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






                    THE FEDERAL RESERVE'S SEMIANNUAL  
                         MONETARY POLICY REPORT

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 10, 2024

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-102








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                                   _______
                                   
                 U.S. GOVERNMENT PUBLISHING OFFICE 
                 
56-907 PDF                   WASHINGTON : 2024 























                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

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

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

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                                                                   Page
Hearing held on:
    July 10, 2024................................................     1
Appendix:
    July 10, 2024................................................    59

                               WITNESSES
                        Wednesday, July 10, 2024

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

                                APPENDIX

Prepared statements:
    Powell, Hon. Jerome H........................................    60

              Additional Material Submitted for the Record

Garcia, Hon. Sylvia:
    Federal Reserve Bank of Dallas, ``Unprecedented U.S. 
      immigration surge boosts job growth, output,'' dated July 
      2, 2024....................................................    64
    ``Budgetary Effects of the Surge in Immigration''............    71
Hill, Hon. French:
    Letter to Chairman Powell re: National Settlement Service and 
      Fedwire Funds Service, dated July 8, 2024..................    75
    Chairman Powell's speech, ``Monetary Policy in the Time of 
      COVID,'' dated August 27, 2021.............................    78
Powell, Hon. Jerome H.:
    Written responses to questions for the record from Chairman 
      McHenry....................................................   101
    Written responses to questions for the record from 
      Representative Barr........................................   106
    Written responses to questions for the record from 
      Representative Beatty......................................   127
    Written responses to questions for the record from 
      Representative Donalds.....................................   129
    Written responses to questions for the record from 
      Representative Garbarino...................................   131
    Written responses to questions for the record from 
      Representative Garcia......................................   134
    Written responses to questions for the record from 
      Representative Hill........................................   136
    Written responses to questions for the record from 
      Representative Horsford....................................   141
    Written responses to questions for the record from 
      Representative Kim.........................................   143
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   148
    Written responses to questions for the record from 
      Representative Sherman.....................................   151
    Written responses to questions for the record from 
      Representative Wagner......................................   157

 
                    THE FEDERAL RESERVE'S SEMIANNUAL 
                         MONETARY POLICY REPORT

                              ----------                              


                        Wednesday, July 10, 2024

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:06 a.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick McHenry 
[chairman of the committee] presiding.
    Members present: Representatives McHenry, Lucas, Posey, 
Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill, 
Loudermilk, Davidson, Rose, Steil, Meuser, Fitzgerald, 
Garbarino, Kim, Donalds, Flood, Lawler, Nunn, De La Cruz, 
Houchin; Waters, Velazquez, Sherman, Scott, Green, Cleaver, 
Himes, Foster, Beatty, Vargas, Gottheimer, Gonzalez, Casten, 
Pressley, Horsford, Tlaib, Torres, Garcia, Williams of Georgia, 
Nickel, and Pettersen.
    Chairman McHenry. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``The Federal Reserve's 
Semiannual Monetary Policy Report.'' We like creative titles 
here, and that is our traditional title for our Humphrey-
Hawkins hearing.
    I will note at the outset that this hearing has a hard stop 
at 1 p.m., which we will strictly observe, and which seems only 
humane.
    I will now recognize myself for 4 minutes for an opening 
statement.
    Thank you, Chair Powell, for being back with us today.
    With prices increasing more than 20 percent since President 
Biden took office, inflation remains top of mind for American 
families. In fact, only a quarter of Americans describe current 
economic conditions as good or excellent, according to the most 
recent data from Gallup's Economic Confidence Index.
    Despite President Biden's gaslighting, inflation was not 9 
percent when he took office. The out-of-control inflation we 
are experiencing now is something that this Administration did 
not inherit but is a product of their policies and their 
overspending.
    The nearly $2-trillion partisan and fiscally-reckless 
spending as a part of the American Rescue Plan poured fuel on a 
smoldering inflationary fire. After a delayed response to 
runaway inflation, the Federal Open Market Committee (FOMC) has 
acted with a historic pace of interest rate hikes to ease the 
pain caused by Democrats' failed economic policies.
    The Fed is trying to tame these flames, but it is a 
response not to the actual disease, but to Democrat policies 
here on Capitol Hill and the Administration.
    So far this year, inflation has been more persistent than 
many, including the Fed, previously expected. There is still 
work to be done to reach the Fed's 2-percent target.
    As I have repeatedly said, the commitment to independence 
of the Federal Reserve is of the utmost importance, and it is 
critical, especially in a political year like this.
    Chair Powell, just as you did in previous Administrations, 
you must not allow politics to cloud the Fed's monetary policy. 
However, despite your best efforts, the Fed independence 
remains at risk. And, unfortunately, calls are coming from 
inside the building.
    Under Vice Chair Barr, the Fed's regulatory and supervisory 
agenda has become politicized. Most notably, the development of 
the Basel III Endgame proposal has been a mess. This process 
has been cloaked in opaque standards and timelines set at 
meetings of unaccountable global governance bodies.
    The Fed has promised to process 410 almost universally-
negative comments, public comments, regarding the unjustified 
and underanalyzed initial proposal.
    Recent press reports, which seem to be the only way 
Congress gets details on the Basel III Endgame progress, and 
your comments yesterday, indicate the Fed will finally conduct 
a long-overdue quantitative impact study. That is welcome. And, 
if true, this is a promising, promising development.
    Chair Powell, the last time you testified before this 
committee, you stated that the initial Basel III Endgame 
proposal will undergo, ``broad and material changes.''
    Yesterday in the Senate, you said the Board supports 
reissuing the updated proposal for public comment. I am 
concerned that press reports also claim the Fed will tuck any 
changes to the proposal into this quantitative impact study. 
That study, including the substantial changes to the proposal, 
would then be issued for public feedback with a relatively 
paltry comment period.
    I will reiterate to you here what I have said to you in 
private: Broad and material changes to the Basel III Endgame 
necessitate a full reproposal. Full stop. Failure to do so will 
result in an immediate Congressional Review Act vote out of 
this House of Representatives as quickly as we can possibly 
process it.
    Now, it doesn't have to be this way, and I think the Fed 
adhering to its long-standing principles here is highly 
important, especially with this interagency process.
    I will close with this. Your steady and capable apolitical 
leadership of the Federal Reserve has shepherded our economy 
through extreme uncertainty. We now find ourselves in the midst 
of a new type of uncertainty surrounding the leadership of our 
nation. Doubts, fear, and panic often lead to bad decision-
making and even worse policy.
    I urge you to reject outside political pressure in this 
volatile time and stay the course for the good of the American 
people and our economy as a whole.
    Thank you for your service, and I yield back.
    I will now recognize the ranking member of the committee, 
Ms. Waters, for 4 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    And welcome back to the Honorable Jerome H. Powell, 
Chairman of the Board of Governors of the Federal Reserve 
System.
    Chair Powell, as we saw with the latest jobs report, the 
labor market remains strong, and the economy is surging. 
Despite inheriting an economy from the prior Administration 
that had the worst jobs record since the Great Depression, 
President Biden has now overseen a record 15.7 million jobs 
created since he took office, with 206,000 new jobs created 
just last month.
    Not only that, but under the Biden Administration, we are 
witnessing low unemployment rates, rising wages, and 
stabilizing prices for goods and services. This is not only 
because of President Biden's strong leadership but also because 
of the historic legislation signed into law by President Biden, 
which has resulted in lower costs, created more jobs, rebuilt 
our infrastructure, supported small businesses, eliminated 
mostly junk fees, wiped out more than $144 billion in Federal 
student loan debt for 14 million borrowers, and cut child 
poverty in half.
    President Biden is and will continue to advance policies 
that are providing good-paying jobs and an economy that works 
for everyone.
    Now, while I am pleased to see that inflation is declining, 
the latest data makes it clear that housing remains the number-
one driver of core inflation. Since 2020, house prices have 
increased by nearly 50 percent, with Americans now spending on 
average over 30 percent of their income on housing. This is a 
top priority for Democrats but remains an afterthought for 
Republicans.
    Earlier this Congress, I reintroduced my comprehensive 
housing legislation package including the Housing Crisis 
Response Act, which provides more than $150 billion in fair and 
affordable housing investments, representing the single-largest 
investment in affordable housing in our nation's history.
    These funds would create nearly 1.4 million affordable and 
accessible homes, bring down housing costs for all, and revive 
the American Dream of homeownership. Committee Democrats are 
committed to getting this bill across the finish line, and 
continue to hold out hope that our Republican colleagues will 
finally join us in this effort.
    Unfortunately, extreme MAGA Republicans are not just 
ignoring housing inflation; they are advancing their Project 
2025 manifesto that would dismantle U.S. democracy and the 
economy as we know it today. Project 2025 is authored by almost 
two dozen former Trump White House staffers and Trump 
Administration officials. It was compiled and published by the 
ultra far-right Heritage Foundation, whose CEO recently 
declared that they are, ``in the process of a second American 
Revolution, which will be bloodless if the left allows it to 
be.'' And, if that kind of talk reminds anyone of the rhetoric 
we heard in the lead up to and on January 6, 2020, it should.
    Project 2025 promotes radical ideas to materially undermine 
the Federal Reserve, if not effectively abolish it. MAGA wants 
to put you out of a job, Chairman Powell.
    So, I look forward to your testimony and to hearing from 
you, a Republican who was first nominated by President Trump, 
about your thoughts on the importance of the Federal Reserve 
and the work you have done to help our economy.
    And I yield back.
    Chairman McHenry. The gentlelady yields back.
    I would note for the record that Jerome Powell was 
initially nominated by President Obama to the Board of 
Governors of the Federal Reserve System before being nominated 
by President Trump as Chair.
    I now recognize the gentleman from Kentucky, Mr. Barr, who 
is also the Chair of our Financial Institutions Subcommittee, 
for 1 minute.
    Mr. Barr. Thank you, Mr. Chairman.
    Welcome, Chairman Powell.
    Runaway inflation and the increased interest rates 
necessary to confront it continue to hammer Americans, 
especially those living paycheck to paycheck. Workers and 
families feel the pain, making everyday purchases at high 
prices in the grocery aisle and at the pump. They have suffered 
years of eroding purchasing power in their paychecks under the 
Biden Administration's economic management. Heightened mortgage 
rates make it prohibitive for new homebuyers to reach the 
American Dream of a starter home for their family.
    I am pleased that the Fed is resolute in getting inflation 
under control. And I am pleased that you have committed to an 
apolitical approach to this. I am not pleased by the Fed's 
opaque, unjustified, politicized, and underanalyzed regulatory 
proposals, which will ultimately hurt all Americans. We need to 
know where the Fed is going on its fundamentally-flawed Basel 
III Endgame proposal and its opaque regulatory approach.
    I yield back.
    Chairman McHenry. The Chair now recognizes the ranking 
member of our Financial Institutions and Monetary Policy 
Subcommittee, Mr. Foster, for 1 minute.
    Mr. Foster. Thank you, Chairman McHenry, and Ranking Member 
Waters.
    I would also like to thank you, Chair Powell, for joining 
us today and for the role you have played in combating 
inflation and supporting a stable economic recovery.
    While the Presidency is often the focus of political 
pronouncements about macroeconomic conditions, there is no 
question that it undersells the importance and the independence 
of the work of the Federal Reserve Board.
    While actions taken by the President and Congress certainly 
play a significant role, monetary policy decisions made by an 
independent Federal Reserve are the big dog in shaping 
macroeconomic conditions that shape economic outcomes for 
millions of Americans. And work continues on inflation, but 
significant progress has been made to bring the country in line 
with the Fed's 2-percent target.
    The good news is that macroeconomic policy is working as 
designed. Well-calibrated monetary policy with fiscal support 
from the American Rescue Plan, the Infrastructure Investment 
and Jobs Act, and the CHIPS and Science Act has powered strong 
job creation and low unemployment, while staving off a 
recession that many thought inevitable--and far better, I 
should point out, than our peer countries--while Democrats are 
committed to supporting our efforts to cut costs for American 
families.
    I yield back.
    Chairman McHenry. We will now welcome the testimony of 
Jerome Powell, the 16th Chair of the Federal Reserve Board of 
Governors.
    Chair Powell, you will be recognized for 5 minutes to give 
an oral presentation of your testimony. And without objection, 
your written statement will be made a part of the record.
    You are now recognized for 5 minutes.

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

    Mr. Powell. Chairman McHenry, Ranking Member Waters, and 
members of the committee, I appreciate the opportunity to 
present the Federal Reserve's Semiannual Monetary Policy 
Report.
    The Federal Reserve remains squarely focused on our dual 
mandate to promote maximum employment and stable prices for the 
benefit of the American people. Over the past 2 years, the 
economy has made considerable progress toward the Federal 
Reserve's 2-percent inflation goal. And labor market conditions 
have cooled, while remaining strong. Reflecting these 
developments, the risks to achieving our employment and 
inflation goals are coming into better balance.
    I will review the current economic situation before turning 
to monetary policy.
    Recent indicators suggest that the U.S. economy continues 
to expand at a solid pace. Gross domestic product (GDP) growth 
appears to have moderated in the first half of this year, 
following impressive strength in the second half of last year. 
Private domestic demand remains robust, however, with slower 
but still solid increases in consumer spending. We have also 
seen moderate growth in capital spending and a pickup in 
residential investment so far this year. Improving supply 
conditions have supported resilient demand and the strong 
performance of the U.S. economy over the past year.
    In the labor market, a broad set of indicators suggests 
that conditions have returned to about where they stood on the 
eve of the pandemic, strong but not overheated. The 
unemployment rate has moved higher but was still at a low level 
of 4.1 percent in June. Payroll job gains averaged 222,000 jobs 
per month in the first half of the year. Strong job creation 
over the past couple of years has been accompanied by an 
increase in the supply of workers, reflecting increases in 
labor force participation among individuals aged 25 to 54 and a 
strong pace of immigration. As a result, the jobs-to-workers 
gap is well down from its peak and now stands just a bit above 
its 2019 level. Nominal wage growth has eased over the past 
year. A strong labor market has helped narrow longstanding 
disparities in employment and earnings across demographic 
groups.
    Inflation has eased notably over the past couple of years 
but remains above the committee's longer-run goal of 2 percent.
    Total Personal Consumption Expenditures (PCE) prices rose 
2.6 percent over the 12 months ending in May. Core PCE prices, 
which exclude the volatile food and energy categories, also 
increased 2.6 percent. After a lack of progress toward our 2-
percent inflation objective in the early part of this year, the 
most recent monthly readings have shown modest further 
progress. Longer-term inflation expectations appear to remain 
well-anchored, as reflected in a broad range of surveys of 
households, businesses, and forecasters, as well as measures 
from financial markets.
    Our monetary policy actions are guided by our dual mandate 
to promote maximum employment and stable prices for the 
American people. In support of these goals, the Committee has 
maintained the target range for the Federal funds rate at 5\1/
4\ to 5\1/2\ percent since last July, after having tightened 
the stance of monetary policy significantly over the previous 
year and a half. We have also continued to reduce our 
securities holdings. At our May meeting, we decided to slow the 
pace of balance sheet runoffs starting in June, consistent with 
the plans released previously. Our restrictive monetary policy 
stance is helping to bring demand and supply into better 
balance and to put downward pressure on inflation.
    The Committee has stated that we do not expect it will be 
appropriate to reduce the target range for the Federal funds 
rate until we have gained greater confidence that inflation is 
moving sustainably toward 2 percent. Incoming data for the 
first quarter of this year did not support such greater 
confidence. The most recent inflation readings, however, have 
shown some modest further progress. And more good data would 
strengthen our confidence that inflation is moving sustainably 
toward 2 percent.
    We continue to make decisions meeting by meeting. We know 
that reducing policy restraint too soon or too much could stall 
or even reverse the progress that we have seen on inflation. At 
the same time, in light of the progress made both in lowering 
inflation and in cooling the labor market over the past 2 
years, elevated inflation is not the only risk we face. 
Reducing policy restraints too late or too little could unduly 
weaken economic activity and employment. In considering 
adjustments to the target range for the Federal funds rate, the 
Committee will continue its practice of carefully assessing 
incoming data and their implications for the evolving outlook, 
the balance of risks, and the appropriate path of monetary 
policy.
    Congress has entrusted the Fed with the operational 
independence that is needed to take a longer-term perspective 
in the pursuit of our dual mandate of maximum employment and 
price stability. We remain committed to bringing inflation back 
down to our 2-percent goal and to keeping longer-term inflation 
expectations well-anchored.
    Restoring price stability is essential to achieving maximum 
employment and stable prices over the long run. Our success in 
delivering on those goals matters to all Americans.
    I will conclude by emphasizing that we understand that our 
actions affect communities, families, and businesses across the 
country. Everything we do is in service to our public mission.
    Thank you. I look forward to your questions.
    [The prepared statement of Chairman Powell can be found on 
page 60 of the appendix.]
    Chairman McHenry. Thank you, Chair Powell.
    I will now recognize myself for 5 minutes for questions.
    Chair Powell, let's begin with this question. The Basel III 
Endgame--I know you had questions about it yesterday, but I 
think we need further clarity. In your testimony about Vice 
Chair Barr's discussions with the Federal Deposit Insurance 
Corporation (FDIC) and with the Office of the Comptroller of 
the Currency (OCC) on the next steps for the Basel III Endgame, 
you mentioned potential changes have been made to the original 
Basel III Endgame, that a lot of progress has been made, and 
that the Board is very close to agreeing on the substance of 
those changes.
    But the next steps, that is really what I want to get into. 
Let's go through the mechanics of what happens next. If the 
Fed, the OCC, and the FDIC agree on the substance of whatever 
changes you are going to make, what happens then? Walk us 
through the mechanics as you anticipate it.
    Mr. Powell. Okay. We are very close to having exactly that 
agreement on the substance of the proposed changes pursuant to 
those talks.
    The next question is how to proceed. And it is my view and 
the strong view of a number of Board Members that the 
appropriate thing to do is to take that new proposal and 
publish it along with the effects of the quantitative impact 
survey, and put that out for comment again and receive comments 
on that, and then take some time to review those comments 
before finalizing the regulation.
    And that is a discussion we are having with the other two 
agencies now. We have not been able to reach agreement on a 
path to do that, but that is something that we think is the 
right way to do it. That is what we have done in similar 
situations. There aren't that many similar situations. But when 
we see broad and material changes to an important regulation, 
we think, let's go out again and give all the commenters 
another chance to comment.
    Chairman McHenry. Yes. And that also avoids serious lawsuit 
risk and the risk that will Congress step in and overturn this 
rulemaking using the Congressional Review Act.
    I think the other agencies, if they are not agreeing with 
the Fed, they are running against the independence of the 
Federal Reserve.
    This is not a trifling matter of policy. This is a matter 
of real substance for the independence of the Fed and the 
rulemaking at the Federal Reserve, and I think we should be 
able to keep the independence of the Fed separate, especially 
in this political environment.
    But opening up a new comment period means you have to get 
consensus from the Board of Governors on the policy. You have 
to get the agreement of the scandal-plagued Chair of the FDIC 
or the five-member board of the FDIC. You have to get agreement 
by the acting Comptroller of the Currency. These people should 
not have real standing with the Fed on a matter of serious 
policy, especially with a Chair of the FDIC who is being ousted 
by his own party as soon as they can get a replacement 
confirmed.
    It is an absurd thing that the Fed has to go to an Acting 
Comptroller of the Currency, and a guy who is going to be out 
of a job very soon at the FDIC, and get agreement. But thank 
you for listening.
    Is the quantitative impact analysis going to include the 
interplay with the stress test, the global systemically 
important bank (G-SIB) surcharge, and all of the other capital 
charges here? Will that be a part of the quantitative impact 
analysis?
    Mr. Powell. It will be in this proposal, which does include 
changes to the G-SIB surcharge, but does not include the stress 
test.
    Chairman McHenry. But the goal here with the quantitative 
impact is to actually measure the impact of these rules as 
enacted, based upon existing regulatory structures?
    Mr. Powell. That is right.
    Chairman McHenry. Okay. So, let's get into the question of 
a balance sheet as quickly as we can. Two and a half years ago, 
you stated that, ``The Committee intends to slow and then stop 
the decline and size of the balance sheet when reserve balances 
are somewhat above the level it judges to be consistent with 
ample reserves.''
    That was 2\1/2\ years ago. Where are we in this question of 
what are ample reserves?
    Mr. Powell. The balance sheet--the runoff in the portfolio 
is now, I think, $1.7 trillion so far. So, we have made quite a 
lot of progress, but we think we have a good ways to go.
    And as I mentioned, and as you just mentioned, we have now 
slowed the pace really with a view to getting as far as we can 
without creating frictions and disruptions that might cause it 
to prematurely stop shrinking.
    Going a little bit slower might actually enable us to go 
further. We think we have quite a ways to go. It's very hard to 
be precise about it. It is really a question of supply and 
demand. And we will find that level with a little bit of a 
buffer on top of it, and that is where we will stop.
    Chairman McHenry. Okay. Thank you for your testimony.
    The ranking member, Ms. Waters, is recognized for 5 
minutes.
    Ms. Waters. Thank you very much.
    Chairman Powell, are you familiar with Project 2025?
    Mr. Powell. Not really, no.
    Ms. Waters. Have you heard about it?
    Mr. Powell. I really don't focus on these things at all.
    Ms. Waters. You don't focus, but you know there is 
something known as Project 2025?
    The reason I am asking you is because one proposal is to 
get rid of the Fed's dual mandate to promote not only stable 
prices, but also maximum employment. This is your mandate. 
These are mandates, right?
    Mr. Powell. Yes.
    Ms. Waters. This is what you do. Is that right?
    Mr. Powell. Yes, we do serve a dual mandate. That is right.
    Ms. Waters. And so, if there was anything that would get 
rid of the mandate, what would it do to our economy? What would 
it do to our country?
    Mr. Powell. The question of which mandate we serve is very 
much a question for Congress. My own view has been that the 
dual mandate has served us well. This is something Congress can 
change and change back to a single mandate. There are, 
however----
    Ms. Waters. What do you do to get maximum employment?
    Mr. Powell. Basically, we have one tool on the economy, and 
that is, we raise and lower interest rates. We at the Fed 
certainly do believe that the dual mandate has been a good 
thing, and it has enabled us to--it has not stopped us from 
controlling inflation when that was the thing that needed to be 
done.
    Ms. Waters. Of course, I understand you may not have seen, 
heard, or read about Project 2025. Are you familiar with an 
effort in the country to get rid of diversity and inclusion?
    Mr. Powell. I see these things mentioned. But, honestly, we 
are pretty focused on our task, which is maximum employment and 
price stability. We are strong supporters of diversity at the 
Fed, as you know.
    Ms. Waters. Are you aware that I created a Subcommittee on 
Diversity and Inclusion in this committee?
    Mr. Powell. Yes, I remember that.
    Ms. Waters. And do you think that getting rid of diversity 
and inclusion interferes with your ability to really realize 
the mandate of maximum employment?
    Mr. Powell. I have spent most of my career in the private 
sector, and what I observed was that really successful 
institutions in the United States--companies, organizations--
generally are those that do a really good job on diversity and 
get the best out of people and attract a broad, diverse range 
of talents to the table, and people feel comfortable speaking.
    That is the way we feel about it at the Fed, and that is 
what we have been doing and will continue to do.
    Ms. Waters. And do you think it is important not only to 
have diversity and inclusion in the public sector but in the 
private sector also?
    Mr. Powell. Yes. And as I mentioned, if you look at very 
successful American companies, you will very often see that 
they are good at that. They are good at hiring, attracting, 
investing in, and keeping diverse talent. That is one of things 
that our really good U.S. public companies do well.
    Ms. Waters. Have you seen improvement during your tenure 
where diversity and inclusion has created opportunities for 
more jobs and helped to reduce the unemployment rate?
    Mr. Powell. I think you see over the course of my long 
career a big change in diversity and inclusion, and you see 
that in the private sector and the public sector. And I think 
that is generally progress. I do.
    Ms. Waters. Under the work of this committee and the 
subcommittee, as chaired by Mrs. Beatty, she was able to gather 
important data about what was going on in the private sector. 
And what she discovered was that many of the CEOs and others 
welcomed the opportunity to learn more and to do better and to 
get assistance. And we saw improvement with diversity and 
inclusion. Have you seen that?
    Mr. Powell. There is no question. If you talk to CEOs, they 
get this. If you want to attract the best talent in our country 
now, you need to be committed to these things.
    Ms. Waters. I would like to compliment you on the job that 
you have been doing. And I would like to compliment you on 
keeping us informed about inflation. Not only do I welcome you 
here today, I look forward to working with you for years to 
come.
    I yield back. Thank you.
    Mr. Powell. Thank you.
    Chairman McHenry. The gentleman from Arkansas, the Vice 
Chair of the committee, Mr. Hill, is now recognized for 5 
minutes.
    Mr. Hill. I thank the Chair.
    Chair Powell, thanks so much, and welcome back to the 
committee.
    I want to pick up where Senator Tim Scott and Chair McHenry 
left off and reiterate my strong support for your comment 
yesterday in the Senate about the need to repropose the Basel 
III Endgame.
    The Supreme Court's precedent, I think, makes it clear that 
if a rule undergoes broad and material changes from the 
proposal to the final rule, the public must be given a 
meaningful opportunity to review and comment on those changes.
    You generally share that view, I think. Is that right?
    Mr. Powell. Yes.
    Mr. Hill. And I am looking forward to seeing the results of 
the Quantitative Impact Study and the separate comment period, 
as well as the interagency agreement that you referenced 
yesterday.
    Because of the Dodd-Frank Act's role, and Fed Vice Chair 
for Supervision Barr's role, and the Fed's role, would it be 
fair to say the Fed is the first among equals on proposing a 
rule like this? In other words, does the Fed have a supremacy 
position on determining whether it should be fully reproposed 
or not, or do you view it strictly as a collaboration? I'm just 
curious about your view on that.
    Mr. Powell. I would say it is strictly collaborative. And I 
would say that our discussions with the FDIC, which Vice Chair 
Barr has actually been conducting, and the OCC have been very 
productive so far. So, I want to make sure to say that.
    We have continued to work our way through this, and I 
believe we will get fairly soon to a resolution of the 
remaining process issue.
    Mr. Hill. Good. Let me turn from that subject to the 
court's recent decision to overturn the so-called Chevron 
Doctrine.
    Many of us believe this was the first step to reining in 
decades literally of an unprecedented, uncontrolled growth in 
the administrative state. And I think all of us, at least on 
this side of the aisle, are certainly saying to the Federal 
Reserve and other Federal agencies in our jurisdiction that we 
want to reassert Article I authority over the direction that 
independent agencies work.
    Would it be fair to ask you to certify that because of this 
change in Chevron, the Fed would commit to promulgating new 
rules only if they are at the direction of an explicit 
congressional authorization?
    Mr. Powell. I think, first of all, we are studying that and 
several other decisions that have just come down in the last 
week or two. So, I haven't got anything definitive for you on 
that. I think you know us to be an organization--I know us to 
be an organization that is strongly committed to the rule of 
law. The Supreme Court says what the law is.
    Mr. Hill. Yes.
    Mr. Powell. We will always do what we believe the law is.
    Mr. Hill. I will submit that question maybe in more detail 
in writing, and maybe you will have a chance to reflect on 
that.
    Back in February, you were on, ``60 Minutes,'' and you said 
the U.S. budget deficit, the national debt is unsustainable. Do 
you still view that the U.S. is on an unsustainable fiscal 
path?
    Mr. Powell. I do. I think I tried to be clear that the 
level of the U.S. debt is not itself unsustainable, but the 
path that we are on is unsustainable, and I don't think that is 
controversial.
    Mr. Hill. I think many of us certainly agree with that. And 
we know that when the deficit is at 3 times the economic growth 
rate and growing, it is of concern. And it has contributed to 
inflation. Just 3 years ago, in Jackson Hole, Wyoming, you gave 
a speech where you were confident that inflation was 
transitory, which I think we have come to realize is not the 
case.
    This hearing is sort of a can't-miss opportunity for the 
Fed to demonstrate some humility on the monetary policy 
decisions which some on this side of the aisle particularly 
think have made inflation worse.
    In your August 2020 Jackson Hole speech, you said the 
flexible average inflation targeting framework regarding 2 
percent--that you would let it run above 2 percent.
    Was the Fed blinded by the previous 20 years of global 
change that was deflationary and not--you were not alert enough 
in 2020 to be more cautious about that change in policy?
    Mr. Powell. We were certainly mindful of a long period of 
time in which there had been very low interest rates but also 
very low inflation, suggesting that the neutral interest rate 
must have fallen quite substantially. That was the standard 
view.
    The thing we didn't see coming was the pandemic. It is not 
like everything went off the rails. It is like we had this 
pandemic, and it really changed the way the economy was 
working. We had a big crisis. We did a lot of things.
    The concerns that led to us--those concerns that we were in 
a world of very low interest rates all the time.
    Mr. Hill. But now, wouldn't you say we are in a very 
opposite situation where, because of reshoring and tariffs and 
other----
    Mr. Powell. I was going to----
    Mr. Hill. ----policies that are----
    Mr. Powell. I was going to----
    Mr. Hill. ----quite inflationary?
    Mr. Powell. I would say this. Right now, we have the policy 
rate in the mid-fives, right? And we see the policy as 
restrictive. But clearly, the interest rates, the neutral 
interest rate must have moved up at least in the short term. 
So, I think that is the question we will be asking ourselves in 
our review which begins at the end of this year----
    Mr. Hill. We look forward to that.
    Mr. Powell. How much of what----
    Mr. Hill. I yield back to the chairman.
    Mr. Powell. ----we did in that time period is relevant to 
the new world where rates appear to be higher.
    Chairman McHenry. The gentleman from Georgia, Mr. Scott, is 
recognized for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    And welcome, Chair Powell. It is great seeing you. The last 
time I saw you, we had the gracious pleasure of you visiting 
with me in my office, and we discussed a great variety of 
things. Thank you for that visit.
    Now, Chair Powell, this year the Fed tested 31 banks, up 
from 23 last year. Is that correct?
    Mr. Powell. I believe that is right, yes.
    Mr. Scott. And by estimating losses, revenues, expenses, 
and capital level under hypothetical stress scenarios, we did 
that, correct?
    Mr. Powell. Yes.
    Mr. Scott. And all 31 banks remained above their minimum 
common equity Tier 1 capital requirements after observing 
losses of nearly $685 billion. Is that correct?
    Mr. Powell. Yes, that is correct.
    Mr. Scott. Yes, I wanted to get those figures out and 
provide you with--you may have heard this, but I want to share 
with the nation, because your Vice Chair Barr made this 
statement. And I wanted to put in the record his exact quote 
from this great achievement.
    He said, ``Our goal of our stress test is to help ensure 
that we have enough capital to observe losses in a highly 
stressful scenario, and this test shows that we do.''
    I thought that was a great statement of your record.
    Now, let me ask you my question. It is simple. Will the 
2024 Fed stress test results have an impact on how prudential 
regulators roll out a new and updated capital proposal?
    Mr. Powell. The two are really two different things. There 
is the Basel III capital proposal, and there is the stress 
test. And really the Basel III, as I have mentioned and we have 
discussed, we are almost ready to put forward for further 
comment a revised proposal with material and broad changes to 
it.
    The stress tests are a different thing. And, of course, we 
realize we have to adapt those over time and be open to 
changes. And it has evolved significantly over time, but it is 
really a separate thing from the Basel III Endgame.
    Mr. Scott. Give us a little bit more information on the 
Basel III, because I worked with you with this. Our work goes 
all the way back to the Obama Administration when we responded 
to that crisis with our banks and finance.
    You and I worked that up where we came up with the hardest-
hit program to help those who were suffering with, those States 
that were suffering with high unemployment and at the same time 
high home foreclosures, and we were successful. And we have 
established that program, and it is still going on and helping 
many of our States.
    But I want to also share what is happening around the world 
as a result of our activities. The European Union is now set to 
delay key parts of its bank capital rules by more than a year 
so that their lenders will not be at a disadvantage. Over in 
Canada, it is important to note that their banking regulators 
have also delayed for another year, imposing high capital rules 
on countries' banks at the risk of making them uncompetitive.
    And the Swiss National Bank is highly unlikely now to adopt 
a proposed 15-percent capital requirement for UBS and other 
Swiss banks. And the Bank of England has issued a near-final 
proposal to increase U.K. bank capital by 32 percent.
    I think this is all of a measure of your great work and 
that of your Vice Chair, and I just wanted to let you have a 
comment on that, please.
    Mr. Powell. Sure. We are committed to finalizing this 
proposal. Our banks are going to live with these rules for a 
long, long time. The main thing is to get it right, and that is 
what we are doing.
    What we do in the end will be consistent with the Basel 
agreement, and it will also be consistent with what other 
comparable large jurisdictions are doing.
    Mr. Scott. You are doing a great job. Keep up the good 
work.
    Chairman McHenry. We will now recognize the gentleman from 
Pennsylvania, Mr. Meuser, for 5 minutes.
    Mr. Meuser. Thank you very much, Mr. Chairman.
    And thank you very much, Chairman Powell, and also, thank 
you for continuing to indicate that you will look at the 
entirety of the economy, the whole economy. I appreciate that.
    One of the nation's largest banks recently warned in a 
memo, and it has also been voiced by smaller banks, that the 
current pace of regulations, such as changes to capital 
requirements and lowering debit charge interchange caps, could 
lead to new fees associated with checking accounts and other 
increased costs for small businesses. This comes amid expiring 
tax provisions that are sunsetting, as we speak, that are 
critical for small business, such as the R&D tax credit, 
interest deductibility, and bonus depreciation.
    This does raise the question: Are you considering how these 
regulations and tax increases will directly work against your 
mandate to achieve 2-percent inflation?
    Moreover, with the proposed changes to Basel III, it is 
crucial to ensure that all stakeholders have a voice in this 
process, which you are stating will occur, and a Basel 
reproposal and adequate comment period are certainly very 
welcome.
    So, Chairman Powell, yesterday in the Senate, you mentioned 
that the majority view of the Board is to repropose Basel III 
for comment period. Could you clarify if this means the 
proposal will be reproposed from scratch, and any other 
specifics you can provide?
    Mr. Powell. Sure. We haven't reached agreement on this, as 
I mentioned. We are working through this with our colleagues at 
the FDIC and the OCC. And I can't tell you exactly what the 
form of it will be. The sense of it would be, though, that we 
are making material changes and that we would want the public 
to have a chance to look at those changes in light of the way 
they play off against the quantitative impact survey and they 
should have a reasonable time to comment on those.
    In addition, we are focused on one big area. But there are 
institutions that have made comments all across the spectrum, 
and we are reading all of those carefully. And we are not going 
to republish all of those.
    Mr. Meuser. Okay.
    Mr. Powell. Some of those we can just make changes and move 
forward on. It is going to be a very labor-intensive, time-
consuming process. Writing these things up takes a long time. 
And we are going to get it right.
    Mr. Meuser. Good. That is great.
    Obviously, you know that Canada recently postponed it, as 
did the EU and the U.K., and from an international competition 
standpoint, it seems to make sense, so that is appreciated.
    Chairman, would you agree that excessive spending, 
increased taxes, and limits on domestic energy production are 
causes of higher costs for business, contribute to inflation, 
and tighten the labor markets, kind of running contrary to your 
two mandates?
    Mr. Powell. You are asking me kind of a political question 
there. I am not going to--I don't want to criticize a platform 
of economic fiscal policies that are not really ours to decide.
    Mr. Meuser. It is really more of an economic question, but 
I appreciate your answer, sir.
    So, when you mentioned recalibrating policy yesterday in 
the Senate hearing, was part of your thinking taking a more 
holistic view of economic conditions?
    Mr. Powell. Yes, very much so.
    Mr. Meuser. Okay.
    Mr. Powell. Yes.
    Mr. Meuser. Chairman Powell, is there any data to support 
so-called, ``greedflation''--that somehow, it has caused 
inflation? Is there any data to support those comments?
    Mr. Powell. We look at it that this inflation has been 
caused by a combination of very strong demand and constrained 
supply. So, it was really a high-speed collision between an 
economy that was reopening.
    And, by the way, there was inflation all over the world at 
the same time. So, these were some common factors. But at the 
same time, you had tremendous demand, for example, for 
automobiles. You had constrained supply because there weren't 
enough semiconductors, long story short.
    Mr. Meuser. Right.
    Mr. Powell. But to us, that is what this inflation is all 
about. We have observed the sort of healing of the supply side, 
at the same time restrictive monetary policies are weighing on 
demand, and we have seen inflation coming down from the----
    Mr. Meuser. Okay. So, there is no data that supports that 
gouging of consumers is part of the inflation?
    Mr. Powell. It has been very hard to track a connection 
with earnings and things.
    Mr. Meuser. Secretary Yellen mentioned that she didn't feel 
that there was grocery price shock and that sort of thing. 
Groceries and gasoline are the two driving problems for 
American families, and certainly my constituents.
    Do you believe your policies are helping to alleviate in 
those two areas?
    Mr. Powell. A lot of things affect--let's take energy 
first. The energy prices are generally set at the global level. 
We do have some effect on that.
    Mr. Meuser. Sorry, Chairman Powell. I have run out of time. 
Thank you.
    I yield back, Mr. Chairman.
    Chairman McHenry. The gentleman from Missouri, Mr. Cleaver, 
is now recognized for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    And thank you, Chairman Powell, for being here.
    And, in some ways, I want to follow up or at least respond 
to the very civil question of why we need an independent 
central bank. Your response was, ``The question you raised, if 
I answered it, it would be along some kind of a political 
avenue,'' and you didn't want to drive on that avenue.
    So, I am also very much concerned about a lot of the 
discussion. I have been on this committee for a while, and it 
comes up quite often.
    When the Federal Reserve was birthed around the turn of the 
century, I think, 1913, 1918, something like that, prior to the 
establishment of a central bank, was our country experiencing a 
lot of recessions because people felt no security, particularly 
the business community, in making big investments because 
nobody was in control, this kind of thing? What went on just 
went on.
    Mr. Powell. Yes, I think the lack of a central bank between 
1836 and the founding of the Fed was a period of lots and lots 
of depressions. And a lot of it had to do with the crop cycle 
and the banks not being able to handle the very large seasonal 
swings, and there was no central bank to provide liquidity.
    And that is really what gave rise to the founding of the 
Fed in the early part of the last century.
    Mr. Cleaver. Do you think that it is dangerous to blend 
monetary policy and fiscal policy?
    Mr. Powell. To blend them?
    Mr. Cleaver. Yes.
    Mr. Powell. We try to keep them very separate. And we try 
not to express views on fiscal policy. That is for elected 
people who have undergone elections and won and make those very 
difficult decisions. We have a really specific narrow-but-
important mandate that we do, that you have given us. And we 
try to stick to that.
    So, we take your policies as given, and then we conduct 
monetary policy with that.
    Mr. Cleaver. I don't want to draw you into any kind of a 
political response, and I have not read all of this Project 
2025 document, but I read some of it online a couple of nights 
ago. And whether it comes out of a 2025 or a 3089, whatever, 
one of the things that I am concerned about from reading this 
document is that the document argues that the Federal Reserve 
is the inflation problem and eliminating the Federal Reserve, 
imposing economic policy on the Fed, that does not come from 
within the Fed.
    So I am wondering, would you agree with any of that I just 
stated, whether it came from me or Chairman McHenry or anybody 
else?
    Mr. Powell. I will just say, first of all, we are certainly 
fair game for any criticism people have. I think we have--what 
we have learned and what we know is that having an independent 
central bank is really essential.
    If you want to have high and volatile inflation, then the 
quickest road to that would be to undermine the independence of 
the central bank, of the Fed in our case. I find that view is 
very widely held up here on Capitol Hill, in both political 
parties.
    Mr. Cleaver. So, eliminating the Federal Reserve is best 
for promoting economic stability?
    Mr. Powell. Yes.
    Mr. Cleaver. Thank you.
    I knew that the ranking member was going to come and deal 
with the issue of housing. She always does. And we all 
appreciate the fact that she is obsessed with it, and I like 
that obsession.
    But I am wondering, as we try to figure out how to deal 
with this issue--oh my goodness. My time has run out.
    Mr. Powell. Is that a question?
    Mr. Cleaver. I didn't finish it, but I--yes, if you knew 
where I was going, please.
    Chairman McHenry. The gentleman's time has expired.
    We will now recognize the gentleman from New York, Mr. 
Garbarino, for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman.
    Chair Powell, thank you very much for being here today.
    Based on some comments made today and yesterday, it appears 
you have made quite a bit of progress on changes to the Basel 
III Endgame proposal, and you are very close to agreeing on 
some of the substance of those changes. I know you won't get 
into specifics. You said that. I just don't know how deep you 
won't get into them.
    But I just want to confirm what you said to my colleague, 
Mr. Meuser. There will be--you are not reproposing some things; 
it is just going to be a partial reproposal?
    Mr. Powell. What we are looking at doing are major things 
that we have been working on, and there will be additional 
changes that will be made, that won't be reproposed. That is 
what we are working on, rather than a full, wide proposal.
    Mr. Garbarino. So, it is not a complete reproposal, just a 
partial one?
    Mr. Powell. Yes.
    Mr. Garbarino. Can you tell me which components you are----
    Mr. Powell. Until it is all agreed upon and ready to go and 
vetted, I am reluctant to try to get into too many specifics, 
just because when you are doing these things, nothing is agreed 
upon until everything is agreed upon.
    Mr. Garbarino. No, I understand. I am not asking for what 
specifically your changes----
    Mr. Powell. I hope to be able to come to you with a really 
clear answer on that soon.
    Mr. Garbarino. I understand.
    Mr. Powell. We are ready to go at the Fed.
    Mr. Garbarino. And that is my next question. It has been 
said several times that you and many of the Members of your 
Board are at odds with your counterparts at the FDIC and the 
OCC over how to proceed with putting out a revised proposal for 
comment.
    So, if the FDIC and the OCC are not yet on board with 
allowing for a new comment period, who is holding up this 
consensus? Is it Chair Gruenberg?
    Mr. Powell. I don't want to say that we are at odds. I just 
want to say we are working through this issue together and----
    Mr. Garbarino. Someone has to be holding it up.
    Mr. Powell. It is a discussion that we are having. And I 
think it has been constructive, and I think we will try to keep 
it that way.
    Mr. Garbarino. Can you at least answer whether or not the 
five-member FDIC Board needs to sign off, or can you just go to 
the Chair?
    Mr. Powell. No, I think it is the Board. And, of course, 
the Comptroller is one person. The FDIC can speak for 
themselves, but I do think their Board would be the question.
    Mr. Garbarino. Okay. One final timeline question before I 
move on. You mentioned yesterday that a reasonable prediction 
would be that Basel would not be finalized until the first 
quarter of 2025. Under this timeline, would it be safe to say 
that implementation would then not occur until at least the 
beginning of 2026?
    Mr. Powell. Again, I can't that be specific. Someone asked 
me, Does it sound like the first quarter of next year might be? 
And I said it might.
    There is a range of times it would take. The thing is, as I 
mentioned, U.S. banks are going to be living with these rules 
for many years. The point is to get it right, not to do it 
quickly. We want to----
    Mr. Garbarino. I agree.
    Mr. Powell. ----do it right, listen to the comments, make 
sound decisions, and move ahead in a way that gives us a 
sustainable set of rules so that we won't have to come back and 
fix all the mistakes.
    Mr. Garbarino. Thank you.
    I want to move on to another topic, long-term debt. You 
mentioned yesterday that you would most likely not move forward 
with other rules until people reach a place of understanding 
and acceptance of a revised Basel proposal.
    I hope that is the truth, as banks need to fully understand 
the implications of a Basel proposal before any action is taken 
on long-term debt.
    Finally, Chair Powell, I would like to emphasize the need 
for the Fed to conduct a comprehensive, data-driven, and, most 
importantly, transparent assessment of the current liquidity 
framework.
    Very quickly, will you commit to conducting a public 
Quantitative Impact Study and a full notice-and-comment 
rulemaking before imposing any new liquidity requirements?
    Mr. Powell. I didn't catch the first part of your question.
    Mr. Garbarino. Will you commit to conducting a public 
Quantitative Impact Study and a full notice-and-comment 
rulemaking before imposing any new liquidity?
    Mr. Powell. On the liquidity thing, I am not exactly sure 
what we are contemplating there. We certainly contemplate 
getting a full range of input from the public on that because 
some of these are novel ideas and we understand that.
    Mr. Garbarino. Okay. As the chairman said before, these 
impact studies are very important because they show what 
impacts these rules would have. I think it is very important 
that we have that, because we had a mucked-up process with 
Basel 2.0 and we don't want to repeat that.
    I have a little time yet, so I am going to yield to my 
colleague from Pennsylvania, Mr. Meuser, because I know he had 
another question.
    Mr. Meuser. I thank my colleague.
    Chair Powell, just back to what we were talking about, the 
price instability of groceries and gasoline where we do have 
somewhat of an affordability crisis, as it has been termed, so 
would lowering rates in near future be a pro-growth initiative?
    Is that something that is being considered, that would 
actually drive investments and give a clearer picture for 
investments and perhaps help in these two categories, and in 
the end increase in supply, as we lower those prices?
    Mr. Powell. Honestly, when we think about our near-term 
rate moves, we are thinking about a couple of things, the first 
of which is we want to be more confident about inflation.
    Mr. Meuser. My apologies, Mr. Chairman. I went over.
    Mr. Powell. Sorry.
    Mr. Meuser. Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman from California, Mr. 
Vargas, is recognized for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. Thank you 
very much for this hearing.
    And to the ranking member, thank you very much.
    Chairman Powell, thank you very much for being here. We 
appreciate it. In fact, I was looking at your history when they 
were saying who nominated you, when you got here, and all that. 
In fact, you had had public service even prior to that time, 
right?
    Mr. Powell. That is right.
    Mr. Vargas. I thank you for your long public service to the 
nation.
    Mr. Powell. Thank you.
    Mr. Vargas. I think it is outstanding.
    Mr. Powell. I appreciate it.
    Mr. Vargas. I think we all respect you deeply here.
    You are pretty boring here today, to be frank.
    Mr. Powell. Sorry?
    Mr. Vargas. You are pretty boring here, to be frank.
    Mr. Powell. Thank you. That is a high compliment.
    Mr. Vargas. Yes, it is, because sometimes when you are 
here, there are all sorts of cameras here, and they are 
watching your every step and all. And I think there is a reason 
for that, right? And that is because the economy is doing okay. 
Am I wrong about that?
    Mr. Powell. Take a look at our economy. We are growing at 
around 2 percent, it feels like. Inflation is down to 2.5, 2.6 
percent. Unemployment is at 4.1 percent. These are good 
numbers.
    Mr. Vargas. I hear the parade of horribles on the other 
side, how the sky is falling. But I don't see the media here to 
attest to that. In fact, it is just the opposite.
    Did you read some of the headlines of the new government in 
Britain? If not, let me read one. It says, ``New British 
government inherits worst economic plight since World War II.''
    In fact, there are a number of headlines like that, saying 
that England is in trouble. I imagine, if you were running 
their central bank, I bet you there would be a whole bunch of 
media here, beating you up to find out what the hell you are 
doing or what you aren't doing.
    And I think the reason for that, again, is I think the 
government here has done a pretty darn good job. One of the 
things you said you didn't see coming was the pandemic, right? 
And I am not putting words in your mouth.
    Mr. Powell. Right.
    Mr. Vargas. In fact, I was here. And I heard the parade of 
horribles that we were going to have a recession, maybe a 
depression. In fact, the country was going to fall apart. Did 
it?
    Mr. Powell. No, we went through a period of high inflation, 
as the other countries did. And that is very challenging for 
the people.
    Mr. Vargas. And in fact, isn't it the case that most of 
those countries had higher inflation than we did, for example, 
in Europe?
    Mr. Powell. Over time, there were times when their 
inflation was higher, I think.
    Mr. Powell. Yes, it was.
    Mr. Powell. Overall, it was broadly comparable.
    Mr. Vargas. Yes, in fact, I brought it up a number of times 
here because there was a whole bunch of those countries that 
had much higher inflation than we did.
    Mr. Powell. Europe was much harder hit with the energy 
issues coming out of the Ukraine war than we were.
    Mr. Vargas. Sure. There is a whole bunch of other issues to 
instability; they had political instability and a whole bunch 
of things, obviously.
    But it is interesting today that the parade of horribles 
that we hear doesn't seem to manifest itself with the media or 
the attention that you normally get. And that is good. I think 
it is a great thing.
    Now, I do want to ask a couple of questions. I do have 
concerns. Basel III on housing, I think I have made those 
concerns known to your office, and I won't rehash them.
    But I do have issues that I want to talk to you about with 
regard to climate. Obviously, you said you don't read too much 
in the news. You didn't hear about Project 2025. I don't think 
that is what you meant to say, and I don't want to put words in 
your mouth.
    When the ranking member asked you if you had heard about 
it, I think you said, no. I think you have probably heard about 
it, but you haven't read it.
    Mr. Powell. I have seen nothing more than headlines on it. 
I have devoted zero----
    Mr. Vargas. Me, too.
    Mr. Powell. ----energy into that.
    Mr. Vargas. Yes, I don't read that wacky stuff myself 
either, but I certainly read the headlines.
    But the reason I ask about headlines is you obviously have 
seen what has happened in Texas. You have seen what has 
happened with climate change. In fact, you have testified, I 
think, before that you believe in climate change. Is that 
correct?
    Mr. Powell. Sure.
    Mr. Vargas. Yes. And what are we doing? You have taken a 
number of steps, I think, that have been very positive to make 
sure that we look at the risks of climate change. Could you go 
over some of those?
    Because that does concern me. I think that is a change that 
we also didn't see--well, we saw it coming. I saw it coming. I 
have been saying it for a long time, but a lot of people didn't 
believe me.
    Mr. Powell. If you are looking at financial regulators, you 
are looking at people who have a very, very limited role in 
climate. And that is just to look at the institutions that we 
supervise and make sure that they understand and can manage the 
risks that they are running. We are not the climate 
policymakers.
    Mr. Vargas. Right, right. And I am not asking that.
    Mr. Powell. It has to be elected people to do that.
    Mr. Vargas. Right. But you have to take a look at the risk. 
Look at the risks that the insurance companies are taking. And 
the banks, of course, are financing these homes, and now, you 
can't get insurance on them. So, all of a sudden, you can't 
rebuild.
    These are risks that the banks are looking at.
    Mr. Powell. We don't regulate insurance companies.
    Mr. Vargas. No, but you regulate the banks.
    Mr. Powell. Banks, yes.
    Mr. Vargas. And these banks have mortgages on those houses, 
do they not, many of them?
    Mr. Powell. In many cases, they are not writing mortgages 
anymore. So, that is the result we are getting, that banks are 
saying they see these risks. They do.
    Mr. Vargas. My time is up. But thank you again. I 
appreciate you.
    Mr. Powell. Thank you.
    Chairman McHenry. The gentlelady from California, Mrs. Kim, 
is recognized for 5 minutes.
    Mrs. Kim. Thank you, Mr. Chairman.
    Chairman Powell, thank you for being with us today.
    Gosh, you are under a lot of pressure from all sides to 
divert from our monetary policy goals. And I commend you for 
your leadership and for staying focused on the core missions of 
the Fed, which are price stability and maximum employment. And 
thanks again for your leadership.
    You have stated that it is the Fed's strong view that you 
will have to reopen the Basel III Endgame proposal for comment 
again, and I really urge the FDIC and the OCC to move forward 
with reopening the comment period.
    Chairman Powell, would broad support mean abandonment of 
any modified proposal that garners mostly negative public 
comments in a public comment period for the modified proposal?
    Mr. Powell. Sorry. I didn't follow your question.
    Mrs. Kim. Would broad support mean abandonment of any 
modified proposal that garners mostly negative public comments 
in a public comment period for the modified proposal?
    Mr. Powell. Broad support empirically would mean a good 
solid vote on the Fed Board, and I have tried not to be 
specific about what that means. And it also means broad support 
among the broader community of commenters on all sides. That is 
what I meant by broad support.
    Mrs. Kim. Got it.
    Mr. Powell. Yes, that is what I meant by it.
    Mrs. Kim. Thank you.
    And as the Fed looks to enacting several changes to the 
proposal, I would also urge you not to overlook how the Basel 
Endgame proposal would disproportionately impact FBOs and 
regional banks and U.S. domestic jobs because of the way the 
outside operational risk is weighted. Can we get your 
commitment to that?
    Mr. Powell. Let me just say we are--I am not going to get 
into specifics. We are well aware of those concerns. We have, 
obviously, carefully digested all of the comments we have 
gotten from all different sectors, and those are concerns of 
which we are well aware.
    Mrs. Kim. Thank you.
    Let's switch gears to another matter. You have spoken on 
the need of transparency. Are there any conversations at the 
Fed to have more transparency and better engagement and 
consistency with stress tests?
    Mr. Powell. We have increased transparency in the stress 
test over time. And I would say we do--if people want to write 
articles and make comments that are critical of the stress 
tests, we are going to read those, and we are going to think 
about that. We are open to improving it.
    We know that the stress test has to evolve over time if it 
is to remain relevant, and I think transparency is one of those 
subjects where we are prepared to listen and think about ideas.
    Mrs. Kim. Definitely. I would like to see a stress test 
regime that is more transparent and adaptive, identifying 
unforeseen risks, so we can achieve that by being more 
collaborative, I believe, yes.
    I am also interested to hear from you whether you and your 
fellow banking regulators have considered the cumulative impact 
of any new liquidity standards with the Basel III framework and 
the existing post-crisis liquidity requirement. What industry 
engagement has the Board's staff held with respect to changes 
to the liquidity framework?
    Mr. Powell. We haven't actually made any proposals on that 
yet. We have had significant industry interaction on the 
proposals. And we will move, I think some time this year, 
toward----
    Mrs. Kim. What about the Board staff? Have they conducted 
any industry-wide data collection to study the necessity for 
and the impact of any changes to the existing liquidity 
framework?
    Mr. Powell. I think we have done a lot of investigation on 
that front, but I think that this is the beginning of the 
process, not the end.
    We haven't published proposals yet. We are working on them. 
And it is a pretty early stage.
    Mrs. Kim. Thank you.
    Let me quickly talk about the inflation issue. We had a 
peak inflation rate of 9.1 percent in June 2022, and a lot has 
been talked about it being a supply side issue and the demand 
shock from the opening economy. Can you elaborate on how the 
expansion in the money supply and fiscal stimulus played a role 
in persistent inflation? And why is it so important to get to 
the 2-percent inflation rate goal right now?
    Mr. Powell. The inflation that arose here was a collision 
between very strong demand as the economy reopened. Remember, 
there had been fiscal transfers. We had very low rates. Those 
things were done because we thought we could be looking at a 
very, very bad economic time.
    As it turns out, the economy reopened and demand spiked 
very high. People had saved a lot of money because they 
couldn't spend. And so, there was tremendous demand and there 
was constrained supply. And what you got was inflation, and you 
got that everywhere in the world. That is what happened.
    We have made quite a lot of progress on inflation. To bring 
inflation down, the Fed has been working, with restrictive 
policy, on cooling demand. That has been working. And the 
supply side has been healing, and the negative labor 
participation shock has essentially reversed, adjusted for----
    Chairman McHenry. The gentlelady's time----
    Mr. Powell. So, it is kind of working out as we had 
expected.
    Chairman McHenry. The gentlelady's time has expired.
    Mrs. Kim. Thank you very much, Mr. Chairman.
    Chairman McHenry. The gentlelady from Georgia, Ms. 
Williams, is now recognized for 5 minutes.
    Ms. Williams of Georgia. Thank you, Chairman McHenry.
    And thank you, Chair Powell, for joining us today.
    As the President of the Federal Reserve Bank of Atlanta, 
Raphael Bostic, has so rightly pointed out, combating economic 
inequality is a critical part of the Fed's dual mandate. When 
everyone in our community doesn't have the opportunity to 
contribute to their fullest potential, the economy is not 
firing on all cylinders.
    Nowhere is this more apparent than in my home City of 
Atlanta, which has more Black-owned businesses than any other 
city in the country but is still among our nation's leaders in 
the racial wealth gap.
    I applaud you and your staff at the Federal Reserve for the 
work that you are doing to make sure that the economy works as 
well for the hardworking people of Georgia's, ``Fighting Fifth 
District,'' as it does for those in the top 1 percent. This 
includes helping to make sure that financial services are 
affordable and accessible to everyone.
    As the Fed moves forward with the proposed changes to 
Regulation II, I know that protecting access to affordable and 
accessible banking is at the top of your mind. That is why I 
was concerned when I started receiving outreach about the 
unintentional effects that the Reg II proposed rule would have 
on marginalized communities, including my constituents in 
Atlanta.
    Specifically, I heard about the impact that the reduction 
in interchange fees proposed by this rule could have on Bank On 
certified accounts in my district and across the country. The 
Bank On initiative is a partnership between financial 
institutions and trusted community-based organizations to offer 
low- or no-cost bank accounts to unbanked and underbanked 
individuals.
    Access and affordability are at the heart of the changes 
that you are proposing, and I couldn't agree more with those 
goals. But we have to make sure that programs designed to serve 
unbanked and underbanked individuals and marginalized 
communities continue to flourish.
    In response to these concerns, my colleague across the 
aisle, Mr. Luetkemeyer, and I sent a bipartisan comment letter 
in March to you highlighting those very concerns and urging 
that the final rule not negatively impact low- and moderate-
income communities.
    Chair Powell, how does the Fed take into account how 
regulations impact constituents who don't have an attorney or 
an interest group to submit a comment on their behalf?
    Mr. Powell. Let me say first, we have heard those concerns 
that you raise and others have raised about aspects of the 
proposed rule, and we very much understand the concerns that 
are being raised.
    Where we don't have comment letters, we try to be 
thoughtful about the impact of our regulations, but 
principally, we are looking for public comment on things.
    Ms. Williams of Georgia. Thank you.
    The FDIC's most recent data shows that the rate of unbanked 
households is at an all-time low. The Bank On initiative has 
certainly played an important role in this progress. Bank On 
certified accounts are available to more than 95 percent of 
low- and moderate-income households across all 50 States.
    Access to low- or no-cost banking services is a door to 
financial inclusion and wealth generation for marginalized 
families. As written, Reg II could undo some of the enormous 
progress made in the past several years.
    Chair Powell, how can regulators work with members of this 
committee to ensure that future proposed rules do not hinder 
Americans' access to tools that enhance the Federal Reserve's 
financial inclusion efforts?
    Mr. Powell. We are very focused on things like Bank On, as 
you pointed out, and on access to the financial system for 
marginalized communities. So, we wouldn't want to do anything 
to weigh on that. And we are happy to work with you and your 
office on those issues.
    As I mentioned, we are hearing the comments and we are 
reading them and we are taking them into account as we think 
about appropriate changes to the proposal.
    Ms. Williams of Georgia. We will definitely follow up on 
that because as we are writing these regulations, I want to 
make sure that we are thinking about the real-world impact and 
what it means to consumers when they are accessing financial 
institutions.
    I look forward to working with you to further the Fed's 
financial inclusion efforts. Earlier this week, I sent you 
another bipartisan letter related to the Federal Reserve's 
April proposal to extend the operating hours of the Fedwire 
Funds Service to 22 hours per day, 7 days per week, and every 
day of the year. That was news that I was eager to hear.
    This may sound like a small technical change, but it can 
have a big impact on our constituents, especially for those 
living in marginalized communities who live paycheck to 
paycheck.
    Growing up in the booming metropolis of Smiths Station, 
Alabama--you have probably never heard of it, Chair Powell--but 
there were limited options for loans and short-term loans.
    In an area where everyone needs a car to get to work and 
they have to work to eat, when money is short, any delay in 
accessing a paycheck or paying a bill can disrupt your entire 
household.
    Extending operating hours for the Fedwire Funds Service and 
the National Settlement Service will allow people continual 
access to their funds outside of what we deem normal operating 
hours.
    And I hear the gavel. I am out of time. But I will be 
following up for more conversation. Thank you.
    Mr. Powell. Thank you.
    Chairman McHenry. The gentleman from Nebraska, Mr. Flood, 
is recognized for 5 minutes.
    Mr. Flood. Thank you, Mr. Chairman.
    Chairman Powell, after a year with very high inflation that 
battered American paychecks, inflation rates have moderated 
somewhat, however, inflation continues to linger above the 2-
percent target rate set by the Federal Reserve. In fact, the 
PCE inflation index has remained above 2 percent for the last 3 
years.
    The Federal Open Market Committee's Statement on Longer-Run 
Goals and Monetary Policy Strategy issued at the beginning of 
the year stated that, ``The Committee seeks to achieve 
inflation that averages 2 percent over time, and therefore 
judges that, following periods when inflation has been running 
persistently below 2 percent, appropriate monetary policy will 
likely aim to achieve inflation moderately above 2 percent for 
some time.''
    Chairman Powell, does the commitment to achieve a 2-percent 
average over time apply in the other direction as well? 
Meaning, that if inflation remains above 2 percent for a 
protracted period, would the committee instead aim for 
inflation moderately below 2 percent for some time in order to 
achieve an inflation average of 2 percent?
    Mr. Powell. No, it doesn't.
    Mr. Flood. Is it fair to say that you would need to see the 
PCE index dip below 2 percent at least once in the coming 
months in order to contemplate a rate cut?
    Mr. Powell. No, that is not fair to say. We have said that 
you don't want to wait until inflation gets all the way down to 
2 percent because inflation has a certain momentum. You 
wouldn't wait that long. If you waited that long, you have 
probably waited too long, because inflation will be moving 
downward and will go well below 2 percent, which we don't want.
    Mr. Flood. What combination of factors would you need to 
see in order to support a rate cut this month or in September?
    Mr. Powell. Once again, I will say I am not sending any 
signals on any particular date of any meeting whatsoever on 
policy. I said that yesterday, and I am saying it again today. 
But I will answer your question.
    What we said is that we want to be more confident, we want 
to have greater confidence, and that means more good inflation 
readings that inflation is moving sustainably down to 2 
percent, greater confidence that that is the case.
    Remember, we have a dual mandate, too. We are not just an 
inflation-targeting central bank. We also have an employment 
mandate. So, I could also see us cutting--and we have said 
this--if we saw unexpected weakening in the labor market.
    And we do now see--I will speak for myself--I now see the 
risks to the two mandates as much closer to being in balance. I 
think for a long time, we have had to focus heavily on the 
inflation mandate, but I think now we are getting to the place 
where the labor market is getting pretty much in balance to 
where it needs to be. And so, we are looking at both sides.
    Mr. Flood. I know that the media and others have continued 
to talk about the prospect of political interference with the 
Federal Reserve. With an election coming up, I know you are 
very aware of the heightened scrutiny awaiting the Federal Open 
Market Committee meetings in July and September.
    Can you use this opportunity to speak regarding the Federal 
Reserve's political independence going into this election?
    Mr. Powell. Sure. I would be glad to. Our political 
independence is critical to our ability to do our jobs and to 
sustain the faith of people across the political spectrum. And 
it comes down to, we make our decisions based on economic data, 
the evolving outlook, and balance of risks, and we don't take 
into consideration any other factors, including political 
factors.
    We have a long history of doing that, and I think the 
public believes we will do that. Any decision that we make on 
rates, on any of our policy tools, it is going to be very well-
grounded in the data, and it will represent our best thinking 
about what is best for the American public in the near- and 
medium-term. And that is the promise that I will give and that 
all my colleagues will give.
    And that means that we are not looking at things like 
election cycles. We are not looking at any of those things. We 
are looking at the data, what does it tell us is the right 
thing to do. When we figure that out, when we think it is time 
to move, we will go ahead and move, but not until then.
    Mr. Flood. I appreciate that.
    Finally, I would like to raise concerns with housing costs. 
While shelter is one component of the broader PCE calculation, 
housing often makes up one of the largest, if not the largest 
expense for many consumers. Inflation for housing remains 
persistently high.
    One of the characteristics of this economy is that consumer 
sentiment is remarkably low. Do you think high housing costs 
could be contributing to the persistently-low consumer 
sentiment?
    Mr. Powell. I think high prices generally--I don't think 
anybody really can be super highly confident of their answer on 
this. But I do think it is a fact that while inflation has come 
down, prices are high. And people are paying more for things, 
more for housing, more for the essentials of life such as food 
and energy.
    And that is how I would explain surveys. We say that the 
economy is growing, inflation has come down, unemployment is 
low, and all of that is true, but prices are high.
    Mr. Flood. Thank you, Chairman Powell, for your answer and 
your testimony.
    And I yield back.
    Chairman McHenry. The gentleman from New York, Mr. Torres, 
is recognized for 5 minutes.
    Mr. Torres. Thank you.
    Chair Powell, the Fed has an inflation rate target of 2 
percent. Are you waiting for both PCE inflation and CPI 
inflation to fall to 2 percent or only one of those metrics?
    Mr. Powell. We look at different measures, but for a 
quarter of a century, the PCE inflation has been the Fed's 
goal. We have defined our goal in terms of that because we 
think it is the better measure of the costs and inflation that 
the public actually faces.
    Mr. Torres. And now, you have said that you are willing to 
cut interest rates before reaching the 2-percent target. Is the 
decision to cut interest rates going to be driven by reaching a 
particular target en route to 2 percent, or is it driven by the 
overall trajectory of the inflation rate?
    Mr. Powell. It is going to be driven by the totality of the 
data. There isn't a particular number that we have in mind that 
we have to get to. It is more, you look at all of the data, and 
the question we are asking ourselves is, are we sufficiently 
confident that inflation really is moving down toward 2 
percent? So, what is the underlying inflation rate looking 
through the volatility?
    We are also looking, as I mentioned, at the labor market, 
and we are asking ourselves--we have to take into account now 
maximum employment, that mandate. We are looking at both of 
those in the decisions that we make.
    Mr. Torres. Are you confident that the inflation rate is on 
a downward trajectory?
    Mr. Powell. I do have some confidence of that. I think we 
have seen that over the past several years. The question is, 
are we sufficiently confident that it is moving sustainably 
down to 2 percent? And I am not prepared to say that yet.
    Mr. Torres. Chair Powell, you announced a reproposal of 
Basel III rather than a mere revision. Do you believe that the 
U.S. banking system is sufficiently capitalized in the absence 
of Basel III?
    Mr. Powell. I have long been of the view that U.S. banks 
are well-capitalized and that the level of capital in the U.S. 
banking system is about right.
    Mr. Torres. Okay. So if the banking system is sufficiently 
capitalized in the absence of Basel III, then what exactly is 
the need for Basel III?
    Mr. Powell. First of all, there is no precise answer as to 
the appropriate level of capital. I think we have been part of 
developing the Basel standards. They create international broad 
parity. It is important that we have that parity.
    And it is important that we do something that is comparable 
to what the other large jurisdictions are doing, and it is 
consistent with Basel. And I think that is what our banks want, 
that is what we want, and that will best serve the public.
    Mr. Torres. But you agree we should conform without gold-
plating?
    Mr. Powell. Some things we have gold-plated and some things 
we haven't, but I think our Endgame proposal should be, at the 
end, consistent with the requirements of Basel and consistent 
with what the other large jurisdictions are doing.
    Mr. Torres. Are you confident that there is no legal 
conflict between the standardization recommended by Basel III 
and the regulatory tailoring mandated by Congress?
    Mr. Powell. I think we can work through all of that.
    Mr. Torres. Okay. But if there were a conflict----
    Mr. Powell. Basel doesn't impose any requirements on 
anyone. There are no enforceable requirements. Every 
jurisdiction does what it is going to do. Basel doesn't bind 
anybody.
    Mr. Torres. Right, but the regulatory framework you are 
adopting would codify those recommendations.
    Mr. Powell. Yes.
    Mr. Torres. It could have the force of law, right?
    Mr. Powell. Yes, that is right.
    Mr. Torres. So, if there were a conflict between the 
codified recommendations and an Act of Congress, would you 
agree that an Act of Congress would supersede those 
recommendations?
    Mr. Powell. Yes. Sure.
    Mr. Torres. Does the loss of Chevron deference have any 
implications for Basel III?
    Mr. Powell. It is very early days to assess. There are 
several decisions that are about administrative law, and I 
think it is too early for us to say.
    Mr. Torres. Fair enough.
    Mr. Powell. Ultimately, the question is, are the actions we 
are taking in compliance with the law? And that decision says 
that there will be less deference or no deference maybe to the 
opinions of the agency, but that just means a court will be 
making--they are answering the same question, which is, are 
those actions consistent with the law?
    Mr. Torres. The Fed has a target rate when it comes to 
inflation. Does the Fed have a target when it comes to 
quantitative tightening, like when it comes to what should be 
the size of the Fed's balance sheet?
    Mr. Powell. We don't have a specific target, no.
    Mr. Torres. What would you consider to be a healthy size 
for the Fed's balance sheet?
    Mr. Powell. We define it not with numbers but with words. 
We want an ample reserves regime with a buffer so that reserves 
are not scarce. And we think plentiful reserves, ample reserves 
is the right place to be, and we will find that empirically.
    Mr. Torres. Can you put a number on that?
    Mr. Powell. No, I really can't.
    Mr. Torres. For 4 decades, we have had the best of both 
worlds, low unemployment and low inflation. Can the U.S. 
economy return to the golden age of low unemployment and low 
inflation, or are we doomed to live with a new normal of higher 
interest rates?
    Mr. Powell. I think we have low inflation. We have had a 
period here of very low--I'm sorry, of low unemployment.
    Mr. Torres. We have high inflation.
    Mr. Powell. We do.
    Mr. Torres. So, can we have the best of both worlds?
    Mr. Powell. We certainly can, and that is the plan.
    Mr. Torres. Okay.
    Mr. Powell. We are going to return to 2-percent inflation, 
I am reasonably confident.
    Some people argue that we are entering into a world of a 
lot of upward inflation shocks. That would be a challenging 
world. But that remains to be seen.
    Mr. Torres. Thank you.
    Chairman McHenry. The gentleman from Iowa, Mr. Nunn, is 
recognized for 5 minutes.
    Mr. Nunn. Thank you, Mr. Chairman.
    And thank you, Chairman Powell, for being with us today.
    Your office has done a very diligent job in working with 
this body on both sides of the aisle. I chalk some of that up 
to the fact that you have some very good folks from Iowa on 
your staff there helping to keep the trains running on time. 
So, that is excellent.
    I will note that in Iowa, the average family has 
experienced annual inflation of about $925-per-month just in 
the last 3 years. I have six kids. We are the number-one egg-
producing State in the country. But yet, eggs for each one of 
my kids went up 40 percent this past year, and multiply that by 
six. I am no economist, but that adds up really quick. And I 
think I am reflective of a lot of families across the country 
right now.
    Mr. Chairman, one of the things I would like to talk about 
is what we are focused on and what your department is working 
on at the Fed.
    The U.S. Federal Reserve, in my opinion, should be more 
focused on folks like those in my hometown of Bondurant, Iowa, 
versus what is coming out of unelected bureaucrats in Brussels, 
Belgium, for example, which is one of the reasons I am so 
grateful that you have talked about reopening Basel III for a 
conversation on what is in the best interest of the American 
people. I applaud you and your team for this.
    While I would like to see Basel III, candidly, scrapped 
altogether, I think that there are three things in this 
proposal that we have to look at immediately. One, the impact 
of credit availability, especially to ensure that it won't be 
tighter credit conditions on small businesses back home in 
places like Iowa. Two, the ability for farmers across the 
country to be able to hedge their grain, corn, soybeans, and 
livestock in a new Basel III conversation. And ultimately, 
eliminate the downstream effect on American banks being held to 
higher standards, very clear in Basel III, than what is being 
held in Europe.
    With that, I want to re-address your team's attention to 
the letter I sent in a bipartisan way with Senator Jerry Moran, 
specifically emphasizing the negative impact of increased bank 
capital requirements on the economy, our constituents, and 
ultimately, our agricultural producers across the country.
    First, can you confirm that the next Basel III proposal as 
outlined will address concerns from our agricultural growers, 
including our farmers?
    Mr. Powell. Let me just say that we are well aware of the 
concerns you are raising about hedging, and I am not going to 
be too specific about things, but we are quite aware of those 
concerns.
    Mr. Nunn. I certainly hope your team gets the opportunity 
to hear that because it is one of the most painful things I am 
hearing back in my home district.
    Would you agree that the end users' concerns could have 
been mitigated maybe at the front end of this if Congress or, 
say, a farmer in my district had been included in those opening 
conversations?
    Mr. Powell. In hindsight, perhaps that is right. But in any 
case, that is the purpose of the comment period.
    Mr. Nunn. I will note that 84 percent of the comments 
coming from this proposal concern entities outside of banks, as 
you know. A lot of those were from the agricultural industry 
who felt that they had no voice in this and were a recipient of 
things that really harmed their businesses.
    With that, I want to read quickly--former Treasury 
Secretary Larry Summers was asked about Basel, and he said, 
``We are going to need to prepare for consolidation in banking 
in the future, and quite possibly, some even further evolution 
of lending away from banks.''
    Now, I am going to note here that Iowa has over 250 
community banks with assets under $7 billion. His comments are 
of great concern on this consolidation.
    Do you share concerns about a consolidation amongst banks 
across America?
    Mr. Powell. I would speak for myself. I realize that 
community banks are tremendously important in their 
communities, and it is not a better world when community banks 
go out of business.
    At the same time, if there needs to be consolidation, I 
don't think we should be standing in the way of that. But we 
don't want to be part of the reason why community banks are 
going out of business or being forced to merge because of, for 
example, high fixed costs because of regulation or other 
things.
    Mr. Nunn. I would agree with you, Mr. Chairman. We don't 
want to be the instigator for a small bank to have to go out 
and stop serving the local community.
    As we look at Basel III, if it is finalized in early 2025, 
does that mean we will push implementation back to 2026?
    Mr. Powell. I don't know exactly what it would be, but 
something like that is right. We would have a typical phase-in 
process at the end of the--there's quite a lot of work to do to 
get to a final rule, and then, there will be a phase-in 
process. I don't know exactly what the date would be.
    Mr. Nunn. Thank you, Mr. Chairman.
    I just want to know kind of a timeline for my folks--there 
is obviously 2026. Or take my advice, scrap it altogether, and 
we can start over if we even need to do that.
    Let me ask very quickly, with Chevron overturned, is there 
anything the Fed is doing to identify areas where maybe we have 
overregulated on the Federal side and you are still policing 
right now?
    Mr. Powell. Under the Chevron decision?
    Mr. Nunn. Yes.
    Mr. Powell. Again, our view is we are very focused on 
obeying the law and reading the actual words of the law and 
interpreting it according to the words that are in the law. 
This is the way we approach things.
    And I am not sure how much will change. Basically, a court 
will be doing that with a little bit less deference to the 
agency. But we think we are already interpreting the law pretty 
carefully.
    And, again, these are brand new decisions. There are 
several of them. And it is very early. We are just studying 
them now.
    Mr. Nunn. Thank you, Chairman Powell. And I hope you 
continue to self-police. Much appreciation to you and your 
team.
    And thank you, Chairman McHenry.
    Chairman McHenry. I will now recognize the gentleman from 
North Carolina, my friend, Mr. Nickel, for 5 minutes.
    Mr. Nickel. Thank you so much, Mr. Chairman.
    Welcome back, Chair Powell.
    I represent a Republican-leaning, very purple district, so 
my constituents sent me here to get things done. It has been 
disappointing that we are on track for what I believe could be 
the least-productive Congress in our nation's history.
    But this committee has done some good bipartisan work on 
the digital assets market structure bill and stablecoins. It is 
a place where I have hope that we are going to see some action 
in this Congress.
    I know you and I have spoken privately about stablecoins, 
and here in the House, in a bipartisan way, we have been 
working diligently to pass a bill to regulate payment 
stablecoins. This committee voted in favor of the legislation 
in a bipartisan way last year, and there have been numerous 
calls from this committee to you and to the Fed asking that you 
prioritize working with Congress to help push this legislation 
forward.
    We have enjoyed our conversations with staff as well. Can 
you commit to directing your staff to finalize and support 
passage of stablecoin legislation this year?
    Mr. Powell. We have been really pleased to take part in 
this process and very much appreciate being included in it, and 
we will stay with it. We think it is really important that we 
have a Federal framework for stablecoins. And again, we will be 
all in on working with you to get that done.
    Mr. Nickel. Thank you very much.
    A big issue for the folks that I represent is housing. The 
rising cost of housing hits my constituents especially hard in 
North Carolina. Our ranking member, Maxine Waters, has made 
this a big priority for the work that we do in the committee.
    In North Carolina, we have 343,000 households that spend 
over half of their monthly income on rent, leaving little money 
for other expenses like healthcare, transportation, and food. 
Access to safe and affordable housing is essential to the well-
being of working families and individuals in North Carolina and 
around the country.
    Chair Powell, despite the strong economic trends you 
mentioned in your testimony, housing prices and median rents 
have increased by nearly 50 percent, and 41 percent, 
respectively, since May of 2020, and they continue to rise. In 
fact, housing costs continue to outpace modest wage gains.
    High interest rates continue to add to those costs. For 
example, high interest rates make it more expensive for home 
builders to finance new housing. High interest rates also cause 
landlords to charge higher rents and lead to higher mortgage 
costs for would-be homebuyers.
    I know that you and your colleagues at the Fed are 
correctly focused on bringing down inflation, an important 
goal, but have you considered that at this point, with housing 
cost increases being the primary driver of inflation, keeping 
interest rates high only thwarts that stated goal?
    Mr. Powell. There are a couple of things that are happening 
with housing. Before the pandemic, there was a pretty serious 
housing shortage, and we can't do anything about that. Then, 
the pandemic came along.
    We really think the best thing, the most important thing we 
can do for the housing market in the medium- and longer-term is 
to get inflation under control so that interest rates can come 
down, so that we can get back to a more normal interest rate.
    No one knows exactly where interest rates will go, but they 
will be lower than they are now. And the housing market supply 
and demand will work their way out, and you will have a supply 
of housing. There is still going to be a housing shortage at 
the end of that, though.
    And it is true that our policies work through interest-
sensitive spending. Housing is maybe the most interest-
sensitive form of spending, buying houses with a mortgage. We 
know that we have really significant effects in that market, 
and it is tough on people. But this is the path to getting 
inflation down, which will bear fruit for many, many years.
    Mr. Nickel. Thanks so much.
    I don't think I am going to be able to get in my next 
question in the limited time I have, but I wanted to give you 
this opportunity, if you would like it. I have talked to you 
privately about this, and I have a pretty good idea what you 
will say, but if you would like to say that the economy is, 
``heading for a soft landing,'' you are welcome to say, ``soft 
landing,'' as much as you would like right now.
    Mr. Powell. I will say that for some time, I have thought 
there is a path to getting back to full price stability while 
keeping the unemployment rate low. There is that path. We have 
been on it. We are very, very focused on staying on that path.
    I would say we are at a place now where the risks to the 
two mandates are much more in balance than they were, and that 
means it is not just about getting inflation down. The job is 
not done on inflation. We have more work to do there. But at 
the same time, we need to be mindful of where the labor market 
is; we have seen considerable softening in the labor market. We 
still have a strong labor market, with low unemployment, and 
this is what we are very focused on continuing to work toward.
    Mr. Nickel. Thank you very much.
    Mr. Powell. Thank you.
    Mr. Nickel. And I yield back.
    Mr. Barr. [presiding]. The gentlewoman from Texas, Ms. De 
La Cruz, is now recognized.
    Ms. De La Cruz. Thank you, Mr. Chairman.
    And thank you, Chair Powell, for being here today. I 
appreciate that.
    I represent a working-class area in south Texas. In fact, 
my district is mostly Hispanic, one of the most-Hispanic 
districts in the entire nation, over 80 percent. And my 
district is also a rural community, so the topic today greatly 
affects my constituents, and it is something personal for me.
    That being said, the population that I represent is a 
population that Federal Reserve research has shown will be 
disproportionately the hardest hit in inflation.
    That being said, higher prices due to Biden's induced 
inflation is something not only the nation is feeling, but my 
constituents are feeling. They are feeling it at the grocery 
store. They are feeling it at the gas pump. Small businesses 
are feeling this.
    And we know that cutting back on their spending, people who 
are living paycheck to paycheck, they still can't get away from 
these increasing costs at the grocery store or the gas station.
    So, even small changes have a big impact in rural 
communities like mine. In fact, the Farm Bureau recently said 
that the cost of the Fourth of July celebration had high, high, 
increases. The headline reads, ``Record-High Fourth of July 
Cookout Costs: Inflation Hits the Backyard.'' This report says 
that costs were up 5 percent from last year, and up 30 percent 
from just a few years ago, all during the Biden Administration.
    Now, the Biden Administration wants us to simply forget 
about the last 3 years and the pain it has caused families in 
my district. They don't understand why people are unhappy about 
their current economic situation. And, quite frankly, it is 
angering, and it is simply out of touch with the everyday 
American.
    It seems obvious that until we grapple with the runaway 
government spending, that, unfortunately, we are going to 
continue to have runaway inflation.
    Chairman Powell, can you explain to us how the excessive 
government spending not only increases the national debt but 
also affects inflation as well?
    Mr. Powell. Sure. Let me say, first of all, we completely 
understand that inflation hurts people, low- and moderate-
income people, directly and immediately in a way that it 
doesn't affect even middle-class people, because when paying 
more for the necessities of life when you don't have much of a 
financial safety net, the pain starts right away. We get that.
    So, it is for those people, among others, that we are doing 
everything we can to get inflation under control and stay at 
the job until it is done.
    In terms of the causes of inflation, the inflation that we 
are having is not that different from what other advanced 
economies around the world are having.
    And it really results from--inflation is low, the pandemic 
comes along, we shut down the economy, and people are sent 
checks to replace their income, but they can't spend that money 
because they can't go to the movie theater or to a football 
game because everything is closed, so savings go up. And people 
aren't spending a lot.
    Ms. De La Cruz. Chair Powell, I only have a minute left, so 
I want to shift gears quickly. I continue to believe that the 
Federal banking agencies, including the Fed, should scrap the 
flawed Basel III Endgame proposal and start over.
    At this point, the last thing a first-time homebuyer, a 
small business owner, and constituents, as you said, low-income 
people, who are rural people, for example, in my community, the 
last thing they need is harder access to capital, which is 
exactly what that proposal does.
    The public knows it and doesn't want it either, with a 
whopping 97 percent of public comments being negative for this 
proposal.
    Chair Powell, don't you agree that with the overwhelmingly 
negative reception of this proposal, that it shows a lack of 
public support?
    Mr. Powell. I do think that is fair to say.
    Ms. De La Cruz. Thank you. I yield back.
    Mr. Barr. The gentlewoman from Colorado, Ms. Pettersen, is 
now recognized.
    Ms. Pettersen. Thank you, Mr. Chairman.
    And thank you for your service in such difficult times. We 
sign up to serve, and we don't know what is going to come our 
way.
    And I think about what we have been through as a country, 
with a global pandemic, the economy in collapse, and what this 
Congress was able to do, to infuse money to keep our small 
businesses afloat, to keep critical services available, and to 
make sure that we were in a position for the quickest, 
strongest recovery in the world.
    And while we have a lot to feel proud of, we recognize and 
have had many conversations throughout this committee about the 
pain points that people are continuing to feel with rising 
costs. And you touched on this. I really appreciate the 
discussion around housing in an earlier question because this 
is the greatest inflationary cost, especially in Colorado, 
where we have seen significant home price increases, and a lack 
of supply. People aren't able to move because they would go to 
a much higher interest rate. And then, people aren't able to 
buy because they can't afford those mortgage payments.
    And while you have talked about recognizing that lowering 
the interest rates will actually help with addressing the 
housing crisis, we still have a lack of housing supply. Can you 
talk a little bit more about what is happening and that the 
lower interest rates are only a piece of this?
    Mr. Powell. It is a longer-term thing, and a lot of it is 
that it is harder to get lots and zoning and materials and 
workers. And in many, many metropolitan areas, the near-in 
areas are all built up. If you look around Washington--I grew 
up near Washington, D.C., and it was countryside just a couple 
of miles outside the Beltway. There was no Beltway when I was 
born.
    But, ultimately, it is just that we don't have enough 
housing, and that was true before the pandemic, and certainly, 
the pandemic did slow down housing construction. I think we 
will get back to a more normal economy with lower interest 
rates and those sorts of things, but we are still going to have 
a housing shortage.
    Ms. Pettersen. Absolutely.
    When I think about the other pieces of the fallout from the 
global pandemic and the changes that we saw in our economy was 
in commercial real estate. And I have continued to read about 
regional bank failures and the risk that commercial real estate 
poses in the long-term for those assets being on the books for 
banks.
    What is your insight on the risk that it poses for 
financial stability and what we should be thinking about here 
in Congress?
    Mr. Powell. The commercial real estate situation, which is 
significantly downtown office and related retail and things 
like that, this is something the banks have been working their 
way through for the last couple of years. I think it will take 
more time, more years to work all the way through it.
    We know from the stress tests, and from our own work, that 
the large banks are going to be okay. Some of the regional 
banks and smaller banks have what you would expect, which is 
high concentrations in their local community of real estate. We 
are aware of those. The banks are aware of it.
    I think the supervisors have been around those banks making 
sure they have capital, they have liquidity, they have a 
reasonable, not-too-optimistic assessment of how much capital 
they will need, and of how big the losses will be. So, I think 
we will be working through this.
    And it doesn't seem to be a systemic problem or one that 
threatens broader financial stability. It does threaten bank 
profitability and those sorts of things, and it will be with us 
for a while. But we will just keep working our way through it.
    Ms. Pettersen. And the ability to continue to loan to small 
businesses because you are being locked up.
    You are not going to have enough time to answer this 
question, but my remaining outstanding question is around the 
recent Chevron ruling and how you anticipate that impacting the 
Fed's ability to adjust to the needs of the country and ensure 
financial stability without being sued at every turn.
    Mr. Powell. We are just looking at all these new decisions. 
In its early stage, I speak under the control of my General 
Counsel. I don't want to cause him to strike me.
    Ms. Pettersen. That is how I feel about my staff--I mean, 
not striking me.
    Mr. Powell. No, but ultimately, we are already very careful 
at the Fed about keeping within the law, we are really 
committed to that value, and this ruling doesn't change that. 
And I think we will continue to be an institution that is 
strongly committed to the rule of law.
    Ms. Pettersen. Great. Thank you so much.
    I yield back.
    Mr. Powell. Thank you.
    Mr. Barr. The gentlelady yields back.
    The gentleman from Wisconsin, Mr. Fitzgerald, is 
recognized.
    Mr. Fitzgerald. Chairman Powell, thanks for being here.
    There has been a lot of talk about Basel III. I wanted to 
just change the subject a little bit.
    I think the long-term debt proposal should be rewritten and 
reproposed as well, but at the very least, the rule needs to be 
tailored as the law requires so that regional banks aren't 
treated more harshly than the largest banks. In particular, the 
requirement for regional banks to hold long-term debt at both 
the holding company and insured depository institution, that 
seems to be a burden, is what we are hearing, I think.
    I just wanted to mention that I would hope that there would 
be some flexibility for smaller regional banks to pre-position 
resources because there obviously--there are some resources 
that are lost. I don't know, lost, absorbing, I guess is the 
way you would consider them in the reproposal.
    Do you have any thoughts on kind of how this is playing out 
right now or what this looks like?
    Mr. Powell. Yes. On the long-term debt thing, we put it out 
for comment. We have received quite a few comments and staff 
has been analyzing them and that is something of which we are 
well aware, the concerns that have been raised, and we are 
thinking carefully about how to move forward on that.
    The other one was pre-positioning. That is more along the 
lines of the discount window and the liquidity requirements, I 
take it?
    Mr. Fitzgerald. Right.
    Mr. Powell. We haven't made a proposal there yet. We are 
thinking carefully about that. I think we are trying to learn 
the right lessons from what happened last spring at Silicon 
Valley Bank and a couple of other banks. And one of them is 
that the discount window worked, but we could certainly 
modernize it and make it more effective.
    And also, we learned that bank runs are moving just a whole 
lot faster, at least in that case, and that even bank runs from 
10 or 15 years ago were nothing like as fast as what happened 
at Silicon Valley Bank. So, we need to bake that new learning 
into the liquidity requirements in some way or other.
    We, again, haven't made a proposal. When we do, of course, 
it will go out for comment, and we will very much want to learn 
from those comments.
    Mr. Fitzgerald. Very good.
    There has been a clear trend of banks stepping away from 
the mortgage market kind of in the face of the increased 
regulation. That is my interpretation at least. Nonbank lenders 
have stepped in to kind of fill that void.
    Today, banks support the nonbank lenders in the broader 
housing finance system through the so-called warehouse lending 
for home mortgages. But I am deeply concerned that some of 
the--as was mentioned by my colleagues earlier--Basel rules 
could harm both bank and nonbank lenders alike, kind of 
undermining the liquidity and raising the costs for homebuyers.
    Let me just ask, in regards to Basel III, the Endgame 
proposal, could it make housing finance less stable, I guess is 
the question?
    Mr. Powell. That is certainly not the intention, and we 
are, again, well aware of the concerns that have been raised, 
and we are certainly paying careful attention to those 
concerns.
    Mr. Fitzgerald. Despite the smaller issuer exemption for 
the debit interchange fee cap, issuers with less than $10 
billion of assets reportedly lost about 35 percent of inflation 
in just interchange revenue.
    Have you considered the impact that further reduction of 
debt interchange will have on small financial institutions with 
less than $10 billion of assets?
    Mr. Powell. Yes. That is another one where we put out a 
proposal. We got a lot of comments, and we are carefully 
reviewing those, and we are certainly aware of the specific 
concern that you raised.
    Mr. Fitzgerald. As you may know, the latest FR Y-14 
proposal, which is used to help collect data for Fed stress 
tests, asked banks for more detailed data on bank lending to 
nonbanks.
    As a result, there is concern that the Fed may start trying 
to indirectly regulate nonbanks and the financial risk. I just 
talked to one this morning that is concerned about that.
    Given those concerns raised about the lack of transparency 
in its stress testing models and the potential unintended 
consequences, is the Fed planning to indirectly regulate 
nonbank financial institutions through these tests?
    Mr. Powell. That is not the idea. The idea is we see 
intermediation growing very quickly in nonbanks. And we don't 
regulate them. We don't have a secret plan to regulate them or 
anything like that.
    But the question is, what risks are being kept inside the 
banking system, which we do regulate and supervise, and what 
are the relationships between these large nonbanks and banks? 
We don't have a preconceived answer to that. We just want to 
understand what are those business relationships like, and what 
kind of risk does that mean the banks are running. That is all 
it is.
    Mr. Fitzgerald. Thank you, Chairman.
    I yield back.
    Mr. Barr. The gentlewoman from New York, Ms. Velazquez, is 
now recognized.
    Ms. Velazquez. Thank you, Mr. Chairman.
    And thank you, Chairman Powell, for being here today.
    Once the Fed is reassured that inflation is under control, 
what does the path back to neutral interest rates look like?
    Mr. Powell. We said that we wouldn't reduce rates until we 
were confident that inflation is moving sustainably down to 2 
percent. I think the question of what is neutral is going to be 
an empirical question. I think it seems to me it is unlikely 
that we will be going back to the very low interest rates of 
the pre-crisis period, but we won't know that until we get 
there, in a way.
    Ms. Velazquez. And the Fed's dual mandate is comprised of 
price stability and maximum sustainable employment. As the Fed 
is thinking about inflation and the possibility of interest 
rate cuts, how are you balancing this priority with the need to 
maximize employment?
    Mr. Powell. Over the past couple of years, we have had a 
very strong labor market and inflation well above target and 
that has led us to focus mainly on bringing down inflation.
    Over the course of 2 years, inflation has come down pretty 
significantly. There is more work to do there. We are not at 
our target. We need to keep on that job. At the same time, the 
labor market has cooled pretty significantly.
    And so, I would say those two goals are now much closer to 
being in balance, and that means, from a policy standpoint, we 
need to be paying attention to both of them. Whereas, for the 
last couple of years, we had to mostly pay attention to 
inflation.
    Ms. Velazquez. Chairman Powell, I have told you that I will 
be asking for a status update on the Section 956 rulemaking at 
every future hearing.
    Since your last appearance in March, several of your fellow 
regulators have issued a proposed rule. Why did the Fed choose 
not to sign on to this proposal?
    Mr. Powell. What we are doing is we are looking at the 
current state of affairs as it relates to incentive 
compensation.
    As you may know, we have had guidance in place now since 
2010 for all banks, and we supervise pretty significantly 
around that. So, it is a very different picture than the one 
that was there in 2010.
    And we are asking ourselves, what is the situation today, 
and how do we tailor a proposal to address the residual risk, 
as opposed to what the situation was in 2010 ?
    Ms. Velazquez. Yes.
    In previous hearings, you said that you need to better 
understand the problem in order to write the rule. In a speech 
in June, SEC Commissioner Lizarraga said, ``It has been well 
documented that in the lead-up to the financial crisis, pay 
structures often encouraged big bets that maximized short-term 
profits but ignored bigger, longer-term risks that threatened 
to take down the entire financial system.''
    Additionally, since your last appearance, several of your 
fellow regulators have moved forward with a proposed rule. Why 
have your fellow regulators and Commissioner Lizarraga been 
able to understand the scope of the problem and the Fed has 
not?
    Mr. Powell. I think the quote absolutely makes my point, 
which is, I think everyone agrees that incentive compensation 
practices before the global financial crisis were not in a good 
place. However, we published guidance on incentive compensation 
binding on all--not binding--but guidance for all banks in 2010 
after putting it out for comment. A lot of thought went into 
that guidance, and now, we supervise on that guidance.
    So, the situation with incentive compensation now in banks 
is completely different than it was before the global financial 
crisis, completely different.
    Ms. Velazquez. The other regulators have been able to 
figure this out and you haven't.
    But let me just say, this is not how congressional mandates 
work. Of all the rulemaking provisions in the Dodd-Frank, only 
148 were mandatory, and of those, only 22 had a deadline of 
less than a year after enactment. Section 956 was one of them. 
And I hope that you come to the conclusion that it is your duty 
to issue the regulation.
    Thank you. And I yield back, Mr. Chairman.
    Mr. Powell. Section 156 requires either a rule or guidance, 
by the way. It does not require a rule.
    Thank you.
    Mr. Barr. The gentleman from Florida, Mr. Donalds, is now 
recognized.
    Mr. Donalds. Thank you, Mr. Chairman.
    Chairman Powell, it is good to see you.
    Let's cover a lot of different areas of ground.
    According to the Bureau of Economic Analysis, since 
President Biden took office, the price of goods has continued 
to outpace family incomes, with prices increasing now 19.3 
percent, while average weekly earnings have only increased 14.6 
percent. So, families have fallen behind with respect to their 
purchasing power that they are able to go and acquire goods.
    What role has government spending played in creating this 
untenable economic crisis?
    Mr. Powell. Close that door, please. Sorry. I can't hear 
very well when the door is open.
    Mr. Donalds. I will repeat the question. That is fine.
    Mr. Powell. No, no, I heard you.
    Mr. Donalds. Oh, okay.
    Mr. Powell. That door needs to be closed.
    So, what role? Government spending is part of the story. 
So, government spent. We had our rates really low. The pandemic 
happened, and we closed the economy, and then reopened it, and 
I think you saw a burst of inflation everywhere in the world, 
and certainly, there were many contributors to that.
    Mr. Donalds. Do you think that the President in his budget 
calling for an increase of Federal spending, upwards of 5 
percent increase in Federal spending across-the-board, do you 
think that is going to have further implications on stubborn 
inflation plaguing the pocketbooks of the American people?
    Mr. Powell. It would be inappropriate for me to comment on 
the President's budget.
    Mr. Donalds. The only reason why I would ask, Mr. Powell, 
is because, obviously, the Federal Reserve is having to respond 
to various aspects of fiscal policy coming from Capitol Hill.
    Regardless of the President's budget, would it be 
appropriate in the current environment for Federal spending to 
increase by 5 percent, 10 percent, or 15 percent?
    Mr. Powell. Honestly, that is a question for elected 
Representatives. We don't play a role in fiscal policy.
    Mr. Donalds. Fair enough.
    Is it the view of yourself and the Federal Reserve Board 
that fiscal policy does create impacts on the Fed's ability to 
manage monetary policy for the United States?
    Mr. Powell. We take fiscal policy as a given, and we are 
not commentators. We are not the Congressional Budget Office or 
the Office of Management and Budget.
    Whatever fiscal policy happens up here, we decline all 
opportunities to be commentators on it. We take it as a given. 
And that is because we didn't run for office. We don't have 
that job. We stick to our knitting. And the fact that we are 
independent really depends on us sticking to what our 
assignment is, which is to deal with things with the economy as 
it is.
    Mr. Donalds. I would argue that the fiscal policy of the 
United States has given you guys a lot more to deal with and 
whatever the various burdens that come with it.
    Unfortunately, you have to tangle with it, but the American 
consumers are the ones who truly have to deal with it.
    I want to move on. The Monetary Policy Report cites a 
pickup in immigration as one of the major factors that has 
improved the supply of labor; however, the labor force 
participation rate remains below pre-pandemic levels.
    What percentage of the increase of foreign-born labor 
supply, to your knowledge, comes from illegal immigration?
    Mr. Powell. What percentage of the--say it again, the 
question?
    Mr. Donalds. What percentage of foreign-born labor comes 
from illegal immigration?
    Mr. Powell. I think all of foreign-born labor comes from 
immigration.
    Mr. Donalds. No, illegal immigration.
    Mr. Powell. Illegal? Sorry. I didn't get that.
    Mr. Donalds. Yes, sir.
    Mr. Powell. I don't know the answer to that.
    Mr. Donalds. Okay. One of the things I think would be 
important to help, I guess advise Congress on what to do going 
forward, is if the Federal Reserve had some data in that regard 
to help us make further decisions into the future.
    Chairman Powell, let me ask you this one overarching 
question. Obviously, interest rates, if you compare them over 
the last 15 years of monetary policy, are at an elevated rate. 
Does the Fed anticipate any possibility of rates being lowered, 
whether it is 50 basis points, or 100 basis points, at some 
point over the next year or two?
    Mr. Powell. I guess if the question really is, where are 
interest rates going to settle out when all of the effects of 
the pandemic are really done, no one knows. This is a great 
discussion to have. But I think my sense is that we probably 
won't go back to that era between the global financial crisis 
and a pandemic where rates were very, very low and inflation 
was very low and extremely low.
    There were major European countries that had negative 10-
year bond rates, negative, and that was not the case here. But 
I don't think we are going back to rates that are that low.
    We think that things like the neutral rate are driven by 
slow-moving forces, but, ultimately, you can see the effect.
    Our policy rate is over 5 percent now, and it feels like 
policy is restrictive but not intensely restrictive. That 
suggests that the neutral rate of interest, at least as of now, 
will have risen somewhat, which means rates will be a little 
higher.
    Mr. Donalds. Okay. Thank you so much.
    I yield back.
    Mr. Powell. Thank you.
    Mr. Fitzgerald. [presiding]. The gentleman yields back.
    We now go to the gentleman from California, Mr. Sherman, 
who is recognized for 5 minutes.
    Mr. Sherman? Would you like us to move on?
    Mr. Sherman. If it is Josh's turn, it is Josh's turn.
    Mr. Fitzgerald. The gentleman from New Jersey is recognized 
for 5 minutes.
    Mr. Gottheimer. Thank you, Mr. Sherman.
    Thank you, Mr. Chairman.
    Chairman Powell, you have said that, ``Custody assets are 
off-balance-sheet, always have been.'' Do you stand by that?
    Mr. Powell. Sorry. Say that again?
    Mr. Gottheimer. You have said that, ``Custody assets are 
off-balance-sheet, always have been.'' Do you stand by that 
statement, sir?
    Mr. Powell. I think as a general matter, yes.
    Mr. Gottheimer. The SEC's Staff Accounting Bulletin No. 121 
(SAB 121) affects a core banking activity: custody. This 
specific bulletin requires banks to put digital assets held in 
custody on their balance sheet, effectively keeping banks out 
of the market entirely.
    Have the Fed and the SEC had conversations about the impact 
of SAB 121? I just want to get a sense of your thoughts on the 
policy, please?
    Mr. Powell. We don't comment on the SEC's policy. They 
don't comment on our policies, either. You knew you were going 
to SAB 121 on that. But, honestly, it is the SEC's business, 
not ours.
    Mr. Gottheimer. Thank you.
    Last month, you said that when evaluating inflation data, 
you consider whether wage growth is outpacing productivity. 
From 1979 to 2019, middle-class workers' productivity grew 
about 60 percent while their wages grew by about 16 percent.
    Do you consider this historical gap when considering 
whether to hike rates on families who are obviously struggling 
to make ends meet?
    Mr. Powell. We are looking at inflation, and we are looking 
at maximum employment. Those are our goals. We don't really 
have the ability--we don't have a bunch of different tools for 
things like what you are talking about. So really, it is just 
those things.
    We are, of course, really well aware of longer-run trends 
like that. You have to also include benefits, though, in that 
analysis, which does close that gap quite a bit. You just 
mentioned wages.
    Mr. Gottheimer. I appreciate that. Thank you.
    Mr. Chairman, yesterday the Director of National 
Intelligence said that, ``Iranian Government actors have sought 
to opportunistically take advantage of ongoing protests 
regarding the war in Gaza.'' They have, ``observed actors tied 
to Iran's Government posing as activists online, seeking to 
encourage protests, and even providing financial support to 
protesters.''
    As a member of the House Select Committee on Intelligence, 
I am equally concerned about our adversaries meddling in our 
financial system.
    Can you discuss if you are working with other Federal 
agencies to investigate and address foreign interference 
channeled through our financial institutions?
    Mr. Powell. We do take part in many of those things, 
especially at the staff level. And as you know, there is a lot 
of focus in the intelligence community. And it is very helpful 
to the banks, the commercial banks, and to us.
    But we are certainly very focused on those issues. We have 
a strong team. Of course, you are never able to sleep on cyber 
risk. But we just keep fighting it.
    Mr. Gottheimer. I would like to switch gears to the 
discount window, please.
    Chairman, we have heard that the discount window is behind 
the times in terms of its operations. We also continue to hear 
that efforts to modernize the discount window and encourage its 
use will be ineffective without reducing the associated stigma.
    The usability of the discount window is an important tool 
for banks that need liquidity. I just wanted to get a sense of 
efforts underway to make the discount window a more realistic 
option for banks that need liquidity.
    Mr. Powell. It is couple of things. First, it is that we 
need to modernize our infrastructure. The discount window in 
our system is not a primary source of credit. It is a source 
for banks that they can use under certain circumstances. But we 
know that the infrastructure is a little tired, and we are 
investing in that and making it more user-friendly and all 
that. So, that is a big, big project that is going on.
    The second point was stigma. That is a tough one. There are 
a lot of ways to get after that. We are studying all of them. 
In a sense, if you require banks to use the discount window, 
that can help with the stigma.
    I think this is a big ask. But when Congress required us to 
publish the names of discount window users, that didn't help. 
That doesn't help at all because banks basically say, ``We are 
not going to use the discount window because people might see 
us as troubled.'' And that is not what we want. We want people 
to be able to freely use the discount window.
    So, we have been focused on this issue for a long time. We 
have not made a lot progress on it. But right now, I think we 
are very focused on it.
    Mr. Gottheimer. Thank you, sir.
    I will yield back. Thank you.
    Mr. Fitzgerald. The gentleman yields back.
    We now go to the gentleman from New York, Mr. Lawler, who 
is recognized for 5 minutes.
    Mr. Lawler. Thank you, Mr. Chairman.
    Chairman Powell, to the best of my knowledge, the last 
public meeting between you and President Biden occurred on May 
31, 2022. Does that sound accurate?
    Mr. Powell. I am going to take your word for it.
    Mr. Lawler. Okay. Have you had any private meetings with 
the President since that time?
    Mr. Powell. No.
    Mr. Lawler. Any phone calls with the President?
    Mr. Powell. No, I don't believe so.
    Mr. Lawler. Is there any reason why you have not met with 
or spoken to the President?
    Mr. Powell. When any President calls you, you come and you 
meet. But that hasn't happened.
    Mr. Lawler. So, in over 2 years, with inflation still 
nagging us, with costs out of control, President Biden has not 
asked to meet with you in over 2 years?
    Mr. Powell. I haven't had a meeting with him. He hasn't 
sought a meeting. And, of course, I don't seek meetings. So, 
you have the data; I don't.
    Mr. Lawler. But, to your knowledge, in the last 2 years, 
you have not spoken with or met with the President at all?
    Mr. Powell. I shook his hand in a line once, but that 
wasn't a conversation. It was just, ``Mr. President,'' and that 
was it. But that was at a State dinner. I attended a State 
dinner a few months ago, and I shook his hand. ``Good evening, 
Mr. President,'' and that was it.
    Mr. Lawler. Does that not strike you as odd that the 
President has not sought to meet with you?
    Mr. Powell. Not at all.
    Mr. Green. Mr. Chairman?
    Mr. Powell. We are an independent agency and----
    Mr. Green. Mr. Chairman? Parliamentary inquiry, please, Mr. 
Chairman?
    Mr. Powell. I'm sorry.
    Mr. Green. Am I recognized?
    Mr. Powell. I want to answer your----
    Mr. Fitzgerald. State your inquiry.
    Mr. Green. Thank you, Mr. Chairman.
    I make a point of order under Clause 4 of Rule XVII that 
the gentleman's words are disorderly and violate the rules of 
decorum and debate insofar as they are negatively reflecting 
upon the personality of a candidate for President of the United 
States.
    Mr. Fitzgerald. The Congressman has not engaged in any 
personality or questioned anything about anyone at this point. 
I am not sure where you are going, Congressman.
    Mr. Green. We have----
    Mr. Fitzgerald. The Congressman is recognized.
    Mr. Lawler. Thank you.
    Mr. Green. Mr. Chairman----
    Mr. Lawler. Thank you.
    Mr. Green. Mr. Chairman----
    Mr. Powell. I am happy to answer your question.
    Mr. Lawler. Thank you.
    Mr. Green. Mr. Chairman, I would like to continue with the 
point of order.
    Mr. Powell. It's not at all unusual.
    Mr. Fitzgerald. What is your point of order?
    Mr. Green. Mr. Chairman, we have been admonished in this 
committee that we should not have words that negatively reflect 
upon persons who are running for President. This would include 
Mr. Trump, as well as the current President.
    Mr. Lawler. Didn't the ranking member do a whole opening 
monologue diatribe----
    Mr. Green. Mr. Chairman----
    Mr. Lawler. ----about some ridiculous----
    Mr. Green. Would you please rule my friend out of order, 
Mr. Chairman, until you rule?
    Mr. Fitzgerald. Mr. Lawler has----
    Mr. Lawler. He has already ruled.
    Mr. Fitzgerald. ----not admonished or said anything 
negative about the President at all. I just listened to his 
comments.
    So, I am going to recognize the Congressman again.
    Mr. Lawler from New York is recognized.
    Mr. Lawler. Thank you, Mr. Chairman.
    Mr. Powell, you were trying to answer my question.
    Mr. Powell. We are an independent agency. The 
Administration has been very respectful of the Fed not wanting 
to try to influence things like that. And I don't find it at 
all unusual.
    Mr. Lawler. Okay. Since you made mention of the 
independence of the Fed, and I know you pride yourself on that 
independence, do you acknowledge or do Members of the FOMC 
acknowledge that a rate cut in September could be viewed as 
political, just 30 to 60 days before an election?
    Mr. Powell. Our undertaking is to make decisions when and 
as they need to be made based on the data, the incoming data, 
the evolving outlook, and the balance of risks, and not in 
consideration of other factors. And that would include 
political factors.
    We will make those decisions. We have a long history of 
doing that, including during election years, and that is the 
undertaking we will make. Anything we do will be very well-
grounded. And it is just not appropriate for us to get into the 
business of thinking about election cycles at all one way or 
the other.
    Mr. Lawler. Inflation year over year from May 2023 to May 
2024 is up 3.3 percent, overall inflation. Energy inflation is 
up 3.7 percent, food inflation is up 2.1 percent. With 
inflation continuing to be a challenge, do you see a rate cut 
as a possibility at this moment?
    Mr. Powell. I think you are quoting the Consumer Price 
Index (CPI) numbers, which are operating at an unusually high 
gap to the Personal Consumption Expenditures (PCE) numbers. For 
25 years, the Fed has focused on inflation, PCE inflation. And 
usually, the gap to CPI is only 25 or 30 basis points. It is 
more now.
    So, the current PCE numbers are 2.6 percent for headline, 
2.6 percent for core. And we have articulated for a good, long 
period our test for being willing to consider beginning to 
loosen policy. And that test is that we want to be more 
confident that inflation is moving on a path sustainably down 
to 2 percent, not at 2 percent but on a path sustainably at 2 
percent. That is the test we have articulated.
    I have some confidence, as I said earlier, that we are on a 
downward path. I think if you look at the data, it is pretty 
clear. But we have not said, though, that we have sufficient 
confidence. And that will be a decision that our Committee 
makes.
    Mr. Lawler. I would just note that, obviously, CPI, the 
price of goods, the price of purchasing a home, the price of a 
mortgage, the cost of a mortgage has been astronomical. In 
Westchester County, for instance, which I represent, the 
average mortgage cost is up a thousand dollars a month, over 
$12,000 a year.
    Mr. Fitzgerald. The gentleman from Texas, Mr. Green, is now 
recognized for his 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank Chair Powell for appearing today. I hope things 
are going well with you. I know that this is a difficult time 
for you. And, quite frankly, you have been at a difficult time 
for a number of years. And you have proved to be quite 
resilient and quite effective at what you do. So, I thank you 
for what you are doing.
    I do want to ask you about several things, and I hope that 
I will get to them. But, first, there was a post-failure 
lessons report after the failure of Silicon Valley Bank and 
Signature Bank. I thought that report was pretty important. How 
important is that post-failure lessons report?
    Mr. Powell. It is important. We wanted to learn the right 
lessons and make the right changes to both our rules but also 
really to our supervisory practices more than anything else, 
and we are doing that.
    Mr. Green. And is this something that you believe to be 
important after each incident such as what happened with 
Silicon Valley Bank and the other banks?
    Mr. Powell. Yes, I think we all have a lot to be humble 
about, and we try to learn from events.
    Mr. Green. Thank you. Let me go on to the next question, 
which has to do with the banks that are small. Let's talk about 
those that are less than $5 billion in total assets, yet they 
are subject to the special assessments of the FDIC once their 
systemic risk exception is triggered.
    I would like to see them exempt from that. Do you have any 
comments on that?
    Mr. Powell. That is either a statutory matter or it is a 
matter of the FDIC's practice. So, it is not something the Fed 
really has any input into.
    Mr. Green. Okay. Let's do this next, please, as time runs 
out.
    Would you kindly finish your commentary? You were giving a 
comment on the pandemic and how the pandemic helped to generate 
this inflation, and you were stopped in the middle of your 
comments.
    Would you go back through that, please, so that the public 
at large can get a better understanding of what actually 
happened with the pandemic and inflation?
    Mr. Powell. I would be glad to. I think people are now--we 
have had a few years to look back. I think the more years that 
pass, the clearer we can see what was happening. But I think 
when you look back now and you are seeing this, broadly, what 
was happening was governments did a lot to support economic 
activity during the pandemic on the theory that there could be 
really serious economic bad times ahead.
    Then, the economy reopened. And it reopened very, very 
strongly. And I think, in hindsight, you can see that there was 
just a lot of support for demand from fiscal policy, from 
monetary policy, and that supply was constrained.
    You couldn't make cars. Supply chains were tangled up. 
There were shortages of so many things.
    What happened was we got a burst of inflation, and the 
United States got a big burst of inflation really more from 
demand than other countries did.
    Then, you had the war in Ukraine, which gave a big burst of 
inflation, more to Europe than to us.
    And so, you wind up with a situation where you just have a 
lot of inflation. And our thinking, my thinking at the time was 
it is going to take restrictive monetary policy and it is going 
to take time for the supply side and demand side distortions 
from the pandemic to unwind.
    And 2023 was the year when that kind of happened. Supply 
chains were fixed, the labor shortage was greatly alleviated, 
and unemployment remained very low. Inflation came down by a 
very large amount last year, while growth remained quite 
strong. So, this was the year that kind of proved that thesis.
    Now we are in 2024, and it is question of finishing the job 
on inflation, which we are committed to do, while also keeping 
a strong labor market, which we are also committed to doing. 
And that is a balance that we have to strike in our policy.
    But I think we know more now about where this came from, 
because we can see what made it go away. And it was a 
combination of supply and demand, as we had kind of expected.
    Mr. Green. And two of the most significant factors were the 
pandemic and the war with Ukraine? Is that correct?
    Mr. Powell. Yes, and it is also the fact that the pandemic 
summoned forth a great fiscal and monetary response, and that 
contributed to really strong activity and to inflation, without 
question.
    Mr. Green. I am going to run out of time, but I have to 
ask, if not for that monetary response--I know that it is a 
counterfactual--would we have possibly gone into a depression?
    Mr. Powell. That is what we thought at the time. And I 
think mainstream economists were very concerned that we never 
literally shut the global economy down for a period and then 
tried to reopen it. We didn't know how long it would take or 
how well that would go.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Fitzgerald. The gentleman's time has expired.
    We now go to the gentleman from Oklahoma, Mr. Lucas, who is 
recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    And thank you, Chairman Powell, for testifying today.
    I realize that by my questioning point in the hearing 
today, probably a lot of material has been covered. But there 
is never anything wrong with asking important questions a 
second or third time.
    You have reiterated how Members of the Board would like to 
see a revised Basel proposal put out for public comment, and 
you are working through the process with the FDIC and the OCC.
    From my perspective, the FDIC is in a period of 
uncertainty, with the current Chairman announcing he will 
resign to restore confidence in his agency. And the replacement 
is awaiting Senate confirmation hearings.
    And, at the OCC, we have an Acting Comptroller who has not 
yet been confirmed by the Senate. At the very least, given the 
expected broad revisions, I hope the other agencies agree that 
a complete reproposal would be appropriate.
    Chairman Powell, could you give me some indication of what 
the potential timeline around such a decision reproposed might 
look like?
    Mr. Powell. It is pretty uncertain, but I will give it a 
shot.
    Mr. Lucas. Please.
    Mr. Powell. I will say again that these discussions we have 
been having with the other two agencies have been very 
constructive, and we very much want that to continue. We have 
pretty good agreement on the substance, and now, it is about 
the process.
    So, a baseline might be that we agree on a reproposal of 
some kind that gives the public a chance to see these changes 
and react to them and write comment letters. And that could 
happen.
    It would take us a while to write it up. And then, we would 
put it out for comment for 60 days. I think that couldn't 
happen probably until part of the way through the fall.
    Then, there would be, let's say, 60 days of comment. Then, 
we get the comments. We would have to then evaluate the 
comments and think carefully about them. Having done that, we 
would have to write up the final version and that would take 
some time.
    My guess is that puts you well into next year. As I 
mentioned, these are rules that the banks are going have to 
live with for a long time, and we need to get them right. It is 
not something we should be hurrying; we need to take our time 
and get it right and make sure that we hear the comments.
    This is a very big piece of regulation. A lot of things 
will need to be changed. There are a lot of good things in 
there. We want to come out with a good proposal, and that is 
what it will take.
    Mr. Lucas. To shift years on you, Chairman, the 2024 stress 
test focused on commercial real estate risk, which is an area 
we have all been paying close attention to here on this 
committee.
    Do you agree that the results showed the financial system 
to be strong?
    Mr. Powell. Yes, I do.
    Mr. Lucas. Folks back home are always very concerned about 
inflation and the period we have gone through lately, not just 
the basic necessities that continue to explode but the cost of 
doing business and all those other issues.
    The fact is the inflation is still running above the Fed's 
2-percent target, and we have seen significant price increases 
in food and energy over recent years.
    As you and I have discussed before, I started out as a 
young farmer in 1977 in that inflationary period during the 
Carter years. Then, we went through Chairman Volcker's rather, 
shall we say, dramatic tightening of monetary policy. And I 
still remember paying 17 percent to borrow cow feed money when 
I was a student in college. I was well-collateralized, but that 
was a bargain in the fact that the capital was accessible
    So, I am particularly sensitive, being a part of that 
generation, to the fact that if inflation isn't effectively 
dealt with, it can spiral out of control.
    Could you expand for a little bit more about your approach 
in dealing with inflation in a way that doesn't repeat the 
mistakes of the past? I just want to avoid the mistakes of the 
past.
    Mr. Powell. I think really one of the big lessons coming 
out of the high inflation of the 1970s, which we both lived 
through, is that it really is on the central bank to be on the 
case and do the job and make sure that it is fully well and 
truly done, and that really is up to the central bank.
    Believe it or not, that wasn't fully accepted or that 
wasn't necessarily the thinking. And also, the independence of 
central banks was much less respected back then. So, all the 
more credit to Paul Volcker for having the courage to do it.
    That is an internalized lesson for people in central 
banking these days. We do understand that. We are committed to 
bringing inflation sustainably down to 2 percent.
    Mr. Lucas. One last question in my remaining seconds. You 
and the leadership of the Fed will be there the day before the 
election this fall, and you will be there the day after the 
election. There will still be the same people carefully 
watching the Fed's responsibilities, correct?
    Mr. Powell. This is my fourth Presidential election at the 
Fed, and I can tell you we come to work the next day, and we do 
our jobs.
    Mr. Fitzgerald. The gentleman's time has expired.
    Mr. Lucas. Thank you. I yield back.
    Mr. Fitzgerald. We now go to the gentleman from California, 
Mr. Sherman.
    Mr. Sherman. Coming out of COVID, everyone said a soft 
landing was impossible, and a recession was inevitable.
    I want to commend you and the Administration. It looks like 
we have seen a soft landing. We have continued to have 
historically-low unemployment rates and historically-low 
unemployment rates for people of color.
    And, in the last 18 months, we have seen a 4.7 point 
decline in the inflation rate as measured by the Consumer Price 
Index. I realize you may not have done the calculations, but I 
did the calculations, and it is the greatest decline that we 
have seen in an 18-month period this century.
    Do you have any reason to disagree with that?
    Mr. Powell. I hope that is true, and I am glad you said it 
because it is certainly a lot. I can't validate that statement, 
though.
    Mr. Sherman. I am sure you have a fine staff who will do 
the calculation, and hopefully, we will see the press release.
    When Treasury Secretary Yellen was here yesterday, I 
addressed an issue with which both you and she should be 
concerned. I have always opposed Operation Choke Point where, 
for political reasons, banks wouldn't provide or might not 
provide financial services.
    Florida and Tennessee had passed laws giving anybody who is 
denied a bank account or even a loan a way to claim that it was 
for political reasons. And it opens up the possibility that 
banks would be pressured by those laws to release their 
suspicious activity reports, which are, I understand, supposed 
to be private.
    So, I hope you will work with the Secretary in making sure 
that the laws of Florida and Tennessee do not adversely affect 
our ability to deal with suspicious financial circumstances.
    You have a dual mandate. And I think you have a third 
mandate that is implied, because the budget deficit poses a 
great risk to price stability and to keeping unemployment low. 
And you don't deal with spending. You don't deal with taxation. 
But in two ways, you dramatically affect the budget deficit.
    The Federal Government is the biggest borrower in the 
history of the world. Interest rates affect the forthcoming 
budget deficit, and at times you have turned over to the 
Federal Government up to a hundred billion dollars in profit.
    So, I hope that you would consider whether your first two 
mandates imply that you at least have to look at how your 
policies affect the budgets deficit.
    I hope that you will go with republication of Basel III and 
insist on that. I know you are dealing with two other 
regulators on that.
    A recent assessment by PricewaterhouseCoopers showed that 
the original proposal would lead to higher borrowing costs for 
small and medium-sized businesses. And, in every way, Basel III 
seemed to be slanted toward telling the banks go and put your 
money on Wall Street where you just are going to have interest 
rate risk, and don't loan your money to local Main Street 
businesses because there is credit risk there.
    And, in fact, if you had a fair system, you would mark to 
market all bonds, not just those that are, ``available for 
sale.''
    I hope also that, as you redo Basel III, you treat energy 
tax credits, green energy tax credits the same way you 
currently deal with Low-Income Housing Tax Credits, that you 
keep in mind the effect on the securities industry, 
particularly municipal bonds, that you don't unfairly say to 
local business that if it is a publicly-traded company, it 
counts only 65 percent, and that you look at mortgage servicing 
rights as an asset, and that you fully account for the private 
mortgage insurance.
    I know you give some credit for that. But, frankly, an 80 
percent loan-to-value and a 90 percent loan-to-value that has 
private mortgage insurance pretty much exposes the bank to the 
same risk.
    I will ask you one question about debit cards. You are 
planning to provide only, I believe, a .3 per--3 cents 
additional charge for dealing with fraud prevention. Fraud has 
just skyrocketed.
    Would the Fed consider increasing the fraud-prevention 
adjustment before finalizing its proposal?
    Mr. Powell. That is part of the comments that we have 
received on the interchange rule. And it is a concern we are 
aware of, and we will take that into consideration.
    Mr. Sherman. I yield back.
    Mr. Williams of Texas. [presiding]. The gentleman yields 
back.
    And the gentleman from the great State of Missouri, 
Congressman Luetkemeyer, is now recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    I certainly appreciate the thoughtful gentleman from 
California's remarks on some of the stuff.
    But I am kind of curious how--Chairman Powell, he indicated 
you have a third implied duty here to actually work with the 
budget. I really thought that only the Congress had the ability 
to impact the budget. We are the ones, not the Executive 
Branch, not the Judicial Branch; the Legislative Branch is the 
one that handles the budget.
    Am I mistaken on that, Mr. Chairman?
    Mr. Powell. I believe that is right.
    Mr. Luetkemeyer. I don't think you want our job on top of 
what you have.
    Mr. Powell. No.
    Mr. Luetkemeyer. One of the things that has come across my 
desk in the last few weeks here is that some of the 
legislatures this last year around the country have started to 
pass banking laws that infringe on Federal banking laws. Have 
you seen this? Are you aware of it? Do you have any thoughts on 
that? Can you tell me what your thoughts may be?
    Mr. Powell. Honestly, I have not seen that, and I----
    Mr. Luetkemeyer. Okay.
    Mr. Powell. It wouldn't necessarily come across my desk. It 
might come across Vice Chair Barr's desk.
    Mr. Lawler. Okay. It was just concerning because you handle 
lots of banking rules and regulations, so we don't want to have 
the State usurp the duties and responsibilities and the legal 
ability to----
    Mr. Powell. These are preemption issues?
    Mr. Luetkemeyer. Yes, preemption issues is what it is all 
about.
    Mr. Powell. Yes, that is a big deal for the OCC issue.
    Mr. Luetkemeyer. Yes, I was just curious if you had run 
across any of that, and had any thoughts on it?
    Mr. Powell. I haven't.
    Mr. Luetkemeyer. Okay. I just came out of a committee 
hearing with the House Small Business Committee a while ago. 
And there was a home builder individual there, a contractor. 
And he was talking about the cost of regulations, basically 
$1,000 increase in costs, with about 100,000 homes across the 
country not being able to be purchased because they are no 
longer affordable.
    And it brings up a point with regards to the cost of 
regulations. Do you fall under the Administrative Procedure Act 
(APA)?
    Mr. Powell. Yes.
    Mr. Luetkemeyer. Part of that Act is to determine the costs 
of a regulation, correct, or the cost of compliance?
    Mr. Powell. I don't actually know the answer to that.
    Mr. Luetkemeyer. Okay.
    Mr. Powell. But I know we carefully follow the----
    Mr. Luetkemeyer. Okay.
    Mr. Powell. ----the APA.
    Mr. Luetkemeyer. To me, that is a really important point 
from the standpoint of how you look at rules and regulations to 
ensure that the cost is not going to be more than the economic 
benefit of what you are doing. So, I would think this has to be 
part of your analysis.
    Mr. Powell. Certainly, we try to make our rules as 
efficient as possible and to get the job done.
    Mr. Luetkemeyer. One of the concerns we have is with--and I 
think the gentleman talked about the credit card situation 
here, Reg. II. And with regard to the Chevron doctrine 
basically being rescinded, how is that going to affect your 
rulemaking with regards to some of the more recent ones like 
Reg. II fees and stuff, the Basel rule? Are all of those things 
going to be impacted by this at all?
    Mr. Powell. It doesn't change our assignment under the 
Durbin Amendment to do the interchange rule. We are always 
focused as an institution on compliance with the law. We are a 
very law-abiding group.
    Mr. Luetkemeyer. But does it narrow your ability to go 
beyond or reinterpret laws and rules and things like that?
    Mr. Powell. No, that would be----
    Mr. Luetkemeyer. It seems to me that is what the rule----
    Mr. Powell. That would be a question for the courts. The 
courts will be asking the same question, which is what was 
Congress' intent with that law, and that is the question we are 
asking. But what they are saying is that courts will give less 
deference to agencies, I think.
    Mr. Luetkemeyer. Okay.
    Mr. Powell. Again, these decisions were just passed down. I 
was actually out of the country last week while this was all 
happening. I have had no time to be briefed on any of that. I 
am kind of speculating here.
    Mr. Luetkemeyer. Okay. One last question.
    I asked this question yesterday of Secretary Yellen. What 
keeps you up at night? What is your biggest concern with 
regards to your responsibilities, with regards to the economy, 
with regards to the banking system? What is your biggest 
concern?
    Mr. Powell. For a long time, it has been cyber. And the 
reason is, we know about credit crises and things like that and 
financial crises, but we haven't really had something where 
there is a successful cyber attack on a major financial 
institution or financial market utility. That has always been 
my answer.
    I would actually say the number-one thing that keeps me 
awake at night is the balance that I talked about before, which 
is, we are at a critical time where inflation is coming down, 
the labor market is cooling, and we want to get it right for 
the benefit of the American people. We want to get inflation 
down to 2 percent, but we want to keep a strong labor market, 
too.
    And trying to make decisions that give that the best chance 
to happen, is the thing that I think about in the wee hours.
    Mr. Luetkemeyer. We have talked about this before, too. You 
really have a tough job from the standpoint that you are trying 
to drive down demand, and the Administration, by spending all 
this money, is trying to drive it up. It puts you in a really 
big box, doesn't it?
    Thank you, Mr. Chairman.
    Mr. Powell. Thank you.
    Mr. Luetkemeyer. I yield back.
    Mr. Williams of Texas. The gentleman yields back.
    The gentleman from the great State of Illinois, Mr. Foster, 
is now recognized for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman, and Chair Powell.
    I guess when things are going well, as they currently are, 
it is all of our duties to look around the curve and see the 
risks that keep you up at night. So, I appreciate 
Representative Luetkemeyer's question.
    Over the last few years, there has been increasing interest 
in synthetic risk transfers (SRTs) or credit-linked notes, 
which are often used by U.S. banks to shift risk away from the 
banking system and as a means of managing regulatory capital.
    I have been concerned by recent reports that the buyers of 
some of these SRTs may be investing in them using bank-provided 
leverage, in which case the risk could just boomerang right 
back into the banking system.
    Frankly, when I read about this, it triggered my PTSD from 
the AIG situation with credit default swaps during the 
financial crisis.
    Now, I understand the Federal Reserve plays a role in 
approving SRTs, and in fact, issued guidance to U.S. banks 
regarding their issuance last fall.
    Could you say a little bit about the ways these investments 
can be a safe way for banks to off-load risk and in what ways 
they could become a dangerous source of contagion?
    Mr. Powell. Sure. There could be a breakdown in a couple of 
places in the chain, as you are obviously aware. One is just 
that the risk isn't really well and fully transferred to the 
buyer, and that is--the first step is: Is that risk going away 
off the balance sheet in an unconditional kind of a way, in a 
way that the bank understands? And it is a good thing if banks 
are able to do that.
    Then, the question is, is it coming back through the back 
door with financing? And we are well aware of that. Banks do 
tend to bring these things to us, and we look at them 
carefully. We understand some of the ways it can go wrong.
    But at the end of the day, if it works to reduce the risk 
on a bank's balance sheet, that is something with which we 
should be okay.
    Mr. Foster. But there is the--well, if you could just say, 
what sort of insight and control does the Federal Reserve have 
into all the conditions, particularly the connection may go 
through businesses that you do not have direct, nonbank 
entities that you may not have direct oversight over?
    Mr. Powell. My understanding is that this is a very active 
dialogue we are having with banks. They want to know how this 
is going to be treated. They don't want to do something that is 
going to come back on them or that we will deny the treatment 
on.
    So, I think there is a pretty transparent set of exchanges 
around how these things work. We are very clear on what we 
think our requirements are. This is what I am told. We saw what 
went wrong the last time, and I don't think anyone wants to 
repeat, that including the banks.
    Mr. Foster. If you conclude, as you are actively studying 
it, that you need more visibility into certain areas of, 
particularly nonbank things that may be parts of the chain of 
contagion, please let us know, because it is our job to avoid 
the next crisis.
    I think it is my personal goal to die before we have 
another financial crisis, and then I will be doing my job well.
    Now, I understand also the value of SRTs in the U.S. are 
relatively small, and the bulk of these are offshore. Is the 
growth of this practice internationally something you are 
watching closely? And is there anything that might provide a 
sign of early trouble in terms of international contagion that 
might creep back in?
    Mr. Powell. I haven't heard that flavor of it, but I will 
check on that and let you know.
    Mr. Foster. Do you remember with AIG, the real problem with 
AIG falling into bankruptcy is that it would immediately put a 
bazillion of the European banks into violation of their capital 
requirements, which was major contagion that----
    Mr. Powell. Yes.
    Mr. Foster. Do you have a sense of the time scale for the 
liquidity proposal at this point?
    Mr. Powell. I think the main thing is we have this very 
large, important project on Basel III. And I think we are 
pretty close to being able to move that out into the public 
view again.
    And I think, once we have done that, we can move on to the 
other things that are there. And one of them is the liquidity 
proposals, and I don't want to put a specific timeframe on it, 
but we are certainly working towards that sometime later this 
year, I would think.
    Mr. Foster. Later this year, we would have the first view 
of that?
    Mr. Powell. I would think so.
    Mr. Foster. Okay. I understand it is still under 
negotiation between agencies, but can you say directionally the 
Basel III re--the new amended proposal, is it just going to be 
in the direction of sort of a weakening at watering things down 
toward the current capital requirements? Or will there be areas 
where it is actually strengthening them?
    Mr. Powell. No, there will be a capital requirement in it 
that is consistent with Basel III and a capital increase that 
is consistent with Basel----
    Mr. Foster. My question is, if you look at what the 
original proposal was compared to what you intend to put out, 
are you moving in the direction of more toward the current 
situation? And if so, if you can just interpolate?
    It seems like if you have comments on the proposal you put 
out, you understand comments on the status quo and you are 
somewhere between that, then maybe you don't need another set 
of comments because everything that can be said has been said.
    Mr. Powell. It is a little more complicated than that, but 
that is essentially right. You have current levels of capital, 
you have the proposal, and you have--which is a lot of gold-
plating--and then, you have where it is shaking out.
    Mr. Foster. I was just wondering why you need more 
comments.
    Mr. Powell. There are many different pieces.
    Mr. Foster. Okay.
    Mr. Powell. The answer is there are many, many different 
pieces of that.
    Mr. Foster. Thank you. And I am over time.
    Mr. Williams of Texas. The gentleman's time is up.
    The gentlewoman from the great State of Indiana, 
Congresswoman Houchin, is now recognized for 5 minutes.
    Mrs. Houchin. Thank you, Mr. Chairman. And thank you to the 
ranking member.
    And thank you, Chairman Powell, for coming to speak with us 
today. It has been a long day. Thank you for being here this 
entire time.
    One of the greatest strengths of our financial services 
industry is the diversity of our banking system. I know 
firsthand how important it is for us to maintain options and 
choice for Americans, whether it is somebody looking to open a 
savings account or take out a loan to start a small business.
    Increasingly, however, we have seen consolidation in the 
banking industry and increased difficulty for smaller financial 
institutions to survive. One of the reasons for this is an 
excessive regulatory burden that many of the smaller banks 
face.
    While this can come in the form of new proposals and 
adjustments to liquidity requirements or to things like the 
Basel III Endgame, it can also be due to outdated technological 
capabilities at the agencies and inefficiencies in and within 
the examination process.
    Chairman Powell, could you just talk about what steps the 
Fed is taking to upgrade technology and procurements procedures 
and update training practices to ensure that the banks that you 
regulate don't face unnecessary burdens?
    Mr. Powell. To your point, the number of banks in the 
country has been coming down for 40 years. There is 
consolidation going on for a whole range of reasons, and we are 
not trying to foster that. We are not trying to push that. And 
we are aware that high fixed cost from regulations may be one 
of the reasons for that. So, we do try to keep that in mind, 
particularly for the smaller institutions.
    On your question around IT and specific things, I might 
take an opportunity to come back to you with somebody who is 
closer to the specific supervisory practices----
    Mrs. Houchin. That would be great.
    Mr. Powell. It's a fair question.
    Mrs. Houchin. That would be great.
    And, just for reference, I was proud earlier this year to 
introduce a bill, the Fostering the Use of Technology to Uphold 
Regulatory Effectiveness in Supervision Act (FUTURES Act).
    It is an important bill that would require our Federal bank 
regulators to conduct an assessment to ensure that the 
technology and training systems they are using will improve and 
reduce the burden, especially on our smaller financial 
institutions.
    At the same time, the bill will strengthen the safety and 
soundness of our financial system by keeping our regulators up 
to date on the latest fintech innovation.
    So, I was glad to see that Act, the FUTURES Act move 
through the markup earlier this year. I certainly hope to see 
it come to a Floor vote soon.
    Chairman Powell, in your comments yesterday in the Senate, 
you said Basel III will need a, ``meaningful revamp.'' Before 
we proceed towards finalization of that rule, I was glad to 
hear you say that, considering that 97 percent of public 
comments on Basel III were negative, with 86 percent of that 
negative feedback coming from outside the banking sector. Many 
of my colleagues here today have highlighted their own concerns 
with Basel III.
    Given the pressure that Americans are already facing with 
inflation and increased interest rates and housing market 
stalls, I would urge that you take a good, long look at the 
cumulative effect of this rule in context with the broader 
economy, and our small and mid-sized banks, not just the larger 
financial institutions.
    Will a meaningful revamp include consideration of the 
hardships that overregulation causes for smaller financial 
institutions like those that are essential to rural communities 
like mine in southern Indiana?
    Mr. Powell. I think it will, yes.
    Mrs. Houchin. And are you concerned about the consolidation 
that we are seeing in the banking sector? I know you said it 
has been going on for 40 years.
    Does consolidation in the banking sector concern you? And 
are you concerned that the broader effect of cumulative rules 
is potentially leading to a further consolidation in the 
banking sector?
    Mr. Powell. Again, we don't want to be part of the reason 
for that consolidation. It seems to be happening, though, 
organically. We allowed interstate banking, for example. Also, 
I think for a long time, the learning was that there weren't a 
lot of economies of scale in banking. I think with all the 
technology costs, that old learning is now not really true.
    And I do think, in fact, a lot of the sort of smaller 
regionals do feel that they need to grow to be able to compete 
with the larger regionals. And also, the very largest banks are 
also present, as you well know, in many, many communities where 
they weren't 30 years ago.
    So, I think people are seeing a need for scale from a 
business standpoint. And we don't want to push consolidation. I 
think we also don't want to stand in the way of it, if that is 
what is necessary for banks to compete----
    Mrs. Houchin. I appreciate that.
    Mr. Powell. ----with the largest banks.
    Mrs. Houchin. Thank you, Chairman Powell, again, for your 
testimony.
    Our financial system is really the envy of the world. We 
need to make sure that small and growing institutions have the 
tools they need to innovate without any undue burden. I 
appreciate your emphasis on that in the meaningful revamp.
    Thank you, Mr. Chairman. And I yield back.
    Mr. Williams of Texas. Next, the gentleman from Illinois, 
Mr. Casten, who set a record for the mile run this morning in 
Washington, D.C., is recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Chairman. You looked much better 
and well-quaffed when I saw you this morning than me.
    It's nice to see you again, Chair Powell.
    Just briefly, on the Basel III reforms, you and I have 
talked about the tax equity provisions and the fact that clean 
energy tax equity got a 4 times risk rating relative to other 
tax equity in the last version.
    If there is a reproposal, can you give us any visibility on 
whether clean energy tax equity will go back to the 100 percent 
risk rating that it has historically had?
    Mr. Powell. I am not going to give any specifics out today 
because the usual arrangement is that nothing is agreed upon 
until everything is agreed upon. So, I don't want to get into 
the specifics.
    I am hopeful that we--the three agencies--can come out 
pretty soon with the whole package.
    Mr. Casten. Okay. Well, the sooner, the better, even 
something temporary, because there are a lot of banks that want 
to participate that are, I think, more cautious than they need 
to be right now. I appreciate that.
    In 2021, I think you were a part of the FSOC report on 
climate-related financial risk that for the first time 
identified climate change as an emerging threat to U.S. 
financial stability.
    Do you still agree with that conclusion?
    Mr. Powell. The conclusion being what again?
    Mr. Casten. That climate change was an emerging threat to 
U.S. financial stability.
    Mr. Powell. Yes.
    Mr. Casten. Yes. I raise that because I have been troubled, 
as you know from some of the letters we have written, by this 
April Bloomberg report that said: number one, that Fed 
officials were pressuring the Basel Committee to make 
disclosure of banks' transition plans optional and that 
succeeded; number two, that the Fed, the OCC, and the FDIC were 
pushing to limit implementation of the Basel Committee's 
climate risk management principles to remove financed 
emissions; and number three, that the U.S., unlike other 
countries, did not propose that any of its banks be subject to 
an analysis of how they incorporated climate in their credit 
risk assessments.
    Have any representatives from your agency attempted to 
weaken the Basel Committee's work on climate risk, including by 
expressing concern about the Basel Committee overstepping its 
mandate with respect to its climate work?
    Mr. Powell. I guess I would say it this way: The Fed does 
not have a mandate of fostering an energy transition or dealing 
with climate change. Some of the Northern European banks feel 
that they do. They actually have that. It is in their mandate, 
either explicitly or implicitly. But we don't.
    Mr. Casten. But if we agree that climate change is an 
emerging threat to the stability of the banking system, are you 
saying you are not acting on it because you don't have the 
authority or you are not acting on it because you disagree with 
what you said in 2021?
    Mr. Powell. When you say it is an--and I agree. There is an 
emerging threat to the financial stability. That is over time.
    I think looking to the banking agencies to lead the fight 
on climate change is a big mistake. I think it is a job for 
elected people. We don't have that mandate in the United 
States.
    We can do a very limited thing, which is make sure that the 
institutions we supervise are aware of and can manage those 
risks. We are not going to be the ones who are forcing them to 
adopt plans to transition and that kind of thing. That is just 
not going to happen through the banking agencies without a law 
change.
    Mr. Casten. Then, if it is the view of the rest of the 
world that climate change is a financial risk and we are going 
to regulate our banks, is it the view of the Fed that the U.S. 
G-SIBs should not be required to report?
    Mr. Powell. Again, we are not going to be policymakers at 
the Fed. We are not going to do that. We don't have that 
mandate.
    A key to our independence is that we stick to the job you 
have given us. And the idea that we should discover climate and 
say, ``Okay, we are going to lead the fight on climate,''--if 
we are going to do things like that, we should be part of the 
Treasury Department.
    Mr. Casten. To be clear, no one is under the illusion that 
you are the EPA.
    But I spoke of with Treasury Secretary Janet Yellen about 
this yesterday. We have multiple States where the insurance 
industry is collapsing. As you know well, something like a 
third to 40 percent of U.S. wealth is tied up in real estate. 
And, okay, U.S. homeowners are not G-SIBs, but in the 2008 
financial crisis, we had risk that moved out of the G-SIBs onto 
other entities' balance sheets. And we said, ``Well, we are not 
responsible because it is an insurance company.'' Well, we 
fixed that. You do now have a mandate if there is systemic risk 
in the system.
    So the question is, if we know that risk is moving through 
the system, is the FSOC monitoring that risk? Or is it the 
FSOC's view that, if I am not allowed to look at it, I am not 
going to look at it, and it is somebody else's problem? Because 
somebody else is the person sitting here. Right? We are going 
be accountable when that risk comes--when those chickens come 
home to roost.
    Mr. Powell. The banks know their risks pretty well, and you 
see banks and the insurance companies pulling back from lending 
in coastal areas and things like that.
    Mr. Casten. No, I agree. But where are they off-loading 
that risk to? We have seen them putting it onto Fannie Mae and 
Freddie Mac, and we have seen Fannie and Freddie try to put it 
onto the reinsurance industry.
    Mr. Williams of Texas. The gentleman's time is up.
    Mr. Casten. The risk doesn't go away.
    Mr. Powell. We don't regulate them.
    Mr. Williams of Texas. The gentleman's time is up.
    Mr. Casten. I yield back.
    Mr. Williams of Texas. Next, the gentlewoman from the great 
State of Missouri, Congresswoman Wagner, is now recognized for 
5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman.
    And, in keeping with baseball analogies here, I think I am 
batting cleanup.
    Chairman Powell, welcome. In your testimony you stated 
that, ``Longer term inflation expectations appear to remain 
well-anchored.'' Could you please expand on that for us?
    Mr. Powell. Sure. In our thinking, and in the thinking of 
economists and central bankers, what the public expects about 
inflation is really important because if you expect there to be 
low inflation, then it probably will be low, because you are 
going to make sure that is true in your daily decisions.
    So, we measure them. We survey individuals and businesses 
and market participants. And then, we look at market-based--you 
can also derive market estimates of what inflation will be 
through various instruments in the market.
    And all of those suggest that people expect inflation to be 
right around 2 percent over the longer term, and that has been 
very stable right through this episode.
    Mrs. Wagner. When you say, ``longer term,'' sir, how many 
years would you be estimating? One year? Three years? Five 
years?
    Mr. Powell. We look at short- and medium-term inflation 
expectations, too, and they tend to be more volatile, because 
when inflation is high, people think that will last a few 
years. But one standard thing is to look at 5-year--which is 
between year 5 and year 10. That is a standard way to look--or 
longer term than that.
    If you just ask people in surveys over the longer term--you 
maybe don't specify--but they all give you the same answer, 
which is people kind of have faith that inflation will go back 
down to its 2-percent level.
    Mrs. Wagner. Thank you.
    There has been some reporting lately on, ``shrinkflation.'' 
And, for our viewers, I will say this is when you pay the same 
price for something as yesterday but get less of it than 
before, kind of like my bag of potato chips.
    Some have sought to direct attention away from the pain of 
runaway inflation that we have experienced and instead blame 
producers who themselves face rising costs pressures. Yet, I 
haven't seen any mention of shrinkflation as an inflation cause 
in any recent Monetary Policy Report.
    Moreover, a Bureau of Labor Statistics article last year 
looked at shrinkflation and concluded that, ``It has a 
miniscule impact on overall inflation.''
    Chair Powell, from the Fed's perspective and analysis, has 
shrinkflation been a significant causal or amplifying factor in 
the runaway inflation of the past several years, that has 
imposed greater pain on American workers and households?
    Mr. Powell. I would have to say, no. I would say it this 
way. Packaging in the U.S. on food products and that kind of 
thing is going to disclose the contents of the thing. And the 
price will be what it is, and consumers can make their choice 
to buy it or not. But we don't think that is a major driver of 
inflation.
    Mrs. Wagner. I think from a producer standpoint, it 
probably is if the cost of the item is exponentially higher.
    Mr. Powell. It may reflect costs on the part of the 
producer. It probably does, but that doesn't mean it is a cause 
of inflation as such.
    Mrs. Wagner. Okay. Thank you.
    Switching topics, the Federal Reserve has produced volumes 
of research over the last decade highlighting the negative 
consequences of the debit interchange fee cap. Some of the 
economists who produced that research have even worked on this 
proposed rule, the Reg. II.
    Chair Powell, was the previous Federal Reserve research 
demonstrating Regulation II's detrimental impacts to low-cost 
checking accounts flawed, or did it have incorrect conclusions? 
And, if not, then why would the Fed propose this rulemaking 
when all of their research demonstrated detrimental impacts?
    Mr. Powell. I am not entirely sure what research you are 
referring to, but I will be happy to follow up with you on 
that.
    Mrs. Wagner. Yes, I hope you will, because I know we are 
having this discussion about the interchange fee caps and Reg. 
II. And I am concerned about going forward on that when much of 
the research that we have seen from the Fed over the last 
number of years says that it has quite detrimental impacts on 
low-cost checking accounts. So, if you wouldn't mind, I would 
love to get some answers on that.
    And, also, why hasn't the Fed taken into action the higher 
fraud costs that debit card issuers will incur as a result of 
the new dual-routing mandate for card-not-present transactions?
    I am over my time. If you could also answer that in 
writing, I would be ever so grateful.
    I yield back, sir.
    Mr. Williams of Texas. The gentlelady yields back.
    And I would like to thank Chairman Powell for his testimony 
today. I know you have to get out of here.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    And I ask you, Chairman Powell, to please respond no later 
than August 30, 2024.
    With that in mind, this hearing is adjourned.
    [Whereupon, at 1:02 p.m., the hearing was adjourned.]

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