House Financial Committee Hearing Transcript on Economy with Jerome Powell

Rep. Maxine Waters: (00:45) So the committee will come to order. Thank you. Without objection, the chair is authorized to declare a recess of the committee at any time. Members are reminded to keep their video function on at all times, even when they're not recognized by the chair. Members are also reminded that they are responsible for muting and unmuting themselves and to mute themselves after they are finished speaking. Rep. Maxine Waters: (01:16) Consistent with the regulations accompanying H Res 965, staff will only mute members and our witness as appropriate when not recognized to avoid inadvertent background noise. Members are reminded that all House rules relating to order and decorum apply to this remote hearing. This meeting is entitled Monetary Policy ... Speaker 1: (01:43) Did you just call? Rep. Maxine Waters: (01:44) ... and the State of the Economy. I now recognize myself for four minutes to give an opening statement. Chair Powell, the law that required the Federal Reserve chair to testify before Congress twice each year was established back in 1978. However, no Fed chair has ever testified before this committee with the economy in the condition that it is in today. Rep. Maxine Waters: (02:18) More than 116,000 Americans are dead from the coronavirus, and just last week, 21 states recorded an increase in their average daily new cases compared to the prior week. The April jobs report was the worst in American history, showing 20.5 million jobs lost and wiping out nearly a decade worth of job gains in a single month. Today, the top-line unemployment rate remains higher than it has been at any time since the Great Depression and three full percentage points above its highest level during the great recession. Rep. Maxine Waters: (02:59) As you recently noted, Chair Powell, the expected decline in GDP is likely to be the most severe on record. Communities of color, who were suffering disproportionately from the virus, are also in major economic distress. Even before the crisis, a 2019 McKinsey study found the overall racial wealth gap between black and white families widened from 100,000 in 1992 to 150,000 in 2016. Rep. Maxine Waters: (03:33) Unfortunately, over 2 million black Americans lost their jobs as a result of COVID-19, and nearly 18% of black workers have lost their jobs since February. You're warning that, and I quote, "If not contained and reversed, the downturn could further widen and gaps in economic wellbeing," quote, unquote, is a reminder that the Fed and Congress must use all tools available to address these unjust disparities. Rep. Maxine Waters: (04:06) States and cities are making painful cuts at a moment when they desperately need more resources. As states scramble to pay skyrocketing unemployment claims and meet public health expenses, 1.6 million public sector employees have lost their jobs. State government face and estimated 790 billion revenue shortfall next year, and without action, 5.3 million more public sector employees could lose their jobs. Rep. Maxine Waters: (04:39) We're also facing an impending eviction crisis with 30% of renters being unable to pay their rent for June. Against this backdrop, Donald Trump has urged a premature return to business as usual and haled a jobs report that showed black unemployment rising as a quote, he said, "Great day," unquote. Last month, the House passed the Heroes Act to extend assistance to states, cities, the unemployed, as well as renters and homeowners, but the Senate Republican leader has said, Congress should, quote, "Wait and see," quote, unquote, before considering more relief. Rep. Maxine Waters: (05:17) While the Trump administration has declared victory and spread dangerous misinformation, you have been a real voice of reason, cautioning that unemployment is still, quote, "Historically high," unquote, recognizing its disproportionate impact on communities of color and acknowledging that economic recovery will depend on public health outcomes. Rep. Maxine Waters: (05:38) You have also stressed that quote, "Additional fiscal support," quote unquote is needed to avoid longterm damage. The economy recovered unevenly from the last crisis, leaving the Fed with limited ammunition. Nevertheless, the Fed has stepped in to rescue an economy and free fall. We've seen the stock market respond, but communities of color and small businesses are reeling, and you are at the end of what you can reasonably do in terms of monetary policy to help the economy. Rep. Maxine Waters: (06:08) Now is the time for strong fiscal policy from Congress in the form of the Heroes Act. Without it, I'm extremely concerned about the future of our nation's economy. With that, I yield back the balance of my time. The chair now recognizes the ranking member of the committees, the gentleman from North Carolina, Mr. McHenry, for four minutes for an opening statement. Mr. McHenry: (06:33) Well thank you, Madam Chair, and Chairman Powell, welcome back before the committee. Thank you for virtually being here and for virtually taking our questions. But the circumstances are obviously much different than where we were in February when we last met. I'd like to commend you and the Federal Reserve for your activities and engagement in this unprecedented time. Mr. McHenry: (07:02) I believe is the Fed's rapid and decisive action that prevented the worst effects of this economic catastrophe brought about by the coronavirus, and helped stabilize the market. The Feds, as firefighter, was able to stave the flames, to contain the flames. But we know that that is not a permanent circumstance for the Federal Reserve to be in that firefighting phase. Mr. McHenry: (07:35) Using it's 13-3 emergency lending authority, the Fed signaled to the American households and to businesses that it will do everything in it's power to respond to the economic crisis that resulted from this global health crisis. The Fed announced nine lending programs to help support the proper functioning of our financial markets and our economy. Smartly done. Mr. McHenry: (07:57) Many of these facilities are in operation today. However, some of those facilities aren't even yet operational, but markets were calmed just by the announcement from the Fed. So I want to commend you for that decisive action in this early phase of what we know are challenging times for the American people. I believe we must keep these facilities focused on broad-based support of our economy and ensure that they're responsive to the economic conditions, not the political ones. Mr. McHenry: (08:32) I also want to express a point you made last week and I believe is worth repeating. As the Fed embarks on protecting the economy through careful and targeted use of its powers, Congress must be realistic about what the Fed can and cannot do. The Fed is a lender. The Fed is a lender of last resort. It is not responsible for fiscal policy. That's Congress action. And it is not a piggy bank to be used to fund the whims of Congress. We must ensure the Fed remains a laser focused on monetary policy and not become a testing ground for ideological experiments or unproven theories. Unconventional monetary proposals should be considered with utmost care, particularly ones that have had mixed records in other major economies. We should be focused on the 10s of millions of Americans who remain out of work through no fault of their own. Mr. McHenry: (09:26) According to the Fed's economic projections, we will still be facing unprecedented unemployment for the rest of this year for nearly twice the unemployment rate that we experienced just as recently as February. Creating an economic recovery that grows jobs must be priority number one. But the Fed cannot do this alone. The Fed cannot train workers to match them more effectively with job openings. Congress has to legislate that. Mr. McHenry: (09:56) Congress's response for enacting pro-growth policies, not the Fed. And the Fed cannot modernize our education system or change tax policy. That's Congress's role. Only Congress can legislate these policies, which is why we need bipartisan solutions to ensure that our economy remains strong and comes back stronger than ever. Mr. McHenry: (10:19) We should be identifying the metrics that will be used to determine the ongoing need for emergency lending as well. Chairman Powell, I urge you to continue to be forward looking, as you have been, since many of us before the public actually knew what the coronavirus was, you were taking action. And so I anticipate the challenges we face in the next six months or a year will be enormous, but I commend you for looking ahead. Mr. McHenry: (10:45) And while I hope we're through the worst, it is clear that more must be done. However, we should all keep an eye toward the aftermath and how we plan to rightsize policies once again, to ensure the longterm stability of our financial system. And with that, I'd like to thank you again for being here and I look forward to your testimony and questioning. Yield back. Rep. Maxine Waters: (11:07) The Chair now recognizes the chair of the National Security, International Development and Monetary Policy subcommittee, Mr. Cleaver, for one minute. Mr. Cleaver: (11:17) Thank you, Madam Chair. Thank you, Chairman Powell, for being here. On Sunday, the Dallas Federal Reserve President Kaplan stated, and I quote, "Systematic racism is a yoke that drags on the American economy and a more inclusive economy will lead to a better growth." And I tend to agree with what he said. Before the pandemic nearly 60% of black adults were employed. COVID-19 has ravaged our nation, and the low-paid and frontline service sectors. Now just less than half of black people are employed. Economic justice is a part of social justice, and I want to examine some of these concepts with you. Economic justice would include the minimum wage increase, expanded earned income tax credit, investment in education, and create a progressive tax code. So thank you for being here, and I'll explore those later. Thank you, Madam Chair. Rep. Maxine Waters: (12:13) You're welcome. The Chair now recognizes the ranking member of the subcommittee, Mr. Hill, for one minute. Mr. Hill: (12:22) Thank you, Madam Chair. Chairman Powell, thank you for being with us virtually today. We appreciate you being responsive to all of our questions in this challenging environment. Your monetary policy report dated June 12th was an excellent, detailed recap of the extraordinary events of the past four months. I commend the Federal Reserve and their quick response and necessary actions taken to mitigate the harm from COVID-19. Mr. Hill: (12:47) Your quick action preserved companies' access to markets and fresh capital to weather this storm. Today members will discuss the Federal Reserve's facilities, the virus, and its impact on the economy, and our citizens, many of whom are not yet back to work. I look forward as well to a discussion about monetary policy. The balance sheet has grown by nearly $3 trillion since the beginning of March. I look forward to discussing these things and again, welcome you to the committee back. Okay, yield back. Rep. Maxine Waters: (13:17) I want to welcome to the committee, our distinguished witness, Jerome Powell, chair of the Board of Governors of the Federal Reserve system. Chair Powell has served on the Board of Governors since 2012, and as its chair since 2017. Chair Powell has testified before the committee and I believe he does not need any further introduction. Without objection, your written statement will be made a part of the record. I want to remind members that Chair Powell has a hard stop, and will be with us for three hours until 3:00 p.m. Eastern time. Chair Powell, you are now recognized to present your oral testimony. Chairman Jerome Powell: (14:00) Thank you, Chairwoman Waters, Ranking Member McHenry, and other members of the committee. Thank you for the opportunity to present the Federal Reserve's semi-annual monetary policy report. Our country continues to face a difficult and challenging time, as the pandemic is causing tremendous hardship here in the United States and around the world. Chairman Jerome Powell: (14:20) The coronavirus outbreak is first and foremost, a public health crisis. The most important response has come from our healthcare workers. On behalf of the Federal Reserve, I want to express our sincere gratitude to these dedicated individuals who put themselves at risk day after day in service to others and to our nation. Chairman Jerome Powell: (14:41) Beginning in mid-March economic activity fell at an unprecedented speed in response to the outbreak of the virus and the measures taken to control its spread. Even after the unexpectedly positive May employment report, nearly 20 million jobs have been lost on net since February. And the reported unemployment rate has risen about 10 percentage points to 13.3%. Chairman Jerome Powell: (15:08) The decline in real gross domestic product this quarter is likely to be the most severe on record. The burden of the downturn has not fallen equally on all Americans. Instead, those least able to withstand the downturn have been affected most. As discussed in the report, low-income households have experienced by far the sharpest drop in employment, while job losses of African Americans, Hispanics and women have been greater than those of other groups. Chairman Jerome Powell: (15:37) If not contained and reversed, the downturn could further widen gaps in economic wellbeing that the long expansion had made some progress in closing. Recently, some indicators have pointed to stabilization, and in some areas, a modest rebound in economic activity. With an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up, while stimulus checks and unemployment benefits are supporting household incomes and spending. Chairman Jerome Powell: (16:07) As a result, employment moved higher in May. That said, the levels of output and employment remained far below their pre-pandemic levels and significant uncertainty remains about the timing and strength of the recovery. Lack of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Chairman Jerome Powell: (16:27) Until the public is confident that the disease is contained, a full recovery is unlikely. Moreover, the longer the downturn lasts the greater the potential for longer term damage from permanent job loss and business closures. Long periods of unemployment can erode worker skills and hurt their future job prospects. Persistent unemployment can also negate the gains made by many disadvantaged Americans during the long expansion and described to us at our Fed listens events. Chairman Jerome Powell: (16:59) The pandemic is presenting acute risks to small businesses, as discussed in the report. If a small or medium-sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business. These businesses are the heart of our economy, and often embody the work of generations. With weak demand and large price declines for some goods and services, such as apparel, gasoline, air travel, and hotels, consumer price inflation has dropped noticeably in recent months. But indicators of longer term inflation expectations have remained fairly steady. Chairman Jerome Powell: (17:37) As output stabilizes and the recovery moves ahead, inflation should stabilize and then gradually move up over time closer to our symmetric 2% objective. Inflation is nonetheless likely to remain below our objective for some time. Fed's response to this extraordinary period is guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system. Chairman Jerome Powell: (18:06) We are committed to using our full range of tools to support the economy in this challenging time. In March, we quickly lowered our policy interest rate to near zero, reflecting the effects of COVID-19 on economic activity, employment, and inflation, and the heightened risks to the outlook. We expect to maintain interest rates at this level until we're confident that the economy has weathered recent events and is on a track to achieve our maximum employment and price stability goals. Chairman Jerome Powell: (18:36) We have also been taking broad and forceful actions to support the flow of credit in the economy. Since March, we've been purchasing sizable quantities of treasury securities and agency MBS in order to support the smooth functioning of these markets, which are vital to the flow of credit in the economy. As described in the report, these purchases have helped restore orderly market conditions and have fostered more accommodative financial conditions. Chairman Jerome Powell: (19:03) As market functioning has improved since the strains experienced in March, we have gradually reduced the pace of these purchases. To sustain the smooth market functioning and thereby foster the effective transmission of monetary policy to the broader financial conditions, we will increase our holdings of treasury securities and agency MBS over coming months at least at the current pace. Chairman Jerome Powell: (19:28) We will closely monitor developments and we're prepared to adjust our plans as appropriate to support our goals. To provide stability to the financial system and support the flow of credit to households, businesses, and state and local governments, the Fed, with the approval of the Secretary of the Treasury, established 11 credit and liquidity facilities under section 13-3 of the Federal Reserve Act. Chairman Jerome Powell: (19:51) The June report provides details on these facilities, which fall broadly into two categories, stabilizing short-term funding markets and providing more direct support for credit across the economy. To help stabilize short-term funding markets, the Fed set up the commercial paper funding facility and the money market liquidity facility, to stem rapid outflows from prime money market funds. Chairman Jerome Powell: (20:15) The Fed also established a primary dealer credit facility, which provides loans against good collateral to primary dealers that are critical intermediaries in short-term funding markets. To more directly support the flow of credit to households, businesses, and state and local governments, the Fed established a number of facilities. To support the small business center, we established the Paycheck Protection Program liquidity facility to bolster the effectiveness of the Cares Act. Chairman Jerome Powell: (20:43) Our Main Street Lending Program, which is just now launching, supports lending to both small and medium-sized businesses. The Term Asset Backed Securities Loan Facility supports lending to both businesses and consumers. To support the employment and spending of investment grade businesses, we established two corporate credit facilities, and to help U.S. state and local governments match cashflow pressures and serve their communities, we set up the Municipal Liquidity Facility. Chairman Jerome Powell: (21:13) The tools that we are using under section 13-3 authority are appropriately reserved for times or emergency. When this crisis is behind us, we will put them away. The June report reviews the implications of these tools for the Federal Reserve's balance sheet. Many of these facilities have been supported by funding from the Cares Act. Chairman Jerome Powell: (21:34) We will be disclosing on a monthly basis names and details of participants in each facility, amounts borrowed, and interest rate charged, and overall costs, revenues, and fees for each facility. We embrace our responsibility to the American people to be as transparent as possible, and we appreciate that the need for transparency is heightened when we're called upon to use our emergency powers. Chairman Jerome Powell: (21:59) We recognize that our actions are only part of a broader public sector response. Congress's passage of the Cares Act was critical, enabling the Fed and the Treasury to establish many of the lending programs. The Cares Act and other legislation provide direct help to people, businesses, and communities. This direct support can make a critical difference, not just in helping families and businesses in a time of need, but also in limiting long lasting damage to our economy. Chairman Jerome Powell: (22:27) I'd like to end by acknowledging the tragic events that have again put a spotlight on the pain of racial justice in this country. The Federal Reserve serves the entire nation. We operate in and we're part of many of the communities across the country where Americans are grappling with and expressing themselves on issues of racial equality. I speak for my colleagues throughout the federal reserve system when I say there's no place at the Federal Reserve for racism, and there should be no place for it in our society. Everyone deserves the opportunity to participate fully in our society and in our economy. Chairman Jerome Powell: (23:05) We understand that the work of the Fed touches communities, families, and businesses across the country. Everything we do is in service to our public mission. We're committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible. Thank you. I look forward to our discussion. Rep. Maxine Waters: (23:26) Thank you, Chairman Powell. I recognize myself for five minutes for questions. Chair Powell, before you joined the Fed, you were a fellow at the Bipartisan Policy Center and an advocate of deficit reduction. So I took it seriously when you said on April 29th and I quote, "This is a time to use a great fiscal power of the United States to do what we can to support the economy," quote unquote. Rep. Maxine Waters: (23:56) On may 13th, two days before the House passed the Heroes Act, you reiterated this message saying, quote, "Additional fiscal support could be costly, but worth it if it helps avoid longterm economic damage and leaves us with a stronger recovery," quote, unquote. On Sunday, Dallas Fed president, Robert Kaplan, seemed to echo that, saying, quote, "Fiscal policy is going to be critical from here," quote, unquote. And yesterday, former Fed chairs, Bernanke, Yellen, and more than 130 economists wrote a letter calling for a bold congressional response, including and I quote, "Continued support for the unemployed, new assistance to states and localities, and investments in programs that preserve the employer, employee relationship," quote unquote. The May jobs report showed slightly better jobs numbers than the April jobs report, which was the worst in recorded history. Rep. Maxine Waters: (25:02) But there are still major reasons for alarm. Black unemployment rose to 16.8% and 600,000 public sector jobs were lost. Yet, this administration and Senate Republicans are not moving with any urgency. Republicans seem to be more focused on a more limited response while granting a broad liability shield for major corporations. Question. Do you agree with your predecessors, Chair Powell? Should Congress take bold action as soon as possible, quote unquote? Chairman Jerome Powell: (25:39) Thank you, Madam Chair. So I would agree that Congress has already provided significant fiscal support and that support is now having a positive effect on the economy. We see it in consumer spending and income data. We see it in payrolls, all of that is helping. And I would just note that there are something like 25 million people who would've been dislodged from their job, either in full or in part, due to the pandemic, and I would think that it would be a concern if Congress were to pull back from the support that it's providing too quickly. Chairman Jerome Powell: (26:21) I wouldn't presume to prescribe exactly what you should or should not do, but I would say that it would be wise to look at ways to continue to support both people who are out of work and also smaller businesses that may not have vast resources for a continued period of time, not forever, but for a period of time so that we can get through this critical phase. The economy is just now beginning to recover. It's a critical phase, and I think that support would be well-placed at this time. Rep. Maxine Waters: (26:53) Thank you very much. On May 15th, more than a month ago now, the House passed a Heroes Act, which would, among other things, provide 175 billion in rental and homeowner assistance, nearly 1 trillion to support state territory and local governments, and another round of direct stimulus payments for individuals and families. I would note many states are reporting an uptick in confirmed cases, of new highs, hospitalizations, with some officials slowing their effort to reopen. So who will suffer if the Senate does not properly adopt these measures to support state and local governments, renters, homeowners, and the broader economy? Chairman Jerome Powell: (27:34) Well, as I mentioned, Madam Chair, I do think it would be appropriate to think about continuing support for people who are newly out of work and for smaller businesses who are struggling to get through what will be a temporary period as the economy moves back up toward higher levels of activity. Rep. Maxine Waters: (27:56) Thank you very much. Before moving on for the next question, I'd like to call on ranking member McHenry to share with us some information that is very important to this committee. Mr. McHenry: (28:11) Well, Madam Chair, please continue your questions. I'll take that out of my time, but well, actually, while we're here, since the technology's tough, point of personal privilege, I would seek to inform committee members about the tragic passing of our colleague and friend Andy Barr's wife, Carol, last evening. When Andy arrived home, he found that his wife had passed. They have two young children. She was 39 years old. This is quite a surprise and shock for all of of us, but wanted to ensure that committee members know this information. And please keep Andy and his two girls, his two young girls, in your prayers. Thanks so much, and thank you, Madam Chair. Yield back. Speaker 1: (29:05) Thank you so very much. And now, Mr. McHenry, I will recognize you for five minutes for questions. Mr. McHenry: (29:13) Well, thank you, Madam Chair. And look, Chairman Powell, Chairwoman Waters, her questions about fiscal policy are certainly, I think, appropriate. We always want the Fed chair to endorse our pieces of legislation. That is commensurate with every previous Fed chair and certainly with you as well. However, monetary and fiscal policy are two very different things. And so I would urge you and the leadership of the Fed to stick to monetary policy. Mr. McHenry: (29:53) Now, your words of encouragement that we have are our responsibilities on the fiscal side of the House, I think are well-noted. And what you're telling us about the employment marketplace on a going forward basis, I think is informative for our policymaking. And so thank you for your statements there, that that additional congressional action is required. Mr. McHenry: (30:18) Now, along those lines, we have the Main Street Lending Facility that is to be stood up soon. So walk me through what the intention here is because this is not something that is, and over the last 100 years, the Fed has engaged in, the intention here. And what is the missing piece that perhaps Congress should think about filling in? Chairman Jerome Powell: (30:44) Mr. McHenry, are you asking specifically about Main Street? Mr. McHenry: (30:48) Yes. So if you'd say the intention of the Main Street Lending Facility. Chairman Jerome Powell: (30:52) Okay, great. So for smaller companies, there was the Paycheck Protection Program and for companies that have access to the bond market and are investment-grade rated, we have corporate credit facilities, and then there's the large group of very important companies, very diverse, different sectors, different needs, just very different. For them, we have the Main Street Facility. Chairman Jerome Powell: (31:18) And our intention is, to the extent they're credit worthy companies in that space who are not able to get credit from the banking system because of the pandemic, we want to be there to provide that credit. So that's what we've been working on. It's significantly different from any other undertaking we have been working on here, particularly because that space is, by definition it's a space where commercial banks really are the key form of liquidity and of lending and the bank credit agreements are always negotiated, so there isn't a really high level of standardization. Each one's a little bit different. So we've got to find a way to get to those borrowers, get through their credit agreements, and get them funding. And we're working through the banking system to do that. We have now registered lenders. So that the facility is effectively open now, the lenders are registering, and they can now begin to make loans. We're encouraging them to do so. And those loans will soon be transferred, 95% interest in them, will be transferred to the facility. Chairman Jerome Powell: (32:26) So we're there. And, we're, as I think we've shown, as we go with all these facilities, we are learning, and no one's ever done this exactly and so we've been constantly taking feedback from lenders and borrowers, and we'll keep doing that, and that's true for all of our facilities until we feel we've got the facility that can do the best job. Mr. McHenry: (32:49) Okay, so that's an unconventional set of monetary policy that you're utilizing, given the unconventional nature of this health, and therefore economic, crisis that we're facing. We also see other banks in Japan, in Europe, trying to control inflation targets using unconventional means, such as yield curve control and negative rates. Do we have empirical evidence to support deploying these tools in the United States, as you see it? Chairman Jerome Powell: (33:26) There's a split. I'd say the evidence is mixed on negative rates. There are those who believe negative rates are quite effective, and there are those who see the results of somewhat ambiguous. I think here in the United States, we've looked at it carefully. We looked at it during the long expansion that ended in February and chose not to deploy them in the United States. Chairman Jerome Powell: (33:49) Lately, the FOMC has looked carefully at negative rates and continues to see pretty broadly across the committee that negative rates are not something that we think is appropriate for the U.S. economy, at least at this time. And it's not something that we see ourselves resorting to. Instead, we look at ourselves using asset purchases in forward guidance. Chairman Jerome Powell: (34:09) In terms of yield curve control, as you pointed out, it's currently being used by a couple of central banks around the world, and that's just, rather than buying assets, what you're doing is you're saying, "We won't let the Treasury curve at a certain level move above something, and if it starts to move above that level, our rate moves above it, then we'll buy treasuries to drive the right level back down." The United States actually did that from the late '40s into the early '50s. I'll just finish. Sorry. But we're really just educating ourselves on it at this point. It's not something we have at all decided to do. Mr. McHenry: (34:46) Thank you for your testimony, and Chair Powell, I also appreciate the fact that you said, "When the crisis passes, we will put them away," these new tools. I think that is a very sober assessment. We need to have a return to normalcy once this crisis is past. Thank you for your leadership and I yield back. Speaker 2: (35:03) Normalcy once this crisis pass. Thank you for your leadership. I yield back. Thank you, Chairwoman Waters. Rep. Maxine Waters: (35:06) Mr. Cleaver, you're recognized for five minutes. Emanuel Cleaver: (35:09) Thank you, Madam Chair. Chairman Powell, again, thank you for being here. I started out with my opening comments talking about the situation that we find ourselves in in this country. I believe that this is a moment unlike any other that I have seen in terms of the country's willingness to finally address these long-lasting issues of race and putting it aside. I spoke to a group of 5,000 demonstrators. I was almost brought to tears when I stood up to speak because the crowd was probably 65% white and the rest, maybe brown and African American people. I think this is a different situation. I believe that the Federal Reserve has a place in this particular moment. I think that you could play a role. Emanuel Cleaver: (36:14) One of the things that I'm thinking about... The Justice Department used to do and probably still should do, what they consider, patterns and practices, where if there's a problem in a particular city, some police department, or the fire department, or maybe just that city, and they go in, and they do a study, and enter into a consent decree to try to enable a change. That happened in Ferguson, Missouri. Ferguson has changed dramatically. What I'm wondering, how you would feel about patterns and practices with some of our financial agencies where there is an obvious lack of inclusion and maybe even history of problems, do you think that would work in the financial services world? Chairman Jerome Powell: (37:15) Well, as you know, we do supervise on banks for fair lending practices. Where we see that kind of pattern and practice, we engage in strong enforcement measures. There is some of that going on already. Emanuel Cleaver: (37:38) Well, are there other steps, though, that the Federal Reserve can take to confront this moment? I mean, do you believe that the board can take on some of the issues of economic injustice? I may be using terminology that's not universal, but increasing the minimum wage and expanding the earned income tax, for the things I mentioned earlier, and to try to begin to iron out, if you will, some of the wrinkles that have been around way too long. I mean, I don't even feel great about even discussing this issue in 2020. I see a role, but I'm just wondering if you think that the Fed can play a role. Chairman Jerome Powell: (38:39) I do. I do think we have a role. I believe we will do our best to play that role. I wouldn't say it's the lead role, but I would say that we are definitely recommitting ourselves to enforcement of fair lending laws, as I mentioned. I would also say, just as an institution, we've tried to make it a very high priority of diversity and inclusion. We want to set an example for that, both internally. To some extent, my colleagues and I have spoken out publicly on these issues, which I think is appropriate in this unusual moment. Chairman Jerome Powell: (39:17) Then the last thing, and probably the most important thing we can do is try to get back as quickly as possible to the labor market we had for the last couple of years. There's nothing like a tight labor market for the lives in low and moderate-income communities. We saw things we hadn't seen in 50 years, and we want to get back there. Everything we're doing with our monetary policy tools is ultimately designed to get us back to a tight labor market as quickly as we can and then stay there. That's really the overarching goal of what we're doing. Emanuel Cleaver: (39:55) I appreciate your comments. My questions were not meant to be accusatory. In fact, I think that the Federal Reserve... I mentioned earlier, the comments of Mr. Kaplan. Even later on this week, I will be sitting down with Esther George to discuss some of these same issues. Thank you, Mr. Chairman. Thank you, Chairman Waters. Rep. Maxine Waters: (40:21) Thank you very much. Mrs. Weaver... I'm sorry, Wagner. You are recognized for five minutes. Ann Wagner: (40:29) Thank you, Madam Chairwoman. I thank you, Chairman Powell, for coming before this committee today. I wanted to commend you as so many of our colleagues have, and the Federal Reserve, for moving so very swiftly and decisively these past few months on keeping America's economy stable during this pandemic. Ann Wagner: (40:51) Just this week, the Federal Reserve announced it would begin buying up to $250 billion in individual corporate bonds through the Secondary Market Corporate Credit Facility, with the ability to also, I believe, tap into $25 billion in funding from the Treasury Department that was provided by the CARES Act. I understand the need for the Federal Reserve to have this facility at the ready, but I'd like to know why you decided that it was at this time to launch the facility now. What was the reasoning for launching this week? Chairman Jerome Powell: (41:30) Actually, this was something we had been saying since we first announced the facility, which we do. It did happen to be the fact that we ultimately got around to doing it on Monday. The overall goal of all of that is to support market functioning. This is the Corporate Credit Facility, and this is the secondary market part of it. We want to support market functioning because when markets are working, companies can borrow. People can borrow. Companies aren't feeling tons of financial stress, and they're less likely to take cost-cutting measures and things like that. Chairman Jerome Powell: (42:08) I would say a couple things. First, buying cash bonds is going to form the primary mode of support over time by which we support market function. Over time, we'll gradually move away from ETFs, not suddenly at all, and we move more to buying bonds. It's a better tool, ultimately, for supporting liquidity and market function. At the current moment, markets are functioning pretty well, so our purchases will be at the bottom end of the range that we've written down. As those- Ann Wagner: (42:42) Are you- Chairman Jerome Powell: (42:42) As those markets continue to normalize, our purchases would decline. Ann Wagner: (42:47) Chair Powell, are you planning to hold all of these bonds to maturity? Chairman Jerome Powell: (42:54) Ultimately, we are. We are generally a hold to maturity. It may be that we sell some back into the secondary market down the road, but ultimately, we're buy-and-hold type buyer. Ann Wagner: (43:05) Chairman Powell, as you know, on April 22nd, in response to a letter from Senator Crapo, the Federal Reserve Vice Chair for Supervision, Randal Quarles, requested that Congress consider modifying section 171 of the Dodd-Frank Act, otherwise known to all of us as the Collins Amendment. Do you agree with Vice Chair Quarles that Congress should revisit the Collins Amendment to ensure that banks are able to adequately respond to increased credits' demands? Chairman Jerome Powell: (43:38) Yes. What we're looking for in a lot of these things we're doing is temporary relief during the pandemic so that the banks can use their balance sheet to support their household and business customers. It's no more complicated than that. As they've taken in more deposits and as they've engaged in forbearance on things like credit card analysis and things like that, their balance sheets grow. They've been supporting their customers and borrowers. This is simply a matter of allowing them to do that. It would be a temporary measure. Ann Wagner: (44:11) You are in favor of at least a temporary measure to modify section 171 of the Collins Amendment to allow them to handle increased credit demands? Chairman Jerome Powell: (44:24) Yes. We'll be happy to work with you on the details of that. Ann Wagner: (44:27) That would be terrific. I thank you so much. The Federal Reserve has noted that non-bank financial institutions are currently not considered eligible lenders for any Main Street Loan Facility. In the FAQ guidance, it states that you may consider expanding the list of eligible lenders in the future. Chairman Powell, what is the reasoning for the Federal Reserve excluding non-bank and non-insured depository institutions from being eligible lenders under the Main Street Lending Program? Is it not possible to create a lender agreement similar to one that we issued by the Department of Treasury for non-bank and non-insured depository institutions, like we did for the Paycheck Protection Program? Chairman Jerome Powell: (45:12) No, it is possible. It is possible. We've been engaged in a sprint here to get these programs set up. That's what we've been doing. I would liken it a little bit to Dunkirk: get in the boats and go. Bring the people back. That's really what we've been doing. In the case of this, we have. We've done that. We can go back and we can look at various provisions, including the Wyner's argument. Ann Wagner: (45:38) My time has expired. I hope you do take a careful look at that and that we're also able to modify the Collins Amendment. I thank you, Madam Chairwoman. I yield back. Rep. Maxine Waters: (45:48) Thank you. Mr. Perlmutter, you are recognized for five minutes. Ed Perlmutter: (45:53) Thank you, Madam Chair. Chairman Powell, thank you for the hard work that you, and your staff, and the Fed have put in very difficult circumstances. Taking a look at your monetary report, just if you look at the first four graphs in the report... The last few years you've been here, or Chairman Yellen, they've been sort of consistent, steady growth since the Obama administration into the Trump administration. Now I know the definition of falling off a cliff. Those graphs are very telling in the loss of jobs that we've seen. Ed Perlmutter: (46:29) My first question to you, sir, is in the Heroes Act, there is a substantial appropriation for state, local, and school districts who've seen their tax revenues fall tremendously. Colorado... This state government alone is looking at a $3 billion drop in revenue from last year. I know you're not particularly interested in talking about fiscal measures, but if, in fact, we weren't to assist state, local, and school districts over the course of the next year or two, and thousands and thousands of jobs are lost, I mean, how is that going to affect the recovery that you hope for? Chairman Jerome Powell: (47:20) I will agree that I wouldn't offer specific advice on fiscal policy. I will say, though, from an economic standpoint, state and local governments employ something like 13 million people. States have to balance their budgets. When revenues go down and expenses go up, what do they do? They cut costs. We've seen state and local governments lay off already a million and a half people. State and local governments provide essential services, as we all know. They're a very large employer. I would say it's certainly worth considering all of that. It will hold back the economic recovery if they continue to lay people off and if they continue to cut essential services. In fact, that's kind of what happened post the global financial crisis. Ed Perlmutter: (48:08) All right. I thank you for that. I mean, I guess I'm going to summarize your answer. Laying off a lot of people will not help the recovery. I saw it today, even a substantial company like AT&T, now Stitch laying off thousands of people as part of a restructuring or something. I didn't read the entire article. In your report, on the second page, it says, "The strains on household and business balance sheets from the economic and financial shocks since March will likely create persistent fragilities." What did you mean? Or whoever wrote the report, what did you mean by persistent fragilities? Chairman Jerome Powell: (48:53) This is what we mean by that. Something like 25 million people have been displaced in the workforce overall, either fully or partially. Those people are... Right now, they're getting enhanced unemployment, insurance perhaps. Many of them may have gotten support checks as part of the CARES Act. Over time, they don't have a secure income flow. To the extent they lose those benefits that they're getting, they're going to come under financial pressure right away. Most low and moderate income households don't have substantial financial assets to fall back on. Chairman Jerome Powell: (49:35) It's the same thing with smaller businesses. They don't tend to have substantial quantities of cushion, financial cushion, to fall back on. That's what our surveys show, both for households and businesses. It will be under strain. Of course, the prospect of facing that kind of strain is already strenuous and causes people to pull in their spending. Those are the kinds of things that becomes self- reinforcing for the economy. Ed Perlmutter: (50:03) You put together 11 different facilities, and from corporate bond purchases, and municipal, and all those kinds of things. Is there anything that you would like to do from a monetary and the position of the Fed that the Treasury or the administration has prevented you from doing? Chairman Jerome Powell: (50:28) The answer is no. We have very specific powers which are lending powers in addition to our regular monetary policy powers. We have lending powers that we've used to completely unprecedented extent here. I think we've been able to broadly do the things that we felt were most in need of doing. Of course, the powers that are going to matter so much going forward, have already mattered, are really the spending, the tax and spending power. Ed Perlmutter: (50:57) Well, I thank you for your testimony and your work, sir. I yield back to the Chair. Rep. Maxine Waters: (51:02) Thank you. Mr. Rose, you are recognized for five minutes. Mr. Rose? He's not present? Then we'll go on to Mr. Steil. You are recognized for five minutes. John Rose: (51:42) Hello? Rep. Maxine Waters: (51:44) Is this Mr. Steil ? John Rose: (51:48) Can you hear me? Can you hear me? Rep. Maxine Waters: (51:49) Yes. John Rose: (51:51) Okay. I was talking, Chairwoman, if I can begin? Rep. Maxine Waters: (51:56) Yes, you may begin. John Rose: (51:57) Okay. Thank you, Chairwoman Waters and Ranking Member McHenry. Thank you, Chairman Powell, for being with us today. As we move through the pandemic recovery process, I am really encouraged by the early economic results. Obviously, we still have much further to go, but again, I'm encouraged. I credit the administration led by President Trump, and the institutions like the Fed, and your leadership for helping us to so quickly work to revive the economy. John Rose: (52:25) However, I received news yesterday that makes me a little less encouraged and more concerned. I received a call from a bank here in Tennessee sixth congressional district yesterday, alerting me to the fact that they have been notified at the beginning of this week by the Fed that they would only be receiving a small portion of their weekly order of coinage. According to this banker, his institution will likely run out of coins by Friday of this week or this weekend. After some preliminary research, I found that many other banks across my district are having the same operational challenge. My fear is that customers who use these banks will react very poorly. I know that we all don't want to wake up to headlines in the near future that such bank's out of money. Chairman Powell, I wonder, are you aware of this issue? What is being done to mitigate it? Chairman Jerome Powell: (53:26) Thank you. Yes, I am aware of it. I'm very much aware of it. Let me say, what's happened is that with the partial closure of the economy, the flow of coins through the economy has gotten all... It's kind of stopped. The places where you go to give your coins, and get credits in store, and get cash, folding money... Those have not been working. Stores have been closed. The whole system of flow had come to a stop. We're well aware of this. We're working with the Mint and we're working with the Reserve Banks. As the economy reopens, we're seeing coins begin to move around again. If your bank hasn't already done so, they should certainly be in touch with their Reserve Bank to report this situation. We've been working on this problem. Very much appreciate your bringing it to our attention. We feel like we're making progress, but it's been something that we've been working on. John Rose: (54:22) Chairwoman Waters, I'd like to submit for the record, this release from the Fed: Strategic Allocation of Coin Inventories. Rep. Maxine Waters: (54:32) Without objection, such is the order. John Rose: (54:35) Chairman Powell, I wonder, and to some degree, you've already spoken to this, but is this indicative of a larger issue? Is it temporary or is this point to a larger structural issue on this particular battery? Chairman Jerome Powell: (54:51) We believe it's just temporary. It's due to the fact of the economy being in significant part, closed, as I mentioned. The flow of coins through the economy, something that we don't... I mean, the Reserve Banks and the banks think about it all the time, but now we're beginning to see those shortages. We've been aware of it. We're working with the Mint to increase supply. We're working with the Reserve Banks to get that supply where it needs to be. We think it's a temporary situation. John Rose: (55:20) I guess, the banks that I'm talking with, like the one that I mentioned in my district, what would you suggest they do to deal with this issue? I'm thinking particularly, not only about the banks, but their customers, businesses, and the consumer who is going to be faced... All of these institutions and individuals are going to be faced with the prospect of having to round up or round down. In a time when pennies are the difference between profitability and loss, it seems like it might be a bigger concern than the announcement from the Fed would indicate that it is. Chairman Jerome Powell: (55:59) I would encourage your banks to get in touch with their Reserve Bank. I don't know whether you're Atlanta or St. Louis, which may be both in your district. I don't know. In any case, they're responsible for this. We're working hard on it. John Rose: (56:21) Thank you, Chairman. I would just encourage you maybe to put out some more robust guidance for banks so that they don't feel... The banks that I've been speaking with all have the opinion that they don't know what to tell their customers. I just encourage you to maybe put out some more robust guidance to them. Chairman Jerome Powell: (56:39) I want to thank you for bringing that up. I'll certainly do that. John Rose: (56:43) I am a cosponsor along with several other members of our committee of H.R. 2650, the Payment Choice Act of 2019, a bipartisan-supported bill, which would require merchants to accept cash. This legislation, I believe, is critical because parts of the country in both rural and urban areas are more dependent on the cash economy. I see that I've run out of time, but I would encourage my colleagues to take a look at and support this bill. Thank you, Chairman Powell. Thank you, Chairwoman Waters. Rep. Maxine Waters: (57:13) Thank you. John Rose: (57:14) I yield back. Rep. Maxine Waters: (57:15) Mr. Himes, you're recognized for five minutes. Jim Himes: (57:21) Thank you, Chairwoman. Thank you, Chairman Powell, for being with us today. Thank you for your extraordinary efforts and the efforts of the Federal Reserve to contribute to the emergency rescue that we've all witnessed. I've got at least two concerns, though, that I want to explore with you. The first pertains to, who was the beneficiary of the billions of dollars, trillions of dollars, that have been mobilized in the rescue? Chairman, as you know, a company can do three things with its money, right? It can buy stuff, cost a good soul, rent, insurance, space, raw materials. It can pay wages, keep people employed. Third, it can service its capital structure. It can pay interest on bonds or to banks. It can issue dividends. Jim Himes: (58:05) Chairman Powell, as you know, in the Paycheck Protection Program, we set up an explicit incentive that that money be used for wages. My first question, Chairman Powell, is... Let's start with the Primary Market Corporate Credit Facility, where you're actually lending directly through the issuance of securities to corporations. Is there any incentive or requirement that recipients of that aid preference the payment of wages over the service of the payment of interest or the purchase of stuff? Chairman Jerome Powell: (58:39) I'll put it this way. There's nothing in the CARES Act. The CARES Act specifically exempts the transactions that take place in the Primary Market Corporate Credit Facility from those requirements. They do apply to direct loans. Actually, no. They have different requirements that apply to direct loans. You're really talking about the requirements of the Paycheck Protection Act. Jim Himes: (59:02) Yes. No, I mentioned the Paycheck Protection Program, obviously, explicitly created an incentive for the use of that money to pay wages and therefore, keep up employment. It doesn't sound like the Fed lending, the Primary Market Corporate Credit Facility, has those protections. Let me ask you to reflect. I can't run through all 11 programs, but the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Money Market Mutual Fund Credit Facility. All of these credit facilities... Are there any terms in the availability of that liquidity that preferences the payment of wages over the servicing of debt by corporations? Chairman Jerome Powell: (59:38) No, there aren't. We're implementing the law that you passed. The CARES Act specifically does not apply to those things. We don't think it's up to us to kind of rewrite the law to achieve goals we might have. [crosstalk 00:59:52] carefully on this part of the [crosstalk 00:24:55]. Jim Himes: (59:54) I do understand now. I mean, having lived through the political fallout of the TARP Program when America saw the banks and the auto companies bailed out and the preservation of an awful lot of the shareholders and the bond holders associated, I'm very sensitive to programs that ultimately use public money to allow corporations to avoid bankruptcy, and service their debt, and ultimately, pay dividends. I just commend that to my colleagues as something of real concern because when the story is told here, I think a lot of private... I'm not just talking about corporations. I'm talking about the carwash guy down the street who qualified for a loan. A lot of that money will have been used to keep banks solvent, to preserve loans, and to service bonds. Jim Himes: (01:00:50) Chair Powell, I want to explore another deep concern I have about these. As much as I support your efforts and the Federal Reserves' efforts to bail us out here, in my one-decade plus or minus doing this, this is now the second time in which it has been necessary for the government, the Federal Reserve, and fiscal policy to step in in a truly massive way to bail out the economy. 10 years ago, it was the banks. It was the auto industry. Now we're seeing the airlines. The list goes on, and on, and on. Jim Himes: (01:01:18) The worry I have, which relates to my first worry, is that actors in the private market, and I was once in the private sector, are going to decide that they can take on a lot more risk, repurchase shares, dividend capital, because when the going gets tough and catastrophe hits, we'll be there to bail them out. I want to use my last, I guess, 40 seconds or so to ask you to reflect on whether you think that the activities of the last six months and of the last 10 years have created significant moral hazard in our market system. Chairman Jerome Powell: (01:01:56) Let me first say that, of course, the intended beneficiaries of all of our programs are workers and are able to keep their jobs because companies can finance themselves. That's really the point of it. You raise a good question. Certainly, it's a concern. That's why, generally, we don't look for ways to insert ourselves into markets when they're functioning. This is a world historical event unlike any other situation that happened. It's one where we really felt like we had to come in with all of our tools as aggressively as possible. I don't regret those decisions. I do realize. That's why I always say that we'll put the tools away. I take it very seriously. Ultimately, in a free market, in an economy like ours, you should get the benefits of your success and the cost of your failures, too. That's the way it should work. Rep. Maxine Waters: (01:02:55) Thank you, Mr. Himes. Jim Himes: (01:02:55) Thank you, Mr. Chairman. I yield back. Rep. Maxine Waters: (01:02:56) Mr. Steil, you are recognized for five minutes. Mr. Steil present? If not, Mr. Taylor, you are recognized for five minutes. Speaker 3: (01:03:23) Let me try Steil. Rep. Maxine Waters: (01:03:23) If not, Mr. Lucas, you are recognized for- Speaker 3: (01:03:28) Let me try Steil again. Rep. Maxine Waters: (01:03:28) For five minutes. Frank Lucas: (01:03:33) My cursor to the right spot on the screen, Madam Chairman. Thank you. Rep. Maxine Waters: (01:03:36) Thank you. Frank Lucas: (01:03:41) Chairman Powell, for five years, I've worked very diligently in an effort to unlock at least $45 billion in capital to be available to the economy. Without me saying any more, you understand where I'm headed, the Inter-Affiliate Margin rule. I hear rumors that we might be getting closer to such a rule being announced. Any insights you could provide on that? Chairman Jerome Powell: (01:04:08) I'm happy to be able to confirm those rumors. We are indeed getting close. I've been under strict orders, which I will obey, not to give you an actual date. Nonetheless, it's very clear that we are. We are. It's been a long road. I will agree with you. We'll get there very soon, I'm told. Frank Lucas: (01:04:31) I've spent enough time on farm bills. I have enough patience. I'll wait you out. The wallet-making progress is really important. That said, Chairman Powell, there have been a lot of comments made about the nature of the programs that have been put together and the way the Fed has addressed this unprecedented set of challenges we've had in the first part of this year. That said, in your experience as a Fed Chairman, in your academic training, could you ever have imagined a pandemic of this magnitude with this kind of economic impact, not just on the United States, but around the world? Chairman Jerome Powell: (01:05:17) No, I certainly didn't. Like everybody else, I was aware that there were things called pandemics and that they could have consequences. You essentially had all over the world, governments and people sort of deliberately stopping a lot of economic activity. We'll see declines in economic activity that just are beyond any in living memory because of the disease. It can do a natural disaster. I certainly hope it's a once-in-a-lifetime event. I hope market participants don't grow to think of it as something where we'll react to any old thing. Frank Lucas: (01:05:55) Absolutely. You and I have discussed many times before, coming from my part of Oklahoma, the gold depression in the 1930s, the Dust Bowl, the dramatic effect of Fed policy in '29 and '30, and Congress's policies, the administration at that time's policies that made things so dramatically worse. Three quarters of the population of my home county went away and has never come back. It is fair to say that doing what we in Congress, and what the Fed has done, what Treasury has done, unprecedented as it may be, still is dramatically cheaper than a lack of action. Fair assessments, Mr. Chairman, putting the economic train back on the tracks costs a lot more than keeping it on the track? Chairman Jerome Powell: (01:06:42) I feel very strongly that way. I really do. We're going to come out of this. The more we do now, the stronger our economy will be, the better we're able to keep people working, get tax revenue back up, and have a strong economy to pull us forward, and service the debt. We're going to come out of this with more debt, so our banks are going to have taken losses. Households will have run down their capital. Everybody will. Nonetheless, the economy will be stronger, and that'll help everyone. Frank Lucas: (01:07:09) Ultimately, Fed policy will reflect that new reality as will fiscal policy in the United States Congress has to reflect that new reality. The piper will have to be paid, ultimately. Having that bill to pay is how we get to the point of being able to pay. Chairman Jerome Powell: (01:07:28) That's right. That's why I think this is not a time to worry too much about the longer-run fiscal situation. We'll have to return to that. I would say this isn't the time to prioritize that. Frank Lucas: (01:07:40) One last thought, representing a substantial part of a rural area of Oklahoma... Making sure that Fed programs work as well in the countryside as they do in the money centers in the big urban areas is critically important from my perspective. Making sure those facilities are available to everybody helps assure the robust recovery. We don't want to leave any particular regions or parts of society behind as we come out of this. I believe you're working aggressively in that area. Chairman Jerome Powell: (01:08:13) We have tried to. In fact, I would point to the things we've done with the municipal facility, where we made sure that states that have rural populations and don't have a lot of big cities, nonetheless, have the benefits of that facility. We will continue to adjust to all our facilities to try to serve that goal. Frank Lucas: (01:08:31) With that, Madam Chair, I yield back the balance of my time. Rep. Maxine Waters: (01:08:35) Thank you. Mr. Heck, you are recognized for five minutes. Dennis Heck: (01:08:41) Thank you, Madam Chair. I'd like to start by thanking you for setting up the phone call the other day with Chair Powell regarding the issue of commercial real estate, and the future of that market, and its importance. I don't have time to get into that today. I wish I did because we still have a problem, and I'm ringing the alarm bell again. Since I was privileged to join this committee nearly eight years ago, I've asked at every single Humphrey–Hawkins Hearing, when does America get a raise? The truth of the matter is that for far too long, indeed, I would suggest 40 years, we have been content. Some people have supported, frankly, running the economy short of its potential. Dennis Heck: (01:09:24) I remember when I got here that there were people both on and off the FOMC that thought if we ever dipped below 6% unemployment, it would trigger inflation. Then it was no, not six, but five and a half, five, between three and a half and quarter percent unemployment for two and a half years. We maintained. In fact, we were short of the price stability target. The fact of the matter is that during your tenure, Mr. Chair... I tip my hat to you, sir. You've opened people's eyes about the importance of a tight labor market. Dennis Heck: (01:10:03) You've opened people's eyes about the importance of a tight labor market. You did this yesterday in the Senate, you've done it again here today, you've done it in public utterances and we cannot thank you enough. Well done, sir. You have pointed out rightfully that tight labor markets help with wage growth, but especially with employment levels in wage growth for people at the lower end of the income spectrum. Again, I want to thank you. But the factory hates, Mr. Chair, that the mission of the fed is no different today than it was over two generations when it never allowed the economy to operate at a tight labor stats. The law hasn't been changed and the rules and regulations haven't been changed, so we're going to get past this some point and the sooner the better. But my question for you is, short of you having a lifetime appointment, which by the way I would support sir, but short of you having that, how can we be assured that what you have so appropriately pursued will continue? Dennis Heck: (01:11:11) And I want to preempt you a little bit if I may, Mr. Chair, by saying every federal entity in the history of civilization has resisted opening up the underlying authorizing act for that entity and the fed has been no different in my conversations with them. To some degree, I get that. I mean, it's as though you're channeling Will Rogers who said once, "People feel about Congress the same way they do when baby gets a hold of the hammer." You're worried about what might happen if we opened up that act, but there is no assurance that what you have rightfully pointed out, what you have rightfully pursued, will continue to be pursued. How do we assure ourselves that what you have figured out and what you've led the fed to do will continue into the future if we don't change the law, sir? Did I stump you, Mr. Chair? Chairman Jerome Powell: (01:12:09) I forgot to unmute myself, sorry. So, I actually think the law as written does accommodate what we've really learned, what a lot of us have learned. And that is that... So for many years when we were growing up, inflation really was a problem. People weren't imagining it, they really had to watch carefully or inflation would move up and it would hurt people on fixed incomes more than anybody else, so. And what we've learned is that these disinflationary forces we've been seeing around the world for a quarter century, that they're here to stay for awhile, and that we live in an era of continued downward pressure on inflation, that gives us the ability to have very low levels of unemployment. Chairman Jerome Powell: (01:12:55) I don't think anybody's gotten [inaudible 01:12:56] learn that. I also don't think it's going to be... If you change the law to, that the situation will change, the economy is ever evolving. So I think, I don't know that changing the law is what we need to do. I do think we get that and I think economists broadly do get that now and that's why we were so eager to get back to where we were and below. We weren't seeing inflationary pressures at 3.5%, what we saw was the gains in wages going to people at the lower end of the wage spectrum for the first time in a very long time. I can't tell you how much we want to get back there and how fast we want to get there. So we'll be using our tools that way, and that's really how I look at it. Dennis Heck: (01:13:42) Thank you again, sir, for your leadership. Chairman Jerome Powell: (01:13:46) Thank you. Rep. Maxine Waters: (01:13:46) [inaudible 01:13:47], Mr. Steil you're recognized for five minutes. (silence) Mr. Steil available? If not- Speaker 4: (01:14:08) We can't hear you, Bryan. Rep. Maxine Waters: (01:14:11) Mr. Steil? Are you recognized for five minutes? Speaker 4: (01:14:16) He's talking, but we're not hearing. Ann Wagner: (01:14:18) Yeah, it's... Can staff look into whatever technical difficulty there is? Because he's unmuted it appears. Rep. Maxine Waters: (01:14:26) So let's see, we have a little technical difficulty here. We're checking with our staff. Ann Wagner: (01:14:48) Mr. Taylor. Rep. Maxine Waters: (01:14:48) Strategic. Mr. Steil, we cannot hear you. You cannot hear us, so we're going to move on, while they are trying to correct that, to Mr. Taylor. Mr. Taylor, ready? You have five minutes. (silence) If not, we will move on to Mr. Luetkemeyer, you're recognized for five minutes and we'll get back to you both, Mr.Steil and Mr. Taylor. Thank you. Blaine Luetkemeyer: (01:15:27) Thank you, Madam Chair. And thank you, Chairman Powell for being here today. Thank you for your quick action over the last several months to set up these different facilities, to be able to underpin our markets, and to minimize the damage to our economy. It's amazing to see what you've done, the impact it's had, and we certainly appreciate all your efforts, thank you very much. With regards to my questions, in your most recent monetary policy report you stated how lending standards for both households and businesses have become less accommodating, and barring conditions are tight for low rated households and businesses. What I think you're seeing is financial institutions are beginning to look three or four months down the road and preparing for regulators and their exams to come into their institution after this period of forbearance, and begin classifying loans and force banks to reserve against those assets. Blaine Luetkemeyer: (01:16:29) I can tell you from talking to bankers across the country, that if the legislature, that if the regulators do not give forbearance to these financial institutions, and they start forcing institutions and they start clarifying whole lines of business, there's going to be a real problem with a credit shortage in rural areas and low MI communities. Do you believe the regulator should be providing this forbearance and what do you think it should look like? Chairman Jerome Powell: (01:16:59) So we are encouraging our supervisors to encourage banks to work with their borrowers and not to jump to criticize loans and to take on board the situation that we're in. And we're communicating with them a lot in that respect and I hope that's getting through to the banks, and that it's in effect then getting through to the borrowers. We don't want to force anything to automatically happen. I guess it's natural that in a situation like this, where businesses are partially closed or people aren't spending, you'll see concerns about credit, but this is clearly a temporary period, and we're just going to continue to urge banks to work with their customers, household, and business customers, and- Blaine Luetkemeyer: (01:17:52) Well, I appreciate that comment, sir, but your earlier comments talked about some businesses struggling and the need for forbearance, and I appreciate that, but I can tell you having gone through this PPP program, that the banks with their accountants and attorneys close at hand, are very reluctant to do anything unless there is some physical guidance there, some words on paper that they can point to. And so I've got a bill to try and put something in place that they can point to, to give them the kind of forbearance and protection they need to be able then give forbearance for the customers. Blaine Luetkemeyer: (01:18:29) My greatest fear is we wind up with a situation like '08 and '09, where the regulators go in and get rid of entire lines of business, close down entire industries, and hurt local communities and wind up losing banks in the process. We can't do this in this the situation. It's too broad-based, if we do this we're going to never get out of this economic downturn. And I'm very hopeful that you'll work with us to try and come up with a solution to make sure there's something that the banks can point to, to provide the kind of forbearance they need, the certainty they need to be able to manage their customer base. Chairman Jerome Powell: (01:19:03) So we're trying to give them that and we're also doing additional training of supervisors. And I would just point out too that banks came into this quite well capitalized, and so that helps as well. There's going to be some more guidance though, inter-agency guidance, on post-pandemic exams and how we conduct those. So we're working away at it, and we really want to hear from banks and from supervisors and anybody who, to the extent it looks like this is not getting through because we really don't... This is effectively a natural disaster, and we want to treat it like that. Blaine Luetkemeyer: (01:19:46) Just a quick comment here, I know that Secretary Mnuchin made a comment the other day that he's seeing an increase in deposits. I know anecdotally locally here, the local banks in the area here, looks like there's 10%, 20% increase in deposits, savings have increased. Have you seen that same thing happening? What do you ascertain from that as to why and what kind of effect down the road it will have on the citizens of our country, having that sort of money at hand, ready to be spent? Chairman Jerome Powell: (01:20:15) Well, part of it is... Yeah, the answer is, yes, we're seeing a lot of that. And you saw it in the income data where people are holding just very, very high levels of savings right now. And part of that is that they're getting the PPP loans and some of those [inaudible 01:20:35] personal bank accounts. It's also the enhanced unemployment insurance and it's the checks, and they've been holding back. But I think getting your point, what it is, there's evidence that there's a lot of spending power and we're starting to see that in the spending data. I think it bodes well for the next few months. Blaine Luetkemeyer: (01:20:54) Thank you, I yield back to Madam Chair. Rep. Maxine Waters: (01:20:56) Thank you. Mr. [Barkus 01:20:57], you're recognized for five minutes. (silence) I'm going to go back to Mr. Steil. Has the problem been corrected with Mr. Steil? Bryan Steil: (01:21:22) I hope so, Chairwoman Waters, are you able to hear me? Rep. Maxine Waters: (01:21:24) Yes, I can hear you. Bryan Steil: (01:21:24) Thank you very much Chairwoman Waters, and thank you very much for being with us here today, Chairman Powell. I look forward to being able to do these meetings in person as we work through some of the technical glitches here. During and immediately following the financial crisis of 2009, the Federal Reserve's balance sheet grew by north of $2 trillion reaching about $4.5 trillion. In your comment, following up to Congresswoman Ann Wagner's question, you noted that the Federal Reserve has been mostly holding to maturity. Wondering if you could comment what the economic indicators that you were looking at, at the Federal Reserve between 2009 into 2019, is the Federal Reserve dropped the balance sheet by roughly half of a trillion dollars, and whether or not those same economic indicators will be guiding you as you make determinations in the fed as to whether or not you'll be needing to hold those reserves all the way through their maturity, or if there will be opportunities to reduce the fed's balance sheet in advance of that matured? Chairman Jerome Powell: (01:22:36) So, we waited until the economy was well down the path of recovery before we even thought about starting to shrink the size of the balance sheet. And the other thing that we did was we froze the balance sheet at the end of 2014, we froze the size of the balance sheet, pardon me, pardon me, for a period of three years so that the economy was growing, and therefore the ratio of the size of the balance sheet to the economy was declining. And I think we declined from maybe 25% of GDP to maybe 17%, 18%, so that's a passive way to allow the balance sheet to shrink relative to the economy. Chairman Jerome Powell: (01:23:16) I think in this situation, we're thinking that we may do something like that, but it's so far down the road. I think we're at the beginning of the second phase of this process, the one where the economy begins to recover from the shutdown period, and that period will take some time, and then there'll probably be in a lengthy period as we get back to full employment. So it'll be awhile before we start really thinking about how to shrink the balance sheet, and I would say that at current levels or current plan levels, I think we know now that the balance sheet doesn't present issues in terms of either inflation or financial stability. Those were big concerns as we grew the balance sheet during the last crisis. Bryan Steil: (01:24:02) Obviously we don't have the inflationary pressures today. I do hold some concerns that we may see inflationary pressures in the future as the Fed's balance sheet has now increased beyond $7 trillion. And obviously you and your colleagues at Federal Reserve will continue to watch that. Let me shift gears slightly, we've seen articles recently related to collateralized loan obligations, risks that that may pose, in the banking sector. I think what's important here to note is banking institutions came into this crisis with a much healthier balance sheet than they did in 2009. There was recently an article that was put forward identifying potential risks in the collateralized loan obligations space indicating that banks may have broader systemic risks. Could you comment as to whether or not you hold that view or whether or not you believe banks came in with a strong balance sheet and are therefore well capitalized to weather these challenges? Chairman Jerome Powell: (01:24:58) Sure. So the CLOs are quite different from the things that were problems back in the crisis. We have a lot of transparency into what's inside the CLOs, we regularly include them in our annual stress tests, we stress them really hard to see what kind of losses they produce. And they're also... They're not that large, I think it's less than 0.5 of 1% of the assets of the banks are in these CLOs. So, if something we've... If they contain leverage loans, we've been all over that problem for several years and looking at it carefully. So I think the comparison to the global financial crisis is not the right one, nonetheless, it's an issue we will continue to monitor. Bryan Steil: (01:25:41) I appreciate that and I appreciate you monitoring that as well as the increases in the fed's balance sheet and the risks that that may pose to inflation down the road. Appreciate you being here today, and I yield back. Thank you. Rep. Maxine Waters: (01:25:54) Thank you. Mr. Vargas, you're recognized for five minutes. If Mr. Vargas is not present, we'll move on to Ms. Axne. You're recognize, please mute yourself. Cindy Axne: (01:26:17) Well, good day chairwoman and hello Chairman Powell. Thank you so much for being with us again today and thank you for all the good work that you do, we're very appreciative. Obviously we know these are difficult times that we're in, for the second time in a dozen years we're in a severe recession. I believe that in May we saw that 20 million less Americans had jobs than they did three months prior, so unemployment's at its highest rate since World War II, and the Fed's projections have that remaining at almost 10% through the end of the year. We've also discussed, to make matters worse, that situation appears far worse for lower income workers than it does for others who are making more. Chairman Powell, you've somewhat alluded to it today and I believe yesterday, I think you said you've been concerned about the overall deficit for the longterm but that the time to address that is when the economy is strong not when we're in an economic crisis, is that correct? (silence) Chairman Jerome Powell: (01:27:25) I'm sorry, I forgot to unmute myself again. So yes, I do think that. Ultimately the debt can't grow faster than the economy forever, that's sort of the definition of an unsustainable path. We've been on that for a while now and we need to address it. We have no choice, ultimately we have to address it. The time that do that is when unemployment is low and the economy is growing. Cindy Axne: (01:27:49) Thank you. Thank you. I couldn't agree with you more. Obviously each recession is different, but I want to take a look back at the last one to see what lessons we learned, to see what we can look at to help deal with this one. I had an opportunity back in the 2009 stimulus bill timeframe, that I know we devoted about 20% of that total aid of fiscal support for state budgets, and that's when I was working at the state of Iowa and in charge of supervising some of that funding. Cindy Axne: (01:28:16) One thing that I saw was that when that assistance started to end in 2010, because of balance budget requirements that we have, for instance, in the state of Iowa, we had to cut budgets, meaning teachers, firefighters, public servants, et cetera, lost their jobs. And then I've also seen some research from the international monetary fund and others showing that these cuts were a drag on the economy for several years afterwards. And some of those estimates showing that the jobs lost due to these cuts actually offset the job growth in the public sector entirely. Does that impact seem like it might be part of the reason why the recovery from 2008 recession was so slow? Chairman Jerome Powell: (01:28:57) Yes. That is a finding that economic research has come up with I think pretty clearly. Cindy Axne: (01:29:04) Well I appreciate that. It seems like we're in agreement that supporting state and local budgets is a key step to supporting their recovery process. I know we're absolutely trying to work on getting that piece through the house and it's something that I've worked on. Do you think that, that's something Congress needs to be doing more on to make sure that we recover our economy? Chairman Jerome Powell: (01:29:26) So, as you point out, state and local governments are large employers and they provide critical services to people and there's a balanced budget of provision effectively in every state or almost every state. And so when there's budget problems, what happens is you see layoffs and cutbacks in essential services. Both of those create not just human misery, but they also weigh on the economy. So I do think it's an area where [crosstalk 00:01:29:55] for Congress to look. Cindy Axne: (01:29:59) Well, thank you. Obviously we're trying to push that through. I actually have a bill that I wrote previously that directly supports state and local governments for lost revenue to ensure that these job cuts don't happen again. I appreciate all that you're doing to help us shore up our economy at this point, give us the guidance and the oversight that we need, and I'm grateful for you're [crosstalk 01:30:23] back here today. I hope that we can move a state and local government bill forward. Thank you so much, and I yield back. Rep. Maxine Waters: (01:30:29) Thank you. Mr. Huizenga, you're recognized for five minutes. Bill Huizenga: (01:30:35) Thank you, Madam Chair, I appreciate it. And I, like the ranking member, just think of our mutual friend, Andy Barr right now, and his daughters. And I know Chairman, he would love to be here to grill you about a number of issues as he and I had both previously chaired the monetary policy and trade subcommittee. But I need to touch base on the paycheck protect, sorry, two things, Main Street business that is not eligible [inaudible 01:31:08] HI protection program. And as you well know, a huge part of our manufacturing economy is in automobiles, especially automobile parts, those account for about 900,000 jobs, 125,000 of those here in Michigan alone. And what we are seeing and hearing from the large automobile manufacturers is their concern for their suppliers. And those suppliers are telling me, which I have a tremendous number of here in the second district of Michigan, that they were having some liquidity issues. Not that they don't have, been properly funded previously, but it's about liquidity right now. Bill Huizenga: (01:31:52) Last month I joined with my Michigan colleagues in asking the administration to create a fund that provides short term lending assistance to medium-sized companies in the motor vehicle parts sector using necessary capital from the Main Street Lending Program. Now you had said, I had written it down, I think you had said, "We are there in standing up the Main Street Program. I'm not as convinced, I guess, of that and I'd like to make sure that you can come in and maybe clarify what that means. We need to have this up now, and what I really want to know is will you commit to working with Treasury Secretary Mnuchin to add a dedicated program for auto parts sector focused on medium-sized companies to keep production for key links in the motor vehicle part manufacturing viable. Because if we lose them, that is going to be a huge part of our [inaudible 01:32:44] you'd be hit, and I'm wondering if you'll commit to working on that. Chairman Jerome Powell: (01:32:47) So the facility is open now for lenders to register, so those companies will have banks that they work with that are regular partners in business. And those banks should be in the process of registering with the Boston feds to become an approved lender in the Main Street facility. At that point, they can make Main Street loans right away and a very shortly there'll be able to put 95% interest in those loans. So we're there, effectively if they're banks are [inaudible 01:33:20]. Bill Huizenga: (01:33:21) How about separate, how about a separate facility within [inaudible 01:33:24] the grant? Chairman Jerome Powell: (01:33:25) We try to set... We don't do facilities for individual industries, what we do is we set for... I mean, the requirements that we've set up should be a very good fit for the companies you're talking about. Essentially, we're looking at 2019 financials and you can borrow at a multiple of your 2019 [inaudible 01:33:45]. So, and that could either be four or six, depending on the kind of a loan you want and the kind of company it is. But so, they would be a perfectly good fit for this facility, and we don't do facilities that are designed for individual industries, we do facilities of broad applicability and anybody who meets those requirements can borrow. Bill Huizenga: (01:34:06) So I hear, "No," on [inaudible 01:34:08] program dedicated to the automotive industry, correct? Chairman Jerome Powell: (01:34:11) That's right. Bill Huizenga: (01:34:13) Okay. I think that's a mistake, however, I need to move along to another unintended consequence I believe as part of the Paycheck Protection Program and a company that is not able to take part in that, but is waiting for this Main Street Lending Program. I have a company here in Michigan in the district that probably many of my colleagues have had their product, La Colombe, it's coffee. They're a 26-year-old, very fast growing company that has manufacturing facilities here, a couple of hundred constituents, but they're all based in Philadelphia. For the last six years they have been focused on growth, and that also means they've had to borrow funds to which has led to accumulation of quite a bit of debt. The rules are currently written so that La Colombe would not qualify to participate in the Main Street Lending Program. Bill Huizenga: (01:35:05) I believe the way that the leverage ratio requirements in the program is currently drafted, it unfairly punished as companies, such as La Colombe, that would otherwise be viewed as true American success stories when using different metrics. As the rules are currently written, it's designed to prevent funds from going to the companies that need the most. And I understand that you're not wanting to deal with over leveraged companies being bailed out, but we're talking about [inaudible 01:35:31] growing companies that have had to accumulate debt. I'm working on, with some colleagues, [inaudible 01:35:38] bipartisan [inaudible 01:35:39] letter that would help that. So we'd appreciate it if there would be a ratio, one-to-one, independently appraised within the last 12 to 18 months, and to ability access [inaudible 01:35:49] look forward to hearing from you offline on that. Chairman Jerome Powell: (01:35:54) For either of those kinds of companies, if we're missing something, then we want to understand that. And we've been willing to adapt these programs consistently, so we'll look forward to talking about it. Bill Huizenga: (01:36:05) Wonderful. Thank you, appreciate it. Rep. Maxine Waters: (01:36:07) Thank you. Mr. McAdams, you're recognized for five minutes. Ben McAdams: (01:36:13) Thank you, Madam Chair, and thank you Chair Powell for being with us and for your leadership during this difficult economic situation due to the coronavirus. So chair pals, since the last time you were before this committee, the OCC moved ahead with its rewrite of the Community Reinvestment Act or the CRA, and in light of the renewed focus by Congress to address racism and systemic issues throughout our economy and throughout our nation. I think it's particularly important that we get the CRA correct, and since its purpose, its historical purpose, was to address [inaudible 01:36:52] against black and minority individuals and communities, and to have financial institutions meet their [inaudible 01:37:00] credit needs of these communities. So I think many of my colleagues share my concerns that the OCCs rule misses the mark and probably does more harm than good, and I'm glad that the fed did not sign onto the rulemaking. Ben McAdams: (01:37:11) In January, governor Lael Brainard gave a speech on how to strengthen the CRA, and in that speech, she said, "By sharing our work publicly, we hope to solicit public input on a broader set of options for reform and find a way forward, a way toward interagency agreement on the best approach. So, now that the OCC has finalized its rule, is there any update that you can provide for the committee on how or when the fed may move forward on any of the public input it received on its CRA framework? Chairman Jerome Powell: (01:37:45) Sure. So first of all, CRA is for us an extremely important law and we agreed that it was, it's a good time to update it. We would want to update it in a way that has broad support among the community of intended beneficiaries, that's always been our one non-negotiable condition for it. So, we're still working on it and I do think we'll move forward with it, I don't have much for you on the timing of it, but there's been a lot of great work done and I like where we are on it in terms of the things we've been, the ways we've been thinking about it, modernizing it. We will ultimately move forward, and I can't say exactly when but we're not going to let that work go to waste. Ben McAdams: (01:38:32) Thank you, we look forward to hearing more about that and following that. Next question, my perception is that Congress and the fed has done a decent job of keeping the economy on life support. We clearly aren't doing great yet, and the response has been uneven, but you have double digit unemployment numbers and higher unemployment rates for African Americans for instance, and some sectors are hit harder than others. Ben McAdams: (01:38:57) I think Congress has the option, we had the option when this pandemic broke out, of acting quickly or acting perfectly. And I think we chose to act quickly and I think that was the right call, but by my calculation the fed has allocated a little over $200 billion of the $454 billion that Congress allocated to the treasury and fed in the CARES Act. Some of that funding was set aside for the Main Street facility that you've already discussed and other facilities. My question is, how do you intend to use the remaining funds? I understand that it takes time to set up various facilities, but I also worry that if we don't move fast enough in business and individuals and communities, may suffer as a result. Chairman Jerome Powell: (01:39:37) First, let me agree that I think the actions, the fiscal actions, that you took were incredibly timely and I think will be very well judged over time, even though of course, nothing's perfect. It's an emergency, you do the best you can. I think, the PPP program, that UI program, the checks, I think all of it's funded [inaudible 01:39:55] well over time. And it's certainly helping the economy now through what could have been so much worse of a situation. Chairman Jerome Powell: (01:40:01) In terms of the rest of the CARES Act money, it's there when and as we need it. We have a lot more ability to use our lending powers should that be necessary, should it be appropriate, and we're certainly willing to do that. I think we've kind of gotten to maybe the end of the beginning here and now we're getting into the phase of the reopening of the economy, but that money is there if it's needed. Of course, the Secretary of the Treasury actually has the legal authority to deploy that money as he sees fit. It would be, one of the things he could do is put it in our programs, and we stand ready to do more if more needs to be done. Ben McAdams: (01:40:49) You see that essentially as being more of the same as necessary, or is there anything else you're looking at? Any other gaps that keep you up at night? Chairman Jerome Powell: (01:40:58) So I think we've covered now the between... We've got nonprofits now in Main Street, that'll take us some time. We've got small, medium and large companies. We've got state and local governments. I think we've covered a lot of the waterfront. We're always open to additional ideas. Mainly it's a lot of execution now and just continuing to improve what we've done, make it do its job better. Ben McAdams: (01:41:25) Thank you. I yield back. Rep. Maxine Waters: (01:41:28) Thank you. Mr. Vargas, you're recognized for five minutes. Juan Vargas: (01:41:34) Thank you, Madam Chair and can you hear me? Rep. Maxine Waters: (01:41:37) Yes, I can hear you Mr. Vargas. Juan Vargas: (01:41:39) Just want you to know that I never abandoned you, I was here the whole time. My microphone wasn't working. [crosstalk 01:41:45] It was sad now, to hear the news of Andy's wife and family. Andy's a friend to all of us, as you know, he on our side too. We love him and that's really tragic, and I know that we'll all keep his wife and his family, especially now, in our prayers. And again, thank you Mr. [McHenry 01:42:03] for letting us know. I don't agree with Mr. Heck, Mr. Powell, that I'm in favor of a lifetime appointment for you. I wouldn't do that to you, I wouldn't shorten your life like that. You're too much of a good guy, that wouldn't be fair at all. But I do have to commend you, I think that you're one of those, what I would call those Republicans of old, stable, dignified, intelligent, fair, charitable. I think everyone's been looking to you for guidance and I think that you've been just the right person at the right time. And again, I do want to commend you. Juan Vargas: (01:42:38) And I also want to commend you for highlighting the disproportionate impact that this pandemic has had on communities of color, Latinos, African Americans, and especially the poor. My district is composed of all of Imperial County, which is a border county here to Mexico, and part of San Diego County. Over 70% of my district is Latino, the unemployment rate in Imperial County is a striking 28% in April, that's what it was. And that's basically the same rate that we had during The Great Recession there, 25% to 30%. And the Bureau of Labor Statistics currently states that as of April, the unemployment rate in San Diego County also increased about 15%. Juan Vargas: (01:43:21) Taking a closer look specifically in the areas I represent such as San Ysidro, which is right on the border, National City, the next little city up, Chula Vista, the next city up, and then the city of San Diego, the unemployment here in April was about 20%. The disproportionate impact of this pandemic and our economy is clear in my district. What policies has the fed pursued specifically on reducing the high rates of unemployment for African Americans and Latinos during this pandemic? And what policies has the fed put in place to help ensure that Latinos, African Americans are not suffering from this disproportionately high unemployment rates as we emerge from this recession? Chairman Jerome Powell: (01:44:01) I'm tempted to say that all of our policies are focused on that problem. The way this a pandemic work is it hit companies and parts of the economy that were service economy companies, which involved getting people together in tight quarters, and either feeding them or giving them drinks or flying them around or entertaining them. And those are service jobs, which happen to be overly represented [inaudible 01:44:28] their workforce happens to be consistent to a large measure of low and moderate income communities and minorities. So, extraordinarily large portion of those laid off are from those parts of the economy, and of course it has, as the numbers show, fallen heavily on the Latin population as well as African Americans and women. So the tools we have are the tools we have. So we're supporting the flow of credit in the economy to companies so that they don't feel financial stress. We're trying to create an environment in which people have the very best chance to go back- Chairman Jerome Powell: (01:45:03) Tend to create an environment in which people have the very best chance to go back to their old job or to get a new job. That's really what all of our efforts are about. Nothing more, nothing less. Juan Vargas: (01:45:10) But Mr. Chairman, I think that you know that the, and I agree with you, the type of job that you just described also relies a lot on tourism and restaurants, and this economy and they seem to be the last ones that are going to come out of this recession. People don't feel comfortable going back. So without unemployment insurance and the enhancement, how are these people going to make it? Chairman Jerome Powell: (01:45:31) We're going to see lots and lots of people go back to work here in the next few months. We believe that, but the people who are in those parts of the service industry, tourism, of course, a big one, they're going to struggle. Many of them will struggle until the pandemic is really in the history books, and so that's going to be a problem and I think those people are going to need support. It may be difficult to find jobs in that industry at all, and I think we're going to need to support them and help them. As Congress did in the global financial crisis, I think as the years wore on, Congress re-upped employment insurance a number of times just to keep people in their apartment, keep them there not being evicted, not having to move into a shelter or move into a crowded place. And by the way, that's going to be a place where the disease can spread more quickly too. And so I do think it's important that we provide that kind of help. Juan Vargas: (01:46:28) And I appreciate those words and I hope you use your influence, as you can, to make sure that that happens. I do have to ask this. So one of the things that you said was this pandemic was ... It's over. Again, thank you very much for being here. Continue to be the person you are. We have a lot of faith in you. Thank you. Chairman Jerome Powell: (01:46:43) Thank you sir. Maxine Waters: (01:46:43) Thank you. Mr. Taylor, you're recognized for five minutes. Van Taylor: (01:46:49) Madam Chair, can you hear me? Maxine Waters: (01:46:51) Yes, I can hear you. Van Taylor: (01:46:52) Oh, terrific. Okay. Chair, I appreciate you being here. We are all concerned about the economy as it goes for recovering jobs. Something that is a deep concern to me are the properties that have long-term mortgages, where the lender has very little flexibility in their ability to forebear. We as a Congress saw the need to forbear, for lenders to forebear. The OCC provided guidance on March 13th encouraging banks, which are the biggest of lenders in our economy, to forbear. We have given guidance to Fannie and Freddie to forebear. We have worked on legislation in financing, trying to help encourage forbearance. Van Taylor: (01:47:41) There are pockets of the economy where there is not the ability for the lenders to forebear at a level that is going to help them get to the other side. I'm specifically concerned about three sub-sectors in real estate; hospitality, student housing and indoor retail, where it is going, because of the pandemic, they have no cash or have very little cashflow. They cannot service their mortgages, they can't pay for the utilities, they can't pay for insurance, they can't pay their property tax. Van Taylor: (01:48:14) I've been working with a lot of members on this committee and in Congress, Republican and Democrat, from all over the country who share this concern. I perceive that absent action by this body, by Congress, it will ... Sorry, by the federal government, we're going to see a wave of foreclosures beginning in the fall and going through next spring. That impact on jobs, I think, will be very material as people who are working for hotels, working in indoor retail, people who are at student housing, where you have a university town that needs to have the housing to run the university, where those foreclosures are going to be very serious, particularly when they're foreclosed and the property itself is closed and the foreclosure does not have the expertise of the capital to reopen that business. Van Taylor: (01:49:03) So assuming that you were to see things the way I see it, where there's a coming cataclysm here, do you have the statutory authority, as you and the treasury, to open up the Main Street Lending Program or any of your other programs to provide lending authority to someone to then in turn help these properties that are in trouble that can't make their mortgage? Chairman Jerome Powell: (01:49:30) So there are limits, as I think you're referring to, in what we can do. There are lending powers and they are very explicit in the law. We have to conclude that we're adequate. We have to have evidence that we're adequately secured and we cannot lend to insolvent borrowers. So there are lines that we can't cross. Within that, we can take a lot of risk, and the question is for companies like that, you really hit the most effective sectors, we would have to be lending on some sort of an asset based basis. That is something that we're looking at. Van Taylor: (01:50:11) I know you're looking at that, and my question, again, is a yes or no question. Can you do this without an act of Congress or do we, Congress, need to take an act to give you the authority? Do you have the authority today? Van Taylor: (01:50:24) If you decided, "Hey, this is important. We got to do it. We can make these loans to the lower leverage healthier properties to try to get them to the other side." They've got a liquidity clause. If we get them to the other side, they'll be able to reemploy people and communities will survive. There are whole communities that are going die, or be very badly impaired if they lose their hospitality space or lose ... Shopping centers are extremely important to that community. Do you have the authority or does Congress need to act to give you the authority? Chairman Jerome Powell: (01:50:57) My guess is without seeing the numbers, if you're talking about low leverage situations where it really is just a liquidity problem, we have that authority. We do have that authority.It's again in some of the cases though, it's [crosstalk 01:51:11]. Companies [crosstalk 00:06:12]. Van Taylor: (01:51:13) Right. So if you look at collateral [inaudible 01:51:14] security loan in the hospitality space, the average leverage level is 63%. Real estate is normally levered 15 to 17 times EBITDA, just to put it in mainstream terms. That's well outside the range of what you have stated, by rule, that you can do. Again, my question is, do I have to pass a law so that you can then go lend into this space or do you have the authority, right now, to say, "You know what? There is a problem. We're going to go take action?" Chairman Jerome Powell: (01:51:45) Yeah. I think some of the problems in that space will be better served by fiscal policy. I think we can probably reach some of them as well. So the answer might be both of those. Van Taylor: (01:51:59) Okay. Thank you. Thank you Madam Chair. I yield back. Maxine Waters: (01:52:00) Thank you. Ms. Wexton, you are granted five minutes. Jennifer Wexton: (01:52:06) Thank you Madam Chairwoman and thank you Chairman Powell for joining us again today and for all that you're doing in these difficult times. One of the most stabilizing things that Congress did in the CARES Act was to expand unemployment benefits by increasing the benefits by an extra $600 per week on top of those benefits that the state provides. In Virginia, our maximum weekly benefit was $370, so the extra money has been a huge relief to the over 822,000 Virginians who have filed for unemployment benefits since March 15. But these unemployment benefits, these enhanced benefits, are set to expire at the end of July. Do you anticipate the unemployment rate falling significantly by that time? Chairman Powell, I think that- Chairman Jerome Powell: (01:52:57) I would say reasonably. Many forecasters would say, and I would agree, that we should see strong job creation between now and the end of July, yes. And that may mean that the unemployment rate comes down. Jennifer Wexton: (01:53:12) So one of the arguments against continuing this benefit is that it's too generous. Some of my colleagues are suggesting that employers are having a hard time getting employees to come back to work because employment is more lucrative than what they make in their regular jobs. Is that something that you've encountered as far as your regional surveys of business activity or in the data? Have you gotten any information that employers are trying to hire people back and they're having trouble doing so because the employees say, "I'd rather just hang and kick back and collect my unemployment?" Chairman Jerome Powell: (01:53:48) Here's what we've been hearing [inaudible 00:08:50]. It's a little bit different from that [inaudible 00:01:53:52]. Many employees are reluctant to go back quickly and it may partly be that the $600 is generous compared to what they make. We know that many of them weren't making that much, combined with the other unemployment insurance. But it's also, if it's a service economy job, and you're very close to someone, it's a barber shop, it's a beauty parlor, it's a nail salon, any of those things, there's also still reluctance on the part of workers to go back to work at all and if they can delay that. Chairman Jerome Powell: (01:54:24) More broadly, I would say that's of course it does, the program ends at the end of July. I would just say it probably is going to be important that it be continued in some form. I wouldn't say what form, but you wouldn't want to go all the way to zero on that, seems to me. Jennifer Wexton: (01:54:42) I'm glad to hear that Mr. Chairman, and what you said, talked about people not feeling comfortable going back to work is pretty consistent with what I'm hearing anecdotally, that people are very concerned about the safety if they have a loved one at home who's elderly or has a compromised immune system. And also, a lot of people in my district, and I would imagine it's the same nationwide, are having trouble accessing childcare at this time because many of those centers have closed. So that's a real issue for a lot of people. Jennifer Wexton: (01:55:10) Now, former Fed chairs, Yellen and Bernanke, have endorsed the proposal, which is the Worker Relief and Security Act that would tie federal unemployment benefits to the state of the economy, for example, changes in the unemployment rate. Do you agree that we should tie assistance to the conditions in the economy or what are your thoughts on these processes that would have set triggers or the legislation and for the benefits to continue? Chairman Jerome Powell: (01:55:38) So I think you've got almost two months, a month and a half really, until the end of the UI program, and I think you're seeing a lot of interesting ideas come up. There are a number of proposals that have come out from bipartisan groups and I think it's, no doubt, you're thinking, "What should the next bit of support look like?" And I think some of those ideas are very interesting ones that would be ... I don't want to endorse a particular idea or program that somebody has proposed, but I do think those things are worth careful consideration. Jennifer Wexton: (01:56:12) Thank you, Mr. Chairman, and I want to thank you for all of your transparency and the programs that the Fed is administering and also for your having these listening sessions and for your willingness to make changes to those businesses that might be eligible for the program in terms of the money amounts and things like that, by opening it up to more people and I really appreciate your responsiveness to us in the community. And thank you and Madam Chair, with that, I will yield back. Maxine Waters: (01:56:42) Thank you. Mr. Stivers, you're recognized for five minutes. Steve Stivers: (01:56:57) Thank you, and thank you Madam Chair. Thank you Chairman Powell for your testimony and your willingness to be so accessible. I want to thank you for everything you're doing during this crisis. I think that your actions have prevented this from getting much worse. I take your answers pretty seriously about what we need to do for people that are still impacted by this crisis, especially folks who are still seeing a lot of unemployment and that aren't benefiting from this coming recovery, and we need to try to help them. And you just answered a question a little bit, you don't want to endorse any one proposal, but are there elements that you think are important, without endorsing one single proposal? Chairman Jerome Powell: (01:57:57) I think a couple of things. I think with the unemployment insurance, I think it's important to just keep in mind that some of the jobs are not coming back soon. They ultimately are likely to come back, but those jobs that are in tourism and all those areas where travel, accommodation, restaurants, bars, things like that, those people, they are going to have a hard time finding a job. So I think better to keep them in their apartment, better to keep them paying their bills. And this is a natural disaster. This isn't their fault and I think we should find ways as a country to support those people and help them through this difficult part of their lives. I think many people will go back to work though. Chairman Jerome Powell: (01:58:40) I think the other one I would mention and we've talked about it is just state local governments do provide those critical services and we know what happens when they can't run deficits, and so they cut heads and they're already doing that and I think that's another one which is worth looking at. And the last thing I'll say is absolutely small businesses. We don't want to lose any more small businesses than we absolutely have to here. They are the beating heart of the economy and so I just think those are three areas I would point to. Can I also just take a second and say- Steve Stivers: (01:59:16) Yes sir. Chairman Jerome Powell: (01:59:17) I was very, very sorry to see the news about Andy Barr's wife this morning. He's been an incredible- Steve Stivers: (01:59:22) Me too. Chairman Jerome Powell: (01:59:23) Guy to work with. He's a happy warrior. He's a wonderful man and I know we all feel terrible about it and he's in our prayers. Steve Stivers: (01:59:31) Thanks for bringing that up Mr. Chairman. They're great friends and we're definitely keeping the family in our prayers and I know Andy said this morning, his number one job is being a dad to his two daughters that now have lost their mom. So we're keeping them in our prayers and I really appreciate you bringing it up. And I do want to follow up on something you just talked about. In the first, one of the first COVID response bills, we did include $150 billion for local governments and state governments, but we tied that money. We said it had to be used only for COVID response. And I hope that we will, in what you just said, at the very least, untie the strings on that money to start, and then see if local governments and state governments need anymore money. I'm not going to ask you to comment on that, but I hope we'll do that. Steve Stivers: (02:00:21) And in the spirit of the second part of your answer, obviously we want to focus on folks who are going to continue to be unemployed and small businesses too. So those are three great pillars, and I really appreciate it. So with the interest rates at a near record low, another thing we could do for our state and local governments, our municipal governments, is allow [inaudible 02:00:45] refunding so they could take advantage of these historically low interest rates in the capital markets. I don't know how the capital markets would respond to that, but it's another thing that I hope we will do and I thought I'd bring that up since you just mentioned the importance of state and local governments. Again, I won't ask you to comment on that because frankly, it's not in your purview. Steve Stivers: (02:01:08) So the Federal Reserve did note in it's May 2020 financial stability report that the life insurance industry has been adversely affected by a number of factors caused by the COVID-19 economic situation, including that near zero interest rate environment I just brought up. Do you think the near zero interest rate environment is a big impact on our insurance folks? What help do you think that we should give to make sure that, and I don't know if there's any kind of aid, but obviously we want to help people that are nearing retirement and help people that are savers. What can we do to impact that knowing that the interest rate probably will not go up anytime right away? Chairman Jerome Powell: (02:02:05) So the life insurance industry is challenged by low interest rates and they've had a lot of practice here in the last decade or so. They do come into this highly capitalized and I would just say a strong recovery is really what that industry needs and that's what we're going to work on. Steve Stivers: (02:02:22) Thanks for your time Mr. Chairman. I yield back Madam Chair. Maxine Waters: (02:02:25) Thank you, Mr. Lynch, you're recognized for five minutes. Stephen Lynch: (02:02:30) Thank you. Madam chair. Mr. Chairman, I want to say I appreciate you. I appreciate you're in this swinging. You've been helping us on the unemployment, you've been helping us on trying to get some of this money out to main street. I'm very happy to see your revisions recently on the Main Street Lending Program, and I want to thank Chairwoman Waters for her relentless advocacy to get that minimum loan size down. It started what ... What was it, a billion? And then now it's at 250,000. No, it was a million. It was a million first. Now it's down to 250,000 so I think that's much more in the reasonable range for some of our small businesses. Stephen Lynch: (02:03:17) I do appreciate that the payback period has been expanded out to five years and that for participating banks, you also, you had a 15% skin in the game factor for some of these participating banks that I thought probably made the program unattractive to a lot of our local banks, but you've got that down to 5%. So we'll have to wait and see if that's sufficient, but I wanted to thank you for that. Stephen Lynch: (02:03:46) The question I had is we had a financial FinTech task force hearing the other day where the subject of Chairwoman Waters, Fed accounts. So this is the idea about establishing Fed accounts, basically doing, having the Fed do for the unbanked what they do right now for banks. To give them access, to give them accounts and to tie them into the economy. I think if Facebook can reach out and provide access to 2 billion daily users a day, I think maybe the Fed could accomplish 5% of that, even though it would be requiring the Fed to do some things it hasn't normally done. And I just wanted to know if what your thoughts are on the Fed account idea, and if there's any other way that we might address the gap that still exists between some of our folks who are unbanked or underbanked in their areas, is there something the Fed can do to close that gap? Thank you. Chairman Jerome Powell: (02:05:03) Thank you. So as you pointed out, we can only offer bank accounts to, and our reserve banks to the depository institutions, not people. I think that would be a very dramatic change in the landscape of banking. I would worry what would happen to the rest of our private banking system because an awful lot of people would opt to keep their personal money at the Fed and then who would do the lending? It could hurt our intermediation process. In terms of the underbanked though, this is a big part of what we do, is work in local communities under CRA to encourage financial inclusion. We also we enforce the Fair Credit laws to some extent. We don't have all of that authority, but we have a part of it. Chairman Jerome Powell: (02:05:56) So those are things that we do now to address the needs of the unbanked and the underbanked. Also, we work closely with CDFIs and minority depository institutions as well. They play a big role in doing that and we have a great deal of outreach and interaction with those institutions, which are active in the communities that really need the help. Stephen Lynch: (02:06:21) Well, I do think that with the changing technology, you're drifting away from brick and mortar and moving to mobile banking. I think it presents some opportunities that we have not had in the past. So I would just ask you to treat it with the level of attention that we would if the banks were in trouble. I appreciate it. We are asking you to do something that you weren't designed to do, but I think the circumstances and the technology now give us an opportunity to do something. It may not be changing the Fed's traditional role, but certainly I think we can try to make life easier for these people who are unbanked and I yield back. Thank you. Maxine Waters: (02:07:11) Thank you. Mr. Tipton. You're recognized for five minutes. Scott Tipton: (02:07:17) Thank you Madam Chair, and Chairman Powell, good to be with you this morning and did appreciate your comments on Andy Barr. On our side of the aisle, he has always proceeded [inaudible 02:07:26] in questioning and our thoughts and prayers certainly go out to he and his two daughters today and I do appreciate you, again, taking time to be here. Scott Tipton: (02:07:36) Chair Powell, we've heard a lot about the impacts that we're having on the economy and appreciate that ever certainly that you have made to be able to address some of the concerns. [inaudible 02:07:48] actually was appreciative to be able to see that the Main Street Lending Program was up and running this week and we are having some concerns that are being expressed. And under the terms and conditions, they may actually deter some potential borrowers, entire segments out of the market from participating in the program. And the hotel industry, we've talked about tourism this morning, for example, has been one of the hardest hit sectors during the pandemic, but they may not have great access to the MSLP. Scott Tipton: (02:08:19) Again, I know you've heard a lot of concerns out of Congress from the tourism industry standpoint. I do believe it's worth repeating, certainly a great impact in a district like mine in Colorado. Could you outline whether the Fed has considered that some of the loan terms will limit borrower participation, and whether this could be addressed through updated guidance as you monitor participation in the program? Chairman Jerome Powell: (02:08:47) So some of those companies should be able to, and our facility is open to any kind of company as long as it's one of the ineligible company, and that would include the ones you mentioned, and some of them should qualify, I would think, under our existing standards. Those are the don't, we want to understand that and if there are ways we can adapt them and we'll absolutely look at that. One thing we are looking at, as I mentioned, is some kind of an asset based lending thing. So I think we're hearing this a lot about those sectors and it's something we are looking at. Scott Tipton: (02:09:30) Do appreciate your comments on that. One thing we've seen out of you, out of the administration, out of treasury has been flexibility. As you noted throughout this conversation, we're in uncharted waters. It's something that none of us had fully anticipated or ever experienced before and hope not to again. And trying to be able to make sure that we are keeping jobs created and the viability of businesses to be able to continue is critically important. Scott Tipton: (02:09:59) Did one point [inaudible 02:10:00] I have also heard from some industry participants that financial reporting covenant required under the MSLP may prevent participation. In particular, one thing that's been pointed out has been some of the credit facilities in terms of the requirements are costly for smaller applicants who don't currently have the infrastructure in place to be able to create complex quarterly filings. Could you explain why the Fed chose to be able to put these enhanced reporting requirements in place and do you anticipate potential adjustments as you monitor the borrower participation rate and program? Chairman Jerome Powell: (02:10:42) We cut back the financial reporting requirements in the last few weeks before we are going live here just for that purpose. And we thought we had cut them back to close to the bare minimum of what we would need to be able to monitor the performance of the loan at all. If we misjudged that and we want to know we'll be getting that feedback. That's feedback that we want to get. We're trying to make that process as user friendly and easy and automated as possible. We certainly tried to address that specific problem. If we didn't quite get that done, then that's very useful feedback. Scott Tipton: (02:11:26) Okay. Thanks, and one thing that as we entered this crisis, we stepped back three months. I think, in conversations that we'd had, you'd noted that our banks were well capitalized. Is it still your sense that our banks are well capitalized? I think we've seen them on the front lines trying to be able to deliver PPP, to be able to get that assistance out and did appreciate the comment that you'd made in terms of the examinations, by the way, to be understanding that our banks have been put in a challenging situation, but in terms of the capitalization, do you still see the banks more capitalized? Chairman Jerome Powell: (02:12:05) Yes, I do. Banks have been generally a source of strength here. They've taken on deposits, they've offered a lot of forbearance to their individual and business customers and they're making loans. We're in a whole lot better shape to face this situation than we were to face the last situation in 2008 and nine where the banks were really part of the ... They were at the source of a problem. Here, that's not at all the case. Scott Tipton: (02:12:40) Thank you Chairman for being here. I yield back, Madam Chair. Maxine Waters: (02:12:44) Thank you. Mr. Phillips, you're recognized for five minutes. Dean Phillips: (02:12:48) Thank you Madam Chair and Chairman Powell for being with us. I too want to add my condolences and heartfelt sympathy to Andy Barr and his children. I grieve with them as we all do. Chairman Powell, I know you're not here to be a prognosticator, but could you please share with the American public, as simply as possible, what households should expect from an economic perspective in the months ahead? Chairman Jerome Powell: (02:13:20) The way I look at it as this. You can think of this as taking place in three stages and the first stage was the shutdown and we know what that looks like. It's a lot of people who can work from home working from home, many, many people being laid off. And we've been through that, that's the second quarter, and I think we're now in probably in the early stages of the second phase, which is call it the bounce back, the beginning of the recovery. And there, I do think assuming that the virus remains significantly under control, if you make that assumption, what we should see is companies opening up again, workers going back to work. We should see the positive data coming out and the economy starting to reopen and that's what we should see during this phase. Chairman Jerome Powell: (02:14:06) I think most forecasters, just about all forecasters, then see there's a third phase, that there will be some parts of the economy that struggle to recover, and those are the ones where people get close together to be fed or entertained, all those areas we've been talking about. And that area is going to take a while to recover. It's a going to take the public a while to gain confidence that it's safe to engage in those activities and that's, there are a lot of workers that work there, and so that group is going to struggle. They're going to need support. They're going to need help and I think that's the way I see it, but I think we ... Chairman Jerome Powell: (02:14:44) The incoming data suggests that we're at the beginning of that second phase of recovery, reopening and expansion. That's the road we need to get on that road and stay on that road and before you know it, things will feel a whole lot better. Dean Phillips: (02:14:58) And Mr. Chairman, I'm sure it's fair to say that consumer psychology will change. Consumer psychology is going to change in perpetuity. I'm sure you've given that some thought. What should we be thinking about as we move forward as lawmakers, relative to a changed economy because of the pandemic and the economic disruption? Chairman Jerome Powell: (02:15:20) In the meantime, I think the focus should be getting through this critical phase. As policy makers, what help does the economy need to transit this critical phase and really get going again? That's what we're thinking about. I think longer term, these are interesting questions. It does seem very likely that people have learned that for certain jobs, you can do them anywhere. I guess we knew that, but now we really know it. And so what's going to happen with people in a whole lot of industries who can really do their jobs from home if they want to, or from a particular place of work or from another state. The technology has really moved to a place where you can do amazing things that we didn't have to do before. This conference call is not something we had regularly done, and it's becoming very routine. The technology is getting better. We're all getting used to it. There's still glitches. They're plenty of glitches here at the Fed on these things, so I think we're going to learn that this is, in a lot of ways, it's accelerating preexisting trends too. They're existing trends that just had sped up a lot in the economy and the more online shopping and things like that. So that's something we're thinking about. Chairman Jerome Powell: (02:16:35) The main thing we're thinking about, what are we going to do to make this recovery get off to a really good start, get a lot of people back to work? Support the economy and we're not thinking about putting down our tools for a long time. Dean Phillips: (02:16:49) And Mr. Chairman, with that in mind, you advised us to go big and we have. Our national debt is approaching $27 trillion. Our debt service on an annualized basis, over $400 billion a year. I do have concerns about our ability to manage that, to pay that bill, if you will, moving forward and any counsel and guidance you might share with we lawmakers, as we contemplate some degree of fiscal responsibility moving forward. Chairman Jerome Powell: (02:17:17) First of all, I think Congress did go big and it has gone big, and I think it's been appropriate, and I think it'll be well judged over time. In terms of the national debt, I think the time will come when it's time to return to the concerns of fiscal sustainability. A sustainable fiscal plan is one that you stay on for many years. It's not something where you flip a switch and then really go into difficult times to get. It's really ideally what you do as you get in a situation where the economy is growing faster than the debt. You stay on that path for a long time. That's how successful countries have done it. We'll need to get to that and we will. I think we don't need to get to it until we get well and truly through this extraordinary challenging time. Dean Phillips: (02:18:08) Thank you Mr. Chairman. I yield back. Maxine Waters: (02:18:10) Thank you. Mr. Williams, you're recognized for five minutes. Roger Williams: (02:18:15) Thank you Madam Chairman, and also want to say my prayers go out to Andy Barr and his family with the passing of his beautiful wife, Carol. Mr. Chairman, thank you for joining us in this virtual setting during these strange times that we're in. Previously, when you have come before our committee, we were talking about how we can continue to build on the historic economic growth that we all were experiencing. Now that we are talking under very difficult circumstances, I'd like to focus on getting back to where we were pre coronavirus. Roger Williams: (02:18:47) And as we've talked about before, small businesses are the main economic engine and as you know, I am a small business owner and we're the job creators in our country. And I'm one of those that believes we could have growth in the fourth quarter. I feel pretty good about that. So what do you think needs to be done to support these main street businesses as they attempt to remain viable as the lockdown across our country ends? Chairman Jerome Powell: (02:19:12) So as the lockdown ends and the economy reopens, the first thing is that we need to do it in a sustainable way. And nobody wants to do this, but it's really good if we do. And that is, I think to the extent we can continue to observe those keep a distance, wash your hands, wear a mask, that kind of thing, that's really going to help. That goes with a fast reopening in the economy. That goes with a successful reopening. So those things are really important. I also think we at the Fed need to keep our foot on the gas until we're really sure that we're through this and that's certainly our intention and I think you may find that there's more for you to do as well. Roger Williams: (02:19:53) Well, and as traditional snapshot of the banking industry during this unique time will likely not paint a rosy picture based upon the recent shutdowns and phased in recoveries, have- Roger Williams: (02:20:03) ... based upon the recent shutdowns and faced in recoveries. EverBank capital levels and reserves remain historically strong as we've talked about. There are many borrowers that could return to profitability once the economy rebounds. So Mr. Chairman, what steps are being taken to ensure that the regulators are taking a reasoned approach to oversight, and how is that being communicated to the various federal reserve district banks and the examiners in the field? Chairman Jerome Powell: (02:20:29) On a number of occasions, we've issued public statements, public communications to our supervisory group. The other banking agencies have done that as well. And essentially it boils down to guidance that we want you to work with... We want the banks to work with their borrowers. We don't want to be on a hair trigger to classify loans or call them trouble loans or anything like that. We want to look at this as an unusual situation and be flexible and thoughtful about the way we do our jobs. Of course we haven't been really supervising. We're only starting to supervise again, at the fed, we're going to do it remotely. We're not going to be visiting yet, but that time will come fairly soon. But we're doing training for supervisors and things like that. So we really want to be... We've also, by the way we've encouraged banks to use their buffers. They've built up these buffers during good times and that's a great thing now because they can use those capital buffers to make loans and to work with borrowers. Roger Williams: (02:21:32) Thank you for that, because it is different than '08 as we've all talked about. The Atlantic Magazine published an article titled The Looming Bank Collapse. The US financial system could be on the cusp of calamity and this time we may not be able to save it. The point of the article was to compare the threat to collateral loan obligations or CLOs pose to the financial systems in a similar way that mortgage backed securities did during the 2008 crisis. Do you think that the threat of CLOs is properly accounted for, and can you discuss how the fed has been monitoring this risk? Chairman Jerome Powell: (02:22:06) So I don't think that that's an inappropriate comparison. I really don't. This is not the same as the mortgage backed securities in that situation at 10, 12 years. There was almost total lack of transparency into what the banks held and how sensitive was it to risks and things like that. That's not the case with the CLOs. With the CLOs we have really good information. We include them. It extend through on bank balance sheets. We include them in our stress tests. We stress them under very stressful situations like the current situation, and we know what the losses would be coming out of that. So it's a very, very different situation. That's not to say there won't be losses. There will be losses. This is a severe downturn, but it is one that we have been monitoring carefully and that the banks are well capitalized to deal with, we believe. Roger Williams: (02:22:54) Well, thank you. I want to thank you for being here today. I have a lot of respect for what you're doing as a business owner. I feel that we are in the comeback mode. As I said earlier, I look forward to having growth in the fourth quarter and a better year next year. So thank you for your hard work and appreciate your efforts and working with us. I yield my time back. Speaker 5: (02:23:16) Ms. Maloney, you are recognized for five minutes. Carolyn B. Maloney: (02:23:22) Thank you, madam chair. Can you hear me? Speaker 5: (02:23:24) Yes. I can hear you. Carolyn B. Maloney: (02:23:25) Thank you. First, I want to join my colleagues and I'll pray my condolences Andy Barr and his family. Our hearts are with them, but now I'd like to welcome back to the committee chairman Powell. I just want to start by saying that I think the US economy is going to need all the help it can get for the foreseeable future. I hope you don't take your foot off the gas and continue to be aggressive. In your press conference last week, you announced that the fed does not expect to raise interest rates until at least 2022, a position that almost all FONC members supported. That's a position that I strongly support as well. As you noted, the fed is being cautious, [inaudible 02:24:17] uncertainty about the coronavirus and about the damage to the economy going forward. So I want to ask you, would you continue to hold interest rates at zero until 2022, even if economic conditions unexpectedly improve? In other words, what would cause you to change your position that interest rates should stay at zero until 2022? Chairman Jerome Powell: (02:24:47) Thank you. So the what you're referring to there, the end of 2022, that's actually not a committee forecast. It happens to be the median of forecast of individual committee members. We don't create a collective group. So what that really was, was evidence that that's what our participants do feel. That's their prediction of appropriate monetary policy. It isn't actually a promise to do that. What we've said we would do is we would keep rates where they are until we're confident that the economy has weathered the current situation and as well on the road to recovery. So what would it take? I think we're not thinking about raising rates. We're thinking that this economy is going to need support from monetary policy or an extended period of time and not just through interest rates also through our asset purchases and also through the [inaudible 02:25:38]. Chairman Jerome Powell: (02:25:39) This is the largest economic shock to hit our economy in living memory. It's also without any kind of precedent, it looks like it'll be the deepest recession. It may not turn out to be a very long one, but the road back, we believe in any other forecasts do too. We'll take some time and we'll be there to support this economy until we fully recover. As I mentioned, we want to get back to where we were in February, as Mr. Williams was saying. We want to get back to three and a half percent unemployment, wages going up the most for people at the low end of the wage spectrum, where we were. We're low in moderate income community people were telling us, this is the best we've had it in a really long time. We want to get back to that as soon as we possibly can, and we'll be using our tools to do that. Carolyn B. Maloney: (02:26:28) Also, we have a good sense of what economic indicators the fed looks at in normal times. You look at the employment numbers, the inflation data, consumer confidence, and all the usual economic measures. I don't believe anyone has a good sense of what metrics you'll be looking at now in the middle of a recession caused by a public health crisis or where the economy will bounce back and so the virus is under control. So my question is, what are the key metrics that you're looking at now? Are you looking at rates of infection, hospitalization rates, mortality? What are the public health metrics you're paying the most attention to? Chairman Jerome Powell: (02:27:13) So, of course, we're looking at all kinds of economic data, which I'll mention. But we are also now looking of course at all the data we can get and hearing from experts about the pandemic and were cases going down, where are they going up and all that kind of thing. That's a new area for us. And of course, for everybody really, other than, unless you were an epidemiologist before this. So that's a big thing. It's almost as though, if you could give me a... If you knew for sure what the path of the pandemic was, then you'd have a lot more confidence in what your economic forecast was. But of course we don't have that. Chairman Jerome Powell: (02:27:53) We're also looking though, I think for for a month or so now we've been looking at the data that suggested an economic reopens. So you can track are people moving around a lot? There's a lot of this high frequency data that you get from the technology companies gets published. Are people moving around a lot? Are they starting businesses? Lots of early indicators? So we've been seeing a great deal of that. You're now clearly seeing spending is ticking up, employment is ticking up. So these are the early real indicators that we've been wanting to see, and we're beginning to see them now. Carolyn B. Maloney: (02:28:30) Thank you and I yield back. Thanks for coming. Speaker 5: (02:28:34) Thank you. Mr. Hill you're recognized for five minutes. Mr. Hill: (02:28:39) Thank you, Madam chair. Thanks for conducting this hearing. Of course, our thanks to Lisa Clement and Patrina for keeping us on track on the technology. We appreciate our staff. Martha and I were just so broken hearted last night at about 8:30, when we learned the loss of Carol Barr. I can't imagine the pain that Andy feels. So all of us on the committee, share of that bond of affection for Andy, and we wish him comfort during this tough time. Mr. Hill: (02:29:10) Mr. Chairman, glad to have you back before the committee. You've done an excellent job today talking about the facilities, the challenges with the facilities, talking about your concerns about how to maintain some fiscal support in the unemployment area, particularly and your concern about the small businesses. So thanks for being so thorough in your answers. As the ranking member on the monetary policy subcommittee, I wanted to turn and talk about the balance sheet of the fed and monetary policy. And just put some parameters on it as we are in COVID-19 now and again, thank you publicly for the outstanding job that the board of governors did in early March to bring liquidity back to the system and preserve people's access to capital by keeping our capital markets functioning. Mr. Hill: (02:30:04) But I do want to talk about how we measure monetary policy going forward. Now, as you say, enter that mid point of the return to economic recovery. The balance sheet was about $4 trillion before the pandemic yet. There was a lot of concern over it at that level, in terms of a percentage of GDP and the like. Very quickly dwarfing anything in the QE days, you have added $3 trillion to the balance sheet and we're close to 7 trillion. Do you see that range of pre-COVID of 16 to 17% of GDP still a post pandemic target based on reserves that you see the balance sheet returning to? Chairman Jerome Powell: (02:30:52) I hadn't thought of an actual target though, but in the long run, the size of our balance sheet will be dictated by the public's demand for our liabilities. The two biggest of which are currency and reserves. So we felt that we were getting really close to that demand at the level you suggest. That would tend to be roughly constant over time, I guess, as a percentage of GDP. So it's a place to get back to. Mr. Hill: (02:31:19) And at the peak in 2014, you owned about 21% of all new issue treasuries, and about 40% of new issue agency MBS. And in this most recent phase, this spring, as you expanded the balance sheet, I think you're about 19% of the new issue treasury market. And about 30% of the MBS market, some commentators have said, "Well, housing is as big an issue this time as it was certainly in a way from a dislocation point of view." But you had a liquidity and spread issues in the MBS market. You want to take a minute and talk about why you did engage in the GSC agency purchasing. Chairman Jerome Powell: (02:32:00) Sure. So those markets are critical for financing the housing industry, and also there are closely connected to the treasury market, as you know. So it benefits all the financial markets and the general public when the treasury market is working. So in terms of the MBS, there wasn't the capacity to hold those securities. And what was happening is the very low rates that we were putting in place, they weren't getting through to borrowers. Rates weren't going down that's because there wasn't the demand to hold the MBS securities. So we had to get in there and the market functioning again. I'm happy to say that it is now functioning essentially normally, not perfectly, but that was really what was our thinking. Mr. Hill: (02:32:50) Well then obviously you had people trying to get out of the long dated maturities in the treasury market, and you had prepayment speeds pick up. So I understand why you did it, but you do support moving in the long run to an old treasury portfolio from a philosophical point of view. Isn't that correct? Chairman Jerome Powell: (02:33:08) Yes. In fact, absolutely. In fact, I had no intention of ever buying mortgage backed security when I became the chair [crosstalk 02:33:17]. Mr. Hill: (02:33:16) Would you say that the repo market in the short term liquidity markets are now functioning after your extraordinary efforts in March and you're no longer needed in the daily repo market to the same extent? Chairman Jerome Powell: (02:33:29) Yes. I would say that I also hasten to add that we're still on alert. We feel we don't take the gains for granted at all, right? Mr. Hill: (02:33:41) Well, we're grateful for your leadership. Madam chair, thank you for the opportunity. Mr. Chairman, thanks for being before the committee. I yield back. Speaker 5: (02:33:49) Thank you. Mr. Sherman you're recognized for five minutes. Speaker 6: (02:33:52) Unmute. Speaker 5: (02:34:11) Mr. Sherman. Mr. Green you're recognized for five minutes. Speaker 7: (02:34:17) Sherman need to unmute. Speaker 6: (02:34:19) He's muted. Speaker 5: (02:34:22) Mr. Sherman, unmute. Rep. Brad Sherman: (02:34:29) Can I be heard? Speaker 6: (02:34:31) Yes. Speaker 5: (02:34:32) Mr. Sherman are you there? Rep. Brad Sherman: (02:34:33) I'm here. Can I be heard. Speaker 5: (02:34:36) No, let's go. We only got a few more minutes left for the other members to be able to ask questions. Rep. Brad Sherman: (02:34:43) I hope I can be heard. Speaker 5: (02:34:46) You can be heard Mr. Sherman. Rep. Brad Sherman: (02:34:49) Good. Mr. Powell. Thank you for joining us a credit rating agencies, as you know, the chairwoman and Congressman Andy Barr wrote a letter with 16... Has written you about this Congress. Andy Barr has written you a letter about this. There are nine credit rating agencies accepted for various purposes by the SEC, which has the expertise in the area. Yet the fed seems to put a premium on only three credit rating agencies. Is it your intention to look at instruments rated by all of the SEC accepted credit rating agency? Chairman Jerome Powell: (02:35:36) We've actually expanded the group of credit rating agencies to six from three, and we're continuing to look at others. Rep. Brad Sherman: (02:35:44) But there's still a situation where you'll accept one of those second three only if the same instrument is rated by a one of the big three, or are you accepting all six on the same level? Chairman Jerome Powell: (02:35:58) The former, not the latter. Rep. Brad Sherman: (02:36:01) So you haven't given real equality to the six that you have decided this. The second issue is when we pass the CARES. If a company got a loan from the federal government, it came with strings like no stock buy backs. If you're just going to go out in the market and buy debt instruments, those strings wouldn't apply of course, the company may have issued that bond a long time ago and is not consented to any restrictions on it, stock buy back. Are you planning to have a transaction, which in substance is a government loan. That is to say, that is accomplished in form by having the company issue, a bond as to which you are basically the sole purchaser you and the treasurer are the sole purchase. Chairman Jerome Powell: (02:36:52) The CARES act is very specific on this and I wasn't part of this, but my understanding is it was all carefully negotiated. Those requirements do not apply to capital markets transactions or syndicated loans. They do apply to direct loans. The main street facilities is a direct loan program. The corporate credit facilities are either syndicated loans or capital markets transactions, so. Rep. Brad Sherman: (02:37:18) Capital market transaction is usually one when there are many buyers of the debt instrument issuance, are you going to have any that are in substance, a government loan, what you choose to package them and say that their capital markets transaction? Chairman Jerome Powell: (02:37:36) I wouldn't. We're not. When we purchase a bond, which is a registered security and it comes in a normal form, that's a capital markets transaction. Rep. Brad Sherman: (02:37:46) Even if you're the sole purchaser and it is all of the economic indicia of being a government loan, the fact that you can call it a bond issuance, liberates you and the company from congressional attention, is that what you're saying? Chairman Jerome Powell: (02:38:03) It actually affects congressional attention. Rep. Brad Sherman: (02:38:06) It was never our intention to have you take what is in substance alone and package it as a capital markets transaction. We know a bond issuance is one where there are many purchasers of the same instrument and a loan is one where the federal government makes a loan. Or is the sole lender in the transaction or substantially the sole lender. And it sounds you've found a loophole in what we've written and yet you planned to exploit it. It was certainly never the intention. What sense would it make for Congress to say, "Well, if you do a government loan this way, there are strings that come with it, but you're free to do it, but here's this loophole where you can avoid all the strings." Rep. Brad Sherman: (02:38:58) Clearly a capital markets transaction is one where the fed has the additional assurance that comes from other market participants buying that same issuance on the same day on the same terms. And you're depriving us of that, if you are the sole purchaser of the issuance and at the same time you deprive us of the restrictions on stock buybacks. You create a circumstance where money goes directly from the treasury into the pockets of shareholders who are taking their money out of the company. And that is certainly not what Congress intended, but if there's a loophole, it's up to Congress to flag that loophole. I believe my time has expired. Speaker 5: (02:39:50) Thank you. Mr. Emmer You have five minutes. Mr. Emmer. If Mr. Emmer is not we'll go to Mr. Loudermilk. You have five minutes. Rep. Barry Loudermilk: (02:40:24) Thank you madam chair. Thank you Mr. Chairman for being here. And also I'd like to thank you for all the work that you've been doing. A lot of times we don't look at how bad things could be, and I think they could be a lot worse right now, if we hadn't had the intervention that we've had through the administration- Rep. Tom Emmer: (02:40:47) [crosstalk 02:40:47] quickly, I thought I had another 10 minutes to prepare. Speaker 6: (02:40:49) Yeah, I'm sorry Loudermilk just show up and [crosstalk 00:20:55]- Rep. Tom Emmer: (02:40:58) Well, you can't just rely on list, you look at the thumbnails [crosstalk 00:21:03]. Rep. Barry Loudermilk: (02:41:08) I apologize. I guess I'm getting some feedback. I don't know if anyone is. But I want to thank you for the actions that you've done. I know we've taken some bold actions and especially the way that you have made changes on the fly with the way that you oversee and regulate the banks. I know that my local banks, community banks, regional banks, were all very skeptical going into this. But I can tell you that they're not happy with the way things are, but they're pleased and way that things are going because they realized that they could be a lot worse. Just a couple of quick questions, because I know we're running low on time. But you've done a lot of mortgage backed securities that are with Fannie Mae and Freddie Mac and Ginnie Mae. Those included in TALF, but in 2008, mortgages that weren't backed, the non-agency mortgages were included in TALF. And my question I've written you a letter about this, are you considering including those non-agency backed mortgages and consumer installment loans in TALF? Chairman Jerome Powell: (02:42:26) So the answer is on MBS. That is something we have under consideration and you're right. I mean, as a general manner, we've been willing to and eager in fact to expand things where it's appropriate. Consumer installment loans is a little different. We don't have the history... They don't have a history in the asset backed securities market. So we struggle a little bit with that one, but we're looking at it as well. Rep. Barry Loudermilk: (02:42:52) Okay. I appreciate that one last question, Intercontinental exchange and other clearing houses for future trades have had a huge spike in the amount of funds they hold overnight because the market volatility and commercial banks can only accept a limited amounts of those deposits because of the capital requirements. They'd like to be able to temporarily deposit those funds with the fed. Is that something that you're considering? Chairman Jerome Powell: (02:43:20) The only entities like intercontinental exchange that can deposit funds at the fed are those that have been designated as systemically important financial market utilities under the law. So we don't have the legal authority to do that right now. It would be a question, really not for one company, but for all the companies that are in that category, should they get the legal authority to do that? But as of right now, we do not have the authority to get bank accounts, unless they're a designated financial market utility [crosstalk 00:02:43:53]- Rep. Barry Loudermilk: (02:43:52) Okay. Maybe that's something that we can work on going forward. But I thank you and I know we're short on time. So I yield back. Rep. Tom Emmer: (02:43:58) I think mine works now just for notice. Speaker 5: (02:44:05) Thank you. Mr. Lawson, you're recognized for five minutes. Mr. Lawson. Rep. Al Lawson: (02:44:17) Thank you madam chair and welcome Mr. Powell to the committee, really appreciate the opportunity to talk to you today. Madam chair, I said that maybe two hours ago, and it was about 120 billion PPP funds that that was still available allocated. An application number has slowed dramatically. Do you believe that as an impaired businesses to take an additional debt obligation is living the effectiveness of the program and that in order to create business certainty and confidence in reopening and hiring a grant program would be better. What do you propose for businesses that can not take additional debt? Chairman Jerome Powell: (02:45:19) So we don't have... The SBA administers the paycheck protection program, PPP. We have a little bit of a role in that once a bank makes one of those loans, we'll take that loan off their balance sheet so they can have the room to make another loan. So I follow it, but it's not one that we administer. I would say the benefit of that program is that a loan turns into a grant, as long as you obey the rules. I know that the rules have been adjusted by the last law that you pass and also in regulatory flexibility. So I would say for many small businesses, that's what they need and that they're not well served by taking on a loan to make payroll and things like that. So that's the tool we have is a... That's all we can really do. We can't do grants. We can only do loans. And that's why we're doing that for larger companies than the ones that are eligible for the PPP. Rep. Al Lawson: (02:46:19) Okay. I think Madam chair close out, she might have something to say. My other question is that the April job report, was the worst in American history. May job report shows that less than half black adults have job. Chairman Powell what steps can the fed take to ensure that emergency relief in targeting at the [crosstalk 02:46:47] and the minorities own businesses in the state of the economy? Chairman Jerome Powell: (02:46:56) Well, all to large portion of those who lost their job in the pandemic were from low and moderate income communities. And many of them are minorities and the same is true with businesses, minorities owned businesses are under tremendous pressure. We have tools that apply broadly across the economy. That's what we can do. I think we can also work with minority [inaudible 02:47:24] team for institutions and CDFIs as well. We do that to try to support the work of those institutions and their communities. That's what we can do. I know there are also the things that Congress can do as well and has done. Rep. Al Lawson: (02:47:42) Okay. Thank you. I yield back madam chair. Speaker 5: (02:47:49) Miss Emmer you're recognized for five minutes. Rep. Tom Emmer: (02:47:55) Thank you, Madam chair. And thank you for your patience, with my ability to use this machine. It goes without saying, but I'm going to say it anyway, like everyone else on this committee, our hearts go out and our prayers to the Andy Barr and his family, a very tough day. Chair Powell, I appreciate you being with us here today, albeit virtually and even more so after my recent experience, trying to get my mute button fixed. I think the house should be back here in Washington, doing our jobs. The opportunity to connect with you digitally has brought to mind several topics related to FinTech that I've been working on, including his ranking member on the FinTech task force of this committee. Technological innovations, as late as last year, you told my colleague representative French Hill from Arkansas, that you were following central bank, digital currencies closely, but that the fed was not currently developing a central bank digital currency. You said, quote "characteristics that make the development of central bank digital currency more immediately compelling, or some countries differ from those in the US" close quote. It is true other countries utilize digital cash at a higher rate than the US. However, our technological edge has kept us the predominant world leader we are today for at least several decades. I think the recent pandemic has actually shown that this is an important step that we need to make, regardless. What substantive, recent actions is the fed taken to understand and experiment with this technology. I guess, can you disclose any current considerations or questions you or the fed have on the concept of a central bank digital currency? Chairman Jerome Powell: (02:49:48) I'd be glad to. So, I think central banks everywhere all around the world are looking at this and we owe it to the public that we serve to be up to speed. If this is something that is going to be good for the United States economy and for the world's reserve currency, which is the dollar, then we need to be there and we need to understand it first and best. So we're working hard on it. There's a group of major central banks that have gotten together to share understanding of the technology and the cybersecurity implications, the economic implications, the financial inclusion implications. It is a big complex problem and it's one that we take very seriously. And again, I think it's our obligation to understand it well and not wake up one day and realize that the dollar is no longer world reserve currency, because we just missed a technological change. So we're not going to let that happen. At the same time there's some very serious questions that have to be answered before we would want to implement digital currency. Mr. Hill: (02:51:05) That's great. It's good to hear. Good to hear that you're, you're leaning in. In the recent report issued by the digital dollar project and reflected in some of the congressional proposals that are out there. There seems to be a recognized need agreement that the private sector should be involved in the creation of a CBDC. This is either in its development or dispersal. I guess, through the fed's work and analysis on the top of the picture we're currently in, what role do you think the private sector would play? Chairman Jerome Powell: (02:51:39) I really do think this is something that the central banks have to design principally and the private sector is not involved in creating the money supply. That's something that the central bank does. I know they're ideas that this should really be the work of a private board. I don't really think the public would welcome the idea that private employees who are not accountable solely to the public good, would be responsible for something this important. I mean, once we assess it and decide what to do, it'll be all... (silence)