mike pompeo put it, this is an america that isn its bac foot, our friends don't trusts e -- our advsaries insufficiently fears, mr. speaker. iouldn't agree with him more and yield back. the spear proempore: pursuant tolause 12-a of rule 1, the chair declares the house >> with that in mind, i'll

yield. thanks, mr. chair. .a chair brown: senator tester f montana, is recognized. thank yr being here, chair powell. we appreciate your work. difficult situation. but i think you have done a really good job. thank you for that. look, success at the fed mandate for strong employment and stable prices is critical for smallsin. for farmers, ranchers, for montana families. you fall all the metrics. from perspective, where is

the economy at? now and where is it going? chair powell healthy, sustainable pace. that's the one thing. second thing, the labor market is very strong and quite tights. 3% -- 3.7% unemployment for the last 24 months. that's the longest period since 50 years. third is inflation. inflation was too high. it's come down sharply since the beginning of last year. the head line number has come down from the 5 down to 2.4. the core number is at 2.8. i think it was atear ago. these are big declines. we are in a very different place. a healthy place. we are going to use our tools to keep that strong economy, keep e we continue to make progress on inflation. senator tester: one of the areas where there has been inflation, i don't know where it's at now. but food rose quite rapidly.

i'm a farmer. we didn't get much of that. we didn't get any of it. prices now compared to what they were a year ago are actually off. compared to six years ago they are up. compared to a yea down. my question to you, chairman powell, is there anything you can do specifically to deal with food costs? chaipo his business, but if you look at the food cost to the consumer, part of that is commodity costs. that was partly spiked because of ukraine grains and oil and that theufpblgt the rest of it is a lot of costs in the supply chain it leaves the farm to get collected and processed and trucked around and put on the shelves and in the stores. all those costs are just part of the general economy. as the labor market cools off from its overheated status two years ago, you will see, and you have seen, food inflation

flattening out. the really high rates of inflation have come down. the prices have senator tester: correct. i would just say that cattle's doing better. grain actually has dropped in price at them debate with you at all. we probably agree but it would take too long, too much time. we have other stuff. chair powell: i would be learning from you. senator tester: you discussed in previous hearings the impacts the pandemic shutdowns and supply chain issues have had on economies, globally. how does the u.s. economy look today compared to our competitor nations? particularly china?r powell: i e advanced economies. we are doing the best of anybody. we have the strongest growth and lowest inftinced economies. china is a whole different story. china is having significant difficulties with its economy right now. they are in a very different place than we are. senator tester: to repeat what i

heard you say, the economy ofd) the united states is basically in better shape than any other economy in the world? chair powell: major economy, yes. senator tester: challenges out there is housing. in communities across this country. whether you are in montana, a city in ohio, workforce housing in particular is a top priority, top commodity. plenty of folks, great organizations working to address this. i meet them every day and i appreciate the work they are doing. how do these housing supply issues show up in the data that the fomc uses to make decisions? chair powell: housing prices don't go into the d housing starts and renovations, things like that, are business activity. that shows up. when it comes to infla■■

imputed rent. then we look at rents. that's how we look at that. we are not affected by changes in housing prices. over time those will drive rents up. senator tester: are thereomic tr housing? chair powell: yes. two big things going on. one is, we have this underlyinig shortage of housing due to things like difficulties of zoning. a lot of close in to cities, places already built. more difficult to get get peopld materials. that's one thing. that's not going away. then there is just a ton of things happening because of the pandemic, because of inflation, because of higher rates. those are in the short-term, those have really -- they are weighing on the housing market. as rates come down, and that all goes through the economy, we are still going to be back to a place where we don't have enough housing. senator te: for your work. i appreciate it. thank you. chair brown: senator cramer of

north dakota. senator cramer: thank you, mr. chairman. chairman powell, good to see you. it's been a rather uneventful couple of days considering you spent two days in this place. i don't --im that-tkeurpbl' notg to upset -- i'm not going to upset that. i did appreciate your response earlier to senator scott when he asked about immigration. he said the fed hasn't been assigned that. i want to bring up something us you and you talked about over the years, that is climate. the role of climate in your job, climate risk, banking. you oven said, the most common statement was, we should stick to our knitting. stay in our lane. similar to what you said probably to senator scott. in oe fed, the o.c.c., fdic issued climate guidance as you kw institutions.

i'm just curious did congress somewhere along the line give the fed authority over climate policy as well? is that another one of those things somebody took on? i realize you are not the dictator, only the chairman of the fed. i would be interested as the chairman your views. chair powell: our assignment is the safety and soundness of banks. they understand and can manage the risks tha assignment. we said in climate world we would do two and only two things. one was to do an illustrative stress scenario -- not stress scenarios, scenarios, climat--a. the large banks who are subject -- they are already doing it. they are doing business internationally and don't have a choice. we said we wld do that. we also said we would offer guidance on -- not on level of climate risk or anything like that. just on what had you to do to be in a position to assess. for my thinking that's what we

are doing. we are not doing -- there are no new initiatives. we are not our capital requirements to reflect climate risk or anything like that. i'm really determined that we are not a climate policymaker. that is really the business of elected officials. senator cramer: thank you. i'm going to bring up another topic. that's central bank digital currency. i think from a lot of my friends out there i think there is -- know there is some confusion. i'm easy to confuse. there are a lot of people that is meant by the administration's admonition to continue researching, spaeurplting, hraoging at a digital bank sentry currency. i think people back home look at that and go oh, my gosh, they are going to control this now. could you maybe just differentiate a little bit what people think of in terms of a bitcoin or their held digital currencies what a central bank

digital currency, who in my view, should emulate cash. it sheul should be about the dollar. it still should be about the dollar. could you explain to people back home? chair powell: we are nowhere near recommending let alone adopting a central bank digital currency in any form. the idea is as technology has evolved money has become digital. but the government doesn't issue digital money. it's digital if you look at the bank account, people don't hold those dollars. the thought was the government could create a digital form of money pe could transfer among themselves. that raises a concern that if that were a government account, the government would see all your transactions, that's something we would not stand for or do or propose here in the united states. that is how that works in china, for example. but ts not -- if we were ever to do something like that. we are a very long way from

thinking about it. we would do this through the nk want, we the federal reserve, would be to have individual accounts for all americans or any americans for that matter. only banks have accounts. that's the way we'll keep it. it's just it's a question of following technology as it evolves in a way that serves the public better. people don't need to worry about central bank issues kurpbcy. nothing like that is remotely close to happening any time soon. senator cramer: that was helpful. thank you. chair brown: senator cortez masto of nevada is next. senator cortez masto: thank you for your good work. i want to talk a little bit about the commercial real estate and what's happeni financial sty oversight council's 2023 annual report identified commercial real estate as a financial risk. and the feds'so noted commercial estate prices continue to

decline, especially in the office retail and multifamily sectors. i'm especially concerned that because of the low levels of transactions in the office sector, prices have not yet fully the true decline in the value. can you expand on the eamericanning risk the federal reserve has identified in the curious, can you discuss the compound risks identified in commercial real estate lending, particularly at banks with large c.r. e. concentrations and high fractions of uninsured deposits? chair powell: sure. let me i think there are very, very few transactions in commercial real estate right now, particularly in the troubled areas. it's not a queiofalling, it's an you don't have the price discovery. you just have to assume the prices are very low and have come down a lot. on commercial real estate, we have a secular change in people

working from home. this is one big part of it. that means that in many cities the downtown office district is very under populated, there are empty buildings in many manger and minorit retail that was there to service the thousands and thousands of people who work in those buildings, they are under pressure, too. banks will have made loansgs. not all of them, but many. this we have known for some years. what do we do? we have banks that have high commercial real estate concentrations, particularly office and retail. and other one that is have been affected. we identify them and we are in dialogue with them around do you have your arms around this probwlem? do you have enough capital? do you have enough liquidity? a plan. you'll take alsos here -- losses here. are you being truthful with yourself and owners? we have been working with them. for some time we have been doing

that. this is a problem that we'll be working on for yearse i'm sure. there will be bank failures. this is not the big banks. if you look at the very big banks it's not a first order issue for any of the large banks. it's more smaller and medium-sized banks that have the issues. we are working with them. we are getting through it. i think it's manageable is the word i would use. it's a very active thing for us and the other regulators. it will be for some senator cortez masto: do you have concerns -- let me ask you this. as you are talking with these small and medium-sized banks, we know there will be a contagion we have seen in the past, do you have concerns that if the financial sector? are you prepared or trying to address that and prevent that from happening? chair powell: we arerying to stay ahead of that. we also reached out to banks that had high concentrations of uninsured deposits and

particularly uninsured deposits and a lot of commercial real sector. we are well aware of that issue. just trying to stay ahead of it on a bank by bank basis and overall. so far we have been able to do that. senator cortez masto: let me jump to another issue that has been on my rye tkar. the federal housing financial agency's report on the federal home loan banks included -- concluded that the distinction between f.h.l. banks roll and that of the federal reserve discount window of lenders of last resort has not been cleared, especially during times of market stress. during the 2023, we saw banks rely on advances from advances from the federal home loan banks and didn relationships with the federal reserve to use its discount window. i know you talked a little bit about that with senator warner. how is the federal reser home loan banks to ensure that banks establish protocols to borrow from the fed's discount window

prior to times of stress? chair powell: we work with the federal home loan banks because in many cases banks were moving their loan from the federal home loan bank to the fed. we need to have smooth transfer -- we need to be in good touch with them. even more important than that is that banks, any bank in the united states, needs to the dis. know how to be able to access it. be able to access it. have appropriate collateral. have control of that collateral. in many cases it would just -- it was incredibly inefficient and took a long time for banks to through that function. the home loan banks are ahead of us in technology. we know that we need to really invest in technology to modernize the discount window. we need to do more to get our banks, all of them, in touch with the discount window in a way they can use it quickly should they need to do so. senator cortez masto: thank you.

chair brown: senator hagerty of tennessee is recognized. senator hagerty: under your tenure, mr. chairman, the fed has taken the stands that the 2% inflation target shouldn't be viewed as a snapshot in time but rather needs to be achieved, quote, sustainably. when inflation was running well above the 2% target back in 2021 and early 202 2-rbgs the fed was patient -- 2022, the fed was patient and allowed rates to offset below inflation that occurred prior. it strikes me odd now while we are still well above target inflation, and have been for the prior year, market seems to expect the fed to immediately cut even before we reach the 2% inflation threshold. my question is, does the inflation rate reaches 2%, would that be considered a return to the target rate on a sustainable basis? or is it still the case that

inflation would need to more or less overcorrect well below 2% before the fed makes the rate cut adjustments? chair powell: we -- it would take us a while to really get comfortable that inflation had settled sustainably at 2%. that's not our test for changing interest rates. interest rates right now are in restricted territory, they are well above neutral. we would not wait for inflation to get to 2%. ne works with long lags. we have said for some years that we would start restoring the federal funds rate toí a more normal, almost neutral level. we are far from neutral now. we do plan -- assuming the economy moves along the lines we expect, we do plan on starting a process of dialing back restrictions. senator hagerty: i know we allod the economy to overshoot when inflation was high. and we sort of made up for prior

years of low inflation. trying to scare that with the fact -- chair powell: we didn't do that. we adopt add framework that said we would do that. suddenly a few months later we got almost an explosion of very high inflation. that's not what we were looking. we said moderately above or modestly above 2%. this was not modestly above. we reacted. we thought that the mistake we made we thought that that inflation would go away. it was transitory, it goes away quickly without effort by us. we figured out at the end of 2021 that was not the case and we acted. senator hagerty: you don't see that abrupt dynamic the other way? chair powell: i think we are in the right place. we are waiting -- we are waiting to become more confident that inflation is moving sustainably to 2%. we do get that confidence. we are not far from it. it will be appropriate to begin to dial back the level of restriction so we don't drive the economy into a recession rather than normalizing policy.

senator hagerty: go to the balance sheet and talk about that. we have seen a dramatic expansion of the fed's balance sheet over the past couple decades n2005 it was $800 billion. it's $7.5 trillion today. doubled since the pandemic was under way. through quantitative tapering the fed is attempting to reduce its footprint. the concern i have is on the other hand government spending tends prove will i gatt -- profligate. we are running a $1 trillion deficit every 100 days. we are flooding the market with treasury debt and putting pressure on interest rates as well. what's lost on many of us here is the spending levels will only make your job harder when it comes to lowering interest rates, not to mention there is a tacit expectation that the fed will step in once the markets can no longer absorb our new issue lance. i think this -- issuance. i think this deserves more

attention. we are at the point your objectives may be very much at odds with the behavior of our physical policy. am i missing something or is increased net issuance by the treasury lead to higher rates? chair powell: in principal more supply should lead to hoddestly higher rates. that's not going to affect what we do. that's not a problem for us. our balance sheet normalization is running very much as expected. we have decreased the size of our holdings by almost $1.5 trillion. senator hagerty: i think it's troubling we continue to put physical pressure by continuing to put -- we are run ago testifies of $1 trillion every 100 days. the issuance is required to deal with that. putting more pressure on the fed. making your job harder. i think we need to take that into consideration. another component of this topic, like the fed to shift holders toward a larger share of short-term treasuries. prior to the financial crisis about a third was in bills.

now they are around 3% of your total securities holdings. do you share the goal with governor waller? if so, how long would it take to us get there? chair powell: a while. that's an issue in our fomc meeting in a couple weeks we are going to have our first really deep dive on what to do with the balance sheet. that's one of the issues. i don't think we'll deal with that at this meet, but over time you love to own not a lot of m.b.s. i can see a case for shortening the maturity. it's not something that would happen quickly. we are not actually looking at that. that's sort after longer term aspiration. senator hagerty: we talked about this before. we are in an election year. you are getting pressure i hear from lawmakers to adjust rates. i'm not saying to raise rates or lower rates. i'm here to emphasize the fact the credibility of the fed remains to be data driven. the reserve currency of the world depends on that and i encourage you to maintain that posture. chair brown: senator warren from

massachusetts is recognized. senator warren: it's been a year since we had the second, third, and fourth largest bank failures in american history. greedy bank executives were part of the problem. the fed as the chief leg r*eg later of the biggest banks was part of the problem. under your leadership and direction, the fed steadily weakened rules for the biggest billionaire banks. exactly the banks that failed last march. in other words, chair powell, your job to keep these big banks in line. when these banks blew up, you went in to spin mode, promising the fed would do better. after years of hemming and hawing you finely agreed to put in place basil 3 rules that would strengthenal standards for the biggest banks. and i mean the biggest banks. these are the fed's proposed rule would apply to only 37 of the nation's 4,500 banks, only the banks that have $100 billion

or more in capital. chair powell, when you testified before this committee last june, i asked you about taking responsibility for bank failures. and you said, quote, the main responsibility i take is to learn the right lessons from this and to undertake to address them so we don't have a situation like this where we had unexpectedly a large bank fail and spread contagion into the banking system. end quote. as part of learning those lessons you also said, quote, that you agree with and support, end quote, vice chair for super vision barr's recommendations for strengthening the fed's rules and super advisory practices for the big banks, and that, quote, confident -- you're, quote, confident they would lead to a stronger and more resilient banking system, end quote.

i just want to be clear. you haven't backed down from any of your comments from a year ago, have you chair powell, right lessons, don't let this happen again, supporting vice chair barr's recommendations, which include stronger capital standards. chair powell: no. senator warren: still stand by that? i'm glad to hear that. i understand those 37 big banks don't like higher capital rules because they are like insurance. they would make the banks safer but they cost a little moneynips profits. so these 37 banks are swinging their very considerable weight around to try to weaken the capital rules. they spent tens of millions of dollars running ads during sunday night football and millions more for an army of lobbyists to try to twist arms here in congress. impressive spending, but who exactly are they trying to

impress? a man on the inside? despite all you said last year, when the banks failed, about suppting vice chair barr's recommendations to strengthen rules for big banks, public reporting now says that you are driving efforts inside the fed to weaken the capital rule. you even told the house financial services committee representatives yesterday that you think it's, quote, very plausible, close quote, that you withdraw the rule. as one analyst put it, i don't think they will they won't pass a final rule without powell's support, suggesting that the rules will have to be appease p. chair powell, i'm having trouble reconciling the statement you made last year, which you say you hold on to, statements you made when the headlines were all about three giant bank failures,

and now your reported efforts to quietly weaken the rules that would strengthen capital standards for giant banks and prevent more bank failures. let me just give you a chance to clarify the record here. are you committed to finalizing the strongest version of the basil three capital rules this year? chair powell: let me first say that we have taken and are taking many more steps to deal with the problems that revealed themselves at silicon valley bank. that's around supervision -- senator warren: i'm asking about the basil three rules. chair powell: basil three rules are not directly related. they are not the thing that is directly related to silicon valley bank. they are a longer run thing. and i would just say that we put them out for comment. we got the comments. anybody's free to go read the comments. my view is that it will be

appropriate to make material and broad changes to that before we finalize it. in terms of -- i didn't -- senator w to strengthen the rules? chair powell: material and broad changes. we are talking about what that will mean in the end. i did not say that we would withdraw theule. i said there is a consefpt reproposal. i said, we hadn't made a decision on that. if that turns out to be appropriate, in the view of the board of governors, that's something we would look at doing. senator warren: everything you said a year about supporting the vice chair, who is responsible for writing these rules -- chair powell: you and i had a long -- if you read it again. senator warren: i have. chair powell: you will see i am doing exactly what i sa i would do. senator warren: you said you would support vice chair barr to get us strong rules. now he is putting o rules --■ñ chair powell: that was about silicon valley bank. the vice chair for supervision has every right to bring proposals to the board.

colloquy you are not the comptroller of the currency. when i do monetary policy i have one vote. there are 11 other voters. that's the way it works. it's not different from the srao*euts chair for super vision. senator warren: are you the leader of the fed. when the heat was on you talked a lot about getting tougher on the banks. now the giant banks are unhappy about that and you have gone weak-kneed on this. the american people need a leader at the fed who has the courage to stand up to these banks an protection our financial system. thank you. chair brown: sesnator danes of montana sr-bgd. senator danes -- montana is recognized. senator danes: i can tell you montanans are continuing to see the impacts across the board from inflation that's been brought on by the policies of this administration and by colleagues across the aisle. i commend you for the job you have done in trying to rein in inflation and encourage you to continue to fight despite political pressures you may

face. last time i checked it's going to get more political around here between now and november. i'm also encouraged contrary perhaps to my colleague from massachusetts, i'm encouraged by your comments yesterday that there will be broad changes to the basil 3 proposal which as currently proposed would have significant detrimental impacts to small businesses.vailability lastly, i commend your answer yesterday that the fed is not a climate agency■q4i in considerig the impact of climate change is not a factor in achieving your given mandate, congressional mandate of maximum employment and stable prices. mr. chairman, i recently joined many of my colleagues in writing to you about my concerns about the long-term debt proposal that would mandate regional banks issue new long-term debt. i'm concerned that this willve t

on smaller regional banks because they are required to hold their long-term debt at both the parent holding company and insure deposit bank levels. n explain how this aligns with the tailoring requirements set forth in the financial reform bill that we passed back in 2018, senate bill 2155? chair powell: i have a longer term debt proposal that lines with that. first of all, that's been out for comment on that one, the comments are n we are reviewing it. i don't want to say too much, but the theory of it in the first place was that they are -- those banks are not subject to the living will process to the extend that the g-sibs are. this was a middle step to make them more resolvable without imposing all of the burdens that we impose on the hg-sibs to have

elaborate resolution plans. that was the thinking, i think, ■7on the calibration of it. we have voluminous comments. we are looking at them. we'll make an assessment and move forward as appropriate. senator danes: i know our smaller regional banks would be happy to hear that thoughtful deliberation, mr. chairman. understandably you had to raise interest rates to fight the fires inflation brought on by reckless democrat spending. however a major side effect of that is the impact the rising rates are having on the cost of servicing the out-of-control national debt. senator hagerty alluded to this in his questioning minutes ago. looking at c.b.o. reports, interest payments on our debt will increase 32% this year, and will now exceed spending for the entire defense department. i have significant concerns, many do here in was&q eventually

reach a point where fiscal policy and monetary policy converge. meaning that the fed would ultimately have to worry about the impact rate setting would have on government debt or even potentially the risk of a default. chairman powell, i know fiscal policy is not in your purview, but could you ever foresee a situation where fiscal irresponsibility snowballs to a point that the fed would have to factor this into its decision makeing? chair powell: i think we are a long way from that. that's a real -- that's a terrible place to be. that's a place where some poor emerging market countries have found themselves over the years. for the united states to get to that point i think it's unlikely. i do think, it's not our business, we should stay out of this fiscal business, i'll say what other fed chairs have said, we really need to get back to that discussion about fiscal

sustainability. both sides need to get together. the kinds of things that have to happen can only be done on a bipartisan basis. i really hope that we go back to a place where those discussions are happening again. senator daines: i have heard from a number of stakeholders about upcoming changes to lech biddity regs, including an ultrashort-term liquidity requirement. as with any policy decision establishing the facts matters, it's important that financial regulators have a complete thorough understanding of the financial environment before releasing a half-baked proposal rule or guidance. my queiodo you believe is a sufficient time period that would allow your agency to accurately calibrate new sound and reasonable liquidity requirements. chair powell: that is a great question and one we are struggling with. particularly with all the other things goi on. we are looking at some -- this

is in response to silicon valley bank. we are looking at some liquidity innovations and asking ourselves what form that should take and how long it should be up for comment. we are not ready to do that. that's the question we are asking. senator daines:: follow on question and i'm finished. will you confirm prior to the federal reserve issuing any new liquidity requirements it will first conduct all necessary data collection that would allow for meaningful analysis of all potential policy options? chair brown: please keep your answer short, mr. chairman. chair powell: maybe. chair brown: that's very short. chair powell: i don't want to make a specific commitment like that without talking to the people who are carefully in touch with this. that is the right thought. chair brown: thank you, senator. senator fedderman from pennsylvania is recognized. senator fedderman: --wé senator

warnock sits down the next five seconds, are you ready? you're so generous with each other. >> i'm happy to have the junior colleague -- chair brown: senator fedderman is recognized. senator war■snock is recognized from georgia. senator warnock: thank you, chairman. thank you very much, mr. chairman. bank spending buy backs is rising again. the consumer small revenue has increased. interest rates are high. the interest being paid to depositors ordinary working families, working people with bank accounts. not a lot of money in wall street accounts remains low.

chairman powell, i'm concerned that when banks don't increase the inst rates on bank accounts, families are losing outs on dollars that could be in their pockets. again, they don't have the portfolios that some of the folks in this room would have. is that good for the economy? are you concerned that banks under your super visidoing this? chair powell: not paying sufficient -- senator warnock: correct. chair powell: that's a question iy? haven't heard. they have the option of putting money in money market funds. and banks compete with each other. i'll be happy to look into that. i hadn't heard that concern. senator warnock: i think it is worth taking a look at. many lower income individuals and families, they don't have some of the sophisticated products, money markets are available, but we saw high interest rates and that not being reflected depositor is able to benefit

from. could those individuals and families benefit from a high interest rate on their deposits? chair powell: sure. for a long time we had az8 lot f mail from people at the fed -- to the fed saying you should raise interest rates because we are not getting anything on our checking accounts. we solved that problem. senator warnock: i don't think we are asking for that. given the reality -- let me pivot, the monetary policy report states that while demand for housing has fallen, the strong labor market has kept prices high, that matches what i have bee in georgia. too many folks can't afford a home. according to the monetary policy report, mortgage rates were averaging around last month. that's tough for lower income home buyers. increases of just a percentage point or two can be the difference between owning a home or not. are you concerned about this

interplay between lower demand yet stubbornly high prices and what it means for folks trying to buy a home? what do you think is driving these high prices? chair powell: the market is in a very challenging situation right now. you have this longer run housing shortage, but at the same time you've got a bunch of things that have to do with the pandemic and inflation and our response with higher rates. you have a shortage of homes available for sale because many people are living in homes with a very low rate mortgage they can't afford to refinance so they are not moving. which means the supply of regular existing homes that are for sale is historically low. and very low transaction rate. that pushes up prices of other existing homes and also of new homes. there is just not enough supply. the builders are busy, but they are running into all kinds of supply issues still around zoning and workers and things like that.

it's quite challenging. rates are high, so people who are buying, a lot of the buyers, are cash buyers, able to pay without a mortgage because the mortgage is expensive. will i say the first problem, the longer one problem, supply, is a longer run problem. the other problems associated with low rate mortgages and high rates and all that, those will abate as the economy normalizes and as rates normalize. we'll still be left with a housing market nationally where there is a housing shortage. senator warnock: no question we have a supply issue. this issue of high prices, lack of supply, of course disproportionately impacts some communities more than others. according to the monetary policy report, the employment rate for the black prime age labor force, persons between 25 and 54, reached a historic peak in 2023. the gap between black and white prime age employment dropped to

nearly 50-year low around 3%. we can appreciate progress for the 3% gap is still significant. would you agree that it is important to continue, to continue focusing on narrowing this gap. if so, what tools does the federal reserve have to do this work? chair powell: it's very important. the single best thing we can do is get prices under control, inflation under control so that we can a long expansion with the record is clear, a long expansion really gives significant benefits to people at the low end of the income spectrum. because the labor market gets very tight, inflation is low, and they benefit more than anybody. that's where we were before the pandemic. we'd like to get back to that place. senator warnock: i think there are some other legislative tools the congress i'm happy to continue to work with the chair in the ways we have already done to improve that rate. that difference. thank you. chair brown: senator from

wyoming is recognized. senator lieu miss: thank you -- senator lummis: thank you, mr. chairman. nice to see, mr. powell. my first question is about cdbc's.there's been chatter latn the social media that people are concerned about the fed cing a cdbc without legislative authorization. you and i have discussed that before, and as you know there are other means other than a cdbc that could use digital assets to create a secure and instant payment system other than a cdbc.his, do you still agree that the federal reserve cannot introduce a u.s. central bank digital congressiol authorization? chair powell: i do.

senator lummis: thank you. that calms people's fears. the people who are concerned that we could end up with something like the digital yuan used as a means of surveillance. i think that will calm some of those discussions down. thank you so much. my next question is about your core c.p.e. as you know there's a disconnect between how you measure inflation and how the american people see inflation, because the american people are spending their money on gasoline and ren. things that have gone up a lot. and they hear about these improvements in the economy, that they are not seeing in their everyday lives. can you explain what measures you use to evaluate inflation? just explain to the american

people why you don't factor in the things they spend money on every day like food and gasoline? chair powell: actually, we do. our statutory target is inflation.e inflation. if you look at headline inflation over the last 12 months, that's it, that's our goal, it's 2.4%. core inflation is higher than that. it's 2.8%. the reason is that some energy and food prices have come down. those don't count in core. our overall legal target is headline inflation which is -- our best effort to cost of living that people face. it's not perfect. you have to make all kinds of adjustments thatre i mentioned housing earlier. how do you measure housing inflation. lots of issues. that's what we target. the reason we look at core, though, is that headline inflation tends to be more volatile and tends to be pushed

around by commodity prices which really don't relate:l to the overall state of the economy. so core tends to be a better predictor of overall inflation than overall inflation is. i know that's complicated, but ultimately our target is headline inflation which does include food and energy. senator lummis: mr. chairman, i'd like to include a letter in the record that senator till list and i -- tillis and i and two democrats on this committee have submitted with regard to basil 3. chair brown: without■wh objecti. senator lummis: my question is this. what do you think is more likely that it will be harder for ers to buy a house and small business to obtain a loan under basil 3, or will lending just migrate outside the banking system which may be harder to assess because it's opaque?

chair powell: i didn't get your question. with regard to basil 3, if there are more constraints on lending activity, what is more apt to be the consequence of that? that it's harder for consumers to buy a house or a small business to get a loan? or that lending just migrate outside the traditional banking system? chair powell: if there were anything that constricted credit in the banking system, they would probably be both things. probably fewer loans made, but in addition there would be nonbank lenders more happy to make the loan. senator lummis: i have a chicken and egg question here. starting with tarp in has been e printing of u.s. dollars up

until today. and particularly went on hyper drive during that 22-month period of covid. my question is, which comes first, congress spending more and so you respond by printing more money, or are they separate considerations? chair powell: it's hard to get my mind around that question. we don't print money to fund the deficit. that's not what happens. but when the government borrows, it borrows. it issues -- basically the government borrows to fund deficits is what happens. senator lummis: right. so that would indicate to me that you do respond because we in creating a demand to borrow. and you're responding --

chair powell: we are not making loans. we are not lending money to the government. we are not financing these deficits. senator lummis: so there is no chicken and the egg relash really, no. i'd have to think about this. i got to think about the way -- why don't we continue this? senator lummis: i'd love to. your thoughts earlier about fiscal sustainability and how we could work with you and bipartisan, maybe next year, to address these issues. when you have to be careful because what you say has ripple effects outside of this building. buuld sit down with you on a bipartisan basis and have those discussions in a frank way. chair brown: senator fedderman of pennsylvania is recognized. senator fedder -- all right.

senator van hollen of maryland. t me start by thanking senator fedderman for allowing to question. mr. chairman, good to see you. real wages are up. that's good news. over the last couple years wages have been going up. that means more families have more spending power in their budgets, right? chair powell: yes. senator van hollen: worker productivity is up, right? chair powell: it is. senator van hollen: corporate profits are up? chair powell: i believe so. senator van hollen: worker productivity's rising faster than corporate profits, right? chair powell: i don't know the answer. senator van hollen: the charts i show suggest that. that in last corporations decide to pocket was profits more of the gains they get from their workers' labor that we should be able to

continue to have increases in real wages, is that right? chair powell: yeah. senator van hollen: it's important for people to recognize these corporations are doing better than ever. and they are deciding now to essentially return the gains made through their workers' productivity, which is going up. more to shareholders, obviously, but the question is whether or not workers share in that profit to the extent of their worker productivity. as you know we have seen a great gap over decades between rising worker productivity and real wages. we are hoping to close that gap. would you agree that it would be good for a more inusive economy if worker wages tracked worker productivity increases? chair powell: i think if you

include benefits, that's a significant part of that gap. i looked into that, but not for some years. generally speaking people's compensation should equal -- should be over time equal to increases in productivity. senator van hollen: i appreciate that. i also want to -- there is the tradeoff on workers' wages, d also an issue with price gouging. we have seen record profits. we have also seen very high prices, these corporations are charging for things like groceries. i listened to a little bit of exchange with the chairman earlier, and of course i think your answer was people will charge what consumers will p but it should be known that these corporations are reaping much larger profits now than we? chair powell: some of them are. i'm not super focused on

individual corporate profits. corporate profits have been high overall. senator van hollen: they are high for a couple reasons. one is that they are charging consumers, for example, the grocery stores, a lot of money. and the other would be if they are not sharing the benefits of labor productivity with their employees. i think because we have heard a lot of claims by some ofur republican colleagues about the causes of price increases, and i think it's very important that american consumers recognize that corporations are choosing to charge them more at the grocery store, or engaging in things like shrinkflation rather than -- in order to ha m