[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                 OVERSIGHT OF THE TREASURY DEPARTMENT'S
                AND FEDERAL RESERVE'S PANDEMIC RESPONSE

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

                             HYBRID HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 1, 2021

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-62
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-301 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------  

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 1, 2021.............................................     1
Appendix:
    December 1, 2021.............................................    37

                               WITNESSES
                      Wednesday, December 1, 2021

Powell, Hon. Jerome H., Chair, Board of Governors of the Federal 
  Reserve System.................................................     6
Yellen, Hon. Janet L., Secretary, U.S. Department of the Treasury     5

                                APPENDIX

Prepared statements:
    Powell, Hon. Jerome H........................................    38
    Yellen, Hon. Janet L.........................................    42

              Additional Material Submitted for the Record

Budd, Hon. Ted:
    Letter to Hon. Viola Lyles, Mayor, City of Charlotte, NC, 
      dated November 19, 2021....................................    45
Powell, Hon. Jerome H.:
    Written responses to questions for the record from 
      Representative Hill........................................    48
    Written responses to questions for the record from 
      Representative Hollingsworth...............................    52
    Written responses to questions for the record from 
      Representative Steil.......................................    54
Yellen, Hon. Janet L.:
    Written responses to questions for the record from 
      Representative Budd........................................    66
    Written responses to questions for the record from 
      Representative Garcia......................................    57
    Written responses to questions for the record from 
      Representative Gonzalez....................................    56
    Written responses to questions for the record from 
      Representative Kustoff.....................................    68
    Written responses to questions for the record from 
      Representative Loudermilk..................................    65
    Written responses to questions for the record from 
      Representative Williams....................................    63

 
                       OVERSIGHT OF THE TREASURY
                        DEPARTMENT'S AND FEDERAL
                      RESERVE'S PANDEMIC RESPONSE

                              ----------                              


                      Wednesday, December 1, 2021

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:11 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Sherman, Scott, 
Green, Cleaver, Perlmutter, Himes, Foster, Beatty, Vargas, 
Gottheimer, Gonzalez of Texas, Lawson, San Nicolas, Axne, 
Casten, Pressley, Lynch, Adams, Tlaib, Dean, Ocasio-Cortez, 
Garcia of Illinois, Garcia of Texas, Williams of Georgia, 
Auchincloss; McHenry, Lucas, Posey, Luetkemeyer, Huizenga, 
Wagner, Barr, Williams of Texas, Hill, Emmer, Zeldin, 
Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth, 
Gonzalez of Ohio, Rose, Steil, Gooden, Timmons, Taylor, and 
Sessions.
    Chairwoman Waters. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    As a reminder, I ask all Members participating remotely to 
keep themselves muted when they are not being recognized by the 
Chair.
    We will conclude today's hearing at 12:15 p.m. Members who 
were unable to ask questions at our September 30th hearing with 
Secretary Yellen and Chair Powell will be given priority to ask 
their questions today, and we will return to our normal order 
of recognition once these Members have asked their questions.
    Today's hearing is entitled, ``Oversight of the Treasury 
Department's and Federal Reserve's Pandemic Response.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Welcome back, Secretary Yellen and Chair Powell. As this 
pandemic continues, the Biden Administration and congressional 
Democrats remain hard at work to provide protections and 
essential relief to individuals, families, and small businesses 
across the country. The emergence of the new Omicron variant 
shows us that this crisis is not over and we must remain 
vigilant to protect our country and our families from the 
devastation of COVID-19.
    Since Democrats have been in power, we have delivered for 
the American public. Democrats provided rental relief for 
struggling renters, provided 70,000 vouchers to address 
homelessness, provided support to State and local governments, 
and helped our nation's restaurants. Democrats helped 
businesses reopen and prioritized vaccine distribution, and 
because of this work, 74.5 percent of individuals 5 years of 
age and older have received at least one shot. In fact, this 
Thanksgiving was the first time since the pandemic began that 
many of us spent time in person with our friends and families.
    Under the Biden Administration's leadership, the economy 
has created 5.6 million jobs, more than any other 
Administration's first 9 months. And weekly jobless claims 
recently fell to 199,000, the lowest total in more than 50 
years.
    But our work does not stop at pandemic relief. We also 
enacted bipartisan infrastructure legislation, an achievement 
that has eluded Republican and Democratic Presidents alike for 
decades. Under the Biden Administration, we now have the 
funding in place and the programs to finally rebuild and refit 
our nation's bridges, roads, and railways, and bring broadband 
to millions. And soon, the Build Back Better Act will make 
long-overdue investments in the nation's affordable housing 
infrastructure, childcare, and education workforce. I hope that 
our Senate colleagues will quickly send this bill to the 
President's desk.
    While these investments will be critical, the Fed's 
unfinished objectives of full employment and price stability 
serve as a reminder that we must not leave anyone behind during 
this recovery. Chair Powell has identified supply chain 
bottlenecks and ongoing caregiving needs as two of the major 
barriers to continued economic recovery. Congressional 
Democrats have responded by passing bills that invest in 
childcare and help clear those bottlenecks.
    It is crucial that the Fed hold off on declaring a 
premature victory on this economic recovery until the 
communities that have been hit the hardest--people of color, 
renters who fell behind on their rent, and women who have done 
the bulk of the caregiving--have a chance to experience the 
recovery. If we are truly to build back better, we must ensure 
that people of color are represented in the Fed's leadership. 
We must make sure that people's caregiving needs are met so 
that they can pursue new opportunities in education, clean 
energy, and more. We must address the root causes of rising 
prices by investing in housing and supply chain resilience.
    Secretary Yellen, Chair Powell, I look forward to 
discussing your ongoing work to respond to the pandemic.
    I will now recognize the ranking member of the committee, 
the gentleman from North Carolina, Mr. McHenry, for 4 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman, and Chair Powell, 
congratulations on your renomination. I am glad to see that 
President Biden recognizes what I have said all along, that you 
have earned and deserve another term leading the Federal 
Reserve. Under your leadership, the Fed took decisive and 
unprecedented action to prevent the COVID-related economic 
challenges from becoming an economic or financial crisis for 
Americans, but there is more to work to be done.
    We need to unwind these firefighting measures and turn our 
focus to rebuilding the economy, which, thanks to pro-growth 
Republican policies, was the greatest in our lifetimes just 
prior to the pandemic. It is the Fed's job to look at and 
evaluate the macroeconomic picture. It is not their job to 
respond to each and every variant. But it is not just the 
pandemic that is posing a threat to our full recovery. It is 
Democrats' bad fiscal policy decisions that are driving 
inflation. Right before Thanksgiving, House Democrats passed 
another massive multi-trillion-dollar spending bill. Our 
economy is feeling the full force of that politically-motived 
decision.
    Look at the job market. In September, a job opening and 
labor turnover survey reported more than 10 million unfilled 
jobs remaining near a record high. Four-point-four million 
people quit their jobs, an all-time high. Labor shortages 
continue to hold back growth and weaken the backbone of our 
economy: small businesses. And instead of seeking bipartisan 
solutions to support working parents as we continue to manage 
COVID, Democrats opted for unworkable mandates.
    NFIB's small business survey for October showed the 
economic outlook deteriorating to its lowest level since 
November 2012. Our labor force participation rate has stagnated 
since June 2020. What do these things have in common? All of 
these issues have in common bad fiscal policy, not a question 
of monetary policy. Nearly half of small businesses report they 
had job openings unfilled, for which they unable to even get 
qualified applicants; in fact, 58 percent indicated they had 
few or no qualified applicants.
    Look at consumer prices. From a year through October, the 
headline Consumer Price Index (CPI) rose to 6.2 percent, the 
largest annual increase in 30 years. Consumer sentiment for 
November dropped to its lowest level in a decade. In fact, 
American families just experienced the most expensive 
Thanksgiving on record.
    Now, Democrats want to blame increased prices on American 
businesses or some other force. It is their policies. It is 
their policies. It is coming from inside the House. It is 
coming from inside the Senate. It is coming from inside this 
Administration. They are driving up costs for the American 
people. In fact, in October, the San Francisco Fed released a 
report showing that Democrat policies are harming our recovery.
    So, what do House Democrats do? Well, they spend more 
money. That was the big vote just before Thanksgiving. More 
money. That is pouring jet fuel onto an inflationary trajectory 
we have in the economy. Speaking of fuel, though, just look at 
gas prices. This is the bad policies from this Administration. 
When you shut off American energy sources, it drives up the 
cost of petrochemicals in our economy. Outsourcing that to OPEC 
actually makes us more dependent on other foreign sources.
    So as important as it is for us to hear from both of you 
today--in fact, this is the final remnant of the CARES Act, the 
fact that you are mandated to come and appear before us on a 
quarterly basis about programs that have now been rescinded, 
but this is the final remnant of the CARES Act, which was, by 
the way, a bipartisan bill passed through the House and the 
Senate and signed by the President last year. But we look 
forward to hearing from you today about this broad economic 
question that we are all very concerned about. And as we 
discuss these policies and what we are doing to address them, I 
hope that we can talk about solutions, not just the problems.
    And with that, I yield back.
    Chairwoman Waters. Thank you, Mr. McHenry. I now recognize 
the gentleman from Texas, Mr. Green, for 1 minute.
    Mr. Green. Thank you, Madam Chairwoman. Madam Chairwoman, 
the Fed is the lender of last resort, and I compliment the Fed 
for what it is has done under its Section 13(3) authority to 
create nine emergency facilities, seven of which were supported 
by funds from the Treasury. But I would also like to note that 
today, currently, unemployment of African American workers is 
at 7.9 percent, and at 5.9 percent for Latino workers, higher 
than the national average of 4.6 percent, and 4 percent for 
Whites.
    Hence, today we must ask, in view of how unemployment rates 
still vary dramatically across races, what more can the Federal 
Reserve do as the lender of last resort to advance its mandate 
to foster economic conditions that achieve both maximum 
employment and stable prices, not just for some, but for all. 
What can regulators do not only to continue to bolster the 
economic recovery, but also the pandemic. We have to deal with 
it and reduce the insecurity as it relates to the wealth gap. I 
look forward to hearing the witnesses respond to this and other 
questions.
    Chairwoman Waters. I now recognize the gentleman from 
Minnesota, Mr. Emmer, for 1 minute.
    Mr. Emmer. Thank you, Madam Chairwoman. My constituents 
just experienced the most expensive Thanksgiving dinner in 
history. A 16-pound turkey is up 23 percent. Costco pumpkin pie 
is up 17 percent. A 2-pound bag of carrots is up nearly 50 
percent. Let's also not forget the outrageous prices at the 
pump making it too expensive for many Americans to drive home 
and celebrate Thanksgiving with their families in the first 
place. This inflation is not transitory, as our witnesses 
finally acknowledged yesterday, and it is not a high-class 
problem, despite what the Biden Administration will tell you. 
That is a lie propagated by those who have never had to do 
mental math at the grocery store to make sure the amount in 
their cart does not exceed the cash in their wallet.
    For Democrat leaders, paying 42 percent more at the pump 
probably isn't a problem, when you are riding a government-
funded high-speed rail in Silicon Valley. More than 90 percent 
of my constituents reported that rising prices were impacting 
their household budgets. Inflation is destroying Americans' 
ability to save for retirement, buy a home, or build wealth. 
This isn't a tax on the rich; it is an enormous burden on 
working Americans. We must stop this reckless spending before 
it financially cripples our nation.
    I yield back the balance of my time.
    Chairwoman Waters. I want to welcome our distinguished 
witnesses today, who need little introduction to members of the 
committee. First, I want to welcome the Honorable Janet Yellen, 
Secretary of the United States Department of the Treasury, who 
has served in that role since her confirmation in January of 
this year.
    Our second distinguished witness today is the Honorable 
Jerome Powell, Chair of the Board of Governors of the Federal 
Reserve System, who has served in that role since February of 
2018.
    You will each have 5 minutes to summarize your testimony. 
You should be able to see a timer that will indicate how much 
time you have left.
    And without objection, your written statements will be made 
a part of the record.
    Secretary Yellen, you are now recognized for 5 minutes to 
present your testimony.

  STATEMENT OF THE HONORABLE JANET L. YELLEN, SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Secretary Yellen. Thank you, Chairwoman Waters, Ranking 
Member McHenry, and members of the committee. It is a pleasure 
to testify today.
    November has been a very significant month for our economy, 
and Congress is a large part of the reason why. Our economy has 
needed updated roads, ports, and broadband networks for many 
years now, and I am very grateful that on the night of November 
5th, members of both parties came together to pass the largest 
infrastructure package in American history.
    November 5th, it turned out, was a particularly 
consequential day, because earlier that morning, we received a 
very favorable jobs report: 531,000 jobs added. It is never 
wise to make too much of one piece of economic data, but in 
this case, it was an addition to a mounting body of evidence 
that points to a clear conclusion: Our economic recovery is on 
track. We are averaging half-a-million new jobs per month since 
January. Gross domestic product (GDP) now exceeds its pre-
pandemic levels. Our unemployment rate is at its lowest level 
since the start of the pandemic, and our economy it on pace to 
reach full employment 2 years faster than the Congressional 
Budget Office (CBO) had estimated.
    Of course, the progress of our economic recovery can't be 
separated from our progress against the pandemic, and I know 
that we are following the news about the Omicron variant. As 
the President said, we are still waiting for more data, but 
what remains true is that our best protection against the virus 
is the vaccine. People should get vaccinated and boosted.
    At this point, I am confident that our recovery remains 
strong, and is even quite remarkable when put in context. We 
should not forget that last winter, there was a risk that our 
economy was going to slip into a prolonged recession. And there 
is an alternate reality where right now, millions more people 
cannot find a job or are losing the roofs over their heads. It 
is clear that what has separated us from that counterfactual 
are the bold relief measures Congress has enacted during the 
crisis: the CARES Act; the Consolidated Appropriations Act; and 
the American Rescue Plan. And it is not just the passage of 
these laws that has made the difference, but their effective 
implementation.
    Treasury, as you know, was tasked with administering a 
large portion of the relief funds provided by Congress under 
those bills. During our last quarterly hearing, I spoke 
extensively about the State and Local Relief Program, but I 
wanted to update you on some other measures.
    First, the American Rescue Plan's expanded child tax credit 
has been sent out every month since July, putting about $77 
billion in the pockets of families of more than 61 million 
children. Families are using these funds for essential needs, 
like food. And, in fact, according to the Census Bureau, food 
insecurity among families with children dropped 24 percent 
after the July payments, which is a profound economic and moral 
victory for the country.
    Meanwhile, the Emergency Rental Assistance Program has 
significantly expanded, providing much-needed assistance to 
over 2 million households. This assistance has helped keep 
eviction rates below pre-pandemic levels. This month, we also 
released guidelines for the $10 billion State Small Business 
Credit Initiative (SSBCI), which will provide targeted lending 
and investments that will help small businesses grow and create 
well-paying jobs.
    As consequential as November was, December promises to be 
more so. There are two decisions facing Congress that could 
send our economy in very different directions. The first is the 
debt limit. I cannot overstate how critical it is that Congress 
address this issue. America must pay its bills on time and in 
full. If we do not, we will eviscerate our current recovery. In 
a matter of days, the majority of Americans would suffer 
financial pain as critical payments, like Social Security 
checks and military paychecks, would not reach their bank 
accounts, and that would likely be followed by a deep 
recession.
    The second action involves the Build Back Better 
legislation. I applaud the House for passing the bill, and I am 
hopeful that the Senate will soon follow. Build Back Better is 
the right economic decision for many reasons. It will, for 
example, end the childcare crisis in this country, letting 
parents return to work. We expect that these investments will 
lead to a GDP increase over the long term, without increasing 
the national debt or deficit by a dollar. In fact, the offsets 
in these bills mean they actually reduce annual deficits over 
time.
    Thanks to your work, we have ensured that America will 
recover from this pandemic. Now, with this bill, we have the 
chance to ensure that America thrives in a post-pandemic world. 
With that, I am happy to take your questions.
    [The prepared statement of Secretary Yellen can be found on 
page 42 of the appendix.]
    Chairwoman Waters. Thank you very much. Chair Powell, you 
are now recognized for 5 minutes to present your testimony.

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

    Mr. Powell. Chairwoman Waters, Ranking Member McHenry, and 
other members of the committee, thank you for the opportunity 
to testify today.
    The economy has continued to strengthen. The rise in delta 
variant cases temporarily slowed progress this past summer, 
restraining previously-rapid growth in household and business 
spending, intensifying supply chain disruptions, and, in some 
cases, keeping people from returning to work or looking for a 
job. Fiscal and monetary policy and the healthy financial 
positions of households and businesses continue to support 
aggregate demand. Recent data suggest that the post-September 
decline in cases corresponded to a pick-up in economic growth. 
GDP appears on track to grow about 5 percent in 2021, the 
fastest pace in many years.
    As with overall economic activity, conditions in the labor 
market have continued to improve. The delta variant contributed 
to slower job growth this summer as factors related to the 
pandemic, such as caregiving needs and fears of the virus, kept 
some people out of the labor force despite strong demand for 
workers. Nonetheless, October saw a job growth of 531,000, and 
the unemployment rate fell to 4.6 percent, indicating a rebound 
in the pace of labor market improvement. There is still ground 
to cover to reach maximum employment for both employment and 
labor force participation, and we expect progress to continue.
    The economic downturn has not fallen equally, and those 
least able to shoulder the burden have been hit the hardest. In 
particular, despite progress, joblessness continues to fall 
disproportionately on African Americans and Hispanics. 
Pandemic-related supply and demand imbalances have contributed 
to notable price increase in some areas. Supply chain problems 
have made it difficult for producers to meet strong demand, 
particularly for goods. Increases in energy prices and rents 
are also pushing inflation upward. As a result, overall 
inflation is running well above our 2-percent longer-run goal, 
with the PCE Price Index up 5 percent over the 12 months ending 
in October.
    Most forecasters, including at the Fed, continue to expect 
that inflation will move down significantly over the next year 
as supply and demand imbalances abate. It is difficult to 
predict the persistence and effects of supply constraints, but 
it now appears that factors pushing inflation upward will 
linger well into next year. In addition, with the rapid 
improvement in the labor shortage, slack is diminishing and 
wages are rising at a brisk pace.
    We understand that high inflation imposes significant 
burdens, especially on those less able to meet the higher costs 
of essentials like food, housing, and transportation. We are 
committed to our price stability goal. We will use our tools 
both to support the economy and a strong labor market and to 
prevent higher inflation from becoming entrenched.
    The recent rise in COVID-19 cases and the emergence of the 
Omicron variant pose downside risks to employment and economic 
activity and increased uncertainty for inflation. Greater 
concerns about the virus could reduce people's willingness to 
work in person, which would slow progress in the labor and 
intensify supply chain disruptions.
    To conclude, we understand that our actions affect 
communities, families, and businesses across the country. 
Everything we do is in service to our public mission. We at the 
Fed will do everything we can to support a full recovery in 
employment and achieve our price stability goal. Thank you.
    [The prepared statement of Chair Powell can be found on 
page 38 of the appendix.]
    Chairwoman Waters. Thank you very much. I now recognize 
myself for 5 minutes for questions.
    As the pandemic was raging last year, many members of this 
committee suggested that for all the pain and disruption that 
the virus was causing, Americans would respond with strength, 
creativity, and ingenuity, as we have done in other crises. 
That is a guiding principle of Build Back Better. It is not 
enough to just get back to the way things were before. We must 
shape a recovery that builds a new, stronger, and more 
equitable economy for the future. So, let's talk about the 
progress we are making.
    Chair Powell, the American Rescue Plan that passed in March 
helped accelerate vaccinations and re-openings over the last 9 
months. The economy has added over 5.6 million jobs, and 
workers have started to see meaningful wage growth for the 
first time in decades. Do you view these wage growth trends as 
positive? How does your economic recovery compare with other 
major economies? And do you still think that inflation will be 
temporary, and if so, why?
    Mr. Powell. Thank you, Madam Chairwoman. On wages, we have 
seen wages moving up significantly, and at this point, of 
course, we like to see wages move up. Everyone likes to see 
wages move up. That is how incomes rise generation to 
generation. And particularly at the lower end of the wage 
spectrum, we are seeing wages move up. At this point, we don't 
see them moving up at a troubling rate that would tend to spark 
higher inflation, but that is something we are watching very 
carefully.
    In terms of other economies, our recovery is the strongest. 
It is stronger than the others. We had stronger fiscal support, 
frankly, and so part of it is that, but our recovery is really 
the most advanced of any of the largest ones.
    In terms of the temporary nature of inflation, I would say 
that the inflation that we are seeing is still clearly 
connected to the pandemic-related factors. I would also add, 
though, that it has spread more broadly in the economy, and I 
think that the risk of persistent higher inflation has clearly 
risen. And I think that our policy has adapted to that and will 
continue to adapt.
    Chairwoman Waters. If you could expound a little bit more 
on what is happening, I remember when we first started to talk 
about inflation, we basically all talked about it in terms of 
it being transitory. And I think that what you just alluded to, 
relative to how the economy will act or recover--are you 
directly talking about stimulating the economy with, for 
example, Build Back Better, and that will help with the 
inflation that we are experiencing?
    Mr. Powell. I do think that forecasters at the Fed, and 
pretty much all forecasters, do expect that inflation will move 
down over the second half of next year, closer to our longer-
run goal of 2 percent. But as I mentioned, we have seen 
inflation be more persistent. We have seen the factors that are 
causing higher inflation to be more persistent. There, I am 
thinking of the combination of very high demand, but also the 
supply side difficulties that we are having with blockages and 
that sort of thing and shortages.
    In terms of the effects of the Build Back Better bill, that 
is not something that is appropriate for me to comment on.
    Chairwoman Waters. Thank you.
    Secretary Yellen, when you were the Fed Chair, you were 
known for looking beyond the top line unemployment rate to 
other figures, like the rate of employees quitting, the so-
called quits rate, to determine whether the economy was 
reaching full employment. The quits rate has surpassed the 
previous records, leading some to label what has happened in 
the economy as the, ``Great Resignation.'' When Chair Powell 
testified in our committee in July, he identified childcare and 
school closures as one of the biggest barriers to further labor 
market recovery. Can you explain what the quit rate tells us 
about the economy today, and do you believe that the 
investments that the Build Back Better Act would make in 
childcare and universal Pre-K will help with this?
    Secretary Yellen. The quit rate, when it is high, and as 
you mentioned, it is the highest it has been in the history of 
this series, it signifies a tight labor market, one where 
workers are leaving their jobs because they feel confident 
about their ability to get another job, or are getting outside 
offers and feel good about the labor market. And that is what 
we have and we see it reflected in surveys of workers who feel 
that jobs are plentiful. And, of course, businesses almost 
universally complain now about the difficulty of hiring 
workers, but this is a very unusual shock that has hit the 
economy.
    And at the same time, we see that for a large number of 
workers, their participation in the labor force has declined, 
and it hasn't yet gotten back up to normal levels. In some 
cases, it is because there were early retirements, and, of 
course, the pandemic did result in, unfortunately, a large 
death toll. But I think there are still many people, especially 
low-income workers, who don't feel confident about the health 
consequences of working, especially in face-to-face type jobs, 
and so those people are still out of the labor force. And I 
think as we get greater control over the pandemic, the supply 
of workers will increase as those people come back to work.
    Chairwoman Waters. The gentleman from North Carolina, Mr. 
McHenry, who is the ranking member of the committee, is now 
recognized for 5 minutes.
    Mr. McHenry. Chair Powell, the last time you were here, in 
fact, both in September and July, I asked you about this. The 
Fed incorporates new spending from the fiscal house, from 
Congress and the White House. They incorporate that into 
projections, and the effects of your monetary decisions with 
the knowns of fiscal policy. And at the time, and you have said 
this twice before, and I think you will say it again, but a lot 
depends on the details. Certainly, you incorporate that 
information, but a lot depends on the details. Is that still 
true?
    Mr. Powell. Yes.
    Mr. McHenry. Okay. So in light of that, we had in February 
a Democrat-only proposal that made it into law, that $2 
trillion, and just last week, another bill that the 
Administration supports that enhances the deficit. According to 
the Congressional Budget Office, it raises the deficit by $400 
billion, and so we have those two large fiscal pieces here.
    When Chair Waters asked the Chairman of the Federal Reserve 
whether or not spending more money from the fiscal house will 
improve inflation, instead of improve, I want to translate for 
the public. When a Democrat says, ``improve inflation,'' it 
means enhance or raise inflation, just to be clear, okay? So my 
friends on the left, when they say, ``improve inflation,'' they 
want more of it.
    Secretary Yellen, to this point, these things are 
imprecise. Policymaking is imprecise. But back in February, 
there was an output gap this Administration acknowledged, and 
economic projections, and came to Congress for fiscal stimulus 
in the name of COVID, but a fiscal stimulus, right? Is it fair 
to say that maybe you overshot in February?
    Secretary Yellen. I think it is fair to say that we had a 
sizable fiscal stimulus. We were very concerned that the most 
significant risk facing the American economy was a shortage of 
jobs and a prolonged downturn that would scar many people, 
particularly the most--
    Mr. McHenry. But in February, in the output gap, versus 
what the fiscal stimulus was that your Administration pushed 
for and got, perhaps you overshot. Is that fair to say? Is that 
a fair assumption?
    Secretary Yellen. I don't think that is a fair assumption.
    Mr. McHenry. It is not?
    Secretary Yellen. We addressed what was very significant 
risk, and as Chair Powell just mentioned, the United States--
    Mr. McHenry. Okay. So, you think that that fiscal--
    Secretary Yellen. --agree--
    Mr. McHenry. Reclaiming my time, Madam Secretary.
    Secretary Yellen. No. Look, the inflation--
    Mr. McHenry. I am going to ask a very particular question 
about the output gap. The output gap at the beginning of the 
year was $300 to $400 billion, right? Economists on the left 
and the right were saying that that was about right.
    Secretary Yellen. I think it was extremely hard under the 
circumstances to have any certainty--
    Mr. McHenry. Okay. And I am asking you a very reasonable 
question, as a policymaker.
    Secretary Yellen. --about what was the output gap.
    Mr. McHenry. Okay. As a policymaker, I am just asking you--
you are a noted economist, who was the Chair of the Federal 
Reserve. You are now in a very different position having to, I 
think, sell what is a pretty lousy economic agenda, but you are 
doing a great job trying to sell this Administration's agenda. 
The economic question that I hear from economists on the left 
now, and your former San Francisco Fed even acknowledges, is 
that February stimulus contributed to the inflation we are now 
experiencing.
    Secretary Yellen. Look, inflation--
    Mr. McHenry. Is that a fair assumption or not?
    Secretary Yellen. Inflation is a matter of demand and 
supply, and it is certainly true that the American Rescue Plan 
put money in people's pockets, helped them meet expenses that 
they had, and contributed to strong demand in the U.S. economy. 
But if you look at the amount of inflation that we have and its 
causes, that is, at most, a small contributor. The pandemic and 
what it has done to supply chains diverting demand away from 
services and massively onto goods has resulted in supply chain 
problems, and the impact we have seen that has now been long-
lasting on labor supply due to the pandemic. I would say those 
are very important factors.
    Mr. McHenry. But there is a distinction here between a 
supply shock and a demand issue, right? Is that fair to say?
    Secretary Yellen. The Recovery Plan did boost demand, and 
that is one reason that most households are in a favorable 
financial position, much better than they otherwise would have 
been, and it has enabled their spending. But the fact that the 
spending because of the pandemic has been so focused on goods 
as opposed to services has contributed massively to the supply 
chain problems that are boosting prices.
    Mr. McHenry. Okay. So, Madam Secretary, Chairman Powell, 
the Congress, and the public, and this Administration wants to 
point everything onto the Federal Reserve on inflation. That is 
simply not the case. It is the multiple trillions of dollars 
that this Congress and this Administration is spending that is 
putting jet fuel on the fires of this economy. It is making 
things worse.
    Mr. Perlmutter. Regular order.
    Mr. McHenry. It is the policies of this Administration--
    Ms. Dean. [presiding]. The gentleman's time has expired.
    Mr. McHenry. The Chair went over time, and I am going over 
time as well, so let me just say this.
    Ms. Dean. I was not--
    Mr. McHenry. It is the Administration's agenda here that 
it--I will finish my sentence here, Madam Chairwoman, okay? It 
is the Administration's agenda that is driving up the cost of 
things, and is making the American people worse off, not better 
off. Inflation is outpacing wage increases. This is on the 
Democrat House, Senate, and White House. I yield back.
    Ms. Dean. Thank you. The gentleman yields back.
    The gentleman from Colorado, Mr. Perlmutter, who is also 
the Chair of our Subcommittee on Consumer Protection and 
Financial Institutions, is now recognized for 5 minutes.
    Mr. Perlmutter. Thank you. Good morning, and thank you both 
for your service. A couple of things--I was listening to the 
Republicans talk about inflation, but I think a more important 
topic we should be talking about is the fact that since ex-
President Trump was defeated by Joe Biden in November of last 
year, we have added almost 6 million jobs, some 620,000 per 
month, and we have seen the stock market rise from 26,000 to 
36,000--now it has backed off to about 35,000--in the last year 
at $1.4 billion per point. It is almost up $13 trillion since 
Joe Biden won the election last year. We have seen GDP up 
dramatically over the last year. And my friends, I appreciate 
that the Republicans want to talk about inflation because that 
is all they can talk about.
    I would like to ask my first question of you, Secretary 
Yellen. Unemployment is falling at the fastest rate in 50 years 
and is now at 4.6 percent. Prior to the American Rescue Plan 
passing, the CBO projected it would take until the 4th quarter 
of 2023 to get to 4.6 percent unemployment, so we are 2 years 
ahead. Madam Secretary, my question is on Build Back Better and 
how will it help in terms of the recovery and create more 
opportunities for everyday Americans?
    Secretary Yellen. Thank you for that question. Build Back 
Better is really focused on addressing long-term issues in our 
economy that have been holding back economic growth and 
contributing to economic inequality. An important aspect of 
Build Back Better is what it does for children and households 
with children: 2 years of universal early childhood education 
for 3- and 4-year-olds and subsidies for childcare to make 
quality childcare affordable for the great majority of 
households, along with a continuation, at least for a year, of 
the child tax credit that has made it possible for so many 
families to support the needs of their children, keep roofs 
over their heads, and diminish food insecurity. And these 
childcare provisions as well as other parts of the program 
should serve to boost labor force participation, particularly 
of women, where we have lagged behind most other developed 
countries. And research suggests that our failure to provide 
adequate childcare and paid family leave is an important 
contributor. In addition--
    Mr. Perlmutter. Let me change the subject for one second, 
to a subject that I have asked both of you about in the past, 
the Safe Banking Act, which involves allowing financial 
institutions to provide financial services to the cannabis 
industry and those that serve the cannabis industry. And you 
may know that we passed it with big bipartisan votes out of 
this committee, off the House Floor to the Senate last cycle, 
this cycle, and we amended the National Defense Authorization 
Act. That is just to remind you where we are.
    In October, Cassidy Collins, a Senior Counsel in the Office 
of the Chief Counsel of the IRS noted the special type of 
collection challenge the IRS undertakes regarding tax 
collection from cannabis-related businesses forced to operate 
in cash only. It is estimated that in just 3 States, nearly $50 
million in taxes went unassessed because of unique issues 
surrounding the cannabis industry. Madam Secretary, do you 
agree that if these businesses were simply allowed to access 
the banking system and didn't have to transact business only in 
cash, it would make the IRS' job easier?
    Secretary Yellen. Yes, of course, it would.
    Mr. Perlmutter. I yield back.
    Ms. Dean. The gentleman yields back.
    The gentlewoman from Missouri, Mrs. Wagner, is now 
recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman. Secretary Yellen 
and Chair Powell, thank you for joining us today. And as I 
expressed to you earlier, Chair Powell, I want to congratulate 
you again on your renomination for another term leading the 
Federal Reserve Board, and I look forward to continuing to work 
with you.
    Chair Powell, you responded that our best expectation--this 
is your quote--``Our best expectation is there will be modest 
upward pressure on prices this year, but they won't be 
particularly large or persistent in the future.''
    Chair Powell, since that hearing 8 months ago, I have asked 
you about higher inflation. And yes, to my good friend, the 
gentleman from Colorado, we are going to talk about inflation. 
That is all that people are talking about in my district, 
Missouri's 2nd Congressional District. They want to know why 
these prices keep going higher and higher and higher and 
higher. And no, I don't think blame necessarily falls at the 
foot of the Fed. It is Democrat policies and overspending.
    But I digress. I asked you about higher inflation 2 more 
times, sir, and Americans have experienced surging increases 
in, as I said, food, fuel, and housing, leading up to the most 
expensive Thanksgiving, Christmas, and holiday season on 
record. Is it your view, sir, that these price increases still 
aren't, ``particularly large or persistent?''
    Mr. Powell. No, that is no longer my view.
    Mrs. Wagner. Thank you for that answer. Chair Powell, 
yesterday in the Senate Banking Committee, you stated that you 
believe it is time to retire the word, ``transitory.'' I 
couldn't agree more. And to explain more clearly what the Fed 
means when referring to transitory inflation, I think most 
Americans, sir, define, ``transitory,'' as, ``temporary,'' but 
the strain on their monthly budgets and paychecks from this 
inflation does not seem transitory or temporary. If that is not 
what you mean, then could you explain the Fed's meaning, 
please?
    Mr. Powell. Sure. The word, ``transitory,'' to some, as you 
suggest, has a sense of short-lived, a matter of months kind of 
thing, whereas we are using it in a specific way to say that 
transitory to us means that this episode, however lengthy, will 
not leave a persistent long-run string of high inflation behind 
it. And the problem is that our whole role that we play really 
revolves around having clear communication. When you have a 
word that means different things to different people, we just 
need to move on and find a better way to explain ourselves. And 
most forecasters still do overwhelmingly believe that inflation 
will come down significantly in the second half of next year. 
But as I have said, the risks of higher inflation have moved up 
more persistent--
    Mrs. Wagner. Will soaring debt and deficits, and excessive 
spending, and dumping stimulus spending after stimulus spending 
after stimulus spending into our economy be a driver of 
inflation?
    Mr. Powell. I guess I would say that I don't want to 
comment on fiscal policy directly.
    Mrs. Wagner. I am just saying, in general.
    Mr. Powell. In general, if you go back to last March, the 
median of the blue chip, the best resource forecasters thought 
that inflation would be right about at our target, in March of 
this year. What was wrong with that analysis was really that we 
understood demand would be strong, but we didn't understand how 
significant problems on the supply side, would be, which are 
very hard. They were unique.
    Mrs. Wagner. And how much money there would be in 
households and in the system.
    Mr. Powell. Demand is very, very strong, no question, from 
fiscal policy and also from--
    Mrs. Wagner. Fiscal policy. I agree.
    Mr. Powell. --a quickly rebounding economy. The economy is 
very strong now.
    Mrs. Wagner. I agree. Secretary Yellen, let me ask you. The 
CBO, and they reflect one of the more conservative scores, has 
said that Biden's spending bill, the most recent one, will add 
$367 billion to the deficit. Could you describe the long-term 
consequences of too much fiscal spending on financial markets 
and the price of consumer goods?
    Secretary Yellen. Let me first put the CBO number that you 
mentioned in perspective. They did score Build Back Better as 
resulting in $367 billion in deficits over 10 years. Not in a 
year, but over 10 years.
    Mrs. Wagner. There were a lot of gimmicks that went through 
to get that number, too. Let's just be honest.
    Secretary Yellen. However, that score, they made clear, 
does not include the revenue that will come from enhancement of 
resources for tax enforcement. It doesn't include the 
Treasury--
    Mrs. Wagner. How does this overspending on our financial 
markets--
    Ms. Dean. The gentlewoman's time has expired.
    Mrs. Wagner. --and deal with the price of consumer goods?
    Ms. Dean. The gentlewoman's--
    Mrs. Wagner. I would like the gentlelady to--
    Ms.  Dean. The gentlewoman's time has expired. The 
gentleman from Texas, Mr. Gonzalez, is now recognized for 5 
minutes.
    Mr. Gonzalez of Texas. Thank you, Madam Chairwoman, and I 
would like to thank Secretary Yellen and Chair Powell for being 
here with us on such an important occasion, at this critical 
moment, and to talk about a couple of issues that have affected 
my district. My first question is to Secretary Yellen.
    Secretary, when you testified before this committee in 
July, you identified caregiving needs as one of the major 
barriers people face in getting back to work following the 
COVID pandemic. Over 80 percent of South Texans residing in my 
congressional district identify as Latino, but only 19\1/2\ 
percent of 3- and 4-year-olds are enrolled in publicly-funded 
preschool. What impact do you think the Build Back Better Act 
will have in supporting our economic recovery and getting folks 
back to work? I know we are talking about this labor shortage, 
but, specifically, do you believe investing in childcare and 
universal pre-K will bolster our economic and labor market 
recovery?
    Secretary Yellen. Yes, I absolutely do. As I mentioned 
previously, one of the reasons, that even before the pandemic, 
women's labor force participation in the United States fell 
short of that in many developed countries is the lack of public 
support for childcare and paid family leave. And during the 
pandemic, this became so much worse because of the issues in 
childcare and schools not being open. But many childcare 
facilities closed, and for people who work in childcare that 
involves face-to-face contact, health concerns have held people 
back from going to work there.
    So, Build Back Better will subsidize childcare so that it 
is affordable for almost all American families and provide 2 
years of universal pre-K for 3- and 4-year-olds. And research 
that Treasury recently summarized in a working paper shows that 
this will boost labor supply, particularly that of women. And 
more recently, the Congressional Budget Office also published a 
paper that opines that this is likely to have positive impacts 
on employment.
    Mr. Gonzalez of Texas. Thank you. And as you know, in the 
CARES Act, we established the Paycheck Protection Program 
(PPP), which has been administered by the Small Business 
Administration (SBA) in concert with Treasury, to provide 
economic relief and emergency payroll support to small 
businesses hit hardest by the pandemic. The program provided a 
lifeline for many small businesses in my district and across 
the country. However, we struggle to reach businesses in 
communities of color. And as I mentioned earlier, over 80 
percent of my district is Latino, and over 19,000 businesses 
applied for PPP, of which only 23\1/4\ identified as Latino. 
How can we look at this information and learn how to better 
reach minority-owned businesses to ensure they have the same 
access to these resources, and what are we doing to make this 
happen?
    Secretary Yellen. Yes. In the more recent Payroll 
Protection Program, priority was given to Community Development 
Financial Institutions (CDFIs) and Minority Depository 
Institutions (MDIs) to have access to those funds in order to 
provide better support to minority areas. And going forward, 
Congress has provided considerable resources to CDFIs and MDIs, 
and what we have found is that these institutions have great 
ability to reach businesses in underserved areas. So, the CDFI 
program that we run in Treasury is very focused on making sure 
that support gets out, and we expect these institutions to play 
a significant role in the State Small Business Credit 
Initiative for which we recently issued guidelines.
    Mr. Gonzalez of Texas. Thank you. And lastly, I just want 
to ask a question on the Emergency Capital Investment Program 
that was established and consolidated in the Appropriations Act 
of 2021 to encourage low- and moderate-income community 
financial institutions to bolster their efforts to support and 
engage with small businesses in their communities. I understand 
the deadline to submit--
    Ms. Dean. The gentleman's time has expired.
    Mr. Gonzalez of Ohio. Okay. Thank you. I yield back.
    Ms. Dean. The gentleman from Texas, Mr. Taylor, is now 
recognized for 5 minutes.
    Mr. Taylor. Thank you, Madam Chairwoman. I appreciate the 
opportunity to be here with you.
    Chairman Powell, I am sure you are familiar with Milton 
Friedman's book, ``Free to Choose.''
    Mr. Powell. Yes.
    Mr. Taylor. This is an important college textbook, I would 
think, on economics, and I would commend Chapter 9 to you, 
``The Cure for Inflation.'' I think Mr. Friedman lays out some 
important premises of what creates inflation. And I am sure you 
are familiar with the fact that the M2 money supply has gone up 
very dramatically. You are familiar with the Federal Reserve 
holdings and trillions of dollars of debt, the very dramatic 
increase on your balance sheet--I know you are aware of this 
because you were there--and the money in circulation. And this 
comports with, again, going back to Chapter 9 of Milton 
Friedman's book, and he goes in and talks about the inflation 
that took place in the 1970s, and he has a series of charts 
showing the supply of money. So, here is the United States, and 
he goes on and shows the supply of money in Germany and Japan, 
and the increase in prices, and then also, in the United 
Kingdom and Brazil.
    And so all of this is going to a very central point that 
when you increase money, and actually let me quote Mr. Friedman 
here for a second: ``When the quantity of money increases more 
rapidly than the quantity of goods and services available for 
purchase, we have inflation.'' You have printed too much money, 
sir, and that money has created inflation. To stop the 
inflation, I would recommend to you to stop printing the money. 
You indicated yesterday that you are going to start to slow 
down the printing of money. I think you should stop it and stop 
it right now.
    Inflation is on the minds of Americans. In poll after poll 
for the last many months, for 70 to 80 percent of Americans, it 
is a top issue. They are concerned about inflation. Inflation 
is eating away their purchasing power. It is actually robbing 
them of the increases in wages that we have seen because their 
purchasing power is down because of the inflation created by 
the money that is being printed. Would you like to respond to 
that?
    Mr. Powell. Sure. Price stability is one of our two goals, 
the other being maximum employment, and we have to balance 
those two goals when they are in tension as they are right now. 
But I assure you we will use our tools to make sure that this 
high inflation we are experiencing does not become entrenched. 
If I may also add, though, the connection between monetary 
aggregates and either growth or inflation was very strong for a 
long, long time, which ended about 40 years ago. So, the so-
called velocity of money became quite variable. And now we 
think more of just the imbalances between supply and demand in 
the real economy rather than monetary aggregates, which isn't 
to say that was wrong when written. I think it was probably 
correct when it was written, but it has been a different 
economy and a different financial system for some time. 
Nonetheless, your point on inflation is well taken.
    Mr. Taylor. And I appreciate that. Secretary Yellen, don't 
you think that the deficit spending of this Administration is 
on an unparalleled level? The $2 trillion in deficit spending 
in February, dumping money into the economy, has created the 
inflation that we see today.
    Secretary Yellen. Well, the Build Back Better Plan that is 
under consideration now is paid for.
    Mr. Taylor. Okay. But the $2 trillion in February, was that 
paid for?
    Secretary Yellen. The Rescue Plan was not paid for.
    Mr. Taylor. Okay. So, that is $2 trillion of deficit 
spending.
    Secretary Yellen. There was a very good reason to pass 
that. We faced a major risk in terms of seeing our workforce, 
particularly the most vulnerable members of the American 
society, scarred permanently, losing homes, being unable to put 
food on their tables, take care of their children, and being 
permanently financially harmed, as well as there was a shortage 
of demand in the economy that could have resulted in long-
lasting joblessness and high unemployment. And the plan that 
was enacted into law was focused on dealing with that, and it 
has been successful with the--
    Mr. Taylor. Did it create inflation? Did the $2 trillion of 
deficit spending create inflation?
    Secretary Yellen. It did boost demand, and that is one of 
several factors that are involved in inflation. But absent the 
pandemic and the supply chain problems we have had, and the 
negative impact the pandemic has had on the supply of labor--
    Mr. Taylor. Secretary Yellen, what is interesting--
    Secretary Yellen --would be--
    Mr. Taylor. Secretary Yellen, just to finish here, what is 
interesting is that Milton Friedman wrote in 1979, ``No 
government is going to accept responsibility for producing 
inflation,'' and you, ma'am, have just embodied that denial 
because your deficit spending is creating the inflation that 
Americans need relief from now. I yield back.
    Ms. Dean. The gentleman's time has expired. The gentleman 
from Guam, Mr. San Nicolas, is now recognized for 5 minutes.
    Mr. San Nicolas. Thank you, Madam Chairwoman. I would like 
to begin by clarifying the fact that the deficit spending just 
referred to was to address the pandemic concerns that were 
impacting this country, the unemployment of our people, the 
fact that there were so many businesses that needed support. 
And one of the reasons why we enacted the relief packages that 
we did was to make sure that we didn't collapse our economy as 
a result of these pandemic circumstances. So, let's make sure 
we are bifurcating the issues here and not just hammering away 
on what happened in the past and trying to tie it into the 
present. And with that, I would like to talk about the present.
    It looks like the narrative of the Minority is to try and 
pin the inflationary circumstances of this country on the 
fiscal policy that is being pursued by the sitting government. 
And I think it is important for us to remember that just a few 
months ago, the very same Minority, in similar hearings, were 
stating that they were upset that the rollout of relief funding 
was not happening fast enough. That is entirely juxtaposed to 
the inflationary arguments being presented today. They were 
arguing for us to push even more money into the financial 
system, into the monetary supply. So, I really hope that we can 
go back to that mentality, because getting help to the American 
people during the pandemic was and is a priority, and 
continuing to get help to the American people in our 
infrastructure and in the many good things in Build Back Better 
should also continue to be a priority.
    It needs to further be reminded that Build Back Better has 
not even been enacted yet. Its fiscal impacts have not been 
materialized. It is not factoring into the money supply. And we 
recently just had testimony that inflation is running at a 
certain clip up to October--I believe it was mentioned by 
Chairman Powell--at 5 percent. And I think that is important 
for us to contextualize because we are suffering from 
inflation, but the inflationary pressures are not as a result 
of the recently-passed Build Back Better bill that still 
remains to be enacted.
    With that being said, I would like, without objection, 
Madam Chairwoman, to enter into the record an article dated 
October 15, 2021, by Paul Hannon in London, Ryan Dube in Lima, 
and Stella Yifan Xie in Hong Kong, under The Wall Street 
Journal entitled, ``Inflation Surges Worldwide as COVID-19 
Lockdowns End and Supply Chains Can't Cope.''
    Ms. Dean. Without objection, it is so ordered.
    Mr. San Nicolas. And in that vein, I would like to pose a 
question to Chairman Powell. Mr. Chairman, is the inflation 
that we are enduring here in America today, is it just 
occurring in America or is there a global inflationary 
environment?
    Mr. Powell. As you mentioned, if you look at Western 
Europe, Germany in particular, if you look at the United 
Kingdom and you look at Canada, you are seeing high rates of 
inflation in many of these countries, less so in Asia, but 
certainly in most parts of Europe and Canada and the United 
States.
    Mr. San Nicolas. And is it fair to state that these 
inflationary pressures that are occurring globally are 
predominantly as a result of the normalization that is starting 
to occur from the economies getting back on their feet due to 
the pandemic?
    Mr. Powell. Yes. When you see something happening 
everywhere around the world, you look for common factors, and 
those would be just the reopening of the economy. COVID 
continues to impose supply-side constraints, so whatever 
demands there are run up against hard constraints, which is 
unusual for market economies, and you are seeing high inflation 
everywhere. Many of the same features that we are seeing here, 
you are seeing elsewhere, but different countries are feeling 
it to different degrees.
    Mr. San Nicolas. So just in that context, let's not hold 
back the American people by creating some kind of inflationary 
scare, making it seem like it is a fiscal policy issue. This is 
a global inflationary environment. Let's continue to take care 
of the American people, while we allow the experts who are 
testifying before us today to continue guiding us as we try and 
tackle inflation.
    Moving on to Secretary Yellen, I want to first begin by 
recognizing some of your staff, J.J. Ricchetti and Arian Rubio, 
Special Assistants who have been working closely with our 
office. They help us to do our job in engaging Treasury and 
allow you to come here today and do your job, to be able to 
answer questions directly from us.
    I just had one quick question, Secretary Yellen. My local 
governor is holding off on expending some resources that were 
provided under the local relief package. I think they are 
waiting to see what the final rule is on the spending of the 
local recovery funds. Is a final rule going to be materially 
different from the interim rule or can we expect it to be 
materially the same?
    Secretary Yellen. We are in the final stages of producing 
the final rule. It is undergoing review. We had thousands of 
comments and have tried to respond. Until that rule comes out, 
and we expect it to come out shortly, the interim rule applies 
and can be relied upon.
    Ms. Dean. The gentleman's time has expired, just as a 
courtesy. Thank you.
    All Members are instructed, if they have not exhausted 
their questions, to submit them in writing for the record.
    At this time, the gentleman from New York, Mr. Zeldin, is 
recognized for 5 minutes.
    Mr. Zeldin. Thank you, Madam Chairwoman. Thank you to 
Secretary Yellen and Chairman Powell for being here today. And 
thank you to Chairwoman Waters and Ranking Member McHenry for 
holding this hearing.
    First, to start with you, Secretary Yellen, just now in 
response to Mr. Taylor's questioning, I believe you said that 
it is your position that the Build Back Better bill is fully 
paid for. Did I hear you correctly?
    Secretary Yellen. Let me be clear. We would agree with the 
CBO analysis that led to a score of a $367 billion deficit over 
10 years, but CBO was explicit that their analysis did not 
include revenue that would result from an $80 billion 
investment over 10 years in the IRS. And the Office of Tax 
Analysis issued a paper with our own estimate based on our data 
and information that we have from the IRS about the likely 
payoff from that, and we estimate that at $400 billion.
    So, when we put together those two pieces of information, 
it is more than fully paid for.
    Mr. Zeldin. I appreciate you clarifying that. So, the 
Administration's position is that you believe that it is fully 
paid for by ramping up the amount of IRS agents that are out 
there by several tens of thousands and going after more 
Americans to try to get them to pay more in taxes. I believe 
the number is up over 80,000 more IRS agents, and we have some 
strong disagreement with regards to that proposal. I am hearing 
from a lot of constituents who don't want to see several tens 
of thousands of additional IRS agents added, to go after hard-
working Americans across the country because we already have 
enough IRS agents out there to go after individuals. And they 
are also concerned with the proposal to be spying on bank 
accounts and transactions at low-dollar amounts.
    Chairman Powell, you were asked a question with regards 
to--you were talking about inflation, and I just want to 
understand this correctly. You said that in the second half of 
next year, you believe that inflation will start coming down. 
Is that accurate?
    Mr. Powell. Our forecast--and that of many, I would say 
almost all forecasters--does expect that inflation will be 
coming down meaningfully in the second half of next year. That 
is an expectation, and it is a forecast.
    Mr. Zeldin. And just so that I understand, is that 
something with which you agree?
    Mr. Powell. I think it is likely, but I don't think--the 
point is we can't act as though we are sure of that. We are not 
at all sure of that. Inflation has been more persistent and 
higher than we have expected, and we have to use our policy to 
address the range of plausible outcomes, not just the most 
likely one, which is that one. That is the most likely but 
there are other possibilities, and we are well aware of that.
    Mr. Zeldin. And when you say that answer, I just want to 
understand that in the context of an additional question with 
regard to the Build Back Better bill. You were asked whether or 
not that would--what kind of an effect that would have on 
inflation, and you refused to comment on that. So my question 
is, the prediction that in the second half of next year, it is 
likely that inflation would come down, is that a prediction 
assuming that the Build Back Better bill is law or is not law, 
that the trillions of dollars is spent or not spent?
    Mr. Powell. It is really not our role to comment on fiscal 
proposals, indirectly or directly.
    Mr. Zeldin. No, that is not what I am asking. The 
prediction that inflation is going to go down in the second 
half of next year is either built on an assumption that there 
is going to be trillions of dollars spent or not spent.
    Mr. Powell. The principle--
    Mr. Zeldin. Which assumption was used in making that 
prediction?
    Mr. Powell. --driving assumptions would be these, that the 
goods inflation that we are seeing will subside because the 
supply chain problems will sort themselves out. At the same 
time, though, you are going to see rent inflation going up and 
you are going to see possibly--
    Mr. Zeldin. I think you might be misunderstanding me, Mr. 
Chairman.
    Mr. Powell. --pushing up.
    Mr. Zeldin. With all due respect, I am trying to understand 
whether or not--
    Mr. Powell. There will be a fiscal prediction. It will be 
in there. People will make different assumptions. But, of 
course, we will assume--at this point, we are assuming that 
something passes, but we do not know exactly what it is going 
to be. It is very hard to be precise, because again, we don't 
know what will pass.
    Mr. Zeldin. That leaves far more questions than answers 
with regards to the prediction. I yield back.
    Ms. Dean. The gentleman's time has expired.
    The gentlewoman from Massachusetts, Ms. Pressley, who is 
also the Vice Chair of our Subcommittee on Consumer Protection 
and Financial Institutions, is now recognized for 5 minutes.
    Ms. Pressley. Thank you, Madam Chairwoman. The House just 
passed the Build Back Better Act. We are closer than ever to 
delivering overdue support for workers, for families, and for 
the economy. There is truly just so much for us to feel hopeful 
about.
    Unfortunately, many Republicans are working overtime to 
distract from these historic accomplishments. Today, they speak 
about inflation and they speak about it without any nuance or 
any context, and they refuse to put forth serious solutions. 
They use their platforms to discourage people from getting 
vaccinated, which will only prolong pandemic-induced inflation. 
They spread lies that the Build Back Better Act will add to the 
deficit, despite 3 years ago enthusiastically passing Trump's 
tax break for the wealthy bill, knowing it would add $2 
trillion to the deficit.
    I am tired of this fear mongering and misinformation, so 
let's today, in this moment, set the record straight about the 
Build Back Better Act. Secretary Yellen, please answer yes or 
no to these questions wherever possible. Would providing 
universal pre-K and drastically cutting the cost of childcare 
have a positive impact on the economy?
    Secretary Yellen. Yes, I believe it would. It would promote 
higher labor force participation, and these investments in 
children would have a significant payoff, making them more 
successful and better-prepared to succeed in our economy.
    Ms. Pressley. And would making prescription drugs cheaper 
for seniors and families have a positive impact on the economy? 
Yes or no?
    Secretary Yellen. Yes, it would certainly cut the cost of 
living, especially for retirees who have been struggling with 
the cost of prescription drugs, but many others as well.
    Ms. Pressley. And would investing in more affordable 
housing have a positive impact on the economy? Yes or no?
    Secretary Yellen. Yes, I think that has been a very 
significant problem for decades and has made it exceptionally 
difficult, especially for lower-income families to manage in 
expensive parts of the country.
    Ms. Pressley. And would expansion of the child tax credit, 
a tax cut for the lowest-earning families have a positive 
impact on the economy? Yes or no?
    Secretary Yellen. Yes, and it has already done so. In the 
months after the child tax credit has been paid out we have 
seen a substantial decrease in the number of families reporting 
food insecurity.
    Ms. Pressley. So, zero Republicans--zero--voted for the 
Build Back Better Act, despite it containing substantial 
serious and popular solutions to combat inflation, supply chain 
issues, and financial hardship, solutions that are fully paid 
for. To try to justify their de novo, they are spreading lies 
about this bill. They say the bill will cause long-term 
inflation. Wrong. That is a falsehood. They say it will add to 
the deficit. Wrong. That is a falsehood. Anything to delay 
solutions and distract the public from their government 
spending hypocrisy.
    Secretary Yellen, what are the real causes of inflation and 
how will policies that stop the spread of COVID-19 and support 
labor participation help to fight it?
    Secretary Yellen. To my mind, the real causes of inflation 
reflect the impact the pandemic has had on the economy. The 
programs that have supported income have kept demand at a solid 
pace and enabled our economy to grow the fastest of any 
economy, to bring down unemployment toward more normal levels. 
But because of the pandemic, demand shifted massively, away 
from services and toward goods. That huge demand for goods has 
resulted in massive supply chain bottlenecks that have crippled 
our ports and our transportation system and caused a shortage 
of semiconductors that have led to huge increases in the price 
of new and used vehicles.
    And because of the pandemic, a substantial number of 
workers have not returned to the labor force, I believe because 
they are concerned about the health consequences of working in 
face-to-face type jobs and probably also because of childcare 
concerns.
    Ms. Pressley. Secretary Yellen, in the remaining time I 
have, I do want to give you the floor to talk about the 
revenue-raising provision that will pay for the Build Back 
Better Act investments. How will they both make--
    Ms. Dean. The gentlewoman's time--
    Ms. Pressley. Oh, I'm sorry. I yield back. My time is up.
    Ms. Dean. The gentlewoman's time has expired.
    The gentleman from Ohio, Mr. Gonzalez, is now recognized 
for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and 
thank you to both Chairman Powell and Secretary Yellen for 
being with us today. And congratulations to Chairman Powell on 
your reappointment.
    Secretary Yellen, I am going to start with you. Earlier you 
said, and I think you said it in different ways a few times, 
that when supply and demand get out of balance, you can have 
inflation, and the demand side has accelerated while we still 
have supply chain bottlenecks. Fair?
    Secretary Yellen. The demand has been strong. Demand has 
also shifted away from services and toward goods, which has 
created huge problems, more than the aggregate level of demand.
    Mr. Gonzalez of Ohio. Yes, ma'am. And the American Rescue 
Plan, which was a partisan bill that increased demand, which 
you testified to, did it do anything to alleviate supply 
issues?
    Secretary Yellen. It did not have substantial impacts on 
supply.
    Mr. Gonzalez of Ohio. When we say that--and this is my 
frustration. For a year, a year plus, we negotiated in good 
faith, for bipartisan legislation to be targeted and 
appropriate with respect to our response to COVID-19. You all 
won the election. It is your prerogative to ignore Republican 
concerns. But you went forward with the American Rescue Plan, 
which we warned would increase inflation, specifically for the 
reasons the Secretary just said. It would increase demand and 
do nothing to alleviate supply chain bottlenecks. That is 
exactly what happened. You are set to repeat the exact same 
mistake with Build Back Better.
    Chairman Powell, I want to commend you for retiring the 
term, ``transitory,'' as it relates to inflation. My 
constituents have been complaining about it for over a year. 
There are concerns. One, inflation is particularly hard on low- 
and middle-income Americans, in particular those with fixed 
incomes. We all know that. It has been brutal for them.
    And two, and I think this is the new risk, risk accumulates 
over time the longer rates are at zero, as anyone who invests 
money in discounts cash flows at a zero-interest rate can 
justify virtually any investment. As we have seen that, and 
various asset bubbles have built up over time.
    I think the risk shifts. Now, I believe the risk is that we 
have let inflation run too hot for too long, and we are in need 
of a more sudden course correction, which you suggested 
yesterday. That being the case, what are you most concerned 
with when considering the ramifications of the taper on the 
market and the economy at large? What pockets of risk are you 
looking at as the taper begins?
    Mr. Powell. Let me just say, I think that the taper need 
not be a disruptive event in markets. I don't expect that it 
will be. It hasn't been so far. We have telegraphed it.
    I think if you look at the state of the economy, look at 
where we are, look at the most recent run of data, you can see 
that the highly-accommodative policy that we have, even after 
the taper is done, it is really appropriate that we taper, and 
as I mentioned yesterday--
    Mr. Gonzalez of Ohio. I agree.
    Mr. Powell. --in my view, it is appropriate that we 
consider, at the next meeting, tapering faster so that it wraps 
up a few months earlier.
    Mr. Gonzalez of Ohio. Yes. I agree. I guess I would 
encourage you--and my concern, again, is we have seen asset 
bubbles accumulate over the course of the pandemic. Investors 
have done incredibly well. I think we should be tapering. I 
agree with that in a lot of ways on the monetary front. But I 
suspect that there is risk building up and I just want to make 
sure that it is on the Fed's radar.
    I want to shift to--I have 1 minute and 26 seconds to see 
if I can get this out. In recent months, Americans, 
unfortunately, have seen energy prices significantly increase, 
especially at the pump. Some people who talk on Twitter have 
claimed that this is due to greedy corporations and speculators 
driving up prices. Do you believe that is the reason for 
increased gas prices?
    Mr. Powell. Energy is a global market, and there are many, 
many factors at work there, I would say. It is a combination of 
very strong demand across-the-board, and supply-side factors 
too.
    Mr. Gonzalez of Ohio. Not greedy corporations and 
speculators driving up prices, that is not accurate for why 
energy prices are high?
    Mr. Powell. Looking at this from an economic perspective, 
it is very strong demand in the face of what have been some 
supply blockages and a little bit of discipline on the part of 
the providers.
    Mr. Gonzalez of Ohio. Thank you. I agree.
    In the summer of 2020, the Federal Reserve updated its 
Statement on Longer-Run Goals and Monetary Policy Strategy to 
state that the Fed would seek to achieve inflation above 2 
percent for some time period. Do you have any second thoughts 
on that, given that we have seen inflation persist for quite 
some time, and if we didn't change the framework, how would you 
potentially have responded differently throughout the pandemic?
    Mr. Powell. The sort of overarching fact of monetary policy 
in the last 15 years, and probably the next 15 years, is just 
that interest rates are significantly closer to the effective 
to zero, and in that world it is hard to support the economy 
and attain growth and maximum employment and 2 percent 
inflation. So, the framework was designed to address a 
situation in that.
    Now, what we have here is an unique historical shock, which 
is the beginning of the pandemic, the middle of it, and the end 
of it, and a different situation and we have a different part 
of the framework that deals with that.
    Ms. Dean. The gentleman's time has expired.
    Mr. Gonzalez of Ohio. Thank you. I will follow up in 
writing. Thank you.
    Mr. Powell. I would be glad to.
    Mr. Gonzalez of Ohio. Thank you, Mr. Chairman.
    Ms. Dean. Thank you. The gentlewoman from Michigan, Ms. 
Tlaib, is now recognized for 5 minutes.
    Ms. Tlaib. Thank you so much, Madam Chairwoman, and I would 
like to thank both of our witnesses for being here.
    Chairman Powell, President Biden stated that with your 
renomination, you would use your authority to address the 
threat that climate change poses to our financial system. As 
you know, if we allow temperatures to rise another 2 degrees 
this century, we are surrendering the planet and our 
environment to corporate polluters, accepting, of course, the 
disruption to our agriculture, our trade, migration on a 
massive, unprecedented scale, and the devastating public health 
impacts. And Chairman, you should know this is so personal for 
me because I am seeing it firsthand in Michigan, where Wayne 
County has not met Clean Air Act standards since 2013. This is 
the largest populated county in Michigan. And not only with 
record floods that have impacted families during the pandemic, 
come up 4 times alone in some households over the summer, it is 
devastating. We need to do something about it, and I know it 
directly impacts our economy.
    Chairman Powell, can you outline precisely what your plan 
is to fulfill that commitment to address climate risk to our 
financial system?
    Mr. Powell. I would be glad to. The Fed has a couple of 
ways that we will address climate that are important, but they 
are not, by themselves, going to be enough, the first of which 
is just to supervise and regulate financial institutions, 
particularly the large ones, to make sure that they understand 
the risks that they are running and can manage them.
    The second really is from a financial stability standpoint. 
Climate change has potentially significant effects on financial 
stability and also on the broader economy, so, we do a lot of 
research. Our researchers are some of the ones who go around 
the globe, who are doing the original research to understand 
the pathway of climate change through the financial system and 
the economy. And those are within our mandate to supervise 
firms and look after financial stability. We will be 
incorporating climate change very much into those mandates.
    Ms. Tlaib. So you know, and I know you have heard it, that 
between 2016 to 2020, banks provided, what, $3.8 trillion in 
direct fossil fuel financing, with most of that investment 
coming from banking. Banks are holding companies under the 
Fed's supervision, and I know you are talking about oversight 
here. But the Acting Comptroller of the Currency, Michael Hsu, 
has announced that the OCC plans to issue supervisory guidance 
on climate risk by the end of the year.
    Chairman Powell, does the Fed intend to join this guidance? 
Why or why not?
    Mr. Powell. I don't think we will join this specific 
guidance. We are very much tracking and in discussions with the 
OCC. I think we will move to certainly provide guidance, and I 
think we all want, all the agencies want to have consistent, or 
ideally, identical guidance. I don't think we will actually be 
in a position to join this specific guidance at this time but 
we will get there.
    Ms. Tlaib. And you know the OCC will also begin examining 
how large banks are addressing climate risk as part of the 
examination, starting in 2022. So, does the Fed plan on 
conducting a similar assessment in 2022, and what is the Fed 
planning to do on assessing climate risk to banks face in 2022?
    Mr. Powell. In 2022, we are already deep into dialogue, and 
again, particularly with the largest financial institutions. 
That is really where a lot of the work is going on right now, 
ongoing dialogue with all of them. And by the way, they are 
doing the same thing we are doing, which is trying to 
understand the implications of climate change for their 
business model, for the things that they do. And also what we 
are thinking about is what is the appropriate supervisory 
approach, how do we do this, which tools do we use, for 
example, climate scenario--
    Ms. Tlaib. Yes, and just on behalf of my residents, I hope 
dialogue turns into guidance and accountability.
    Finally, I am glad you have allowed the leadership of other 
central banks--you joined the Network for Greening the 
Financial System last year. I really appreciate that. But, as 
Fed Governor Brainard has indicated, the U.S. still trails 
other countries in, ``measuring, monitoring, and managing 
climate-related financial risk,'' and the Governor said, ``We 
need to catch up.''
    They go on to say, Chairman Powell, about how far back we 
are in regard to having a much more active role. And so, 
Chairman Powell, the European Central Bank (ECB) has announced 
that climate risk will guide its monetary policy. Will the 
Federal Reserve do the same? Are you actually aggressively 
looking at taking this kind of approach?
    Mr. Powell. I am focused on the United States and our 
existing mandates.
    Ms. Tlaib. Is that a no?
    Mr. Powell. Well, it--
    Ms. Tlaib. Is it no, right now?
    Mr. Powell. It is sort of a broader question--
    Ms. Tlaib. Maybe?
    Mr. Powell. --than a yes or a no.
    Ms. Tlaib. They are saying, okay, we are going to use 
climate risk to guide our monetary policy.
    Mr. Powell. Okay. Narrowly, then, I would say we are not 
doing that now. I think that is something we will do in the 
longer run, but no, we are not doing that now.
    Ms. Tlaib. Not now. Okay.
    The ECB's initial supervisory review revealed that the bank 
faced material risks from climate risk, yet have failed to meet 
the supervisory expectations laid out by the regulator. 
Chairman Powell, do you have similar comprehensive information 
about how U.S. banks are positioned--
    Ms. Dean. The gentlewoman's--
    Ms. Tlaib. I will submit the question in writing.
    Mr. Powell. We are developing that.
    Ms. Tlaib. You are? Good.
    Mr. Powell. We are in the development phase on that.
    Ms. Tlaib. Okay. Thank you.
    Ms. Dean. The gentlewoman's time has expired.
    The gentleman from Texas, Mr. Gooden, is now recognized for 
5 minutes.
    Mr. Gooden. Thank you. Secretary Yellen, I have a few 
questions. If Build Back Better becomes law, which earlier you 
stated it was paid for, and one of the tools for payment was 
enhanced collections from the IRS, if this does become law 
would you anticipate that more Americans will be audited by the 
IRS?
    Secretary Yellen. I would anticipate that many fewer 
Americans with incomes below $400,000 will be audited, that the 
IRS will have the resources to direct their audits in those 
places where we have every reason to believe that taxpayers are 
not paying what is due, that is, high-income Americans and 
complex partnerships and corporations where the sources of 
income are opaque and the audit rates have dropped to 
historically low levels. The auditing will be focused in those 
areas. Those areas are what account for a $7 trillion tax gap 
over the next decade.
    Mr. Gooden. And do you think we need 87,000 new IRS 
employees for that?
    Secretary Yellen. The auditing staff of the IRS has 
declined. The skill level of the auditing force has declined 
substantially. It is critical to hire people who have the 
expertise to conduct these complex audits. But the hiring will 
also improve customer service. The customer service at the IRS 
has fallen to unacceptably low levels.
    Mr. Gooden. I will agree with you there. Thank you for 
those answers.
    Back to inflation. In March, you said that fears that the 
Administration's $2-trillion relief bill could trigger a rapid 
rise in inflation were misplaced. And we heard earlier today 
that that was quite a large factor in where we are today with 
respect to inflation.
    I realize you are selling this plan as great for the future 
and with calming these inflation fears, but isn't it difficult 
for us to accept perhaps, on my side of the aisle, that we are 
not going to just continue to kick the can down the road and 
make things worse when your predictions were so wrong back in 
February? Do you really not think that spending another several 
trillion dollars will--
    Secretary Yellen. First of all, we are talking about a 
decade. We are not talking about a single year. The spending 
from the American Rescue Plan, which was $1.9 trillion, was 
largely concentrated this year. Build Back Better is a decade-
long plan. It is a small plan relate to the total size of the 
economy and GDP over a decade, and it is paid for. So, it does 
not involve an increase in deficits according to a combination 
of CBO and Treasury reckoning over the next decade, and beyond 
that, it puts in place investments that will continue to bring 
down deficits.
    And finally, I would say it will improve the supply side of 
the economy, which is, in the long run, a factor that will tend 
to mitigate ongoing inflationary pressures.
    Mr. Gooden. Thank you. And Chairman Powell, would you agree 
with that analysis, that this increased spending, these 
multiple trillions of dollars over the next year, will that 
help us get to that point that we are at in the end of next 
year where you see inflation reducing?
    Mr. Powell. I'm sorry. We really don't comment on existing 
legislation. It is kind of out of bounds for us. This is what 
the CBO will do. They will make an estimate--
    Mr. Gooden. Just to confirm your discussion with 
Congressman Zeldin, your analysis that the inflationary numbers 
are anticipated to perhaps reduce at the end of next year is 
based on this Build Back Better passing?
    Mr. Powell. We have to see the final bill and how much of 
it is paid for. You have to look at the spending in the first 
couple of years. You have to look at exactly how much of it is 
paid for to really make a sophisticated judgment about that. 
But it is 10 years of spending. So, I am really reluctant to 
get pulled into commenting on something on which we don't 
really have the final facts.
    Mr. Gooden. Thank you. I yield back.
    Ms. Dean. The gentleman yields back. I now recognize myself 
for 5 minutes.
    Welcome back, Secretary Yellen. Welcome back, Chair Powell. 
And Chair Powell, congratulations on your renomination as Fed 
Chair.
    My colleagues on the other side of the aisle have spent a 
tremendous amount of time attacking the Build Back Better Act 
as wasteful spending that will increase the deficit and fuel 
inflation, as we have seen through this conversation. I, of 
course, disagree with that. Not only is this legislation paid 
for, but it makes critical, long-term, overdue investments that 
will improve productivity and address the supply chain 
bottlenecks, part of the cause of heightened inflation.
    The Build Back Better Act critically makes investments 
close to more than $7 trillion, projected 10-year tax gap, that 
is largely due to tax evasion by the wealthy and by 
corporations. I am reminded of the quote by Benjamin Franklin, 
``There are only two things certain: death and taxes.'' 
However, we know, from reality, and Secretary Yellen you have 
spoken about this, that taxes are not certain for everybody, 
and it is time we made a fair, equal playing field.
    So, rather than the boogeyman of 87,000 agents coming after 
hard-working Americans, could we be clearer? What are the ways 
that wealthy individuals and corporations fail to pay taxes, in 
some cases? It is not everybody. We know that. How do some 
avoid or fail to pay taxes, and that is what we are trying to 
go after.
    Secretary Yellen. The rates of compliance for income 
streams that have third-party reporting to the IRS, like wages 
and salaries, 95, 97, 98, something like that, percentage of 
income is reported and taxes are paid as due.
    Ms. Dean. Can you paint a picture--
    Secretary Yellen. That is not where the problem is; the 
problem is opaque sources of income, when individuals earn 
income that isn't wage and salary income, the IRS doesn't know 
about it. They have to rely on the honesty of the taxpayer to 
report what they have earned. They don't have additional 
sources of information. And for complex partnerships and for 
companies, similarly, the sources of income and amounts are 
opaque.
    And if we had high auditing rates, that would probably 
promote more honest reporting. But audit rates have dropped to 
unbelievably low levels over the last decade. And so, the 
investment in the IRS to enhance its auditing capacity, not 
only will that directly enable greater tax collections but a 
lot of research shows that it will improve honesty in reporting 
in the first place when the odds of being audited rise.
    Ms. Dean. That would be valuable because as Treasury as 
estimated, the tax gap could be as high as $7 trillion over the 
next decade, in the future decade. How that much money is 
currently falling through the cracks, and we here, in Congress, 
wouldn't want to address that is staggering to me.
    Chair Powell, in the remaining time that I have, when you 
appeared before this Committee in July, I asked you about the 
need for greater public and private investment. You talked 
about how investment raises the potential growth rate, 
increasing productivity, and raising living standards. I also 
asked you about the impact of supply chain vulnerabilities on 
inflation, which you repeatedly testified to be one of the 
major drivers of inflation.
    As part of the Build Back Better Act, I worked to include 
language to increase our investment in domestic manufacturing 
and support supply chain resiliency. Ultimately, this 
legislation took the form of authorizing $500 million for the 
use of the Defense Production Act for the purposes of 
supporting manufacturing right here.
    Chair Powell, how would this kind of domestic investment in 
manufacturing address continued supply chain challenges and 
combat inflation?
    Mr. Powell. I am going to have to decline to answer. I do 
not want to get into commenting on particular aspects of this 
specific bill. It is just not our role. I assent that we do not 
have the capability to do it. It is just that we really have to 
respect that we are not part of fiscal policy. We do our jobs.
    Ms. Dean. I respect that. How about the fact, if we can 
encourage and create greater domestic manufacturing, not 
speaking of the legislation then, what would that do in terms 
of inflation?
    Mr. Powell. A significant part of the inflation that we are 
seeing is due to longer-length supply chains from Asia. So to 
the extent--as an actual matter, if you made things locally 
here, in this particular situation, you would see lower 
inflation. But by the time--
    Ms. Dean. Thank you, and I have to--
    Mr. Powell. --this will be passed--
    Ms. Dean. --gavel myself off because my time has expired. 
Thank you, Chair Powell.
    The gentleman from Texas, Mr. Sessions, is now recognized 
for 5 minutes.
    Mr. Sessions. Thank you very much, Madam Chairwoman. Madam 
Secretary, I want to, without trying to be too much, as it 
were, that we are fighting each other here over politics, I 
have found it very interesting that your remarks wanted to be 
in line with the Administration, of which you serve as a 
Cabinet officer, but it gets confusing for a Member of 
Congress, and I believe the American people, to speak directly 
to the fact, the case, or the truth that we decide.
    You have used the words, ``honesty in reporting,'' I 
believe 3 times today. You reference that this Build Back 
Better is being completely paid for, but then you put a caveat 
there, but CBO did not report it that way because of the 
revenue that might come in from whatever today we are hearing, 
80,000 or 87,000 new IRS agents.
    What am I, as a member of this committee, to take away as 
the position of the Treasury Department as they properly 
respond to questions from Members of Congress or the media 
about the truth of the matter? Are you in favor of the Build 
Back Better or the CBO score?
    Secretary Yellen. We respect the CBO and agree with the CBO 
analysis of those portions of the bill that CBO scored. CBO 
reported that over the next decade, the aggregate deficit 
resulting from the bill would be $367 billion.
    Mr. Sessions. Yes, ma'am, and that--
    Secretary Yellen. But they also made clear--
    Mr. Sessions. I don't want to argue with you, so are you 
suggesting--
    Secretary Yellen. That is correct, that it coincides--
    Mr. Sessions. --do you think it is fair that you would, and 
the Administration would continue the dialogue, it is 
completely paid for, but--
    Secretary Yellen. I think that is completely--
    Mr. Sessions. --the honesty--
    Secretary Yellen. --I am sorry, I--
    Mr. Sessions. --in reporting is Congress looks at the CBO.
    Secretary Yellen. Congress has to look at the footnotes in 
the CBO report as well, and CBO made clear that their score did 
not include any revenue from additional IRS enforcement. They 
made that completely clear in their written report.
    Mr. Sessions. Yes, ma'am.
    Secretary Yellen. And they have an estimate of what that 
would be, but they have also stated previously that their 
methodology assumes very little shift in the behavior of 
taxpayers. And the Treasury Department has its own analysis and 
their outside researchers who have analysis of what the impact 
of these IRS resources will be. Our estimate, Treasury's 
estimate, is it will generate $400 billion over 10 years. And 
if you combine that with CBO's estimate of the remainder, which 
is a deficit of 367, those two things come out in positive 
territory.
    Mr. Sessions. So, you want a Rube Goldberg drawing, if this 
happens, then we, as the Administration, can say, and the 
President, with a masked face can say, ``It is paid for.'' But, 
in fact, honesty in reporting is what ought to be.
    I still would disagree with the gentlewoman. You are the 
Treasury Secretary. I am not. You are entitled to your opinion. 
I still think that because the honesty in reporting is 
necessary, it would be honest to say, ``And CBO does not 
concur.'' Because I believe it is important to tell people, by 
and large, the truth. The truth of the matter is that you will 
be adding 87,000 net new employees to a department that may 
take 5 or 6 years to materialize.
    Secretary Yellen. That is--
    Mr. Sessions. Another question please, ma'am. How many IRS 
agents--I apologize, I have exceeded my time. I will provide, 
in writing, a request to you, and I want to thank the 
chairwoman, for the time. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from New York, Ms. Ocasio-Cortez, is now 
recognized for 5 minutes.
    Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, and thank 
you to Secretary Yellen and Chair Powell for being with us 
today.
    One of the things that I also wanted to focus in on is the 
very important topic of climate change in terms of the Treasury 
and the Federal Reserve's role in that. The United States just 
returned from COP26 in Glasgow, where participating nations 
agreed to reduce carbon emissions in order to remain within the 
1.5 degree Celsius benchmark, as acknowledged by the Paris 
Agreement.
    The Financial Stability Oversight Council, or FSOC, 
recently released a report exploring the risks that climate 
change poses to our financial system. And while it is the first 
time that FSOC has designated climate change as a threat to 
U.S. financial stability, I was disappointed to see that the 
report, which is intended to serve as a blueprint for Federal 
regulators, makes no mention of any timelines or policies 
needed to stay within that 1.5 degree Celsius target. As a 
matter of fact, the FSOC report, in discussing climate change, 
doesn't discuss the 1.5 degree Celsius target at all, and 
instead it focuses on general data disclosure and review.
    Secretary Yellen, can you explain why the report fails to 
make mention of globally-acknowledged targets for climate to 
prevent further climate change degradation?
    Secretary Yellen. FSOC's mission and responsibility is to 
identify threats to the financial stability of the United 
States and to coordinate across regulatory agencies to make 
sure that they are addressed. Treasury is also involved with 
the Administration in trying to put in place policies--economic 
policies, tax policies, spending policies--that will address 
climate change itself and, of course, very substantial policies 
are included in Build Back Better, and the infrastructure plan 
also contains policies that address climate change and are 
oriented toward trying to meet our commitment to the 1.5 
target.
    Ms. Ocasio-Cortez. Thank you, Secretary Yellen. As a 
general note, I do think it is important that perhaps we 
consider the fact that there are substantially different 
financial risks between 1.5 degrees Celsius, 2 degrees, and 
beyond. But when we look at some of our partners around the 
world, Sweden's Riksbank will only purchase bond holdings from 
companies complying with their climate standards. The Swiss 
Central Bank has announced that they will exclude coal 
investments from its massive holdings. The European Central 
Bank conducts stress testing with respect to climate.
    Do you believe that the United States is behind the rest of 
the world when it comes to mitigating the risk that climate 
change poses to our financial system and the commitments we are 
willing to make to do so?
    Mr. Powell. I take it you are asking me that question, or 
were you asking Secretary Yellen?
    Ms. Ocasio-Cortez. Oh, I apologize. I was asking Secretary 
Yellen, but Chairman Powell, you are welcome to weigh in as 
well.
    Mr. Powell. Thank you. I am really focused on our domestic 
context and doing what we think is right under our laws and our 
authorities as the Fed, and I would say that principally what 
we are working on is regulation and supervision of the largest 
financial institutions, and also financial stability, more 
broadly.
    Ms. Ocasio-Cortez. A May report from the International 
Energy Agency (IEA) found that new fossil fuel exploration 
extraction was incompatible with a 1.5 degree Celsius 
objective, and that, ``There is no need for investment in new 
fossil fuel supply in our net zero pathway.'' And with respect 
to the U.S. mitigating the catastrophic impacts of essentially 
going beyond 1.5, potentially going beyond 2 degrees Celsius, 
do we agree--or, Secretary Yellen, do you agree with this 
assessment that we should consider phasing out investments in 
new fossil fuel supplies?
    Secretary Yellen. I certainly learned a lot from the IEA 
report and have no basis to question their judgment. As Chair 
Powell indicated, the FSOC's mission and the Fed's mission is 
safety and soundness of financial institutions, and we don't 
have authority to tell institutions that they must pursue 
lending policies that support the Paris commitment. But it is 
very noticeable that at Glasgow, all of the major global 
financial institutions voluntarily committed to align their 
lending with the Paris commitments, and certainly, Treasury 
will be monitoring very closely their performance, and we are 
heartened to see these important commitments.
    Ms. Ocasio-Cortez. Thank you very much.
    Chairwoman Waters. Thank you very much. The gentlelady's 
time has expired.
    The gentleman from Oklahoma, Mr. Lucas, is now recognized 
for 5 minutes.
    Mr. Lucas. Thank you, Madam Chairwoman, for holding this 
hearing, and thank you, Chair Powell and Secretary Yellen, for 
appearing before the committee, and like my colleagues, 
Chairman Powell, I would like to congratulate you on your 
renomination for another term. I would acknowledge to you that 
I am not sure the President did you a favor, but thank you for 
being willing to do this again.
    That said, let's talk about a number of issues, and I will 
try and roll through them in some sort of a concise fashion. 
Since the onset of the pandemic, the United States has added 
more than $5 trillion to its total national debt, standing at 
about $29 trillion. And as the Secretary has alluded to, 
apparently we need to raise the debt ceiling very soon to 
address that even. And that doesn't count the extra trillions 
that have gone on the Federal Reserve System's balance sheet. 
The U.S. is now set to exceed the debt-to-GDP ratio in a way 
not seen since the end of the Second World War.
    Chairman Powell, speak to us from a macroeconomic 
perspective. When is the right time to prioritize the threat of 
U.S. debt rapidly outpacing economic growth? We have spent a 
lot of money in the last couple of years.
    Mr. Powell. And as I generally would say, as is 
appropriate, I think, for me to say in my role, the U.S. needs 
to get back on a sustainable fiscal path. The right time to do 
that is when the economy is strong, when the taxes are rolling 
in, when employment is high, and the right way to do it is to 
have a longer-term plan really to get the economy growing 
faster than the debt. By definition, it is unsustainable to 
have the debt ultimately growing faster than the economy, and 
we have that now.
    Mr. Lucas. Chairman, you and I were both young men in the 
Carter-Reagan period, under your predecessor, Chairman Volcker, 
when we went through an inflationary cycle that was even more 
horrendous than this, and the effort that it took to bring that 
period to a conclusion. I guess I would like to visit, for a 
moment, just about the fundamental issues, again, not 
addressing particular legislation, just the fundamental issues.
    The amount of money, through congressional activity, that 
we put into circulation, and in 2020, I think in a bipartisan 
way we voted an incredible amount of money out of this place, 
because the wheels were coming off in the spring and summer of 
2020 with COVID, and no one wanted to return to a 1929, 1941 
period. So, we were willing to do whatever it took.
    But that now brings us to this point of addressing 
inflation and getting a grip on that. Could you describe how--
and I know you don't comment on legislation--policymakers at 
the Fed evaluate the results of these kinds of forecasts on the 
economy?
    Mr. Powell. What we are really looking at is so many things 
cause inflation, but really it is an imbalance between supply 
and demand. In the real economy, that is what it is about. And 
we actually see fiscal stimulus, that the stimulative aspect of 
fiscal policy is actually declining and will turn into a 
headwind next year. You have to distinguish between the change 
in the level, if you will. So, as deficits are coming down 
overall, you are going to see less in the way of fiscal 
stimulus to grow off of this high level of growth that we have. 
We had a very stimulative 2020, if that makes sense.
    Mr. Lucas. The buzz will lead to a hangover. Yes.
    Mr. Powell. What we are looking at is another strong year 
next year. Most forecasters see strong growth, but they also 
see the supply chains getting untangled, and they see the 
economy, the supply side rising to meet strong demand, and we 
see inflation coming down. Again, it is not a certainty. It is 
a forecast.
    Mr. Lucas. But the balancing act of policymakers, as the 
supply increases we still have to address the money that is 
available to chase those few resources or this process won't 
come to an end.
    Turning to you, Secretary, we have discussed, several of my 
colleagues have, climate-related issues. I am concerned, coming 
from a district that produces lots of different forms of 
energy, and consumes massive amounts of different forms of 
energy, that when the majority can't pass a bill to outlaw 
certain forms of energy, and they can't pass a bill to tax it 
to death, that the route they are going to take is to use 
regulatory policy to strangle the capital available to those 
industries.
    Could you touch on that for a moment? Is it the intention 
of the regulators to create standards such that banks cannot 
support any particular energy industry that may ask for 
capital, that may justify a loan?
    Secretary Yellen. As Chair of FSOC, I would say our focus 
is on financial stability, and the regulators, like the Federal 
Reserve, are focused on safety and soundness of institutions, 
and that means making sure they hold adequate capital to manage 
the risk.
    Mr. Lucas. There is a fascinating report from the New York 
Fed--
    Secretary Yellen. It is not a--
    Mr. Lucas. --that I hope you will review. With that I yield 
back, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    The gentleman from Illinois, Mr. Garcia, is now recognized 
for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and of 
course, I thank you and the ranking member for convening this 
hearing. And, of course, thank you to our witnesses for joining 
us today to discuss the CARES Act oversight and our pandemic 
response. From when we passed the CARES Act until today, we 
have made remarkable progress. Our recovery has been 
impressive, especially compared to other countries, but it has 
been uneven and unequal as well. It is our job to fix that.
    Secretary Yellen, I represent a working-class, immigrant 
district, including many families with children. In fact, it's 
one of the youngest districts in the country. The stimulus 
checks and the child tax credit were vital in my community. 
That is why I have fought so hard to ensure that mixed-status 
families and Individual Taxpayer Identification Number (ITIN) 
holders are finally able to access these vital benefits in the 
American Rescue Plan. More than half of Latino children have at 
least one immigrant parent, and at least 90 percent of these 
children are U.S. citizens, meaning they are entitled to these 
benefits, but they often can't get them.
    The question for you--millions of ITINs expired at the end 
of last year, and the ITIN process is plagued by delays. 
Sometimes, the IRS holds onto original documents for months, a 
terrifying prospect for an immigrant family. What are Treasury 
and the IRS doing to streamline the application process for 
ITIN filers?
    Secretary Yellen. I can get back to you, or have my staff, 
with greater detail on this. But we have been trying to speed 
the delivery, for example, of the child tax payments to 
individuals who didn't file a return in either 2019 or 2020. 
Many ITINs may be in that category, and it has been an 
objective of our outreach to make sure that there are tools 
available to apply for those payments. We made an application 
available on mobile devices that is in Spanish as well, to try 
to make sure that they receive the payments they are entitled 
to, but I would be glad to get back to you with more detail on 
this.
    Mr. Garcia of Illinois. Thank you. I will take you up on 
that and follow up with you and your folks.
    Data shows that Latinos are less likely than Whites to 
report receiving monthly child tax credit payments. This is 
disturbing, since Latino children are more likely to live in 
poverty. What can Treasury and the IRS do to monitor the 
success of the tax credit in the Latino community and what can 
Congress do to ensure that the tax credit reaches everyone that 
is entitled to it?
    Secretary Yellen. I would just say that we have tried, 
through an extensive outreach program, and working with Members 
of Congress as well, to make sure that there is awareness, 
especially in low-income and minority communities of 
eligibility for these payments, especially the child tax 
payments. And it is a question of getting the world out and 
making sure that families know how to apply.
    Mr. Garcia of Illinois. And do you think that Members of 
Congress have any other role to help ensure that everyone who 
is eligible gets it?
    Secretary Yellen. We have asked Members of Congress to help 
us get the word out. The IRS has had an extensive outreach 
program, but certainly Members of Congress can help publicize 
the availability of these benefits in their districts.
    Mr. Garcia of Illinois. Thank you, Secretary. I look 
forward to following up with you and, of course, working 
together to ensure that these benefits reach every community in 
this country.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Missouri, Mr. Luetkemeyer, is now 
recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Chairman Powell, congratulations on your renomination. I 
look forward to working with you over your next 4 years.
    Also, Chairman Powell, the Fed oversees 753 financial 
institutions for compliance, with numerous measures related to 
the safety and soundness of the banking system. If one of those 
institutions chose to not follow a law passed by Congress or a 
rule the Fed promulgated, the Fed can take a myriad of 
enforcement actions including cease and desist orders, removal 
and prohibition orders, and monetary policies. In other words, 
if you break the law, there are consequences. Isn't that 
correct?
    Mr. Powell. That is correct.
    Mr. Luetkemeyer. Thank you. Secretary Yellen, do you 
believe the Fed should punish those entities when they decide 
not to follow the law? Do you believe that the Fed should 
punish those entities when they do not follow the law? Those 
banks, if they are not following the law?
    Secretary Yellen. Yes, if they don't follow the law.
    Mr. Luetkemeyer. Thank you. If you are going to hold the 
banks and society accountable to the law, shouldn't we also 
hold Cabinet members accountable when they do not follow the 
law?
    Secretary Yellen. Yes.
    Mr. Luetkemeyer. Thank you for that. Secretary Yellen, I am 
the ranking member of the House Small Business Committee, as 
you well know. The CARES Act put the Secretary of the Treasury 
in charge of the PPP program. You, by law, were supposed to 
show up by the end of April, April 23rd, which is now 222 days, 
over 7 months, and you will get to grace the threshold of that 
committee hearing room and give your report. Why do you 
continue to ignore and thumb your nose at the Small Business 
Committee and your job to adhere to the law, which you just 
said is important as a Cabinet member?
    Secretary Yellen. I believe that congressional oversight is 
very important, and that Congress and committees should be 
partners with us in serving the American people. I have, over 
the last 10 months, testified 12 times, and--
    Mr. Luetkemeyer. Madam Chairwoman, with all due respect, 
you are not answering my question. It is very specific. Yes, 
you have been able to accommodate every other committee on this 
Hill except the Small Business Committee, which you are 
required, by law, to show up to. Why are you not there?
    Secretary Yellen. Well, I--
    Mr. Luetkemeyer. Why are you not at the Small Business 
Committee?
    Secretary Yellen. --do have the ability to delegate 
responsibilities--
    Mr. Luetkemeyer. You have not delegated to anybody yet. 
There is nobody who has shown up for 222 days now, past--
    Secretary Yellen. I have offered my Deputy Treasury 
Secretary to testify before the committee, and--
    Mr. Luetkemeyer. Madam Secretary--
    Secretary Yellen. --that is something that I do have--
    Mr. Luetkemeyer. --reclaiming my time, with all due 
respect, you do not delegate an authority like that. You are 
required by law to show up. As you just said, multiple times, 
you have been to other hearings across the spectrum of the 
House and the Senate, and yet you refuse to come to the Small 
Business Committee. Is it beneath you to show up at our 
committee hearing, which is against the law, by the way?
    Secretary Yellen. --the Treasury has had, during the Biden 
Administration, essentially no role in the Paycheck Protection 
Program.
    Mr. Luetkemeyer. Well, that is a problem for the Biden 
Administration. That is not the problem of the--you should be 
doing your job.
    Secretary Yellen. It is the Small Business Administration 
that has responsibility--
    Mr. Luetkemeyer. No, it does not, Madam Secretary.
    Secretary Yellen. --for conducting--
    Mr. Luetkemeyer. Madam Secretary, with all due respect, it 
does not. The CARES Act gave the Secretary of the Treasury 
authority over that. I spent 2 or 3 weeks with the leadership 
team of this committee, working with Secretary Mnuchin, to put 
that plan together. It is in your purview. It is in your 
jurisdiction. It is your job to oversee that particular 
program, and it is your job to be able to report on it, as per 
the law. You just thumb your nose at the law over and over 
again. It can't continue.
    As you just said, there should be consequences to Cabinet 
members who do not follow the law. Amazing. It is breathtaking.
    I have about a minute left, so let me move on quickly here.
    Chairman Powell, I am very concerned about the continued 
investment in China by all of the folks in this country, the 
investment folks. To me, it falls under monetary policy, but I 
will see what your opinion is here.
    As we continue to throw more money in the economy, it seems 
like there is more money that is shifting over to China and 
investing in the Chinese bonds, they are investing in their 
companies, we are investing in their securities. Are you 
alarmed by this at all, by our investing in China and their 
economy, which would be competing against us and would have a 
direct impact on our economic ability to survive down the road?
    Mr. Powell. Representative Luetkemeyer, we really don't 
have a role in that. The SEC would have a role. If investors 
are investing in Chinese bonds and things like that, that would 
really be an issue for the SEC but not so much for us.
    Mr. Luetkemeyer. Are you concerned about it at all, the 
level of investment over there?
    Mr. Powell. I am mostly concerned about inflation and 
stable prices and maximum employment here at home.
    Mr. Luetkemeyer. Okay. Well, that investment, I think, 
would have a dramatic impact because of the money flowing in 
there versus it is flowing back here. To me, it would be able 
to set up our own supply chains over here to be able to be more 
helpful.
    Thank you very much. I yield back.
    Chairwoman Waters. Thank you very much.
    I would like to thank Secretary Yellen and Chair Powell for 
their testimony today.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    With that, this hearing is adjourned.
    [Whereupon, at 12:14 p.m., the hearing was adjourned.]

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