion to growing rights. would you like to comment on that? did you see the article? chair. powell: i am familiar with the issue. it is very much an issue for the treasury department. and maybe for you. but it is not an issue for the fed. we don't have any role in that at all. >> the article goes on and it talks about affecting the reserve currency status of the united states. i would think that would be a pretty important take on that for you, would it not? chair. powell: again, the fdr issue is to do with plotting the
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imf. it would be hard to say that single action would be the thing that threatens our status as the reserve currency. the fed does not own -- the reserve currency issue, that is an issue we share with others as well. >> quickly, i know the chinese are trying to economically compete with us. would you say they are trying to weaponize their economy against us and take us over? chair. powell: i would say -- i would go so far as to say we certainly are in a strategic economic competition with china. but these questions about competition with other countries are really for the government, the administration, not for the fed. >> with all due respect, sir, this hearing is about monetary policy, it would seem to me that
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things that affected were challenges to our economy would be something we would be affected by. it would seem that the chinese, to empower and help their economy against our economy, would be something of interest to you. chair. powell: those are issues that are absolutely in the province of the treasury department. you have given us independence and all of that. we take on issues that are -- if we took on issues that are not assigned to us, i would have a hard time explaining why we should be independent. >> i appreciate your conversation even if we might disagree on this. i think this is an important issue. thank you, very much. i yelled back. >> -- i yield back. >> the gentlewoman is also the chair of the subcommittee on
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diversity and inclusion. she is also -- he is now recognized for five minutes. -- she is now recognized for five minutes. >> thank you to my friend, director powell, thank you so much for being here and always being willing to reach out and discussed, whether it is monetary policy or looking at forecasting what the future looks like on the state of the economy. first, i know you do not weigh in directly but i think it is worth noting, in looking at the vacant seats, there is a vacant governor's seat that has not been appointed yet. i know it is appointed by the president, but just fyi to you, i would like to see somebody nominated with your diversity. we have had long and ongoing conversations about diversity. today, i want to ask the
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question, we have heard a lot because of the pandemic. as you stated in your monetary report, which i have had an opportunity, thank you, we have heard a lot about lumber, etc. how can you -- i serve on the housing community, purchasing homes continue to have an upward trajectory, especially in cities in the midwest. despite the strong housing market, the federal reserve has continued to purchase mortgage-backed securities by $40 billion per month. can you explain the federal reserve's thought process for the need for these purchases? and if they will have any affect on the cost of housing. chair. powell: we buy treasuries and mortgage-backed securities. we buy them for the same reason. they are not intended to provide support directly to any industry.
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including the housing industry. that said, low interest rates do keep longer-term interest rates. they do support low mortgage rates which does directly support the housing industry. it is not that we are looking at the housing market, it is more that we want to support overall demand. we want to support demand because we are still a long way from maximum wind. we think it is approved -- from maximum employment. we think it is important, even as employment rates come back and later in the year, we think it will take some time for us to get all the way back to the place we were in 2020. >> let me quickly go to my second question. in the for a few months of 2021, the price of lumber, we heard this earlier -- skyrocketed in
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may. but, in the last few months, suppliers come back online, prices are now negative for the year. is this the type of transitory inflation that the fed anticipated? how do you differentiate this from rising prices due to supplier constraints and the potential long-term inflation? chair. powell: broadly, yes. that is the kind of thing we would like to see more of. we would like to see a bunch more examples. it is the same story, a situation where there is a shortage, a lot of demand area prices go up. in the case of lumber, there is a lot of buying. almost panic buying. we may be seeing some of that with used cars right now. that is one of the things we
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expect, that our flexible economy will incorporate supply and demand. you will see inflation go down and prices themselves move down. >> that is a great answer, that is another reason why will we talk about infrastructure we should be talking about housing. my last is basically a statement. in your report, you have an area that talks about the uneven recovery of laborforce participation. you might want to take a look at it because it makes a true statement that factors are still contributing to the disparity of certain populations. whether it is age, poverty or race area black americans are not listed. let me make it very clear -- when we talk about unemployment rates, when you say it is great for america, it is double in the negative for black folks that
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are struggling. you mention hispanics, but there is no mention of black americans. i would like somebody to take a look at that because we still are dealing with very high unemployment. >> thank you very much. the gentlelady's time has expired. the gentleman from michigan is now recognized. >> thank you, madame chairwoman. there has been a lot of discussion about lumber from my colleague from ohio who just discuss that. how that may or may not indicate transitory inflation. one of the things i do, we have a real estate developing firm as a family. also a sand and gravel operation. so, i am intimately involved in construction. the lumber i had to buy at the
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beginning of this year which is currently building the home that is hopefully going to be occupied -- it was going to be at the beginning of august, now it looks more like the middle of september because supply constraints, labor constraints, demand, all of the things that are going on. i am not going to be able to lower that price of that condominium because of current lumber prices. that is why i think a lot of my colleagues are not really understanding the effects of what the price increases mean in the longer run. at the end of the day, i wish i could go back and rewrite that contract but when it is already concrete in the ground, it is going up and there is a roof on it, i can't do that. that is going to be a problem this administration will have to wrestle with. mr. powell, i know you have had
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a lot of discussion about inflation today. i am not going to dive too deep into it. but, i need to make sure i lent i name. as people are having the tally of who is bringing up inflation, i want to be one of those people. i think i find myself in agreement with larry summers on some of his certain about what is going on with inflation. but, whether it is larry summers or nf i.e. saying nearly half of their members, by the way i am also a member, they have had to do price increases affecting their customers. we have to keep an eye on inflation. what i am afraid of is we will not know it is too late until frankly, it is too late. that is the problem with having such a retrospective look back when you are diving into those numbers.
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you do not have to respond to that, you're welcome to if you would like to. something that has not been brought up today, you have been very committed in your support as well as other financial regulators of completing the conversion away from the benchmarks. it is essential i believed to provide more certainty for the top legacy contracts. you have expressed that in the past. you have also stated in previous testimony, funding rates will serve a significant part of the market. you said markets should transition away in a manner that is most appropriate given their specific circumstances. i have heard from many financial institutions across the country that this doesn't necessarily fit all of their needs for their
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institutions. the last few years, -- the last two days, we have heard rhetoric coming out about the parameters of the choices they have to determine which benchmark or placement deserve -- works best. while i agree there needs to be a standard, i am concerned that some of the most recent statements sound like the federal reserve and other u.s. financial leaders may be changing their previous views. suggesting that soper, a market dominated by the largest money center banks, should be imposed on every institution and borrower as a one size fits all solution. it is the federal -- is it the federal reserve's view that there should be a choice on those benchmarks, for institutions believe there is a more appropriate option given their business model? chair. powell: yes.
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i think we have been pretty clear on that. we think the use of sober -- the use of sober as a monetary participant, could you something else as they see fit. >> so, soper needs to be put into legislation or is there uncertainty on that? chair. powell: i do think we need legislation, as you say. i think it would be appropriate to have soper in the legislation. it is going to be the rate at least for capital markets and derivatives. >> i look forward to considering this conversation. >> thank you, very much. the gentleman from california, also the chair of the subcommittee on entrepreneurship
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and capital markets, is now recognized for five minutes. >> thank you. i want to agree with the ranking member, i want to thank josh gottheimer for bringing up the importance of the state and local tax deduction. our attention was focused on libor and its great importance. mr. chairman, i know you testified just how critically important it is that we have legislation in that area. i do want to correct any misconceptions about the legislation that i am proposing. it is not the purpose of the federal government to impose so for -- impose soper on any
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institution. i am old enough to remember that most adjustable were funds. whatever they want to use. the question is, do we want to have a voluntary system where the instrument does not specify what rate to use? involuntary means the creditor volunteers one rate and the debtor volunteers another rate, then my friends in the trial field will have a heyday. this is not to enforce anything on anybody if they draft an instrument that specifies what they want. if they have an instrument from which no one can determine what is the amount of interest to be paid, we need to provide that answer. we have to do it in a way that we are not indicating that this is the standard to be used in
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instruments going forward. it is not the federal rate, not the preferred rate, not the rate that small banks will choose to use of their instruments of the future. i want to thank the chairman for his testimony in the past on the importance of wire fraud. i am disappointed that you are not moving towards a system for wired fraud -- for wire fraud but i am pleased you are looking at other ways to make sure we do not have people who wire their money to an account thinking it is going to a person there buying a house from and instead it is going to a nigerian prince. i want to applaud the fed for consistently, year after year, contributing 50 billion or $100 billion to the treasury.
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i think you should focus on it because it is very important. as to fed currency -- a federal digital currency, chairman powell, isn't the intention that any such currency would have fully intimate -- what have fully implements to know your customer of currency standards? chair. powell: the answer to your question is going to wind up being yes. >> good. you have said that while crypto would not become a currency, crypto means hidden. that is the great advantage that cryptocurrencies will have over a federal digital currency. because, they are designed to be crypto. even from the u.s. government, especially the irs. the anarchist to super patriots
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half the time are telling us the government needs to enforce laws, and enforce our sanctions and achieve our national security goals. and they spend the other half of their time being delighted whenever anyone strikes a blow for liberty by evading our tax laws. looking at fiscal policy, you can't determine or project monetary policy without some gas as to what -- some guess as to what the policy will be. what do you use, what is your expectation on the level of the federal debt? chair. powell: it is not so much the level of the federal debt. what we are looking at is spending, deficit spending, things like that.
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the assumptions are in the middle-of-the-road. >> thank you, very much. the gentleman's time has expired. the gentleman from kentucky is now recognized for five minutes. >> good afternoon, chairman powell. thank you again for your leadership. inflation is the topic of the day, i want to talk about timing and communication of normalization with the backdrop of inflation. i understand it is transitory, supply chain bottlenecks can work themselves out. i also recognize the change and inflation targeting that you are working under. but, i do worry that inflation
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expectation is continuing to rise regardless of these supply chain issues that resolve themselves. and, you could have a self-fulfilling prophecy and inflation could get away from the fed. so, my question is, given the fact that it has committed to communicating any shifts and advance to ensure market stability, i worry that these movements in recent months have proven to be pretty rapid and significant. is there a risk of price pressures outpacing the fed's preferred timeline for communicating adjustments in balance sheet policy? chair. powell: there is nothing in the guidance around framework that would prevent us from doing the right thing at the right time. >> so you do not believe that inflation can move so quickly
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that the fed would be forced to make asset forces adjustments or and create -- or increase the rates without communications runway? chair. powell: that is a separate question. i am saying we can deal with whatever happens with inflation in the context of our framework and guidance. i do not expect the outcome you are talking about, which would be very surprising if something like that happened area and doesn't tend to work that way. -- if something like that happened. it doesn't tend to work that way. rep. barr: you probably saw the wall street journal article today, higher inflation is here to stay. what do these economists have wronged that the fed have right? why is the consensus, that this
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is transitory as opposed to a sticky inflation? why in your judgment are these economists wrong? and, speak to the issue about self-fulfilling inflation expectations and why that is not a concern. chair. powell: i don't have that survey in front of me but i think -- you can correct me here, but i think the median estimate for inflation for 2022 was less than two and a half percent. that would be much more consistent with our framework than with what our critics are saying. that would be in the range, or at the high-end of it, but within that range. we you may have in front of you, congressman, i don't have that. rep. barr: here is what we are
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hearing, i know you get this data, also anecdotal evidence, but i just spoke to the chairman of commerce in central kentucky at lunchtime today. the inflation concern is real. it is not just that lumber prices are up. it is not just that fixed income seniors are upset because the price of food is of and restaurant tours are acting to play more -- and restaurant tours are having to pay more. we are hearing, according to the and a 5, 40 7% of small businesses greatest average selling price, i hope this is transitory but i hope the fed is hearing the same thing we are hearing. chair. powell: as you know, we have a great network through the reserve banks. we are absolutely hearing that.
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your earlier question, that is absolutely the thing we monitor carefully. we do not see problems on that front. if expectations do move up in a way that is troubling, which is to say materially and for persistent funds, we would be concerned and we would react to that. >> i yield back. >> the gentleman from missouri, also the chair of the subcommittee of housing, community development, is now recognized for five minutes. >> thank you mr. chairman for being with us today. let me preface my question by saying that we have been working with your staff on the issue of cra. our chairwoman has made
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appropriately and necessarily, the major issue of our time, reparations. so, thank you for your per dissipation and support. -- for your participation and support. my one question, all of my family members are still in texas. a local tv station down in dallas did an investigation and it was very alarming. because they found that the lack of banking services in low income and minority communities in dallas county, it requires
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the banks draw an assessment to the credit needs of entire communities. a tv station, wfaa, found that 20% of branches -- of banks and dallas exclude southern dallas county. summersville, parker, and fort worth county, but only half of dallas county. the federal reserve identifies no evidence. as a cra, -- the cra requires assessment concerning entire counties, found that they do not
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arbitrarily exclude -- i am just rambling on. bellamy asked the question, and that is what more needs to be done to ensure that banks incorporate not only where banks have significant activity but also minority communities in the same geographical areas. i apologize for going on and on, but i want to get that question to you. chair. powell: thank you. you or your staff brought this article to the attention of our staff. i have had a chance to look at it.
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it is very troubling, and it shows we need real vigilance. making sure the banks honor their obligations to serve minority communities. within their operating areas. that one got our attention. we can't talk about individual institutions but we take this very seriously and appreciate you bringing it to our attention. rep. cleaver: i yield back, madam chair. >> they give very much. the gentleman from texas, mr. williams is now recognized for five minutes. we are certainly going to hear about what is happening in the automobile industry. rep. williams: thank you for that lead-in. chairman powell, i am sitting here in one of my car dealerships in texas, listening to how used car prices are
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driving inflation. which they do. with that in mind, i can say this is the best time to trade your car in. you will get more than you ever thought you would get. the idea that used cars are appreciating and something you never would've thought you would've said. but we are seeing it as we speak. that is the truth. i want to thank you for coming today, yesterday i had the pleasure of speaking with some main street american business leaders, of which i am one as you know. how they have been recovering from the covid-19 pandemic in the small business community. some of the issues that were brought up his these businesses were having trouble, inflation increasing, they are purchasing from large suppliers and paying more. the threat of tax increases.
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someone in my district reminded us that this isn't very complicated, small businesses operate on tight margins area any increase -- on tight margins. any increase in tax rates are affecting their operations. they have already begun investing, simply because the threat of higher capital gains taxes coming in 2022. i want to make sure the factors the federal reserve is tracking, which could be a drain on the economy, are aligned with what main street america's fears are. that we are hearing from business people all over the country, certainly in our state. as you look at the economic outlook in the country moving forward, can you talk about the factors that could be limiting growth the federal reserve is paying attention to? chair. powell: i would be glad to.
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i have to say, the first thing that comes to mind is difficulties in hiring. we hear that very widely. in all districts, small businesses are having a hard time hiring. and, it is again widespread. we think that will update -- will abate. there is a lot of optimism and demand. we are hearing positive things about that. i know people are very worried about inflation. we hear that loud and clear. it is really going through the economy, through every business. as we have discussed a lot here today, it does have the feeling of something that is associated
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with the reopening of the economy and should settle down after the economy is fully reopened and supply and demand recalibrate. people get into their new jobs and we are in a new normal. i hope soon. as of right now, it is something that is ever -- that is on every small business person's mind. rep. williams: i wanted to get your quick take on the speed that the private sector was able to get covid relief money to those in need. we are not seeing the success of the fda's shuttered venue program which was created back in december. moving forward, do you think we should be looking to get the private sector more involved as we deal with distributing government aid? chair. powell: that is a question for you. i will say, if i may, the real way the emergency lending programs work was they agitated or supported as a backstop
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private markets to work. having the private markets step in when so much better than having us make the loans. having those done, in that sense it really work. they do not have to make the loans because the market started working. rep. williams: thank you. really quick, can you elaborate on what the board beans when it says climate-related risks might be transferred or amplified and could you give me a quick intentional scenario or example? chair. powell: without having it in front of me, i think what the fsb would mean about that is the financial sector, financial institutions could amplify the risk. it would be along the lines of changes in the climate that have very that affects on a
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particular agricultural area. bank failures have a way of amplifying shocks rather than absorbing them. rep. williams: thank you, i yield my time back. just in closing, this is a great time to buy a car. [laughter] >> thank you very much. the gentleman from georgia, also the chair of the house agricultural committee, is now recognized for five minutes. >> i just want to say that my great colleague congressman williams is not only a great entrepreneur in the car business, he is also one of the great all-star third baseman for my atlanta braves in major league baseball. >> that's right. thank you for reminding us. rep. scott: all right, good man.
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chair powell. good to have you back. last month, you stated before the select committee on the coronavirus, you said a recent turn in commodity prices was evident that pressures from reopening the economy if stimulus fails. maintaining that the concerned inflation is temporary and would eventually move back to 2%. so, i want to ask you, while there is no doubt that soaring prices for commodities have
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fueled a sense of optimism for our agriculture producers, given the volatility around the price of commodities, our price pressures still the same today? chair. powell: i would say we continue to see prices come in. and exceed our expectations. that is not what we are hoping to see but the latest reading was above what forecasters thought it would be. it is still the same story. still the same parts of the economy that are producing this inflation. it is a narrow group of banks reducing these readings. we are anxiously everybody else to see that inflation passed through. rep. scott: thank you for that
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answer. i agree that a return to lower inflation rates would be advantageous to the economy. this drives up consumer prices over the long-term. unfortunately, wage increases would create real hardship for people on fixed incomes, retirees and many of the low income households. so, let me ask you this, considering how the incremental wage increases failed to keep pace with the rising cost of living, can you imagine commodity inflations and yearning at least until it
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returns to a 2% inflation rate? chair. powell: we don't have any ability to forecast commodity prices more than anybody else does. they do what they are going to do. our expectation is that over time, the reopening of the economy will be a process we go through. and, the balances -- the imbalances we are seeing will abate. it seems likely that it will happen. the amount by which inflation will move up and the timing of passing through our hard to predict. rep. scott: how much time do you have? we feel confident it will happen, what is your best estimate about when we will be
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back to normal? chair. powell: i think we will know, before we get fully back to normal i think we will know generally with the framework for understanding is. we would want to begin to see more things like what happened with lumber. more of these prices flat now. -- flatten out. that is what we would like to see. ultimately, this is half of our mandate. if we see inflation moving up in a way that is troubling, we will use our tools to get inflation back down to 2%. rep. scott: thank you very much, chairman. you are doing a great job. keep it up. >> thank you very much. the gentleman from arkansas, mr. hill, is now recognized.
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rep. hill: thank you, madam chair. we appreciate the chance to revisit these topics. i hope the fed is right and that the inflation is in fact transitory. a family in arkansas only has $48,000 in median income. persistent, rely -- persistent, reliant price increases from the grocery store, the big difference for them, some economists at the federal reserve who makes 170 $5,000 a year and gets to work from home, doesn't know the challenges of a working family so i hope the fed committee is right.
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the balance sheet of the fed has increased and we continue to purchase about a hundred foot -- about $120 billion in assets. that makes up about 29%, 63% in the u.s. treasury securities. does that sound about right? chair. powell: sounds about right. rep. hill: the recent july monetary policy outlined the housing sector that remains remarkably strong. i know you have testified some about housing, but you believe that is with the monetary policy is? chair. powell: yes. rep. hill: given that acceleration of home prices, and
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at vigorous expansion of mortgage lending, is it necessary to be buying the 120 billion assets? what is the logic in maintain that portion? chair. powell: we look at the whole things we are buying into. treasuries have roughly the same impact on the economy. inmate be a very moderately greater impact on housing. that is not what we are buying in the first place. as you know, we are in the process of looking at tapering those purchases. we have another one and a couple of weeks. if we continue to make progress toward our goal that we articulated last year, you will see it begin to reduce those purchases. rep. hill: governor waller made some comments, right now the
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housing markets are on fire. is that taken into consideration? chair. powell: i would say the timing and the composition of the taper are the main things, along with whether we are meeting our goal. those would be in the conversation for sure. rep. hill: something, and contradiction for me, i'll be deferential to you but this massive stimulus, we have seen huge spikes in the federal reserve that drains the liquidity back out. how does that make sense to your
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view? i think your description was good but how does that make sense to the market? chair. powell: you know we are there to keep the federal funds in target for a couple of big reasons. there has been downward pressure on short-term rates. rep. hill: doesn't that indicate there is not that much demand? that maybe we have way too much liquidity on the banks? chair. powell: you can say there is a shortage of safe short assets. so that is why that is happening. there is a shortage of t-bills. rep. hill: last, you can answer this offline, congressman hyde introduced the dollar act, i am
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interested if you're going to maintain the cutoff date for the slots for december 31. chair. powell: those swaps really work. they were a fundamental part of our program. we have extended them to december 31. i made the decision not to spend beyond that. i don't know that we wouldn't less conditions change. >> the gentle men from illinois, mr. foster, is recognized for five minutes. >> except my apologies for missing most of this hearing.
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i would also like to thank my colleague from arkansas for stealing the question i was intending to ask about the differential effects of buying mortgage-backed securities. i appreciate your answer. the questions i have, one of the good things the fed has been doing for the last several years , instead of just publishing, there was only one consumer. you can see in your numbers that the top 1%, the percent. the next 9% have another third. between 50% and 90%, we have pretty much the last word. the bottom half according to the
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numbers. under 2% of the wealth. this was related to how you model the economy. many of the policies thinking of implementing, many of the effects of real policies, they had different effects on the top versus the bottom. for example, things that affect stock market valuations. do you incorporate that in your modeling? when you look into the future? economic models that look at the different behavior in the united states. chair. powell: yes, where it is appropriate. a much higher propensity to consume at the lower income perspective and lower at the top. we do incorporate that.
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where it is appropriate, we do that. also in my own monetary policy, it matters as well. rep. foster: certainly, if you have some sort of write up on that, i would very much appreciate it because getting the coefficients their correct are important to understanding the policy decisions. do you have any general feelings on the apparent disconnect of the stock market with the feelings of ordinary families? there was a scream of pain from the general public and he had stock markets and record highs. what is your thinking on that? chair. powell: i never express an opinion on the level of the stock market perimeter what it
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is doing is pricing in future cash flow. it is thinking ahead. what happened last year was early on. at the beginning, there was a crash. after the cares act past and the things we did, markets recovered quickly. looking ahead to what became a strong recovery. the recovery did exceed expectations. but i can't comment on the actual level. rep. foster: are you satisfied with the response to the market or you need any new tools? what is the thinking in retrospect on that? chair. powell: the work is not done. we are in the middle of bringing that work to a conclusion of what went on, what are the right tools, how deep out into the
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tail do we need to ensure and all of those questions i think will come around. i don't think we are done with that project. this will become over the next 12 months, a lot of ideas and discussion. rep. foster: the imbalance of supply and demand may have been one of the cofactors there. they have been very important in preserving the dollars position. that was well done. anyway, thank you again, you are doing a heckuva job. i hope we all come out of this and continue in good shape. chair. powell: thank you. >> thank you, very much. ladies and showman, members, we
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have a hard stop we negotiated with mr. powell. he is going to have to leave now. so, we will not be able to call on anymore members at this time. those who are not able to raise their questions or make their statements will be first in line when he returns. i would like to think mr. powell for his testimony today. without objection, all members will have five legislative days to submit additional written questions which will be forwarded to the witnesses. i asked mr. powell to please respond as properly as you are able. without objection, all members will have five legislative days with which to submit extraneous materials to the record. with that, this hearing is adjourned. >> c-span is your unfiltered
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>> peter has published hundreds of nonfiction books in his career as founder of the new york-based public affairs book. he has now a memoir about his own life called an especially good view. the national book review rights osnos has not written a memoir so much as news from the front, a great any front. we asked him about his time in vietnam, the soviet union, and many other things. >> peter oz not -- osnos on c-span. listen wherever you get your podcasts. >> democratic u.s. senators and texas legislators talked with reporters about voting rights. several texas lawmakers are in washington dc after leaving their


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