Janet Yellen & Jerome Powell Testimony on Pandemic Economic Recovery Full Hearing Transcript September 30

Ms. Waters: (00:00) ... debating remotely to keep themselves muted when they are not being recognized. The staff have been instructed not to mute members except where a member is not being recognized and there is inadvertent background noise. If you are participating remotely today, please keep your camera on. And if you choose to attend a different remote proceeding, please turn your camera off. Ms. Waters: (00:27) As a reminder to all members, we will conclude today's hearing at 12:15 PM. Members who were unable to ask questions at our March 23rd hearing with Secretary Yellen and Chair Powell will be given priority to ask their questions today and we will return to our normal order of recognition once those members have asked their questions. Ms. Waters: (00:59) This hearing is entitled Oversight of the Treasury Departments and Federal Reserve's Pandemic Response. I now recognize myself for four minutes to give an opening statement. Welcome back, Secretary Yellen and Chair Powell. As this pandemic continues, the Biden administration and congressional Democrats continue to work around the clock to get essential relief to individuals, families, and small businesses across the country. Ms. Waters: (01:34) Following the catastrophic failure of the Trump administration to tackle the pandemic crisis, the Biden administration and Democrats in Congress swiftly moved to enact the American Rescue Plan, which provided $1.9 trillion to address the impacts of COVID-19. The legislation included billions in funding to support individuals and families, including renters, homeowners, and people experiencing homelessness, as well as small businesses during this crisis, we're also working together to put President Biden's Build Back Better agenda into action by making long overdue investments into the nation's housing programs, childcare, education, workforce, and other critical aspects of our economy all while being completely paid for. Democrats are also working to address the past failures of the Trump administration's approach to the pandemic. For example, we are working with Secretary Yellen and the Treasury Department to correct administratively burdensome requirements initiated by Republicans that made it harder for renters and landlords to obtain relief in the earlier versions of the Emergency Rental Assistance Program. Ms. Waters: (02:59) My legislation, the Expediting Assistance to Renters and Landlords Act of 2021 would further speed up relief and cut down unnecessary barriers that are standing in the way of aid for renters and landlords. Of course, the Federal Reserve has also played a part in the response to the pandemic through the creation of emergency facilities to help tackle the crisis until they were prematurely shut down by former Secretary Mnuchin. These facilities played a vital role in stabilizing the financial markets last year. Ms. Waters: (03:40) Moving forward, our committee is committed to exploring ideas, to ensure that facilities like these can more directly protect workers and support small businesses, as well as state and local governments the next time there is a crisis amid Democrats continue in efforts to ensure that relief reaches communities across the country, and that our economy is strong for the future. Republicans continue to operate recklessly. Even now, Republicans are threatening to throw the economy into unnecessary turmoil by blocking legislation. To suspend the debt ceiling is completely unacceptable for Republicans to hold our nation's economy hostage, especially in the middle of this continuing public health crisis. And when fully one-fourth of the increase in the debt ceiling is attributed to Trump's tax scam for the rich. Secretary Yellen, Chair Powell, I expect to hear your thoughts on these issues and to hear more about what will happen if Republicans force the country to default. I also look forward to discussing your ongoing work to respond to the pandemic today. I now recognize the Ranking Member of the committee, the gentleman from North Carolina Mr. McHenry for five minutes. Mr. McHenry: (05:04) Today, the Financial Services Committee is holding its second statutorily required quarterly hearing on Biden administration's pandemic response. Now, the only problem is that this hearing should have occurred in actually the second quarter. It's the third quarter. But then again, that just perfectly encapsulates the incompetence and dysfunction of a Democrat- run Washington where Democrats run the House, the Senate and the White House. Mr. McHenry: (05:35) So let's just review briefly the incompetence of the rental assistance program which Republicans have highlighted since March. There's no solution in sight. The so-called Biden agenda appears to be on the rocks. And Democrats are no closer to raising the debt ceiling ahead of the October 18th deadline than they were in August when they expired. And what do all of these problems have in common? They were foreseeable. They are known things not just to Democrats, but to the world. And now markets are taking notice. Our allies, our adversaries are watching closely to see what happens next. Mr. McHenry: (06:14) But in the midst of this chaos, but in the midst of this chaos, we at least have you two individuals in your respective seats. And the two of you instill confidence in our financial system, especially in a moment like this. And that credibility of your institution is deeply connected with each one of you right now. Chairman Powell, your decisive action help prevent the worst of the economic impacts of COVID. You were thoughtful, deliberate, and transparent. The antithesis I would say of dangerous and to think otherwise is frankly reckless and unmoored from reality. And anyone who would say that well, they, well, frankly, I appreciate their courage to speak their truth. Mr. McHenry: (07:05) Chairman Powell, our country will be better off with your continued leadership at the Federal Reserve. Secretary Yellen, your experience as Fed chair and steady hand throughout the financial crisis as your term as chair of the Fed made you a natural pick for the Treasury Department, and I'm glad you're in your seat. So that's why I'm sorry you're in such a bad situation given this administration's strategy, bad strategy and worse fiscal plan from a Democrat-run Washington will have consequences I believe. Mr. McHenry: (07:39) Consumer prices continue to rise businesses can't find workers, and the government because of overspending will not be able to pay its bills in a little more than two weeks. So what's the plan? All I've heard from Democrats this year is a plan to spend more money, two trillion in March, more than five trillion now, and five trillion was a compromise I want to remind you. Bernie Sanders and the progressives wanted a $6 trillion reconciliation package. And President Biden proposed a $6 trillion budget in June, but Democrats couldn't agree on that either so here we are. Mr. McHenry: (08:14) To be clear, the Biden administration's Treasury Department can't even keep track of the $46 billion of rental assistance. So how are the American people supposed to trust Democrats with another five and a half trillion dollars? This isn't a plan, frankly, it's a heist. The Democrat-run Washington tax and spend policies will only increase prices more for consumers. And they're using you Madame Secretary and your credibility to sell this bad agenda. Over the last several weeks, you've called on Congress to address the debt limit. I couldn't agree more. Mr. McHenry: (08:50) Yesterday, the House passed a debt ceiling bill that is doomed in the Senate. It was political theater and they know it, we know it. And the American people in fact know it as well. It's theater designed to distract Americans from the fact that Democrats have no idea how to govern. They've known this deadline was coming. They knew it the day they took control of the Senate, they knew it the day that President Biden was sworn into office and they knew it the day that the Treasury secretary was confirmed. Mr. McHenry: (09:18) The Democrats have been in charge of our country for nearly a year and they did nothing to prepare for this moment. Well, except spend more money and bring the date forward by which we have to address the debt ceiling. And I want to be clear. The US government is run and controlled by Democrats. It is defined by dysfunction, incompetence and fiscal irresponsibility. Late in the game asking Republicans to bail out your agenda so you can pass more spending is frankly absurd. This is no way to run the country. I yield back. Ms. Waters: (09:59) Thank you, Ranking Member McHenry. I now recognize the gentleman from Texas Mr. Green for one minute. Mr. Green: (10:05) Thank you. Madam Chair. Madam Chair, we must raise the debt ceiling. Raising the debt ceiling does not authorize new spending. Raising the debt ceiling allows the United States to pay its existing debts. Congress has raised or suspended the debt ceiling on a bipartisan basis 78 times since 1960. There are no secret weapons in the Treasury's arsenal that will save us from default if this body fails to act responsibly and swiftly. Mr. Green: (10:37) Madam Chair, we passed a CARES Act and other pandemic relief legislation. Let us come together again and stand behind the debts of our nation with the full faith and credit of the United States of America. We must raise the debt ceiling I yield back. Ms. Waters: (10:59) I now want to welcome our distinguished witnesses today who I believe need little introduction to members of the committee. First, I want to welcome the Honorable Janet Yellen, Secretary of the United States Department of the Treasury who has served in that role since her confirmation in January of this year. Our other distinguished witness today is the Honorable Jerome Powell, the Chair of the Board of Governors of the Federal Reserve System and who has served in that role since February of 2018. Ms. Waters: (11:36) Without objection, your written statements will be made part of the record. You will have five minutes to summarize your testimony. You should be able to see a timer on the screen in front of you. That will indicate how much time you have left in your testimony. Secretary Yellen, you are now recognized for five minutes to present your testimony. Janet Yellen: (11:59) Thank you, Chairwoman Waters, Ranking Member McHenry, members of the committee, it's a pleasure to testify today. We're in the midst of a fragile, but rapid recovery from the pandemic-induced recession while our economy continues to expand and recapture its substantial share of the jobs lost during 2020. Significant challenges from the Delta variant continue to suppress the speed of recovery and present substantial barriers to a vibrant economy. Still, I remain optimistic about the medium-term trajectory of our economy and I expect we will return to full employment next year. Janet Yellen: (12:48) A rebound like this was never a foregone conclusion. In fact, the American recovery is stronger than those of other wealthy nations. One key factor for our overperformance is the policy choices that Congress has made over the past 18 months. Those choices include the passage of the CARES Act, the Consolidated Appropriations Act and the American Rescue Plan. Treasury, as you know, was tasked with administering a large portion of the relief dollars in those bills. And when we last met, our department was busy standing up programs to help individual families, state governments, and organizations of every size in between. Janet Yellen: (13:37) While we still have much more work to do, we have made significant progress and I wanted to give you an update. Let's start with families. In July, our department started sending the monthly expanded child tax credit payments to the families of nearly 60 million children across the country. To date, $46 billion in payments have been made. And we're already seeing the impact. Analysis by the Census Bureau found that after the first payments in July, food insecurity among families with children dropped 24%. Janet Yellen: (14:19) As for state, local, tribal and territorial governments, COVID-19 decimated their budgets. There were mass layoffs and to end the health and economic emergencies we knew that communities would need funding to hire educators to bring kids back to school, for example, or frontline workers to administer the vaccine. The American Rescue Plan included $350 billion to that end and those dollars are indeed helping the machinery of local governments get up and running. States and localities can rely on relief money that's available instead of resorting to painful budget cuts. Janet Yellen: (15:05) Congress rightly designed the state and local program with flexibility in mind. I think many of us knew the recovery could run up against some unforeseen challenges and we wanted communities to be able to devote resources where and when they saw fit. I want to note that this flexibility is paying off now, especially with the spread of the Delta variant. Harris County, Texas, for instance, has used this funding to boost its immunization rate offering $100 to each person who gets their first vaccine dose. Janet Yellen: (15:44) For the relief dollars not yet out the door, Treasury is doing everything it can to expedite their delivery. The Emergency Rental Assistance Program is one example. Prior to the pandemic, there was essentially no national infrastructure to get money from government coffers to renters and landlords. Building that infrastructure has been a massive undertaking for states, localities and tribes. The program is scaling up quickly with 1.4 million payments made to help struggling renters keep a roof over their heads. Janet Yellen: (16:24) Still, too much of the money remains bottlenecked at the state and local levels. That's why our Treasury team has worked to eliminate every piece of red tape possible in order to ensure more payments can get to renters and landlords. But states and localities must also work to remove barriers that can speed up distribution of rental assistance funds. I'll end my remarks there except to say this. It is imperative that Congress addressed the debt limit. If not, our current estimate is that Treasury will likely exhaust its extraordinary measures by October 18th. At that point, we expect Treasury would be left with very limited resources that would be depleted quickly. Janet Yellen: (17:15) America would default for the first time in history, the full faith and credit of the United States would be impaired and our country would likely face a financial crisis and economic recession as a result. We must address this issue to honor commitments made by this and prior congresses, including those made to address the health and economic impact of the pandemic. It's necessary to avert a catastrophic event for our economy. Janet Yellen: (17:49) Representatives, the debt ceiling has been raised or suspended 78 times since 1960 almost always on a bipartisan basis. My hope is that we can work together to do so again and to build a stronger American economy for future generations. Thank you and I'm pleased to take your questions. Ms. Waters: (18:11) Thank you, Secretary Yellen. Chair Powell, you are now recognized for five minutes to present your testimony. Jerome Powell: (18:19) Thank you, Chairwoman Waters, Ranking Member McHenry, and other members of the committee for the opportunity to discuss the measures we have taken to address the hardship wrought by the pandemic. Since we last met, the economy has continued to strengthen. Real GDP rose at a robust pace in the first half of the year and growth is widely expected to continue at a strong pace in the second half. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed the recovery. Jerome Powell: (18:53) Household spending rose at an especially rapid pace over the first half of the year, but flattened out in July and August as spending softened in COVID sensitive sectors. Additionally, in some industries near-term supply constraints are restraining activity. As with overall economic activity, conditions in the labor market have continued to improve. Demand for labor is very strong and job gains average 750,000 per month over the past three months. In August, however, gains slowed markedly with the slowdown concentrated in sectors most sensitive to the pandemic. The unemployment rate was 5.2% in August and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Factors relating to the pandemic appear to be weighing on employment growth. These factors should diminish with progress on containing the virus. The economic downturn has not fallen equally on all Americans and those least able to shoulder the burden have been the hardest hit. Jerome Powell: (20:04) In particular, despite progress, joblessness continues to fall disproportionately on lower wage workers in the service sector and on African-Americans and Hispanics. Inflation is elevated and will likely remain so in coming months before moderating. As the economy continues to reopen, we are seeing upward pressure on prices particularly due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than anticipated, but they will abate. And as they do, inflation is expected to drop back toward our longer run 2% goal. Jerome Powell: (20:41) The process of reopening the economy is unprecedented as it continues, bottlenecks, hiring difficulties and other constraints could again prove to be greater and more enduring than anticipated posing upside risks to inflation. If sustained, higher inflation were to become a serious concern, we would certainly respond and use our tools to ensure levels that are consistent with our goal. The path that the economy continues to depend on the course of the virus and risks to the outlook remain. Jerome Powell: (21:11) The Delta variant has led to a surge in cases causing human suffering and slowing the recovery. Continued progress on vaccinations would support a return to more normal economic conditions. The Fed's policy actions are guided by our dual mandate to promote maximum employment and stable prices along with our responsibilities to promote the stability of the financial system. In response to the crisis, we took broad and forceful measures to support the flow of credit and to promote the stability of the financial system. Jerome Powell: (21:41) Our actions taken together helped unlock more than $2 trillion of funding to support businesses large and small, non-profits, and state and local governments between April and December of 2020. This helped keep organizations from shuttering and put employers in a better position to keep workers on and to hire them back as the recovery continues. These programs have served as a backstop to key credit markets and help to restore the flow of credit from private lenders. We have deployed them to an unprecedented extent. Our emergency lending tools require the approval of the Treasury and are available only in unusual and exigent circumstances such as those brought on by this crisis. Jerome Powell: (22:23) Many of these programs were supported by CARES Act funding. Those facilities provided essential support through a very difficult year and are now closed. The Fed completed its sales of assets from the secondary market corporate credit facility on August 31, where we were able to wind down the facility rapidly and efficiently with no adverse impact on credit conditions. Jerome Powell: (22:44) We also recently closed the PPPLF to new lending and are managing the pay down of assets in our other CARES Act facilities as they wind down. We continue to analyze their efficacy and to review the lessons learned. The Fed's actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We will do all we can to support the economy for as long as it takes. Thank you. I look forward to your questions. Ms. Waters: (23:22) Thank you very much, Chair Powell. I now recognize myself for five minutes for questions. Secretary Yellen, your department reports that as of August 21, 7.7 billion in emergency rental assistance have been allocated to households assisting approximately two million renters. Although spending has increased over the past several months, I think we're all concerned that the pace of delivery of this critical assistance is not happening quickly enough. Can you talk about the challenges you have faced after taking over oversight of ERA1 from the Trump administration? What do you believe are the most significant improvements to the program guidance you have made and what impact have you seen? Janet Yellen: (24:18) Well, thank you for that question. This is a critically important program that Treasury has been very focused on expediting the delivery of these rental assistance funds to those who need it. As I mentioned in my opening statement, getting these funds out has involved creating national infrastructure where none existed before. And that's been a very difficult and slow process. Treasury has done everything possible to facilitate getting these programs up and running around the country. Janet Yellen: (25:02) In particular, where you've tried to give states and localities flexibility to administer the program in ways that are appropriate for different communities to reduce the paperwork requirements, while also making sure that we have accountability and transparency we've provided technical assistance and working to provide more technical assistance. And I do think we're seeing a payoff. Janet Yellen: (25:36) As I mentioned, we've had a 1.4 million renters help by this assistance and the pace at which it's flowing out is increasing. Also, I would note that the act requires Treasury to begin to reallocate funds on September 30th from those localities that are either are not effective in getting assistance out or have less need for the funds, and to reallocate them to those that are more effective and have demonstrated need. Ms. Waters: (26:14) Well, thank you very much. And I want to thank you and your team for working with me on H.R. 5196, the Expediting Assistance to Renters and Landlords Act which would make it easier for both renters and landlords to apply for assistance and provide for the deeper involvement of Treasury to support grantees to get the funds out the door. Ms. Waters: (26:37) Are there particular provisions that you think would aid Treasury's efforts to make the assistance program was successful? You've given us quite a bit of information about what you have been involved with. Is there anything else you would like to share? Janet Yellen: (26:53) Well, Chairwoman Waters, we're very supportive of your efforts to try to put in effect changes that would expedite the delivery and effectiveness of this program. And we look forward to continuing to work with you. I think we've offered substantial technical assistance and absolutely want to work with you to make sure that this program is as effective as possible. Ms. Waters: (27:24) Thank you very much. The gentlemen from North Carolina, Mr. McHenry who is the Ranking Member of the committee is now recognized for five minutes. Mr. McHenry: (27:33) Well, thank you. So Chairman Powell, I know the policy of the Federal Reserve to not comment on fiscal policy, but fiscal policy does impact the Fed's economic projection does it not? Jerome Powell: (27:56) Yes, it does. We make assumptions about fiscal policy and then once it's enacted, we would put that into our models. Mr. McHenry: (28:01) Okay. But your public models are a statement about current law rather than proposed policies. Is that largely correct? Jerome Powell: (28:10) Well, we don't really publish a forecast as the Federal Reserve. Individual participants publish their forecast in the summary of economic projections, but that would include their personal assessments of likely fiscal actions. Mr. McHenry: (28:22) Okay. So about these fiscal actions, Secretary Yellen, I said this in my opening statement and I'll say this to both of you again. I am grateful as an American that you both are in the seats that you're in right now because we're in a special circumstance here in the fall of this year. It was a foreseeable slow moving disaster, but here we are. But your credibility of your relative agencies and the credibility of you two individuals is of substance right now, and very important to us as an American government. Mr. McHenry: (29:01) So Secretary Yellen, you said in July right before the debt limit was reinstated, the CBO said, "Treasury would probably run out of cash sometime in the first quarter of next year or the fiscal year most like in October or November." Secretary Yellen, you began exercising Treasury's authority to take extraordinary measures to prevent a default back in August. Is that correct? Janet Yellen: (29:24) Yes. The debt limit, this suspension expired on August 1st and we began using extraordinary measures to remain under the debt ceiling. Mr. McHenry: (29:36) But those extraordinary measures are just a Band-Aid for a period of time, right? Janet Yellen: (29:40) Well, as I indicated we expect them to be exhausted on October 18th. Mr. McHenry: (29:45) And it would be a disaster if we did not- Janet Yellen: (29:48) It would be a catastrophe of Congress failed to raise the debt ceiling. Mr. McHenry: (29:54) So here's the deal for Republicans. Democrats control the House and the Senate and the White House. And since January 20th, the approach of this Congress is that they do not need Republican votes to do anything. That's been the approach. And now they want the political cover in the midst of this massive amount of new spending to have Republicans raise the debt ceiling. That's really their request. Mr. McHenry: (30:23) So here's my question to you, Secretary Yellen. For the seat you sit in, do you care whether or not the debt limit is raised with Republican votes or do you just care if it's raised? Janet Yellen: (30:37) I think it's important that this be done on a bipartisan basis. I think it should be bipartisan in recognition of the fact that both Republican administrations and congresses and Democratic ones have run budget deficits for most of the post-war period with only a few years serving as an exception, and that requires on a regular basis raising the debt ceiling. The need to do so has nothing to do with future spending or tax plans that haven't been enacting if necessary to pay our bills. That's something that Republicans and Democrats need to share that responsibility. Mr. McHenry: (31:29) Secretary Yellen, as I said to you on the phone last week, I've been a part of every single debt ceiling increase for the last decade, every fiscal consequence of Congress and some of them have been very bad, but I've tried to make things better. I've been a part of the solution for the last decade. And the call that I received from you last week was the first outreach I've had from this administration to do something on a bipartisan basis. And you called me to raise the debt ceiling. Not with a plan, not for a fiscal plan, not for my buy-in, but simply for my vote. And that to me speaks volumes. Mr. McHenry: (32:05) Now I'm grateful for that outreach from you, but it speaks to the larger issue for the administration. And I don't envy the position you're in, I don't because the bad strategy from this White House and the leadership of this House and the Senate is showing they don't want Republican votes. We did bipartisan bills last Congress, last Congress in the midst of COVID, bipartisan bills, major bipartisan bills. We can work together in a responsible manner, but to ask for my vote the week before it comes up in a House it's not in keeping with the realities of the situation. Well, we have the tools, we have the votes to get this thing done through Congress. It's just a question of who votes for it. Janet Yellen: (32:51) I would like to point out that in 2017, when the White House and both Houses of Congress were controlled by Republicans, a reconciliation bill was in progress that led to the 2017 tax cuts, the debt ceiling was raised and it was done in a bipartisan basis. Mr. McHenry: (33:12) In '11 and '13, I voted for a bill that President Obama signed. So I'm willing to participate in a bipartisan way. It's just a question who votes for it in the circumstances of seven trillion of new spending this year. Ms. Waters: (33:24) The gentleman from New York, Mr. Meeks, who is also the Chair of the House Committee on Foreign Affairs is now recognized for five minutes. Mr. Meeks: (33:33) Thank you, Madam Chair. And I got to just say it initially I'm kind of shocked that the Ranking Member McHenry saying that because he wasn't asked for a vote is something that's going to determine whether or not American people, Democrats and Republicans will suffer if we don't raise this debt ceiling. And I've been here for 22 years between whether it's Democrat or Republican administrations and each time when it came to the credit- Mr. Meeks: (34:03) And each time, when it came to the credit of the United States and our economy, it didn't make a difference to me whether or not the Administration was Democratic or Republican, or whether or not someone called me to ask me for my vote. I'm here to try to do the best thing for the American people, not playing politics. Mr. Meeks: (34:21) And when it comes to the credit for the United States and the economy moving on, it's not about who's the president or who called and asked me for a vote. It's about doing the right thing for the American people, Democrats and Republicans. And moving up this debt to making sure that we don't default on our debt is essential to that. And it's essential to our responsibility, as members of Congress, and not to say, "Oh, nobody called me for a vote. That's simply not our responsibility." Mr. Meeks: (34:55) Now, Madam Secretary, there are consequences if we don't pass and increase the debt ceiling. I mean, like the increase in the cost of borrowing for a home or a car, or through one's credit cards, of which folks will say on the other side, "I don't have to do deal with that," but then it's going to be play politics with it. Mr. Meeks: (35:21) So I was wondering, as we are recovering from this economy, what setbacks will a default on debt cost American households, be they're Democratic, Republican, independent, non-voters? What cost would it cost us? Janet Yellen: (35:42) Well, I think it would be catastrophic for the economy and for individual families. Nearly 50 million seniors could stop receiving social security payments or see them delayed. Our troops would not know when they would get their next paycheck. We have 30 million families who rely on the monthly Child Tax Credit, and they would not receive that relief, at least on time. Janet Yellen: (36:11) And, as we saw in 2011, when the debt ceiling came, was raised at the absolute last minute and investor and consumer confidence was shaken in the run-up, we saw a marked increase in interest rates, a marked drop in the stock market. And when US interest rates go up and the credit rating of the United States was downgraded, that means higher interest payments for everyone who has a loan, whether it's a small business, a homeowner with a mortgage, a credit card payment, anyone who borrows would see higher interest costs of their debt. Mr. Meeks: (36:58) We must raise the debt ceiling for the benefit of the American people. I don't care what party they're from. Mr. Meeks: (37:03) Let me go to Chairman Powell. Now, the Fed is rightfully focused on controlling inflation while boosting employment with the aim of guiding our economy back to its pre-pandemic normal. And at the European Central Forum, you mentioned that it's urgent for the Fed to resolve the tension between these two policy goals since taming prices by raising interest rates would weaken our labor market. Mr. Meeks: (37:27) As the Fed considers this monetary policy, how will you manage the trade-offs between controlling prices and ensuring full employment? And how do you plan to resolve the tension between the two that you spoke on, on Wednesday? Jerome Powell: (37:43) That's the very difficult situation we find ourselves in almost all of the time. Inflation is low when unemployment is high. And so, interest rates work on both problems now. Jerome Powell: (37:53) So, right now, we're far away from, we think, away from full employment. So that gives us incentive to keep accommodative policy strong, to keep the accommodative policy in place. Inflation is well above target. And we have an expectation that that high inflation will abate because we think the factors that are causing it are temporary and tied to the pandemic and the reopening of the economy. And what we say is we just have to balance the two. But I would say our expectation is that inflation will come down and we won't ultimately face that difficult trade-off of having the two goals in tension. Mr. Meeks: (38:32) Thank you. Ms. Waters: (38:37) Thank you. The gentlewoman from Missouri, Mrs. Wagner, is now recognized for five minutes. Mrs. Wagner: (38:43) I thank you, Madam Chairwoman. Mrs. Wagner: (38:45) And Secretary Yellen, thank you for finally taking the time to appear before this committee. I know that the ranking member has formally requested your presence at least twice within the last few months with no response. Mrs. Wagner: (38:58) Last week, Treasury released the latest data on its Emergency Rental Assistance Programs. As you know, $46 billion was made available to supposedly help COVID-impacted, low-income families pay off their back rent and to help make mom-and-pop property owners whole in Missouri's second congressional district and beyond. Mrs. Wagner: (39:24) After more than nine months and an entire summer of Republicans pushing Treasury, your own data still shows more than 83% of your funds remain unspent, while millions of renters and property owners remain stuck in limbo. It certainly doesn't sound, Ma'am, like it has been a, in your words, expedited program. Mrs. Wagner: (39:51) Now, I have a series of yes-and-no questions. And because my time is limited, I would appreciate, and will insist upon, a simple yes or no, ma'am. Mrs. Wagner: (40:03) First, Madam Secretary, do you consider Treasury's Emergency Rental Assistance Program to be a success? Yes or no? Janet Yellen: (40:11) Yes. Mrs. Wagner: (40:13) Amazing. Are you aware that in December of 2020, when Congress appropriated the first $25 billion for Emergency Rental Assistance Program, funds were to be used by December of 2021? Yes or no? Janet Yellen: (40:29) Yes. Mrs. Wagner: (40:30) Do you know why Congress set that initial deadline? Janet Yellen: (40:36) To make sure that funds get to those- Mrs. Wagner: (40:39) Right. Janet Yellen: (40:40) ... who are in need. Mrs. Wagner: (40:40) To get it out the door to renters and landlords ASAP. Mrs. Wagner: (40:45) Madam Secretary, are you aware that, just this past March, Democrats extended the timeframe for Emergency Rental Assistance Program to the years 2022? And are you ready for this? 2025 for the two respective programs? Yes or no? Janet Yellen: (41:06) Yes. There's significant need. And it will continue in [crosstalk 00:41:10]. Mrs. Wagner: (41:10) In 2025, ma'am? I continue. Does extending the program's deadline incentivize grantees to get funds out by extending this? Does it incentivize grantees to get funds out the door? Yes or no? Janet Yellen: (41:26) We are doing everything we can in the states and localities- Ms. Waters: (41:30) Well, it's not fast enough. Janet Yellen: (41:31) ... are to get it out the door, as I indicated in my opening statement, in response to a previous question, the infrastructure to do this had to be built, and the pace at which money is getting out the door- Mrs. Wagner: (41:46) There was plenty of time for the infrastructure- Janet Yellen: (41:47) ... is increasing. Mrs. Wagner: (41:48) ... to be set. Our Fed programs, our PPP programs, all of those, expeditiously, got money to people who needed that. This is a complete and abject failure. Janet Yellen: (41:58) I'm sorry. This was- Mrs. Wagner: (41:59) I want to read a quote to you from a Treasury official to journalists on September 24th. And I quote, "To simply take the amount of money that has gone out in the first five or six months, and then compare that to what was allocated for four or five years, is just a meaningless number." Meaningless number. Mrs. Wagner: (42:23) Secretary Yellen, is getting money out the door as soon as possible a meaningless gauge, particularly when we are talking about a pandemic-related eviction crisis? Yes or no? Janet Yellen: (42:35) Our objective is to get the money out [crosstalk 00:42:38]. Mrs. Wagner: (42:37) Well, it hasn't gotten out the door. Eighty-three percent of it is still sitting in Treasury coffers. Janet Yellen: (42:42) I'm sorry, 1.4 million- Mrs. Wagner: (42:44) Ma'am, because my constituents in St. Louis, and I do not find it meaningless when we are talking about emergency assistance meant to keep individuals and families in their homes today during a pandemic, not years and years later out to 2025. Mrs. Wagner: (43:02) Moving on. Mrs. Wagner: (43:03) Chairman Powell, with spiking energy prices and bottlenecks and supply chains around the world, there are concerns that there is a rise in inflation may not be as transitory as you originally predicted. Given our current economic situation and the fact that Democrats want to pass trillions and trillions more in spending, what makes you believe we will not see more sustained higher inflation, especially when we've seen significant consumer price increases, et cetera, et cetera? Jerome Powell: (43:34) So, as I mentioned, and in my opening remarks, we do think that inflation will remain elevated before these supply bottlenecks, supply-side bottlenecks, are resolved. And we think that it will then move back down toward our goal. Mrs. Wagner: (43:46) Timeframe? Jerome Powell: (43:47) Well, it's... These are not things that we control. We don't control [crosstalk 00:43:50]. Mrs. Wagner: (43:50) Not very transitory, sir. It seems pretty dug in. Jerome Powell: (43:53) Well, I would say that this is... Remember, this is a function of supply-side bottlenecks, over which we have no control. But I would say that we do expect, in the first half of next year, to see some relief, depending on the bottleneck in question, and inflation should move down over the course of [crosstalk 00:44:08]. Mrs. Wagner: (44:08) Not a time to be spending trillions of trillions of dollars. Mrs. Wagner: (44:10) I yield back. Ms. Waters: (44:12) The gentlewoman from New York, Ms. Velazquez, was also the Chair of the House Committee on Small Business, is now recognized for five minutes. Ms. Velazquez: (44:23) Thank you, Chairwoman. Secretary Yellen, I would like to pick up with what Chair [inaudible 00:44:31]. Ms. Waters: (44:31) Ms. Velazquez, we can't hear you. Ms. Velazquez: (44:33) Can you hear me now? Ms. Waters: (44:45) You seem to be unmuted but the sound is not coming through very well. Ms. Velazquez: (44:54) Okay. Can you hear me now? Ms. Waters: (44:57) No, we can't hear you. Would you try it again, please? Ms. Velazquez: (45:10) Okay. Can you hear me now? Ms. Waters: (45:12) Yes. Ms. Velazquez: (45:14) Okay. Thank you, Chairwoman. Ms. Velazquez: (45:18) Secretary Yellen, I would like to pick up with what Chair Watters was asking on Iraq. Can you please explain the type of resistance the Treasury continues to face from some state and local government? How is the Treasury Department trying to expedite this funding to tenants and landlords, who need the most, despite these challenges? Janet Yellen: (45:47) Well, in cases where states and other grantees launched their programs late, they faced an array of complications. The most significant involved obtaining the necessary authorizations from a grantee's governing body. And there were procurement challenges that arise when grantees have to engage outside partners and contractors. Janet Yellen: (46:15) We've received a lot of feedback indicating that the guidance the Treasury has released really does give state and local programs the tools they need to move forward expeditiously. Janet Yellen: (46:32) And I'd also note that we have been partnering with HUD to send out technical experts who can help grantees accelerate their programs and help them document best practices. Ms. Velazquez: (46:47) Thank you. Ms. Velazquez: (46:49) So, early on, New York was one of the lowest performance states in distributing your funding. But significant progress has been made. And the state now ranks first nationally, with more than $1.2 billion in payments made or obligated. Ms. Velazquez: (47:10) Unfortunately, more assistance is needed. So the Treasury Department is required to start reallocating excess first-round funds at the end of September. Can you tell us how this process will unfold? Janet Yellen: (47:26) Well, thank you for that question. Our objective will be to maximize the number of eligible households that are served by ensuring that the resources of the program are appropriately aligned with each grantee's needs and ability to deliver re-assistance. And reallocation will be really critical in achieving that objective. Janet Yellen: (47:54) Our framework- Ms. Velazquez: (47:54) How? Janet Yellen: (47:55) We will identify localities that have excess funds. We'll use clear expenditure benchmarks that increase over time. We will strive to keep reallocated funds within the same state, when it's possible, and afford a venue for voluntary reallocation among grantees. Ms. Velazquez: (48:23) Thank you. Thank you. Ms. Velazquez: (48:27) Under the American Rescue Plan, Secretary Yellen, Democrats reauthorize the State Small Business Credit Initiative, providing $10 billion into the funds to support up to 100 billion in new loans and initiatives for small businesses through state, territory, tribal, and local governments. Ms. Velazquez: (48:49) Under the program, potential grantees must submit a completed application by February. How is the Treasury Department conducting outreach and working with local governments to ensure completed applications are submitted on a timely basis? Janet Yellen: (49:07) Well, thank you. This is a very important program. Our staff have contacted each state individually to follow up on the application notice, see if there are questions or if help is needed. We have set up webinars. We're assisting in program design in helping to develop programs. And, with respect to tribal governments, we've been conducting extensive outreach. Ms. Velazquez: (49:42) Thank you. Ms. Velazquez: (49:43) And Chair Powell, would you agree with what Secretary Yellen is saying regarding raising the debt limit? The debt ceiling? Jerome Powell: (49:56) Yes. I think it's essential the debt ceiling be raised in a timely fashion so we can pay our bills. And I think the consequences of that failure to do so would be potentially severe. Ms. Velazquez: (50:06) Thank you. Ms. Velazquez: (50:07) Chairwoman, I yield back. Ms. Waters: (50:09) Thank you very much. Ms. Waters: (50:11) The gentleman from West Virginia, Mr. Mooney, is now recognized for five minutes. Mr. Mooney: (50:17) Thank you. Madam Chair. Mr. Mooney: (50:19) Secretary Yellen, do you believe that President Biden's Reconciliation Package proposal, the one with the $3.5 trillion in total spending, will cost zero and be fully paid for? Janet Yellen: (50:33) Yes, I do. We have a full program that the President is proposed to raise revenue that would cover the cost of the program. In the President's budget, of course, there are changes under consideration as this goes through Congress. But there are a host of revenue raisers, and I do believe it will be actually deficit-reducing beyond the first 10 years of the program. Mr. Mooney: (51:09) Okay, thank you. I mean, yesterday Speaker Pelosi claimed the same thing, that the Democrats Reconciliation proposal would cost zero, that it would be paid for. President Biden said the same thing in a Tweet earlier. Mr. Mooney: (51:20) So, call me skeptical, but given the record of the Democrats in Congress here on runaway spending, I just don't believe it. And I'm not the only one. The Washington Post called President Biden's claim that the bill would be budget neutral, misleading, and gave the score of two Pinocchios. Mr. Mooney: (51:37) We're passing bills out of Committee, I understand, without even CBO scores, Congressional budget office scores, so we don't really know. And that we've not done that before. That's a change in our policy. Mr. Mooney: (51:45) The truth is we're spending at an alarming rate in this country. Since the COVID-19 pandemic began last year, the federal government has spent more than $5.3 trillion on relief. That's roughly $16,000 for every American. Mr. Mooney: (52:01) Our ballooning debt is not some abstract problem. Out-of-control spending proposed by Biden, and being rubber-stamped here in Congress, will leave a mess that our children and grandchildren have to clean up and pay for. There's decisions we make today, 20 or 30 years from now, our children and grandchildren have to pay this money back. Mr. Mooney: (52:22) So, I'd like to move to a different aspect of the package. And one of the attempted pay-fors in the package that is alarming to me is tax increases. It'll make our economy less competitive. So, again... Mr. Mooney: (52:33) So, Secretary Yellen, my question is, if the proposed corporate tax rate in the House reconciliation Bill is 26.5%, this actually moves us higher than Communist China's corporate tax rate of 25%. We're going to have a higher tax rate than a country that has been taking our jobs, and is Communist ideology. Mr. Mooney: (52:58) Can you explain why raising our corporate tax rate above China's is a good idea, if you think it is? And do you think this would hurt our competitiveness with China and around the world? Janet Yellen: (53:09) Our companies are the most competitive and profitable in the world. The effective tax rate that they pay is very low. And recent studies suggest that, among advanced countries, the United States has an effective tax rate that is among the lowest of countries around the world. We can certainly afford to take the corporate tax rate up to 26 1/2%, as in House Ways and Means, without negatively impacting a firm's performance. Janet Yellen: (53:50) And we propose to do that in the context of an international agreement that has received the support of over 130 countries worldwide to establish global minimum tax rates that will apply to other countries' firms. Janet Yellen: (54:15) Right now, the United States is the only country with a global minimum tax rate on its multinational corporations. We propose to raise that but, at the same time, other countries will raise theirs much more. And that means that the competitiveness of American firms will be enhanced and we will be reducing the incentives that exist in our tax law right now to export- Mr. Mooney: (54:42) Thank you. Janet Yellen: (54:43) ... jobs and profits. Mr. Mooney: (54:46) Thank you. I don't have much time I have left but thank you, Secretary Yellen. Mr. Mooney: (54:48) Why, look. One thing we've learned over the last several years is we need to take the threat from China more seriously here in America, making America less competitive. And, despite what you said, raising our corporate tax rate makes us less competitive. And our economic adversaries like China, it's too high of a cost for all this spending. Running up these massive debts that our children will have to pay back for this spending is just not right. Mr. Mooney: (55:12) So, despite what we're hearing, and what many are saying, this reconciliation package will be expensive in terms of dollars and, frankly, to the future of our competitive competitiveness in this country, racking up this debt. And I just fear we're going to pay for this for years to come. Mr. Mooney: (55:27) So, thank you, Madam Chair. [inaudible 00:55:30]. Ms. Waters: (55:30) Thank you very much. Ms. Waters: (55:31) The gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of the Subcommittee on Diversity and Inclusion, is now recognized for five minutes. Mrs. Beatty: (55:47) Thank you, Madam Chair. And thank you to our witnesses today. Mrs. Beatty: (55:54) Certainly, as I've been listening, a lot of descriptive words were used, everything from dysfunctional, to meaningless, to irrational. Well, I could think of a lot of other words that I could use but, certainly, those words are appropriate to describe what Democrats inherited from the last Administration. Whether that's the irresponsibleness of the past Administration, whether it's all the debt that was occurred because of the Trump Administration, I think those words are appropriate. Just, Madam Chair, by my colleagues were very misdirected. Mrs. Beatty: (56:41) In my opinion, you should look at your own house and home before throwing stones. And especially when they're not appropriate. Mrs. Beatty: (56:50) Now, with that said, to our two witnesses who've been very responsive, I say, thank you. And let me get in quickly to my first question on the Federal Reserve. Mrs. Beatty: (57:02) Certainly, you know, Mr. Chair, we've had a lot of conversations about diversity. I want to thank you for responding and continuing to increase your diversity. Mrs. Beatty: (57:17) But, as you know, recently, there's been two Federal Reserve presidents who have left, quit, retired, bottom line, immediately leaping or gone from the Bank of Dallas and Boston. So, my question is... You know where I'm going with this. I would certainly be hopeful that we could increase our numbers in diversity beyond Raphael Bostic by asking that we use the Beatty Rule, patterned after the Rooney Rule, to do as we did with the Atlanta Federal Reserve President, and make sure, in that interview process, we have a African American or a female. Mrs. Beatty: (58:09) Do you have any comments on that? Jerome Powell: (58:12) I do. Thank you, Mrs. Beatty. Jerome Powell: (58:14) So, I can absolutely guarantee you that we will work hard in both of those processes to find and give a fair shot to diverse candidates for those two jobs, as we do. And it'll be a big focus of both of those processes. Mrs. Beatty: (58:33) Thank you. Mrs. Beatty: (58:35) Secretary Yellen, you will recall back in 2016, Secretary Lew made his historic announcement that Harriet Tubman would be the face on a $20 bill. I sent you a letter in July, early July, along with my colleague, Congressman Katko, requesting the committee to move forward with the Obama Administration's plan to put her on the face of the 20. Mrs. Beatty: (59:02) I understand your staffs have been in discussion on this issue, and I'm hoping to get a high-level overview, and to ask you if there's any comment you can make on this. Janet Yellen: (59:14) Well, thank you for that question, Representative Beatty. We believe it is very important that our notes reflect the history and diversity of our country. And I couldn't possibly think of a better way to honor Harriet Tubman's legacy and her courage in fighting for the freedom of enslaved people and women's right to vote than seeing her on the $20 bill. Janet Yellen: (59:45) Issuing notes, as you know, is a very lengthy process. It involves collaboration among a number of different agencies, and it's necessary to design new security and counterfeit features. And, unfortunately, that means the lead time to redesign new bills and ensure there's security is long. Janet Yellen: (01:00:11) When Secretary Lew announced- Mrs. Beatty: (01:00:16) I'm going to go [inaudible 01:00:17]. Janet Yellen: (01:00:16) ... announced- Mrs. Beatty: (01:00:16) Madam Secretary. Madam Secretary, I'm going to go to my rental question because the clock is down, and we will follow up with your staff. Mrs. Beatty: (01:00:26) Just prior to the new Administration coming into office, the former Administration rushed the regulations and questions for the Rental Assistant Program. Those regulations were so unworkable that states like my state, Ohio, and others, were telling me that they weren't even sure if they would be able to distribute rental assistant funds under those guidelines. Mrs. Beatty: (01:00:49) Isn't it true that... Secretary Yellen, isn't it true that the Secretary, under the new Administration, had to spend a week going back and redoing all of that to make sure that the funds could actually be distributed? Janet Yellen: (01:01:05) That's correct. Mrs. Beatty: (01:01:08) Thank you. I want that to go on the record. Some of my colleagues wanted to drill down and make our Secretary, you, in answering those questions. So, thank you. Janet Yellen: (01:01:18) Thank you very much. Mrs. Beatty: (01:01:19) The last- Ms. Waters: (01:01:19) The gentlelady's time has- Mrs. Beatty: (01:01:20) ... The last [crosstalk 01:01:20]. Ms. Waters: (01:01:20) ... expired. The gentleman from Ohio- Mrs. Beatty: (01:01:23) My time is- Ms. Waters: (01:01:24) ... Mr. Davidson, is now recognized for five minutes. Mr. Davidson: (01:01:28) Thank you, Madam Chairwoman. I thank our witnesses and our colleagues. I appreciate this hearing. Mr. Davidson: (01:01:33) Chairman Powell, you have extensive private sector experience. And, of course, as Chairman of the Federal Reserve, you have a role in bank regulation. In your experience, do banks or lenders increase lines of credit unconditionally? Isn't there some level of underwriting involved? Wouldn't banks have problems with their regulators if they did no underwriting for a line of credit? Jerome Powell: (01:01:53) Yes. No, of course, they're very careful in the lending they do. Mr. Davidson: (01:01:55) Well, I'd submit that it's perfectly rational for Congress to expect something in exchange for an increased line of credit. The plan presented is atrocious. It will never balance. It doesn't even propose to balance in 15, 20, 30, 100 years. There's no plan to quit bankrupting America, Madam Secretary. Mr. Davidson: (01:02:16) Now, thankfully, under the Federal Reserve's leadership and 13(3) authority, we had some facilities in place to prevent real financial calamity. So, recently, the Subcommittee on National Security, International Development and Monetary Policy held a hearing to discuss the Federal Reserve's lending facilities under Section 13(3), and how those facilities were utilized prior to, and since, the passage of the Cares Act. Mr. Davidson: (01:02:52) Some of my colleagues, I fear, don't understand even how some of the products like bonds or margin calls work, as they've criticized programs where there is literally no buy-side in the market. And, of course, the Federal Reserve stepped in to create a buy-side and support the markets. I've heard colleagues say, "Well, there are only two loans under the municipal liquidity facility, for example, while there were hundreds of loans, hundreds of billions of dollars of credit extended." How important are the 13(3) provisions to the financial stability of our country? Jerome Powell: (01:03:27) They're very important but they're reserved for real economic emergencies, financial emergencies. And, as you point out, they functioned, I think, very well in the crisis as backstops, that we put them in place and the private capital markets started working. And, really, that's success. That's what success looks like. Mr. Davidson: (01:03:45) Do you think 13(3) should ever be used for a political goal or something to fulfill a dual mandate, rather than an emergency? Jerome Powell: (01:03:53) Actually, no, I don't. And I think the current institutional arrangements are very good. I think we need the approval of the Treasury Secretary. Realistically, we work with Treasury, and we're constrained from very specific circumstances, unusual exigent circumstances. There are a number of tests in the law, and I think it's an arrangement that works. Mr. Davidson: (01:04:11) Thank you, Chairman. Jerome Powell: (01:04:13) Recently, Federal Reserve Governor, Michelle Bowman, gave a speech in which she discussed the evolution enhancement of bank supervision, particularly during the COVID pandemic. And in that speech, she stated that the Fed avoided overreacting and instead approached supervision in a more measured way that allowed banks the flexibility to work with their customers. Jerome Powell: (01:04:34) There are a range of topics she's addressed, and others have, with bank regulation. I'll just share this from her paper. She says, "The goal of this initiative is to ensure our supervisory approaches accommodate a much broader range of activities while ensuring we don't create an unlevel playing field with unfair advantages, or unfair disadvantages, for some types of firms versus others." Jerome Powell: (01:04:58) And, for that reason, I'm working on a bill that would study the evolution of consumer finance and the viability of updating our prudential regulatory structure through consolidation of bank supervisors. Of course, there's some level of coordination the Fed does but could either of you give an opinion on a scenario where the United States consolidates banking supervision? Jerome Powell: (01:05:23) That's something we'd have to look at. I know it does... Something it does tend to get looked at over intervals, and it hasn't happened. I think each institution has a different role in our society. I know we have more bank regulators than other countries but we do seem to work pretty well together. Mr. Davidson: (01:05:39) Thanks for that. Mr. Davidson: (01:05:40) Secretary Yellen. Obviously, there are a lot of provisions and a large void in the digital asset space. In your opinion, what is a digital asset for purposes of tax reporting? Janet Yellen: (01:05:53) For purposes of tax reporting? I believe the IRS is issuing... will issue detailed regulations that will answer that question for the purposes of tax reporting. Mr. Davidson: (01:06:11) Thank you. Our law hasn't really kept up with this. And, frankly, it's led to regulation by enforcement, of course, with the SEC and a host of others. Mr. Davidson: (01:06:21) But I appreciated, when you were Chair of the Fed, the faster payments initiative that got launched. A lot of this involves payments. But so much in the digital asset space isn't a currency or a payment system. There are a gazillion use cases, and I'd be ashamed to see the regulatory framework curtail that. And I look forward to seeing Fintech flourish in the future. Mr. Davidson: (01:06:41) I yield. Ms. Waters: (01:06:43) Thank you. Ms. Waters: (01:06:43) The gentleman from Florida, Mr. Lawson, is now recognized for five minutes. Mr. Lawson: (01:06:52) Thank you, Madam Chair and [inaudible 01:06:56]. Mr. Lawson: (01:06:57) Chairman Powell, Floridians, unfortunately, have seen, firsthand, the impact of climate change and the impact only becoming worse as we experience [inaudible 01:07:13] severe and [inaudible 01:07:14] hurricanes and risks of rising sea level. Mr. Lawson: (01:07:17) I'm glad to see greater attention given to how we can better assess and manage climate-related risks. It is my understanding many financial institutions conduct scenarios and analysis to assess credit market liquidity and operate risk related to transition risk, such a physical risk, like hurricane, flooding, wildfires, and drought. Mr. Lawson: (01:07:46) Mr. Powell, is scenario analysis a good tool in assessing climate-related financial risk? Could you please discuss the difference between scenario analysis and stress testing? What other tools that the Federal Reserve have to assess climate-related risk? Mr. Lawson: (01:08:02) That the Federal Reserve have to assess climate related risk, financial risk? Jerome Powell: (01:08:06) Thank you. So, our role, of course, is to make sure that the financial institutions we regulate and supervise understand and can manage their risks, including the risks from climate change, the financial risk from climate change. Scenario analysis is almost certainly going to be one of the principle tools for doing exactly that. And it's very different from the stress test. Scenario analysis, at this point, is about institutions, really understanding what these risks will be, how they will develop over time, what are the channels through which they will develop. And it's sort of early day is in understanding how those risks will interact with the economy, and with the financial system. Scenario analysis is meant to help do that, and we at the Fed are working on developing a program of scenario analysis. Many of the large institutions are doing so, as I mentioned, quite different from stress tests which have consequences for distributions and that kind of thing. Jerome Powell: (01:09:02) I think overall, we see our job, as I mentioned, as making sure that these financial institutions understand the risks and can manage them. And that's just a lot of basic supervisory tools. Understanding what they're doing and have the processes in place and the analytical tools in place and the focus and that's what we'll be doing. Mr. Lawson: (01:09:24) Okay. Thank you. Secretary Yellen, I am concerned that small business, particularly within the communities of color will have lasting economic damage coming out of this pandemic. The American Rescue Plan extended assistance to small business by authorizing a 10 billion program called The State Small Business Credit Initiative. We have 2.5 billion of these funds set aside for minority owned business. The Florida Department of Economic Opportunity is waiting for the Treasury to release applications, our requirements and program guidance. When can we expect the guidance to be released? And can we share our treasure plan to ensure that assistance goes to small business that will be highly impacted by the pandemic? Janet Yellen: (01:10:15) The State Small Business Credit Initiative is an extremely important program and we are in the process of implementing it. We will absolutely make sure that it reaches small businesses that have been very severely affected by the pandemic and certainly in underserved areas and communities of color. I think, you know that Congress require that Treasury provide funds to states based on the extent of job losses that had been suffered, and it sets aside significant funds for businesses that are owned by socially and economically disadvantaged individuals. So we will make this funding available and provide technical assistance, working with communities to make sure or that it's used as intended. Mr. Lawson: (01:11:23) Okay, thank you very much. And with that, I yield back. Ms. Waters: (01:11:28) The gentleman yields back, the gentleman from North Carolina, Mr. Budd, is now recognized for five minutes. Mr. Budd: (01:11:36) Thank the chairwoman, and thank the witnesses. The federal government's spending, and not even talking debt but just the spending here, it's expected to reach record highs this year, 2021, and Democrats are trying to dump trillions of what I believe is very reckless spending into an already inflationary economy. So as a percentage of GDP, our public debt has reached 125% in the second quarter. Secretary Yellen, very briefly, do you believe that there is a level of debt that is unsustainable in our economy? And if so, what is that number? And you can share that with me either in dollars or as a percentage of GDP. Janet Yellen: (01:12:16) Well, I believe that the debt held by the public relative to GDP is around 105%, and that's a number that is higher than we've had during most of the post-war period in the United States. But it is not a number that I think is fiscally irresponsible or unsustainable. Interest- Mr. Budd: (01:12:48) Madam Secretary, do you have a number that is the threshold that is irresponsible either in percentage or in dollars? Janet Yellen: (01:12:55) Well, one way that I would judge that is by looking at the interest burden, the real interest burden on the debt. That really is a better measure of the burden at places on our economy. And this year that interest burden has actually been negative. Interest rates have been exceptionally low, this dates back to before the financial crisis in 2008 and most economists believe that there are deep structural reasons why low interest rates are likely to continue, even if nominal interest rates move back toward more normal levels, that interest burden [crosstalk 01:13:42]- Mr. Budd: (01:13:42) Just because I want to be aware of the time constraints. Thank you Secretary. If the interest rate was zero, what is irresponsible in percentage or dollars? Janet Yellen: (01:13:52) Well, I think that if the real interest burden stays historical norms- Mr. Budd: (01:13:57) If it's as is. Janet Yellen: (01:13:58) I'm sorry, if interest rates are zero? Mr. Budd: (01:14:02) If it's, let's say zero, let's say as is, pick one of those. And let's say, what is irresponsible as a percentage or total dollars of debt? Janet Yellen: (01:14:12) Well, if interest rates are zero and negative in real terms, certainly we could have a substantially higher burden, although there are always risks pertaining to the path of interest rates that need to be taken account of. Mr. Budd: (01:14:28) I understand. Thank you. Let me shift gears a bit. And one of my recent telephone town halls, I asked a poll question to those who were able to join me and said, have you or your noticed a sharp rise in prices for food, gas or electricity. And 94% of the respondents, and it was a good sample size, they said, yes. Inflation is eating away at the buying power of every single North Carolinian. Bottom line inflation is a tax on working Americans. So Chairman Powell, I know that you've called the inflation that we're dealing with transitory, and boy, I sure hope you're right. But what would you tell people back in my district, especially those on fixed incomes when they are struggling to make ends meat right now, what would you tell them? Jerome Powell: (01:15:14) I would say that we are dealing with a very unusual event, that's really part of the broader COVID event, that the economy is now reopening, that we're hitting supply side bottlenecks. For example, it's hard to manufacture cars without semiconductors, which are in short supply. So car prices are going up and lots of prices are being affected by supply side constrictions. We expect that those will abate, that they'll lessen and over time will come back down. Exactly when that will happen is not possible to say, but I would say we should be seeing some relief in coming months and over the course of the first half of next year. Mr. Budd: (01:15:49) I hope you're right, the folks I talked to back in North Carolina are doubtful of that, but I do hope you're right. Chairman Powell, next question. So in a July hearing before this committee, you are asked about CBDCs or the central bank digital currencies and their impact on stable coin and other cryptocurrencies. And you stated, and I think I quote you correctly here, "You wouldn't need stable coins, you wouldn't need cryptocurrencies if you had a digital US currency." So Mr. Chairman, as a matter of policy, is that your intention to ban or limit the use of cryptocurrencies like we're seeing in China? Jerome Powell: (01:16:21) No. And, I immediately realized I'd misspoken there. I didn't mean... Take the word cryptocurrency out of that sentence and I would say it's fairly widely understood that central bank digital currencies could make [crosstalk 01:16:37]- Mr. Budd: (01:16:36) But no intention to ban? No intention to ban? Jerome Powell: (01:16:38) No intention to ban them. But stable coins are like money market funds, they're like bank deposits but they're to some extent outside the regulatory perimeter and it's appropriate that they be regulated, same activity, same regulation. Mr. Budd: (01:16:52) Thank you. I yield back. Ms. Waters: (01:16:55) Thank you. The gentleman from Illinois, Mr. Casten, who is also the Vice Chair of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets is now recognized for five minutes. Mr. Casten: (01:17:09) Thank you, Madam Chair. And thank you so much to our witnesses, we are truly fortunate to have you at the helm of steering us through some past and future crises. I want to talk about those, but before that I want to just talk about manufactured crises, which I'd like to avoid. Congress, everybody on this call, in some fashion has voted to approve our spending. Congress, everybody on this call, in some fashion has voted to decide how much of that spending will be paid with tax revenues, and then somewhat uniquely we give ourself the authority to decide how much of the residual, which is paid with debt, we are going to pay for. It's political suicide, I am a co-sponsor and supporter of my friend, Mr. Foster's bill, H.R. 3305, to end the Default Act and take that tool away from Congress because Congress has proven that we cannot be trusted with that responsibility. Mr. Casten: (01:17:58) Secretary Yellen, without getting into the specifics of Mr. Foster's bill, would you support simply eliminating the debt ceiling so that we don't have to deal with this in the future and can focus on real crises? Janet Yellen: (01:18:10) Yes, I would, because I believe when Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making. And if to finance those spending and tax decisions it's necessary to issue additional old debt, I believe it's very destructive to put the President and myself, the Treasury Secretary, in a situation where we might be unable to pay the bills that result from those past decisions. Mr. Casten: (01:18:57) Thank you. I'm glad to hear it, and we'll hopefully try to get that through Congress. Mr. Casten: (01:19:01) Moving on to past crises. Chair Powell, I think all of us in all of our districts are hearing about labor market tightness and I think a lot of people are explaining that labor market tightness to justify preexisting political biases. As you know, and we've talked about, we saw unemployment go from 3.5% to almost 10% and back down to 5.2%, but I'm much more concerned that workforce participation went from 63 to 61 and has stayed low. Can you just explain for the committee, briefly, what is driving the reduction in workforce participation and what, if anything, we can do to get that number back up to make sure that employers have access to folks who are ready and able to work? Jerome Powell: (01:19:47) I'd be glad to. So, the two biggest parts of that are caretakers and retirees. So that makes up a lot of the shortfall from where we were with labor force participation before the pandemic crisis. And within caretakers, some of that is going to be connected to schools not being opened or people who are afraid to go into an unvaccinated workplace and are afraid of COVID and things like that, and other reasons. So that's a part of that and that should abate over time. Jerome Powell: (01:20:19) In terms of the retiree piece, it's not clear about that. I would say the lore is that people don't come out of retirement, except I would say all during the last few years of the very long expansion that ended with the pandemic, we were constantly surprised to the upside on participation, including older people staying in the workforce longer. So I think my prior would be that we will get back a big chunk of the so-called retirees and that we should be very open minded about how much labor force participation can go up. The United States has low labor force participation compared to our advanced economy peers. And this is not something that has to be that way, it's not something that's that's good. Mr. Casten: (01:21:06) Well, thank you for that. Certainly when I talk to folks in the district, everybody kind of acknowledges that it's the boomers who retired, who are creating a lot of their skills gap, and that's a harder challenge. Mr. Casten: (01:21:17) Going back to you, Secretary Yellen. I think subsequent to your first FSOC caring when you identified climate change as an emerging threat, President Biden issued an emergency order on climate financial risk directing agencies, including yours, to analyze and mitigate risks that to change poses to the financial system. In the little time we've got left, can you give us any updates on status, milestones and deliverables that the Treasury Department has in response to that executive order? Janet Yellen: (01:21:44) Yes, we're in the process of completing the report and we expect to issue it in late October or early November within the 180 day timeframe. And what we'll be doing is looking at the work of individual regulators to incorporate climate change risks into their regulatory and supervisory activities and describing some of the challenge that they face in carrying that out. Mr. Casten: (01:22:21) Well, thank you. Another time I will clear my calendar to allow some time to read that week and I yield back to the Chair. Ms. Waters: (01:22:27) Thank you very much. The gentleman from Tennessee, Mr. Kustoff is now recognized for five minutes. Mr. Kustoff: (01:22:34) Like you met him chair for calling today's hearing and thank you to the witnesses for appearing. Secretary Yellen, if I could, there was an article in the Wall Street Journal dated September 15th, the headline is, Yellen, IRS, pushed Democrats to Require Banks to Report Taxpayer Annual Account Flows. And I want to read the first two paragraphs just briefly, "Treasury Secretary Janet Yellen and IRS commissioner Charles Rettig press lawmaker Wednesday to give the Internal Revenue Service more information about taxpayer bank accounts, as the Biden administration, tries to salvage it's struggling tax compliance proposal. In letters to lawmakers the administration officials, again, asked Congress to require banks to report annual inflows and outflows from bank accounts with at least $600 or at least $600 worth of transactions, a proposal aimed at letting the IRS target its audits more effectively. It would generate about 460 billion over a decade to cover the cost of Democrats planned expansion of the social safety net and climate change policies according to the administration." Those are the first two paragraphs of the story. That's an accurate reflection of what you've done, correct? Janet Yellen: (01:23:58) Yes. We have proposed both augmenting the resources of the IRS so that it can hire qualified auditors and augmenting the information flow so that the IRS gets insight into opaque sources of income. And both together, we believe, can serve to greatly address the $7 trillion estimated tax gap that we'll see in this country [crosstalk 01:24:31]- Mr. Kustoff: (01:24:30) And Madam Secretary, you would tell my constituent that they should not have any privacy concerns about what you're trying to do? Janet Yellen: (01:24:36) Well, they should not because this is a simple matter for banks that already file 1099 forms with the IRS [crosstalk 01:24:53]- Mr. Kustoff: (01:24:53) The IRS leaked information about taxpayers to ProPublica, that was published, their entire tax returns, their entire tax information. On the record, you tell my constituents and all the other members here, their constituents, that they should have no privacy concerns about banks reporting $600 or more in account value to the IRS. Janet Yellen: (01:25:15) What we've asked to have reported is the aggregate inflows and outflows from these accounts each year in an annual basis, two additional pieces of information, not transaction level data. And look, every wage earner in this country has their wage income [crosstalk 01:25:38]- Mr. Kustoff: (01:25:37) This says bank accounts of at least $600. Is that a correct statement? Janet Yellen: (01:25:40) Well, we want to make sure that this [crosstalk 01:25:44] by expanding- Mr. Kustoff: (01:25:46) That's different from transactions, those are values of $600. Janet Yellen: (01:25:52) There's [crosstalk 01:25:53]- Mr. Kustoff: (01:25:52) Wall Street Journal's accurate, correct? Janet Yellen: (01:25:54) Excuse me. Mr. Kustoff: (01:25:55) The Wall Street Journal's Report is accurate, correct? Janet Yellen: (01:25:58) We did propose that, I don't believe it's an invasion of privacy. And look, the IRS gets a great deal of information that it needs in order to make sure the taxpayers comply with the tax code. It receives individual information on wages and salaries that are received, on dividends, on transactions, on- Mr. Kustoff: (01:26:23) How did ProPublica receive information from the IRS about the individual taxpayers? Janet Yellen: (01:26:28) Excuse me. Mr. Kustoff: (01:26:29) How did ProPublica publish and obtain the information from your agent, from the IRS about taxpayer information? Janet Yellen: (01:26:37) Independent agencies and law enforcement are currently looking into that and attempting to figure out how that occurred. That is clearly a crime and an utterly unacceptable thing, and it will be prosecuted when it's understood. When these agencies have- Mr. Kustoff: (01:26:57) Your proposal purports to give more information to the IRS, drilling down to accounts of $600. Janet Yellen: (01:27:05) We want to make sure that individuals can't game the system by opening multiple accounts in order to evade the- Mr. Kustoff: (01:27:17) And that you give the IRS all this other information about individuals. Last question, Madam Secretary, do you support a move to the Department of Treasury from Homeland Security of the United States Secret Service? Janet Yellen: (01:27:31) I haven't taken a view on that. Mr. Kustoff: (01:27:35) Thank you. I yield back my time. Ms. Waters: (01:27:39) The gentleman from New York, Mr. Torres is now recognized for five minutes. Mr. Torres: (01:27:44) Thank you. Madam Chair. I'm appalled by the Republican gamesmanship around the debt limit. I heard a Republican colleague on this committee complain about not receiving a phone call from the administration or complain that we, the Democrats, are too partisan. The Republican argument seems to be the following that since the Democrats have been mean to us, we are going to sabotage the full faith and credit of the United States to exact revenge against those who have slighted us. And that kind of pettiness has me wondering are we in high school or the United States Congress. Mr. Torres: (01:28:16) Now it has to be said, that raising the debt limit would not authorize new spending, it would simply pay the debts of previous administrations, including the Trump administration. So the Republicans cannot pass $ 2 trillion worth of tax cuts and then refuse to pay back that made those tax cuts possible in the first place. That to me is worse than fiscal responsibility, that's fiscal hypocrisy, and I support Congressman Foster's legislation abolishing the debt limit so that we're no at the whims of bruised egos slighted by unreturned phone calls. Mr. Torres: (01:28:53) Suppose for a moment, it is October 18th, the use of extraordinary measures is exhausted. What happens on October 19th? Janet Yellen: (01:29:03) We're simply in an impossible situation in which it will impossible for Treasury on that day or a few days thereafter, we'll have very limited resources that will be run down quickly, we won't be able to pay all of the government's bills. The treasury has been directed by Congress to pay all of the government's bills to use the tax revenues that are available, and without that to issue debt and the debt ceiling will make it impossible for us to do that. Mr. Torres: (01:29:43) And the damage could be irreparable? Janet Yellen: (01:29:45) Well, yes, and we got a taste of that in 2011, when the debt ceiling wasn't raised until the last minute. The fact that Congress might not raise the debt limit and call into question whether or not what is regarded is the safest asset in the world, dollar denominated US Treasury debt will actually be repaid, is simply a catastrophic event. Mr. Torres: (01:30:19) I want to follow up on an exchange you had with Congressman Budd who asked you about the debt to GDP ratio, the US debt to GDP ratio is over a 100%. what is Japan's debt to GDP ratio? Janet Yellen: (01:30:31) Excuse me. Mr. Torres: (01:30:32) What is Japan's debt to GDP? Janet Yellen: (01:30:36) It's about 250%. Mr. Torres: (01:30:36) It's the highest in the world? Janet Yellen: (01:30:37) Yes it is. Mr. Torres: (01:30:38) And Japan is regarded as a successful economy? Janet Yellen: (01:30:41) It is. And Japan also has low interest rates and is not failing to grow- Mr. Torres: (01:30:47) And I agree with your premise that the cost of servicing debt is a more reliable measure of debt sustainability than the debt to GDP ratio. And if we were to breach the debt limit, as Republicans would have us do, it would actually raise the cost of borrowing. It would raise interest rate payments. Janet Yellen: (01:31:04) Yes it would. Mr. Torres: (01:31:04) Which would make our debt burden less sustainable, not more. Janet Yellen: (01:31:08) That is absolutely correct. It would be regarded as riskier. We might suffer again, a credit downgrade and coming out of that we could expect to see higher interest rates on Treasury debt and on the debt that private individuals have, mortgage debt, credit card debt, auto loans, and everything else. Mr. Torres: (01:31:30) I want to quickly ask you about a Title IV loan under the CARES Act. During the Trump administration, the largest recipient of the Title IV national security loan was a trucking company previously known as YRC Worldwide and presently known as Yellow Corporation. Do you think a nearly bankrupt trading company, whose conduct is the subject of a DOJ lawsuit for overcharging should have received the national security loan from the Trump administration? Janet Yellen: (01:31:58) I'm afraid I don't know what the details of that, and I'd be glad to have our staff get back to you on that. Mr. Torres: (01:32:05) And I want to be clear that this loan is the subject of scrutiny from the Bipartisan Congressional Oversight Commission and the Select Committee on the Coronavirus. You said that at the end of September, the funding for the Emergency Rental Assistance might be reallocated, up to how much funding might be reallocated? Janet Yellen: (01:32:23) I can't give you a dollar estimate, but the objective would be to shift it to areas where there's need and proven success in getting it out. Mr. Torres: (01:32:34) If the use of extraordinary measures is exhausted on October 18th, what does the Federal Reserve do on October 19th? What actions do you take in response, if any? And that'll be my final question. Jerome Powell: (01:32:48) I guess I would just say, no one should assume that we can really do much, if there were to be a default on our obligations no one should assume that the Fed or anyone else can fully shield the American people from the consequences of that. Mr. Torres: (01:33:08) My time has expired. Ms. Waters: (01:33:10) The gentleman from Indiana, Mr. Hollingsworth, is now recognized for five minutes. Mr. Hollingsworth: (01:33:16) Well, good morning. I'm going to ask most of my questions to Secretary Yellen. First and foremost, I want to associate myself with the comments that Mr. Kustoff made. I love serving on this committee. I have a great time working on the policies that emanate from this committee, but rarely does something that this committee do lead to questions in the grocery store, questions at convenient stores and questions around my district. But I have to tell you the proposal that has been put forth about expanding the amount of information that the IRS is going to get on private bank accounts has been something I've been asked about at parks, at grocery stores, at convenience stores around the district. This has people deeply afraid about the emergence of an apparatus that can be used against them. So I want to better understand, with specificity, what is being proposed. Because what I saw in the proposal as circulated by Treasury was extremely generic and somewhat incongruent with what I heard today. You said to Mr. Kustoff, that the only things that will be reported to the IRS under your proposal is the gross inflow and the gross outflow from that particular account in a given year, is that accurate or inaccurate in what you have requested? Janet Yellen: (01:34:29) The proposal put forward by the administration requested a bit more information than that, but what is under consideration now in reconciliation would be limited to those two pieces of information. What you should tell people who ask you about this in the park, is that right now, much of the audit time of the IRS is devoted into tax payers that have relatively low incomes. And we know that the tax gap is something that comes from opaque sources of income and from high income individuals [crosstalk 01:35:18] the audit rates on individuals earning less than $400,000 would not increase, this would redirect what it's [crosstalk 01:35:27]- Mr. Hollingsworth: (01:35:26) Wait a minute. Wait a minute. Wait a minute. They're not worried about the audit rates. Reclaiming my time. They're not worried about the audit rates, they're worried about yielding their privacy, yielding their transaction history to a federal government, to a federal [crosstalk 01:35:40]- Janet Yellen: (01:35:40) There is no transaction history. Mr. Hollingsworth: (01:35:41) Reclaiming my time. To a federal government that has shown itself time and time again, mobilizing that information against individuals, against organizations and against businesses, has shown itself incapable of protecting that data from breaches by nation states, from breaches [crosstalk 01:36:00] excuse me, reclaiming my time. This is deeply concerning to them. So forgive me if I won't go back to them and say, "Don't worry, despite all evidence to the contrary about their past history, the federal government really means it this time. When they say they're going to respect your privacy. When they intend to build firewalls around this enormous database of personal information to them." And, "By the way," which you brought up, "We're doing it for a really good purpose, we're doing it for a really good purpose." Forgive them if they don't believe that the government is showing up on their doorstep to ask about the inflows and outflows from their personal accounts at a very dominmus level. And that is going to be used for only their good purpose. Janet Yellen: (01:36:40) There is no transaction level data that would be you reported to the IRS. Mr. Hollingsworth: (01:36:46) Can you clarify what you mean by a bit more data then, when I asked is it just these two things, and you said it's a bit more. What does a bit more mean? Janet Yellen: (01:36:55) The proposal by the administration that was originally put forward, requested some additional information particularly about businesses and partnerships. But there is no transaction level data for individuals being considered by this Congress. Why is it okay to that we have businesses report wage and salary income or companies report dividends. Mr. Hollingsworth: (01:37:29) Reclaiming my time. I think there's some real concern about growing the amount of data that federal government has proven itself incapable of handling correctly, or at some point ethically, to the IRS. I heard testimony two years ago about how China was able to apprehend many of the protesters in Hong Kong, the way that they did that was mining financial data. Not by virtue of great law enforcement work and investigatory work, but instead by mining financial data about who was scanning their credit card in order to buy subway tickets to those particular locations. This worries Americans who are rightly concerned about a federal government that does not have their best interest at heart, but is telling them that for the greater good they need to yield more privacy, more of their privacy, more of the things that they do in their personal accounts, because we might be able to close the tax gap for other people who are cheating. With that, I'll yield my time. Ms. Waters: (01:38:24) The gentleman's time has expired. The gentlewoman from Iowa, Ms. Axne, Who is also the Vice Chair of the Subcommittee on Housing, Community and Development and Insurance is now recognized for five minutes. Ms. Axne: (01:38:43) Thank you, Madam Chair. And thank you, Secretary Yellen and Chair Powell for being here. It's great to see you. Listen, we've heard a lot about inflation, of course, but I want to dig a little bit into this. Chair Powell you recently mentioned that price increases are relatively concentrated in particular areas. And I think most folks can understand that things like airlines and hotels, et cetera, industries that took a hit during COVID, because people weren't really traveling this could be an issue there. However, I want to get into some other areas where we've seen price increases, one of the biggest areas is in cars, both new and used. And I wanted to touch base about this. Secretary Yellen, one of the key causes of the shortages and the prices of the increase in our cars is because of shortages of semiconductors and production issues. Is that correct? Janet Yellen: (01:39:34) Yes, that is correct. There have been significant semiconductor shortages, particularly affecting cars. Ms. Axne: (01:39:44) Thank you. And I hear regularly from businesses in my district about supply chain issues coming off of the pandemic that are unfortunately holding back our companies. One recently told me that their sales are down 120 million dollars, really because they're producing to supply chain. So Chair Powell, we see that elsewhere too, with ships waiting offshore on both coasts, difficulties moving goods back and forth, et cetera. Is that correct? Jerome Powell: (01:40:12) Yes, it is. Very correct. It's hard to say how long that will take, but it will resolve itself in time. Ms. Axne: (01:40:20) And that shows us also that the prices of shipping goods from China to the US has gone up and I think that's gone up 400% a pre-pandemic. So that's going to, of course, add to the cost of anything we buy from China. So while we've got you two here, I guess, what I'm wondering about are, what are the solutions? Chair Powell, if we have issues with our ports or with the supply semiconductors or other components, does it make much sense for the economy to pull back on investments in the bottlenecks or would we do better to expand that capacity? Jerome Powell: (01:40:55) I think that's really a question for fiscal policy. I will say these are tangled supply chains right now, and it's a combination of a bunch of factors, which should abate over time. But in terms of, obviously, investment in supply chains would make them more efficient over time. Ms. Axne: (01:41:14) Thank you. And so, I want to point out here that most of the things we produced do require workers, and I spoke to you Chair Powell about this in February, but Secretary Yellen you've, of course, studied labor markets throughout your career. So when we have constraints on our supply chain, does it make sense to limit the numbers of people able to work or should we instead invest in policies like childcare that help get people into the workforce? Janet Yellen: (01:41:39) Well, absolutely. I think over the longer term, we've had a problem with declining labor force participation of prime age workers, and we are proposing paid, leave childcare support, early childhood education supports that would help expand labor force participation in the short run of- Janet Yellen: (01:42:03) ... Help expand labor force participation. In the short run, of course, dealing with the pandemic to make sure schools can operate on a normal schedule, get people back to work will help as well. Ms. Axne: (01:42:15) And then, there are other countries around the world that obviously have some of these pieces put in place, like better childcare, early childhood education. In your studies with them, do you see economic growth coming as a result of putting these practices in place? Janet Yellen: (01:42:29) Yes. It's been an important source of growth in the United States and elsewhere. Once upon a time, the United States, just with respect to women's labor force participation, had about the highest in the world. And that's changed radically in recent decades, as we have failed to expand and provide the level of support for female... Especially for women's labor force participation, we've fallen behind other developed countries. Ms. Axne: (01:43:04) Absolutely. And thank you. So what I'm hearing, it sounds like to me that Democrats... What we're proposing is actually a solution to some of these inflation concerns, and that doing nothing will actually exacerbate issues and make it worse. I'm, for one, not in the business of telling people what they can't buy. What I'm hoping that we can do is find solutions like childcare, like paid family leave, like lowering the cost of prescription drugs, to keep money in people's pockets so that we can stop artificially limiting the capacity of America's economy and get people back to work, to help create more products and move products around our country. So things like childcare, paid leave, and other pot policies will actually help expand the workforce. Thank you so much. Ms. Waters: (01:43:51) [inaudible 01:43:51] time is expired. The gentleman from Tennessee, Mr. Rose, is now recognized for five minutes. Mr. Rose: (01:43:59) Thank you, Chairwoman Waters and ranking member McKinley. And I want to thank Chairman Powell and Secretary Yellen for being here today. I'm going to just dive right in. I do want to follow up on a couple of things that have been talked about quite a bit this morning. The debt limit, first of all. I feel like there's a lot of misinformation that circulates about this. So to be clear, if we suspend the debt limit, that's to allow for the enlargement of the debt. Yes, some of that for programs that have been in place historically, but much of that for... That would likely facilitate new spending. Mr. Rose: (01:44:34) And I learned a long time ago from my dad not to sign blank checks. And so it seems to me that if we suspend the debt limit, that's like signing a blank check. And frankly, I'm not willing to participate in signing that blank check. If we had assurances that that increase would go simply to cover the current built in costs of operating the government, then that might be a different discussion, but that's not the one we're having. Mr. Rose: (01:45:00) And then, Secretary Yellen, I want to follow up just for a second about the IRS reporting for bank account information. And I wonder, in the administration's proposal, is there any allowance in that proposal to defray the costs that banks and financial institutions would incur from reporting, from the added reporting expenses of providing this additional information to the IRS? Janet Yellen: (01:45:23) I don't believe it was in the administration's proposal, but if appropriate, we would be glad to work with Congress on that, to defray any expense. Mr. Rose: (01:45:35) Well, I certainly know that the existing reporting requirements that banks face is, to be short, onerous and expensive. And of course, ultimately their customers end up bearing that cost. Mr. Rose: (01:45:47) I want to shift gears now. In May, the Treasury Department published an interim final rule to implement the coronavirus state and local fiscal recovery fund. Although the guidance was much needed, I continued to hear from cities and county mayors across my district, many of whom are here in town today, across my district, asking for additional clarification and flexibility. I wrote a letter to you in July requesting this additional flexibility in the final rule. Secretary Yellen, can you tell us when we can expect this updated guidance and if there will be increased flexibility included? Janet Yellen: (01:46:23) We have tried to provide a great deal of flexibility in the guidance we have provided. There is an interim final rule that's in place, and states and localities can rely on it. It was out for comment. We have received a very large number of comments that we're working through carefully and will work to produce a final rule. But [crosstalk 01:46:50] Mr. Rose: (01:46:50) Any foreshadowing when that rule might be available? Janet Yellen: (01:46:54) Later this year. But the interim final rule is quite permissive in terms of flexibility. And [crosstalk 01:47:03]. Mr. Rose: (01:47:03) We look forward to seeing that. Reclaiming my time, Secretary Yellen, earlier this month, the committee reported the chairwoman's partisan bill that will have the effect of slowing down, in my opinion, the distribution of emergency rental assistance funds, punish landlords, and expose taxpayers to fraud. Part of her bill would replace having grantees determine if a household was, in fact, an eligible low income household, as Congress intended with the self attestation that requires grantees to accept any attestation of the household as true. [crosstalk 01:47:37] Secretary Yellen, are you concerned that requiring grantees to accept all self attestations of applicants who want to get free rental assistance money will increase the likelihood of fraud? Janet Yellen: (01:47:49) We are working carefully with Chairwoman Waters and want to make sure that we get money out in the most effective and rapid way possible, while maintaining adequate controls to prevent fraud and abuse. Mr. Rose: (01:48:07) And Secretary Yellen, we've had several hearings regarding the emergency rental assistance program that is dispersed through treasury, and yet you haven't appeared a single one. And for that matter, you failed to appear at the small business committee hearing as well. So I'm going to yield the remainder of my time to my good friend, Mr. Leutkemeyer, the ranking member of the small business committee. Mr. Leutkemeyer: (01:48:28) Thank you, Mr. Rose. Secretary Yellen. I'm also the ranking member of the small business committee, as Mr. Rose indicated. And last December, Congress passed a bipartisan bill that required you to testify in front of the small business committee on the Paycheck Protection Program. That deadline has now passed 157 days ago, and you're still not there. You have willfully refused to come for the committee and willfully refuse to obey the law. So my question's very simple. Why can you, a cabinet of the Biden administration, pick and choose which laws you choose to follow? Janet Yellen: (01:49:03) I have [crosstalk 01:49:04] Mr. Leutkemeyer: (01:49:04) Please close your binder and please respond off the cuff. Janet Yellen: (01:49:08) I- Mr. Leutkemeyer: (01:49:09) Why can you pick and choose which laws that you respond to? Janet Yellen: (01:49:11) I have testified 11 times before Congress during [crosstalk 01:49:16] Mr. Leutkemeyer: (01:49:17) But never in front of the small business [crosstalk 01:49:18] Janet Yellen: (01:49:19) Months. I have agreed to do so. We have not been able to find an appropriate date that works. [crosstalk 01:49:27] I have offered [crosstalk 01:49:28] Mr. Leutkemeyer: (01:49:27) Can show you a list of your [crosstalk 01:49:30]. Ms. Waters: (01:49:29) Your time has expired [crosstalk 01:49:31]. Mr. Leutkemeyer: (01:49:31) Come in contact with. Ms. Waters: (01:49:32) [inaudible 01:49:32] time has expired. Mr. Rose: (01:49:32) I yield back. Ms. Waters: (01:49:36) The gentleman from Massachusetts, Mr. Lynch, who's also the chair of the task force on financial technology, is now recognized for five minutes. Mr. Lynch: (01:49:44) There is is. [inaudible 01:49:51] first of all [inaudible 01:49:59] Ms. Waters: (01:50:03) Excuse me, Mr. Lynch. Mr. Lynch: (01:50:05) Yes, ma'am. Ms. Waters: (01:50:05) Please turn your microphone. Mr. Lynch: (01:50:09) ... apologize to Ms. Adams. First of all, as someone for the past 20 years has worked with both Republican and Democratic administrations, to allow our government to meet our obligations to our senior citizens and social security, pay our troops and pay our bills, I view this latest threat to default on our debt as a direct attack on the American people and on our government itself. Never has it been a good time to destroy the full faith and credit of the United States. And I fully support Mr. Foster's bill, House 3305, which would change the whole dynamic of raising the debt limit. I would like to- Mr. Lynch: (01:51:05) ... Exact. And Madam Secretary, I know that was a joint program between Treasury and the SBA. As Chairwoman Waters pointed out, I chair the task force on FinTech. And while there were very little connections between most of the FinTech firms and the SBA prior to the pandemic, once we gave them about 330 billion in the second phase of the PPP program, the FinTechs engaged, they were able to put out, I think, 15% of the funding through FinTech lenders, to people who needed it. Mr. Lynch: (01:51:49) Unfortunately, however, about 75% of the fraud that we de detected was from that 15% that went out through FinTech lenders. And these were even some of our best. Kabbage, which previously had never handled an SBA loan, they were one of the companies that had difficulties. I'm just wondering if there were any lessons learned about that rollout. I know we were rushed. We were pushing to get... Especially the first phase, the banks took care of their favorite customers. I understand that. And those were known entities. And then we, in Congress, encouraged further reach out to the SBA for people who were not met and were not addressed in the initial phase. But are there any... We had the rushed aspect of it. Mr. Lynch: (01:52:49) There was also, I'm not sure what the API interface is between the SBA and these FinTech lenders. I know the relationships are new, but did we learn any lessons from that interaction in getting money out to people who need it through the FinTech companies and lenders that we used? Janet Yellen: (01:53:13) Well, certainly there are oversight and review processes that are taking place. I can get back to you. I don't have details on what we've found about FinTech lenders. And I guess the SBA is probably doing much of that review of the Paycheck Protection Program, but in every aspect of developing programs that have been assigned to treasury, we've worked right from the outset with our offices of inspector general and others, to make sure that we have appropriate reporting and fraud control in place, to minimize fraud in the programs and make sure that we have controls in place. Mr. Lynch: (01:54:07) Okay. Chairman Powell, any thoughts on that? Or would you rather take a pass? Jerome Powell: (01:54:14) I'll follow up and also see if we have anything on that for you. Of course, PPP was administered by the SBA. We did the liquidity facility. Mr. Lynch: (01:54:21) Okay. Jerome Powell: (01:54:21) I'd be happy to... In that part, I I'd be happy to check and come back to you. Mr. Lynch: (01:54:24) That would be great. And Madam Secretary, would you again talk about what happens upon default and what that means for the American people? Janet Yellen: (01:54:34) It's a catastrophe. We can end up with... We're likely to end up with a financial crisis, surely a recession, and millions of individuals who are counting on checks from the government not receiving those in a timely fashion, and long-lasting consequences of higher interest rates for everybody who borrows. Mr. Lynch: (01:55:03) Thank you very much. I yield back, Madam Chair. Ms. Waters: (01:55:04) Thank you. The gentleman from Wisconsin, Mr. Steil, is recognized for five minutes. Mr. Steil: (01:55:10) Thank you very much, Madam Chairwoman. Chairman Powell, Secretary Yellen, thank you for being with us here today. Out of the gate, Secretary Yellen, I'd just like to note that the proposal for bank account reporting that you do not believe to be an invasion of privacy, I'd just like to be on the record that I believe that this would be an invasion of privacy, and I remain concerned with it. I'd like to jump over to debt to GDP. In a previous question, you noted that crossing the threshold of 100% of debt to GDP in the United States, now roughly 105%, was not fiscally irresponsible. Is that correct? In a comment to Mr. Torres, he was examining the [crosstalk 01:55:52] Janet Yellen: (01:55:52) I believe we're in a place where we can certainly bear the burden of the debt now and in the future. Mr. Steil: (01:56:02) And you believe that because we're currently in a low inflationary environment with low interest rates, is that accurate? Janet Yellen: (01:56:11) That's right. But I'm assuming that interest rates, as the economy recovers, will move up to a more normal level, in line with the forecasts of many professional forecasters. Mr. Steil: (01:56:21) And in the event that the inflationary rate increased beyond that current forecast by the experts that you're speaking with, that would increase the burden on the debt, would that then become fiscally irresponsible to have a debt to GDP ratio over 100%? Janet Yellen: (01:56:37) Well, it depends what happens to real interest rates in the economy. If they were to rise significantly, that, of course, poses a risk that we need to take into account. Mr. Steil: (01:56:50) I think we should absolutely take it into account. I'm very concerned with the spending proposals from the Biden administration and the impact that that would have in the event that we enter a more inflationary period where interest rates increase. Janet Yellen: (01:57:01) I want to make clear that the proposals from the Biden administration are neutral with respect to the debt path, that the projections that we have shown display essentially a level debt path over the next 10 years, and beyond 15 years substantially reduce the outstanding debt to GDP ratio. Mr. Steil: (01:57:25) I remain very concerned about the debt path that the Biden administration is taking us on a whole array of spending proposals that we're seeing. Mr. Steil: (01:57:34) Let me shift gears slightly over to you, Mr. Chairman Powell, if I can, and build on this topic, as it relates to inflation. It's something I've spoken with you many times about, in particular in this committee in July and last December of last year. And in those times, you've suggested, and I think you've continued to state the Fed's not ready to take action to head off inflation, yet we're continuing to see prices to increase. We saw consumer prices increase 5.4% year over year, more recently, and continuing... Regardless of what the White House press team says, I think people are really seeing the impact of higher prices day in and day out. Mr. Steil: (01:58:14) Now, I know that you've said many of these you believe to be transitory, that you think they'll come down. But here's my concern, is that individual and the public expectations are beginning to change, as people truly see the price increases when they go to fill up their car with gas, when they go to a grocery store, when they go back to school shopping. In a recent poll, we saw 87% of Americans said they're concerned about inflation, and New York Fed reported that consumers expect to see higher inflations over the medium term. And so could you provide a little color as to what you think, how the Fed's going to respond to consumers expecting to see inflation? Jerome Powell: (01:58:53) Well, essentially, what would need to happen for inflation to remain high year upon year upon year is we'd have to have a new inflation regime in which people began to enter their psychology, and they began to think that it was coming and expect that it was coming. Mr. Steil: (01:59:10) But with all due respect, don't we see that evidence in some of the Fed report that showed that people are expecting inflation, or no? Jerome Powell: (01:59:18) Well, we don't measure these things precisely, but we do measure them a lot. And there are many, many different measures. And broadly speaking, those measures are at levels that are consistent with our 2% inflation goal, not for the near term, but for the medium and longer term. But nonetheless, that's the right issue. We monitor that care very carefully. And to the extent we were to see expectations broadly drifting up [crosstalk 01:59:43] and the regime changing, we would certainly use our tools to make sure that inflation is consistent with our goal. Mr. Steil: (01:59:49) I appreciate you tracking this, because I believe as Americans are looking at the runaway spending here in Washington, DC, without a long-term plan to pay for it, that these expectations of inflation will continue to increase. And as the expectation plays out, as you noted, I think we'll see real inflation in the future having a significant impact on the debt burden that the GDP ratio holds. Recognizing the time, I yield back. Thank you for being here. Ms. Waters: (02:00:14) Thank you. The gentlewoman from North Carolina, Ms. Adams, is now recognized for five minutes. Jerome Powell: (02:00:20) Mute. Ms. Waters: (02:00:26) Please unmute. Ms. Adams: (02:00:36) Thank you, Madam Chair. Secretary Yellen, Chairman Powell, thank you both for being here. I'd like to follow up on the question that Senator Brown posed to both of you on, I think, Tuesday. He raised an excellent point that no black woman has ever served on the Fed's board of governors, and you both indicated that you want diverse viewpoints represented at the highest levels of our economic policy making bodies. And last year, we had our own [inaudible 02:01:06] directors testify before us about their efforts to diversify your entities, but I'd like to hear directly from you both, what are you doing in your respective organizations to encourage appointment and hiring of black and brown women at all levels of seniority, and have you considered recruiting on the campuses of HBCUs and other MSIs? Janet Yellen: (02:01:30) Well, I can start off and say that we have a very active program at all levels of the Treasury Department, including political appointments at recruiting a diverse workforce and leadership. And I think if you look at the appointments that we've made or proposed, that we've made good on that commitment and continue to give it the highest priority. With respect to the Federal Reserve, I and others will provide advice on nominations to the President. Will be up to him to nominate individuals to serve the Fed board, and we certainly will ensure that he a diverse slate of candidates to consider in making these appointments. Ms. Adams: (02:02:32) Thank you. [inaudible 02:02:36] Jerome Powell: (02:02:35) We work very hard to recruit diverse talent, diverse people to the board, and we work very hard to keep and make sure that the people that we do succeed in recruiting have good opportunities, are included in opportunities to learn and have as many opportunities as they can have, so that they can have a career at the Fed. It's a very high profile focus for us. Ms. Adams: (02:02:58) Thank you. Secretary Yellen, it's always a pleasure to have you before us. In case you don't know, like you, I was a professor for over 40 years, and I tell folks all the time that I might not be in the classroom anymore, but I still enjoy educating those of us here in the Congress. And so if you don't mind, I'd appreciate it if you'd take us back to the classroom and help educate us a bit. So do you believe economic recovery is strong enough to handle the withdrawal of current pandemic relief efforts? Janet Yellen: (02:03:27) Well, I think the relief efforts have been very important in stimulating a strong recovery. And I mentioned in my opening remarks that we are outperforming, the United States is outperforming most other developed countries in the strength of our recovery due to those efforts that Congress has made. And there will be fiscal drag next year. Namely, we had a good deal of impetus or stimulus this year, and it will diminish substantially next year. Nevertheless, most forecasters in the administration believe that the recovery will continue and that private spending will be sufficient to have us pass the baton to it and keep the economy growing. We've proposed... We're in the middle of, as you know, with reconciliation and the programs under consideration there are really spread out over 10 years, provide some modest stimulus in each of those years, but at a much more level [crosstalk 02:04:44] than the rescue plan or oriented towards structural issues in the US economy. Ms. Adams: (02:04:52) Thank you. So now we know our mission here is to ensure that the economy continues to recover for all Americans. So if Congress fails to raise our statutory debt limit by mid-October, what would the effect be to the economy? Janet Yellen: (02:05:04) It will be devastating to the economy. We'll be unable to pay our bills for the first time in American history. It could provoke a financial crisis in a recession, and it will harm every American. Ms. Adams: (02:05:22) Thank you. It's irresponsible... I believe that my colleagues in both the House and Senate would risk our recovery from this pandemic for political points. So I'm glad that you hear that you... I'm glad to hear that you agree. And I look forward to this body protecting all Americans by doing the right thing and raising this debt ceiling. Madam Chair, I yield back. Ms. Waters: (02:05:42) Thank you very much. The gentleman from South Carolina, Mr. Timmons, is now recognized for five minutes. Mr. Timmons: (02:05:49) Thank you, Madam Chair. And Secretary Yellen, Chair Powell, thank you for being here with us today. Just yesterday. Speaker Pelosi gave oxygen to the idea that President Biden has the ability to mint a trillion dollar commemorative coin made of platinum, deposit it in the Federal Reserve, and then use that to pay our bills. A number of other members have adamantly promoted this proposal to include Congressman Nadler. And just Tuesday, my colleague across the aisle tweeted hashtag mint the coin. Chair Powell, please tell me you think this idea is as ridiculous as it sounds. Jerome Powell: (02:06:26) Really, that's not a question for me. Mr. Timmons: (02:06:27) I had a feeling you would say that. I just wanted to start there. Madam Secretary, please tell me that this is not a legitimate policy proposal and that this is not something that we're considering. Janet Yellen: (02:06:38) I believe that the only way to handle the debt ceiling is for Congress to raise it and show the world, the financial markets, and the public that we're a country that will pay our bills when we incur them. And [crosstalk 02:06:55]. Mr. Timmons: (02:06:55) I really appreciate that response more than you can possibly know. Thank you so much. That cuts some of the next few things I was going to say short. We are not going to mint a trillion dollar coin. We're not really... These are not serious policy proposals. Mr. Timmons: (02:07:11) Speaking of serious policy proposals, I want to talk about what Congressman Kustoff and Congressman Hollingsworth touched on, the idea of... Well, I guess it's changed because as the Biden administration proposed it, it was originally all transaction histories of any account with more than $600 in or out of it. So, you testified not 15 months ago that it now, in reconciliation, is not being considered. It is just the account balance. So it's changed. Janet Yellen: (02:07:39) I never said that the administration ever proposed collecting detailed transaction data from individuals. That is never anything that the Biden administration contemplated. Mr. Timmons: (02:07:53) So you just said it's changed since the original proposal to what is now being considered. How did it change? Janet Yellen: (02:07:59) A little, few additional pieces of information were contemplated for businesses and [crosstalk 02:08:09] Mr. Timmons: (02:08:09) Those are no longer being... So it's getting better. It's moving in the right direction because I've had a number of banks and credit unions reach out to me. It's remarkable. Generally, they do not agree. They are in agreement that this is a terrible proposal. So I know that we're trying to figure out how to pay for five trillion dollars of spending. But this is not... Just as mint the coin is not a serious policy proposal, this is not a serious policy proposal. Janet Yellen: (02:08:33) This is a very serious policy proposal. We have a seven trillion dollar estimated tax gap that we have a great deal of tax avoidance by individuals in businesses... High, typically very high net worth, high income individuals and businesses that have opaque sources of income that are not paying the taxes [crosstalk 02:08:59]. Mr. Timmons: (02:08:58) Respectfully, what does that have to do with $600 accounts? That's every single account of, what is it, 99% of Americans? Janet Yellen: (02:09:06) Well, listen, banks already report interest amounting to over $10 to the IRS on every account in the country. And this proposal involves two additional pieces of information that it are not at the level of individual transactions. And this will help low income individuals who now are disproportionately subject to audits by the IRS. Mr. Timmons: (02:09:35) We had a hearing [crosstalk 02:09:37]. Janet Yellen: (02:09:36) This will do is let the IRS focus its compliance [crosstalk 02:09:40]. Mr. Timmons: (02:09:40) Madam Secretary [crosstalk 02:09:42]. Janet Yellen: (02:09:42) On those individuals who [crosstalk 02:09:44] avoiding paying the taxes [crosstalk 02:09:45]. Mr. Timmons: (02:09:44) Reclaiming my time. Madam Secretary, please. We had a hearing just yesterday in this very room about the underbanked and the unbanked. And one of the biggest concerns is about privacy. And so, for us to make it far more challenging for people to trust the very system that we're hoping that people use, the banking system, the backbone of our economy, we're moving in the wrong direction here. And I appreciate that we have changed the expectation from the original proposal to now it's being considered in reconciliation, but the American people don't want this. They don't think it's reasonable. And I'll go ahead and... This is what's going to happen. It's going to get pulled out because there's no support from the American public, and it's just not going to happen. With that, I yield back. Thank you. Ms. Waters: (02:10:25) Thank you very much. I'd like to thank Secretary Yellen and Chair Powell for their testimony today. Without objection, all members will have five legislative days within which to submit additional written questions for the witnesses to the chair, which will be forwarded to the witnesses for their response. I ask our witnesses to please respond as promptly as you're able. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. This hearing is adjourned. And I thank our witnesses so very much for being here. We have the hard stop now, right at 12:15. We're on time. Thank you very much. [crosstalk 02:12:51] (silence)