About this transcript: This is a full AI-generated transcript of Federal Reserve Chair Kevin Warsh Senate hearing from Associated Press, published July 22, 2026. The transcript contains 21,671 words with timestamps and was generated using Whisper AI.
"good morning today today the committee welcomes chairman Kevin Warsh for his first semi-annual monetary policy hearing since taking office I know it's been seven weeks but it probably feels like a couple of years we are really happy to have you with us and really excited about the direction of the..."
[00:00:00] Speaker 1: good morning today today the committee welcomes chairman Kevin Warsh for his first semi-annual monetary policy hearing since taking office I know it's been seven weeks but it probably feels like a couple of years we are really happy to have you with us and really excited about the direction of the Fed today is about how the Fed is serving the American people and how chairman Warsh is working to combat years of mission creep at the Fed and restoring the Fed's credibility especially to the general public the decisions that the Fed makes affect everyday life in South Carolina and around our country for example those decisions affect the mortgage payment a couple is trying to afford the credit card bill single mom is trying to pay down and the decisions a small business owner makes about whether they can afford a loan or not frankly the Fed even has impact on the interest rate environment as you know ranking member and I spent over a year working on a housing bill that will actually help us increase housing supply help us expedite the process of building a house through NEPA reform it'll create more diversity in housing selection at the end the remove of the chassis requirement these are important issues that will make housing affordability incredibly easier but it will never get to the main point of interest rates interest rate something that you control that we don't control we want you to follow the facts however because that is really important for the long-term durability of our economy but in North Charleston where I grew up families do not talk about monetary policy Kevin they just don't talk in those terms but they fully understand the principle that when prices rise faster than paychecks it's really hard to make their ends meet that is why affordability must be at the center of our conversation the Federal Reserve has a mandate to pursue and promote a strong labor market through maximum employment and stable prices those are serious responsibilities I'm glad that you are the man for the job and you've taken it seriously they require clear thinking steady leadership and the commitment to follow the data no matter the political ramifications it also requires understand the forces shaping our economy including AI's impact on jobs wages productivity and prices independence is not a slogan it is a responsibility and the best way for the Fed to protect its independence is to stay focused on its mission for too many years the Federal Reserve drifted into issues outside of its core responsibilities and America paid a price for it mission creep makes the Fed less accountable and undermines public trust I am encouraged by the steps that you are taking to reform our central bank this that starts with a more disciplined approach to how the Fed communicates moving away from overly detailed predictions about where interest rates might be going in the next several months is a helpful step to make sure the Fed is able to adapt when conditions change families small businesses and markets are better served when the Fed follows the data in front of them not a forecast that may change in an instant less guessing and more discipline will help the Fed stay flexible credible and focused the five independent task forces that you set up also sends a very important signal that the Fed is willing to start from its core principles and pursue thoughtful reforms to deliver on a statutory mandate you and I had a quick conversation before walking in here and I wanted to note that I think that the working groups are fantastic and frankly I think that the composition of the working groups really important one of the things that we talked about was a balance sheet working working group I must concede that I'm a fan of Abraham Lincoln's approach of these team of rivals and it seems like you have Jeremy's time you might know Jeremy from Harvard as well as the former governor of the India Central Bank Mr. Rajan they have very nicely put competing approaches and philosophies about the balance sheet but if you're going to be intellectually honest you need to have a serious debate about what direction to go and frankly how to get there and so I'm really excited about what you're doing there and I look forward to hearing how that works out for you for the Federal Reserve and more importantly for the American people because unwinding a balance sheet the size that we have today is going to take a deliberate effort that will have to be paced properly not to create instability and volatility in our market so thank you for taking on seriously as AI reshapes the economy the Fed should understand its impact on jobs productivity and prices and the financial system without using technological change to expand its mandate that same discipline should guide the Fed's approach to bank regulation the US banking system is sound and resilient but we cannot take that for granted preserving that strength requires regulation and supervision that are clear appropriately tailored and focused on real real risks according to the July 2026 monetary policy report bank capital is near historically high levels as the Fed finalizes Basel 3 endgame and other capital rules it should pursue better calibrated requirements that preserve resilience without unnecessarily restricting lending when capital is stuck on the sidelines a family in urban South Carolina may find it very difficult to get a mortgage a small business may find it hard to get a loan a community bank may spend more time satisfying Washington than serving its own customers that is why this committee will continue pressing for regulations that protect the system without cutting off access to credit I want the Fed to be very successful we need the Fed to be successful prices become more stable when your job is done well markets gain confidence wages grow and more families have the opportunity to save invest buy a home and live their version of the American dream welcome today ranking member
[00:06:28] Speaker 2: floor is yours thank you mr. chairman and welcome back mr. Warsh so about two months ago you appeared in front of this committee for your nomination hearing and you refused to answer basic factual questions I assume because you are afraid of contradicting President Trump your answers during the hearing were so troubling that this committee had a party-line vote for Fed chair for the first time ever in our history you were confirmed by the Senate in the tightest vote for a Fed chair in US history so you now face an uphill battle to show that you have the independence needed to run America's central bank and to serve American families and not just President Trump and his billionaire friends now President Trump's corruption and failed economic agenda is raising costs across the board inflation has kept real wages from growing for the third consecutive month that means in the Trump economy families are falling behind with with less to spend every day that goes by high interest rates are making mortgages making mortgages auto loans and credit cards more expensive more and more people are falling falling behind on their bills 95 percent of Americans believe that the US is suffering and
[00:07:55] Speaker ?: affordability crisis while President Trump continues to call affordability a hoax telling Americans their concerns about the cost of living are made up lower interest rates would provide some relief to families but the Fed hasn't lowered interest rates and may be forced to raise rates even more all because of
[00:07:55] Speaker 2: one man President Trump now the president knows this so instead of changing course he wants to take over the Fed installing you as Fed chair was a critical part of his plan you reportedly told the president uh... exactly what he wanted to hear in your Oval Office interview and Trump confirmed it afterwards saying quote worse things you have to lower interest rates now for your part you were the only member of the last Fed meeting who declined to submit economic projections projections that are supposed to show how the Fed's decisions under your leadership are likely to affect American consumers who declined to submit economic projections projections that are supposed to show how the Fed's decisions under your leadership are likely to affect American consumers and American workers people might look at that and conclude that you don't have to have an Oval Office interview in an Oval Office interview and Trump confirmed it afterwards saying quote Warsh thinks you have to lower interest rates now for your part you were the only member of the last Fed meeting who declined to submit economic projections projections projections that are supposed to show how the Fed's decisions under your leadership are likely to affect American consumers and American workers people might look at that and conclude that you don't want to tell the truth about inflation under Trump Trump may have you in his pocket but he will not stop until he controls the Fed and he just needs one more seat to do that and that's why he has had his Department of Justice open bogus criminal investigations into both Governor Lisa Cook and former chair Jerome Powell and that is why he illegally tried to fire Fed Governor Cook his own Supreme Court recently blocked the firing at least for now but Trump has vowed to try again to fire Governor Cook the fight for control is a fight over interest rates but it is also about corruption President Trump likes to play king and the Fed offers many appealing opportunities for the president to enrich himself while he fleeces the American people start with crypto Trump's family crypto company is world liberty financial the centerpiece of the crypto enterprise that let him rake in 1.4 billion dollars in 2025 alone now it is currently applying for a bank charter after that after that charter is granted by Trump's own bank regulator world liberty could seek special privileges from the Federal Reserve to juice its own profits like a master account that would give Trump's own company direct access to the Fed's core payment rails and there's more if he can control the Fed Trump could threaten to revoke bank's access to Fed services if they refuse to do his bidding. He could hijack the Fed's extraordinary powers to bail out financial markets making sure that he rewards his friends and punishes his enemies in a crisis. And you better bet that Trump will turbo charge the Wall Street deregulation that is already underway juicing mega bank profits and CEO bonuses knowing that American taxpayers will be on the hook once again if there's another devastating financial crash. Congress and the American people will be watching closely whether you serve the public or whether you become yet another instrument of Donald Trump's crash. Congress and the American people will be watching closely whether you serve the public or whether you become yet another instrument of Donald Trump's corruption. Thank you, Mr. President.
[00:11:19] Speaker ?: Thank you, Mr. President. Thank you, Mr. President.
[00:11:19] Speaker 2: Mr. Chairman. Thank you, ma'am. Chairman Warsh, thank you for being with us. The floor is yours. Five minutes. Thank you very much.
[00:11:25] Speaker ?: Thank you very much, Mr. Chairman.
[00:11:25] Speaker 2: Ranking Member Warren. Other members of the committee, good morning.
[00:11:27] Speaker ?: It's a privilege to join you.
[00:11:27] Speaker 2: It's my first appearance before this panel as chairman. whether you serve the public or whether you become yet another instrument of Donald Trump's corruption. Thank you, Mr. President, Mr. Chairman.
[00:11:38] Speaker 1: Thank you, ma'am. Chairman Warsh, thank you for being with us. The floor is yours. Five minutes.
[00:11:43] Speaker 3: Thank you very much, Mr. Chairman, Ranking Member Warren, other members of the committee, good morning. It's a privilege to join you. It's my first appearance before this panel as chairman, and I'm particularly honored to represent my superb colleagues from across the Federal Reserve System. In submitting the Monetary Policy Report, I can't help but think of a long line of central bank chiefs who came before the Congress in keeping with the Federal Reserve Act, and I can't help but think of the best of the Fed's traditions. As a country, we just marked our 250th year, and when Americans count our blessings, we can include an economy predicated on the brilliance of our constitutional design and system of ordered liberty, an economy without equal in all it's done for human flourishing. Some forms of communication, including some that the ranking member referenced, are discretionary, but not this one, and for good reason. It's a prudent and wisely conceived obligation designed to keep the Fed responsible, accountable, and faithful to the mandate that you gave us of full employment and price stability. These obligations are of a piece with the Fed's rightful independence in the conduct of monetary policy. Today, we're at a hinge point in history, and it's up to each of us, myself included, to meet this moment. The Fed's number one objective is to get monetary policy right. That's our clear and constant aim, the star by which we steer by. And if we get policy right, and we will, the inflation surge of the last five years will be a thing of the past. Just a month ago, I chaired my very first FOMC meeting. My colleagues and I recognize that high inflation has been an undue burden on American households and businesses. And while monthly fluctuations are inevitable, especially in an unsettled world, underlying inflation over longer-term horizons is determined largely by monetary policy. As I've said before and will say today, inflation is a choice. The members of our committee have no tolerance for persistently elevated inflation, and we share a resolute commitment to restore price stability. That was our focus when we met a month ago, at which we decided to hold the target range in the federal funds rate at 3.5% to 3.75%. Naturally, our work at the Fed demands a proper reading of economic conditions. As you might have seen in our report, economic activity is expanding at a solid pace, showing resilience in the face of recent developments. Household consumption, growth is moderate, and manufacturing output has moved up steadily this year. The housing sector, however, strikes a different note. It gives a different picture and continues to lag. I want to highlight the most striking feature of our economy right now, and its business investment. It is a surge in capital expenditures. Compare that to what we've seen for a long, long period of financial engineering. This is a better situation. The rapid rate, the rapid pace of CapEx, which appears to be accelerating, reflects in large part the construction of infrastructure, including in and around AI and the immense demand for AI-related equipment and software. Investment and equipment overall increased about 8% for the year in the first quarter. Within that category, high-tech spending logged an especially impressive growth rate of about 25%. We don't yet know the extent to which the economy will benefit from this build-out. Yet it seems inevitable, at least to me, that what is now called AI investment will soon just be called investment. Even so, new opportunities for the economy introduce new challenges for policymakers. We at the Fed are monitoring the implications for the inflation and for the labor market. That brings me to the supply side of the economy, a subject worthy of equal attention, where productivity growth has been strong. And I'll note that this productivity growth predates gains from AI adoption. America's labor force appears to be broadly stable. Job creation has kept pace with the workforce. The unemployment rate low, and has changed little, quite frankly, over the last year. We're seeing relatively few layoffs, and only slight variance in the rate of job vacancies. Solid growth in nominal wages, too. I've been heartened by the welcome I've received, and by the encouragement of my colleagues. We have a duty to point the institution forward, to take a fresh look at current practices, to make sure we're serving our objectives, and we're going about it systematically. As the chairman referenced, I appointed a task force in each of five areas that are central to the conduct of monetary policy. I'll just reference them and close. First, Fed communications. Second, our balance sheet policy. Third, our use of existing data. Fourth, productivity and jobs. And finally, the Fed's inflation framework. Our purpose here is to make better decisions in the conduct of monetary policy, and put these years of high inflation behind us. We are the Federal Reserve, Mr. Chairman, and as determined as ever, to fulfill our mission. Thank you, and I welcome your questions.
[00:17:27] Speaker 1: Thank you, Chairman. Each member will have five minutes to ask questions and get answers, and I'll start that off. And I'll start off with your working groups. I think credibility equals transparency. And the names that I've seen on your working groups, from Doug McMillian, former CEO of Walmart, to Marc Andreessen on productivity and AI, tells me that you're serious about getting real-world experience and expertise involved in making decisions at the Fed. I want to give you just a minute of my time to walk us through perhaps one or two pieces of that, as we talked about, the importance of having contrast on the committee, on the working groups. Really important from my perspective. I think it lends itself to having more confidence in the Federal Reserve. I want to give you a minute to talk about one part of it, and then I want to move quickly to AI.
[00:18:18] Speaker 3: All right, let me be brief, Mr. Chairman, but you're highlighting something that's awfully important. All institutions, including the Federal Reserve, which I am so proud to lead, filled with great people, on occasion, we need to bring new ideas to the fore. And after 63 months of inflation above the Fed's target, it struck me that any new leader should arrive at this organization and look to the very best minds that we could find. There's a lot of great ones at the Fed, but there's a lot of great ones that aren't even in the economics profession. And I reached out to 15 people who I have known and trusted, with a diversity of views, to see whether they would take the most important questions that are going to be the determinants of monetary policy, and the determinants of the economy in the next five years, and see if they could sharpen their pencils and do their best work. It's a move towards transparency and new ideas. I'll just give one example before turning it back to you. So, in the last couple of days, we've gotten data on consumer price index. Today, on the producer price index. Any central bank would be happy to have the data going in the right direction. My view is these are all imperfect measures of the state of underlying inflation. So, one of the task forces is going to see whether we can do better, have better data from external sources, and even better ideas as to how important organizations like the Bureau of Labor Statistics, the Bureau of Economic Affairs, might think about how they could do a better job in an evolving economy.
[00:19:52] Speaker 1: We met just a few weeks ago with Dr. Phelan, who's slated to be the head of the president's economic advisors, and we talked a lot about artificial intelligence and the impact that we'll have on our economy and whether or not it will destroy jobs, create jobs, and ultimately, at the end of the day, his conclusion was it'll create more jobs. I think intelligence has an opportunity to change how we do so many things. And much of the debate, for me, can be bifurcated into automation, things go away, and augmentation, people make more money because production goes up. And you've argued that perhaps there's a way for us to see a reduction in interest rates because of the increase in productivity. One of the things standing in the way of that conversation is what's happening in South Carolina, where data centers are meeting real headwinds. New York has basically banned them. We have a moratorium in parts of South Carolina because of issues like electricity bills, water use, aesthetics. So getting to the future that we're talking about and frankly, beating China in this AI race might come down to something as important as electricity bills and water usage, which could prevent us from having a serious conversation about productivity gains. Thoughts?
[00:21:10] Speaker 3: Yeah, it's I can't think, Mr. Chairman, of a more consequential change to the U.S. and global economy in my life. In my adult lifetime, then the surge of investment and the potential in around A.I. That's part of the reason why one of my task forces is to focus on what's the effect of this general purpose technology on both parts of the Fed's mandate on ensuring stable prices, but also on full employment. You gave us both parts of that. Yeah, we don't have any legislative orphans at the Fed. There's no disfavored part. I would say it is a huge opportunity, but it's not without challenges. I'll make two other brief points. I think the United States is extremely well positioned to be at the cutting edge and extract more productivity, which should be good for U.S. companies and U.S. workers than any other country in the world. Any other country would exchange positions with us in a moment. The second thing is I do want to make it clear that in the near term, I think this investment is probably quite good for jobs as we're building out the infrastructure. And over the long term, my best guess is that this will improve American productivity and will improve the real wages and will help us on full employment. But between the short term and the long term, it can have a disruptive effect, and we're attuned to that, and that's part of the reason why I wanted to shed some new light on it with some outsiders.
[00:22:41] Speaker 1: My time is up, but I will submit one question for the record around the issue of indexing our regulatory thresholds. We've seen so much growth in the last, since 2019, that our institutions might need to see a little calibration, a recalibration on the thresholds that we have put upon them. Ranking Member Warren?
[00:23:03] Speaker 2: Thank you, Mr. Chairman. So the Federal Reserve has long been plagued by a culture of corruption and coziness with Wall Street. Over the last five years, at least six senior Fed officials have been implicated in serious ethics scandals related to personal stock trading and self-dealing. But instead of trying to repair this broken culture, I'm concerned that you seem to be embracing it. At the time of your nomination, you owned more than $100 million worth of shares in private investment vehicles called the Juggernaut Funds and THSDFS LLC. And you refused to disclose the underlying assets to the Senate and to the public. You say now that you've sold those shares. In other words, somebody wrote you a check for more than $100 million days before you entered office. Chair Walsh, who wrote that check?
[00:24:06] Speaker 3: Senator Warren, this is a discussion you and I had in the public square seven weeks ago. And I'm thrilled to tell you that I fully honored the obligations I had under the office of the agreement I had with the office of government ethics. And there is continued disclosure, which I'm happy to make as consistent with the agreement.
[00:24:24] Speaker 2: Very specific question. Who gave you $100 million right before you were sworn in? Was it a billionaire who has business with the Fed? Was it Stanley Druckenmiller, who's made billions of dollars betting on what the Fed does? Or was it a different billionaire? Who gave you the money?
[00:24:44] Speaker 3: I will fully comply with the office of government ethics. That's not an answer. Well, it is an answer, actually, Senator, because there are obligations.
[00:24:53] Speaker 2: It's a hundred million dollars that you got just before you were sworn in. And you won't tell the American people where it came from. Let's go to another incident. As you know, the Fed imposes a blackout period where senior Fed officials are prohibited from talking about economic issues with outsiders. The idea is to, quote, "reinforce the public's confidence in the transparency and integrity of the monetary policy process." In other words, no one gets some special insider information from the Fed. But shortly after your first FOMC meeting as chair, right in the middle of the blackout period, the Fed's vice chair for supervision, Michelle Bowman, was reportedly the featured guest at a secret dinner hosted by Bank of America for its hedge fund and Wall Street clients. At this closed-door dinner, she reportedly spoke about both monetary policy topics and regulatory policy. Now, I've called on the inspector general to review her conduct, but you're the guy in charge. As chair, you set the tone on culture. Did Vice Chair Bowman provide any non-public information to the attendees at that secret dinner or discuss any regulatory policy matters that are subject to open comment periods?
[00:26:19] Speaker 3: Senator, I agree with one of the premises of your question, which is I do set the culture. Good. After my very first week at the Fed, I sent a letter to the 21,000 people at the Fed outlining our culture.
[00:26:33] Speaker 2: I appreciate that, but we have very limited time and a very strict chairman. So, can you just answer the question about the vice chair and her secret meeting?
[00:26:43] Speaker 3: Sure. I'm happy to, to the extent I can share it with you. I, um, uh, the vice chair has been an excellent colleague in my first seven weeks. I'm aware of the letter you sent to the inspector general out of an enormous respect for him, his investigation, what he chooses to do with it. I'm going to leave to him to do without trying to micromanage that. So you support- And I'd be interested in the judgments that he, that he comes to.
[00:27:07] Speaker 2: So you will support his investigation. Have you made your own investigation? Did you ask her if she spoke at a secret meeting during the blackout period?
[00:27:16] Speaker 3: I agree with the suggestion, um, that the inspector general is an independent actor. And I'd be very interested in his decision. I know, you're the guy in charge.
[00:27:24] Speaker 2: You just said you're the guy in charge. Did you ask her about the secret meeting that took place? Did you ask her?
[00:27:33] Speaker 3: I, I can answer a simple question, which is I wasn't at the meeting. I understand that. I don't know the facts. No one thinks you were- But I'd be very interested in the fact finding being done by an independent inspector general.
[00:27:44] Speaker 2: Did you care enough to ask, how can you be chair and not ask your own vice chair whether or not she violated the blackout period, violated the law?
[00:27:54] Speaker 3: I think it'd be inappropriate for me to pre-judge facts that are being discovered by an independent actor.
[00:27:58] Speaker 2: I don't know how you pre-judge them if you don't ask.
[00:28:01] Speaker 3: Well, I don't know how to pre-judge them if I wasn't in the attendance of a meeting.
[00:28:05] Speaker 2: So just tell me, did you ask?
[00:28:08] Speaker 3: She's been an excellent colleague.
[00:28:09] Speaker 2: Did you ask?
[00:28:10] Speaker 3: I've asked her a lot of things about supervision and regulation. Yeah, I think that's one more question you don't want to answer. Because we've been busy doing a lot of real work over the last seven weeks.
[00:28:17] Speaker 2: I've got to say, I'm going to take the same time you did. I just got to say.
[00:28:20] Speaker 1: You hope so.
[00:28:21] Speaker 2: The tone that you are setting is one that seems to invite corruption, and that's going to be a real problem.
[00:28:27] Speaker 3: We've had seven weeks, Senator Warren, and we've set a tone of performance, accountability, responsibility, and integrity. Senator Rollins has the floor.
[00:28:37] Speaker 4: Senator Warren: Thank you, Mr. Chairman. Mr. Warsh, welcome to your first meeting. Senator Warren: Thank you, Senator. Senator Warren: Let me give you an opportunity. I think -- I've got some questions that I think are important with regard to the Basel III and what we're going to do with it. But before we get into that, I think you've been basically harassed a little bit in terms of making accusations to you. Let me give you just a minute to perhaps respond in a just straightforward manner to some of this stuff. Anybody give you $100 million? Senator Warren: No, Senator.
[00:29:13] Speaker 3: No one did any such thing.
[00:29:14] Speaker 4: Senator Warren: Possible that you may have had assets that were sold based upon an agreement that you had had as you became the nominee for the chairmanship? Senator Warren: Yes.
[00:29:26] Speaker 3: I had earned assets over a long period of time and went over and above any ethics agreements and have sold -- or in the process of selling -- have nearly completely sold everything I had earned during that period and have rolled those into the equivalent of cash and T-bills.
[00:29:42] Speaker 4: Senator Warren: So basically away from investments based upon the market and back to treasuries.
[00:29:54] Speaker 3: Senator Warren: Yes, exactly right. I thought that that was the prudent thing to do given the responsibilities and the importance of setting the tone at the top. Culture is the big driver of a lot of things. And in my first seven weeks, Senator, we're doing our very best and the best of the Fed's traditions to get the culture right, to get the strategy right, and to get policy right. And if we can do those things, all of which are to the left of the decimal point, might not be of such great interest to people that are trading on Wall Street. But I think the decisions we make to the right of the decimal point can be better, so we can do a better job of fulfilling the mandate you gave us. Senator Warren: Yeah.
[00:30:30] Speaker 4: Senator Warren: The ranking member had asked a question with regard to another member on the committee, Nikki Bowman. And you indicated that if there was an accusation being made as to an inappropriate meeting, that if the inspector general was doing it, that you were going to be hands off on it. Seems to me that that's pretty appropriate. Because if you would have gotten involved in it, the accusation from some members on this committee would have been that you were trying to influence it.
[00:31:00] Speaker 3: Senator Warren: Yes.
[00:31:00] Speaker 4: Senator Warren: Can you talk a little bit about the logic? Am I on the right track with regard to the reasoning that you have for allowing the inspector general to do the job that they were asked to do in the first place by members on this committee?
[00:31:13] Speaker 3: Senator Warren: Yes, Senator, you're exactly on the right track. I'll just say more broadly that my fellow governors, my reserve bank presidents, they've received me incredibly warmly. I admit that I show up with a lot of ideas for reform in monetary policy and supervision regulation and payments. I've only been there a short while, for seven weeks. But instead of an institution acting inert, what I've found is my colleagues are really open-minded to change. What I've found is we're going to have a good family fight. I'm not imposing ideas. That's part of the idea of the task force, as the chairman referenced. But we're going to try to be better at our jobs, fulfill our mission, be accountable, be responsible, and do it all with the utmost integrity. That's my intention. We're early into this. I don't want to prejudge outcomes. We've made a lot of progress in a short period of time, and frankly, I'm proud of it.
[00:32:06] Speaker 4: Senator Warren: I like the idea that you're putting together working groups. I think that will give an opportunity for a fresh look at a lot of things going on. As I shared with you in a phone call earlier, it's not a matter of being necessarily vindictive or angry with previous chairs or previous members. It's a matter of making things better for the American people. And that's really what we ought to be talking about today. So let me just in the minute and 14 seconds that I've got left on mine, let me talk a little bit about Basel III in particular. I think you and Vice Chairman Bowman and the respective financial regulators, I think you've done a good job in terms of your roles with regard to the Basel III re-proposal that was issued this March. The 2023 proposal would have substantially increased common equity capital requirements for category one and category two banks by approximately 19 percent, failing to strike a balance between maintaining resiliency of our banking system and doing so without hampering lending. I think this is a really critical item next to what artificial intelligence is going to do in terms of our productivity. I think it's one of the biggest issues out there. With the June 18th comment deadline now behind us, are there any other categories of feedback that you're weighing more heavily than others, such as the adjustments to leverage ratios or anything along that line? And if I could, is there going to be a go-live date this year sometime? Any idea when you might actually be able to talk about when this thing is going to go public for us?
[00:33:33] Speaker 3: Senator, well, thank you for your question on supervision and regulation. As I mentioned before, I've shown up with a lot of ideas for reform, not just in monetary policy, but in supervision and regulation too. When it was before this committee some 20 years ago, there was a debate about what the Basel process should be. Boy, we should get to the bottom of that 20 years later, and we should end up with a set of reforms in the United States that makes our financial system and our banks safer, sounder, and more competitive. It is that competition which provides better and more agile credit to the real economy. The Basel endgame, Senator, is not America's endgame. I am happy to work with international regulators to try to find common views, but we're going to do the right thing for the U.S. economy. As you mentioned, we're out for public comment. I'll be very interested in the comments before we go final with the proposed
[00:34:26] Speaker 1: final rule. Let me just say this is already off to a good start. We're going to stay around five minutes,
[00:34:35] Speaker 5: period. Thank you. Senator Reid, the floor is yours. Thank you, Mr. Chairman. Chairman Walsh, I want to see if I put a cap on this discussion between Senator Warren and Senator Rounds. When will you disclose who brought your assets? When? I believe there's periodic requirements under the ethics
[00:34:56] Speaker 3: laws and I'll fully comply with them. I think the next reporting requirement is at some point next quarter
[00:35:01] Speaker 5: or so. And you will fully disclose who you sold your assets to? I'll fully comply with the law and the ethics agreement. Thank you. AI is making a huge impact on everything we do, particularly the banking system. And as you're aware, an interagency governmental group, commerce, treasury, energy, et cetera, has authorized the major banks, the eight major banks, to use mythos to evaluate their security. Would you agree that it's important for all financial institutions to have access to these types of AI tools so that they could analyze their operations for
[00:35:47] Speaker 3: cyber vulnerabilities? Yes, I think the broad financial system has new vulnerabilities with these new technologies. I wouldn't want to just isolate mythos, though. The other large language models have rival products. The changes, the efficient frontier has changed even in the last month. But as these new models find their way more broadly, our banking system and frankly, the Federal Reserve needs to do
[00:36:11] Speaker 5: all we can to patch any vulnerabilities that we have. What are you doing to ensure that these midsize and smaller banking institutions have access to whatever AI tools appropriate as quickly as
[00:36:25] Speaker 3: possible? Yeah, so I share the sentiment, Senator Reid. We are not the deciders as to who has access, but I have not been shy in sharing my views with authorities across the government about the vulnerabilities and have been asking for access, not just for the Federal Reserve, but for other institutions, to a whole range of these new artificial intelligence models so that they can protect themselves. If you said to me, what worries you over the course of the next several months, I want to make sure that we're as protected as we can be from foreign actors that want to do us harm?
[00:37:02] Speaker 5: Well, let me stay with AI, but change the focus a moment. Recently, Governor Waller and New York Fed President John Williams have warned that AI investments may be increasing inflation, and many economists have similar warnings. So are AI investments current drivers of inflation?
[00:37:24] Speaker 3: This is one of the good family fights. Let me give my own view on it, which might be somewhat nuanced from from the way you just described it and some of my colleagues. The shock of AI, the supply shock of AI, has an effect on demand and supply. We see the effect on demand much more quickly. We see it in the capital investment I referenced. We see it in the prices of chips that are going up. We're inferring, which is just a fancy word for guessing, when the effects will happen on the supply side of the economy. I don't view a one-time change in prices as necessarily being inflationary, because I think there's a supply response. In that way, this is different from a foreign conflict and what it might do, which tends to reduce the supply side of the economy. Will it increase measured prices over the course of the next 12 months? I suspect it will be. Whether that's inflationary or not, that's up to the Federal Reserve, and we're going to have something to say about that.
[00:38:26] Speaker 5: Okay. Now, one of the interesting things about our economy is becoming more and more productive. But one of the disappointing things is that household pay is not rising relative to that productivity. And we're seeing less benefit from productivity gains. So what's driving
[00:38:48] Speaker 3: this trend? Yeah, it's a great question. I don't have a perfect answer to it. Like you, we think a lot about real take-home pay. The part that the Fed can do a lot about is the real part. If inflation were lower, real take-home pay would be higher. That's just the arithmetic. Your other question's a broader one, which is what are we going to see the productivity improvements lead to a surge in wages? Wages have moved up at a reasonable pace, but it's likely that as productivity moves up more, we should see wages move more. Getting that timing right, understanding when that happens, that's a puzzle and it's a puzzle we're
[00:39:28] Speaker 5: going to continue to work on. In the last 10 seconds, will AI eliminate jobs at a catastrophic rate?
[00:39:37] Speaker 3: So you're asking me to prejudge the task force. My short answer is over the long term, absolutely not. I believe that this is a long-term job creator, but will it be disruptive? And will some people have their jobs in jeopardy because of the new technologies? On that, I can't offer any sort of guarantee or comfort.
[00:39:55] Speaker 6: Senator Britt. Senator Britt: Thank you, Mr. Chairman. Chair, thank you so much for being here with us today. Certainly, I appreciate the opportunity to have a conversation and obviously so early in your tenure in this new role. In this year's monetary policy report, one of the most encouraging themes is the increase in business investment that we're seeing across the country. In Alabama and many places, we're seeing companies expand, manufacturers grow, and communities are benefiting from that investment. I believe that these are good signs and that they're also important for the future because they help us determine whether America remains the most competitive economy in the world. My question for you is, as you look at the economy, what data tells you that today's investments are laying the groundwork and the foundation for a stronger long-term growth and greater American competitiveness?
[00:40:53] Speaker 3: Senator Britt: So it's a great question, and thanks for highlighting the capital investment boom. This is what most countries are searching for. This is the seed corn of the next group of job creation and productivity. To be honest, over the last dozen or so years, we have been waiting for the surge in business investment. I know in some academic accounting sense, this is leading to a surge in prices in the next 12 months. I don't want to sound dismissive of it. The surge in prices is real, but I'd sure rather the most successful companies in the world investing in property, plant, and equipment than doing a share buyback. So I'm encouraged by it. The trend is our friend here, and this business capital investment is contributing massively to the GDP we've seen in the last 12 months. My colleagues know I'm not big for forward guidance, but I would guess that that trend continues. What gives me optimism about it? Well, when the private sector deploys this amount of capital, they must see something shiny at the other end of that rainbow. They must see a very good return on investment. That's why they're taking this capital and they're putting it to work. I tend to think that private investment has a multiplier way higher than one. I'll let you and others judge whether that's true of government spending, too.
[00:42:13] Speaker 6: I'm going to go ahead and switch gears because I know we're on a tight time frame today, which I appreciate. And I'm going to follow up on a question that the chairman asked. I'd like to get you to kind of dig into this. Some banks are already approaching and crossing into new tailoring categories, and they're making staffing and compliance and long-term business decisions based on thresholds that haven't been updated since 2019. At the same time, the Federal Reserve continues to rely on those categories and other regulatory frameworks. So my question is, how are you thinking about updating these tailoring frameworks when it comes to what banks can expect to see and proposals in the future?
[00:42:56] Speaker 3: It's a great question. One I take seriously, to be candid with you and the chairman and the other members of the committee. Monetary policy has distracted me a bit in the first seven weeks, but the Federal Reserve chairman is supposed to be the chairman of monetary policy and payments and consumer affairs and supervision regulation. But I can tell you this, Vice Chairman Bowman has been working on these initiatives. She has briefed me about them. And broadly, I'll step back and say modernizing our banking systems, streamlining regulations so that the rules that apply to the systemically important financial institutions are not one size fits all for every other. The secret to the American economy is we have a few thousand banks and other providers of credit who know their smaller markets bigger. I'd rather have that system than what most of our G20 peers have, where they have a half a dozen institutions implicitly backed by their government. I think reform is coming to supervision and regulation. I have my own ideas that might be as dramatic as I've already shared on monetary policy here. And I think the sooner we can get to the bottom of it, the better. If I could say one more thing, the reforms we've been putting in place over the last 15 years coming out of Dodd-Frank, as we learned in the Silicon Valley Bank example, in the First Republic example, they didn't work perfectly. My predecessors had very little choice but then to do another overall bailout. We don't want that to happen again. So we want to tailor the rules and the capital so they serve the best interests of the U.S. economy, which I'd describe
[00:44:30] Speaker 6: as a system that is safe, sound and competitive. And I just hope, given what you've said, we double down on reviewing the framework. We know how important tailoring is and also just the need for regulatory certainty. So thank you for that. In my last remaining seconds, I just want to say thank you for your commitment in the first seven weeks, almost two months, you said it earlier, but to performance, to accountability, to responsibility, and to integrity. Appreciate what you're doing and look forward to continuing to work with you. Thank you, Senator. Senator Warner. Thank you, Mr. Chairman.
[00:45:07] Speaker 7: Chairman Walsh, it's good to see you again. Seven weeks in, you got a hell of a job. Inflation's still too high. How you predict the president's chaotic foreign policy wars in the Middle East. I'm going to come to an AI question, but let me be clear. As I said to you yesterday, I didn't vote for you. But we're going to find a lot of common ground to work together. I am going to hold you and I've been appreciative of your comments about inflation, about the Fed's independence. But I think there are many, many common areas we can work together on and look forward to that. I want to hit, you know, when one of the things that most impressed me in our first meeting was your recognition that probably the biggest issue you're going to face is AI. My two senses, I think it is going to have long term, I agree with you, it's going to be job creation. Very short term, I think you may see some upsurge in terms of, you know, energy production and data center build out. Years two through five, two through six, I think there could be massive economic disruption, particularly towards new college grads. You know, it's a policy maker's job, but if this is going to have the potential effect, I hope I'm wrong, but I wouldn't, I'd take a bet with you that three years out, we could see 30% recent college grad unemployment. If we see that, what do you see if the Fed's role is in terms of urging your actions, but also helping us sort that out?
[00:46:24] Speaker 3: Senator, first of all, I appreciate it.
[00:46:30] Speaker 7: I promise. Don't say nice things about me. He's got me on a clock. Answer my question.
[00:46:34] Speaker 3: All right, good. Well, let me just say. I do indeed. Let me just say this. I appreciate that you haven't given up me, given up on me. I haven't given up on you. I haven't given up on your colleagues. I'm the independent head of a central bank. No matter how people voted, I'm going to be serving all of you. This doesn't count against my time. AI. Let me get to the core of your question. I am more confident that there will be a surge in output because the US is at the cutting edge of AI than any certainty about the effect on the labor market in the next few years. The United States will be a winner. That is my informed judgment. But this is a time filled with both challenges and risks. We take both parts of our dual mandate seriously. Do I believe that the productivity improvements over time will be structurally disinflationary? I do. I believe everything technology touches ultimately gets cheaper. Your background, I think, would be consistent with that. What are going to be the effect on the labor markets in years two through five? It's a fair question. Though I would frame it to you on college graduates. If you're a new college graduate, AI is probably native to you. You've been playing with AI effectively since your high school years. I feel as though you likely have the skills and the intuitions the same way that people of my generation or younger were native to the internet. If you've already been in the workforce for a while and you're a little resistant to change, that's where the encouragement needs to be to think about how these skills can make you more productive. These are fair questions. I don't have easy answers, but I do have a task force. We have to work together because if we hit this
[00:48:21] Speaker 7: bump, and I think it's going to come, we got to collaborate. Now, Senator Reid asked a very good question about mythos. And I 100% agree. Mythos is already yesterday's news. Right. Because these models are coming out so quickly and they pose such security risks. I think it's incumbent because of the risk it provides to our financial system that at some point you're going to be, and I'm asking you now, I think personally, I believe we need some level of mandatory testing pre-release because of the potentially draconian and dramatic effects. Now, how long, who's on that panel is critical. But what do you think about pre-testing release regime going forward, more than just the voluntary willingness
[00:49:02] Speaker 3: of a company to come forward? Yeah, so two things. First, these models are in their capabilities are growing at an exponential rate. In technology, we would say hyper Moore's law. It wasn't long ago, people sitting in my position thought that the US was a time of secular stagnation, all the good stuff had been invented. Boy, that seems awfully anachronistic. We're moving fast. So what can we do? I don't have, as currently structured, decision rights as to who has access. But I do have a bully pulpit, as you mentioned, and I'm unafraid to share my views with the Treasury Secretary and others. The cutting edge is moving very quickly. Key institutions are vulnerable. The sooner they can mitigate their
[00:49:48] Speaker 7: vulnerabilities, the better. I'm looking forward to it. Well, I hope, I hope that you will be willing to advocate moving on beyond a voluntary regime because the down, the downside risk. 12 seconds, you know, quickly address the role of all of the Federal Reserve Banks and your vision of what the
[00:50:03] Speaker 3: role they should play. So very quickly, I'll just say this. We should be good stewards of taxpayer money. We should be consolidating functions where we can. But my mental model, Senator, as I mentioned to you yesterday, is we should have 12 Centers of Excellence. I've got more than 12 problems on my plate. And if each Reserve Bank were to develop an expertise on something that matters to our remit in the American economy, I'd encourage them to develop that advantage. Senator Ricketts. Thank you, Mr. Chairman.
[00:50:31] Speaker 8: Chairman Warsh, great to see you. Thank you for being here and congratulations on your first semi-annual reports. Good to see you here again. We got some good news this week. Inflation was down, well, and that's progress, progress under this administration and under your new leadership at the Fed. During the Biden administration, we saw reckless spending that drove prices up and left Nebraska families to foot the bill. In 2019, the federal deficit was roughly $900 billion. And by 2024, that was $1.9 trillion. And we saw inflation go up 20%, really stressing Nebraska families at the grocery store. Cleaning out this mess is going to take discipline, and it's going to take reform. Chairman Warsh, we discussed in our meeting also how to implement some reforms, such as process improvement. We talked specifically about Lean Six Sigma and the opportunity there. You promised to have a reform-oriented Federal Reserve, and we're willing to break up or, you know, make a break from some of the mistakes of the past. I commend you for that, and want to work with you to see it through. One of the most important places to start is with the Fed's balance sheet, an issue I've consistently raised with other Fed governors. The Fed expanded its balance sheet dramatically during the pandemic, peaking at nearly $9 trillion. Since 2022, the Fed has shrunk it down to about $6.5 trillion in December 2025. And I'm glad to see that the Fed was making progress over the last few years, but the balance sheet is still not down to pre-COVID levels. Actually, the balance sheet is rising again and now stands at around $6.7 trillion today. Chairman Warsh, do you see the balance sheet increasing again as a trend in the right direction or the wrong direction? Senator, thank you for the
[00:52:19] Speaker 3: question. I've been focused on the Fed's balance sheet, frankly, since my last day at the Fed some 15 years ago into the present. I don't want to prejudge the conclusions of this balance sheet task force, where, as the chairman said, I put together a team of rivals to fiddle with it, to evaluate it, to come up with their own judgments. But I'll give you my predilections. Monetary policy is made currently through at least two material instruments, interest rates and the balance sheet. In fact, we grew the balance sheet, created quantitative easing when I served the last time in the darkest days of the crisis, because we had already cut rates to zero. So expanding the balance sheet had the intent of helping markets clear, but it was also another tool of monetary policy. I still believe that is true. And wasn't that supposed to be temporary? Indeed, that was our entry principle, was that we would get out of that business. The central bank has not, for a whole range of reasons, gotten out of that business. My general view is, as we think about inflation risks, and we think about the conduct of monetary policy writ large, we have two instruments that we should be thinking about. The balance sheet is one of them. I'll make only one other point. Monetary policy needs to be architected, needs to be designed by the policy makers around the FOMC. The plumbing, the operations, how we do that is conducted by the New York Fed. I want the architecture to drive the plumbing, not the plumbing to drive the architecture. We're going to make a monetary policy decision with respect to the balance sheet. I'm very open-minded to changes, and any changes we make will be well discussed, well shared, and I think quite deliberate. And the financial markets, who have seen the balance sheet grow effectively for a generation, they'll have plenty of time to adjust if we make changes. I know you said you just wanted to
[00:54:15] Speaker 8: make that one comment, but I'm going to push you to ask for a little more. What is, what do you believe is the
[00:54:20] Speaker 3: smallest balance sheet that the Fed could operate with? My predilection, my inclination is interest rate policy should be the driver of monetary policy. The balance sheet should be as small as practicable to conduct operations. And the balance sheet can expand when there's a crisis. The balance sheet can also expand if an institution needs liquidity. That's part of the reason why we've created a discount window. But a permanently large balance sheet with a duration of assets that are larger than the duration of assets of treasuries, for example, that are held in the broader public markets, boy, that sure seems a little bit more like fiscal policy that I'm comfortable with. So I would like us to have a leaner, meaner balance sheet, but it's a discussion for my colleagues, and I've got three real pros that are
[00:55:11] Speaker 8: going to help us think it through. All right, well, I have run out of time, and I'm sure the chair will be happy that I'm going to maybe get done before it reaches zero. Thank you. But I do have a question I'll follow up with, uh, for the record on scams, because this is something that the banking industry is telling me they're increasingly seeing, and it's costing, uh, people who have deposits a lot of money.
[00:55:31] Speaker 3: So I'll follow up with that. Senator, we're opposed to scams, but I'm happy to follow up. Good to hear. Good to hear. This is great. Senator Van Hollen. Thank you, Mr. Chairman,
[00:55:42] Speaker 9: and, uh, Mr. Chairman, we, we agree on that point. Um, let me, uh, turn to the headline inflation numbers that came out, uh, yesterday at 3.5 percent above the Fed's 2.2 percent target. Prices are too high for families, and we need to get them down. I think we can agree on that. At your press conference a few weeks ago, you said that higher inflation in part, and I quote, reflects supply shocks that have driven price increases in certain sectors, including energy, unquote. In other words, a reason that we're seeing prices go up is that the supply of products and services has dropped in some areas of the economy, right? Yes. And I do think it's important that the public understand the causes of some of these supply shocks. Uh, you would agree, would you not, Mr. Chairman, that the war in Iran has caused a supply shock in the energy markets? Yeah, the military conflicts have caused the price of oil to be higher than it otherwise would. Absolutely right. And Americans are paying the burden of that as we, as we go. Um, we've also seen supply shocks in other areas. Last year, your, your colleague, Austin Goolsby, uh, president of the Chicago Fed said that, and I quote, a tariff is like a negative supply shock, unquote. And we've seen plenty of tariffs. Obviously we have the Supreme Court decision that may bring those down over time, the impact of it. Uh, but the negative supply shocks, uh, have been real and can be traced to the Trump administration agenda. So when you say that supply shocks are part of the reason prices are going up, you would acknowledge that they're the result of decisions that have been made
[00:57:26] Speaker 3: by the president, like going to war with Iran, right? So what I'd say is, um, particular price shocks happen to particular prices that we don't have control over, but I don't want to suggest we don't have control over inflation in the medium term. That's our job, but screw worm affects beef prices. Other things affect oil and oil prices and milk prices. And I, I understand that has an effect on
[00:57:48] Speaker 9: people's household household budgets. Indeed it does. And I think we've seen the, the price of energy go up by billions and billions of dollars. And the American people are essentially paid for that at the, at the pump and other places in their pocketbooks. Um, as you know, your, your predecessor as chairman was regularly harassed and berated by the president of the United States, uh, on social media with respect to interest rates, uh, at least so far you seem to have escaped, um, that, that fate. Uh, but I do think it's important that we have an understanding of whether or not the president is trying to influence, uh, fed conduct. Uh, I know you were asked recently at your last press conference, um, about any communications with the president. I, I think your response was on the president. I don't have anything for you. Mr. Chairman, was that a yes or no with respect to whether you've had communications with
[00:58:44] Speaker 3: President Trump? So I like what I said the first time, Senator, I don't have anything for you. I will say this though. I do meet with the treasury secretary weekly. I talk to him often between that and I'll make my own decisions as monetary policy. I just want to understand the
[00:58:59] Speaker 9: answer. Have you or have you not had communications with President Trump since you took this position?
[00:59:05] Speaker 3: I just don't want to be in the business of sharing, uh, discussions that the president and I have. Okay. I will tell you what I've said to the president repeatedly instead of the treasury secretary. Uh, they chose an independent guy to do an independent job and that's exactly what I plan on doing. And I'd like to think over the last seven weeks, given the decisions we've made and the things we've done, that it's not just words, it's actions now to start to demonstrate that.
[00:59:29] Speaker 9: So, so Mr. Chairman, I, I mean, I think it's important I take from your answer. You've had communications. You don't want to disclose the content. Um, will you commit to do what your predecessor did, which was to release your appointment schedule and conversations with President Trump?
[00:59:43] Speaker 3: Uh, I don't know what the past practice was. Uh, I will be in full compliance with the law. As I understand it, there's an ongoing FOIA request on my calendar and I will share it consistent with the
[00:59:55] Speaker 9: law. Well, this is the first one's already come out. I think this was a, this wasn't in response to, you know, any legal requirement forced by FOIA. It was a question of transparency. And I do think, given the president's past record of trying to influence fed behavior via social media with respect to your predecessor, if he's trying to influence fed behavior through private conversations with you, I think that needs to be something the public is aware of. And I'm asking you whether you will commit to disclosing when you have conversations with the president of the United States. Senator, I can offer you
[01:00:32] Speaker 3: this assurance. Uh, the president has not, uh, before I took this office, before I raised my right hand, he has not tried to influence the conduct of monetary policy. And if he tried to, I would continue to keep my head down and do the job. I don't have a long record, but I've got a seven week record and before that I had a 25 year record. And I think that should count for something. I appreciate that. I hope
[01:00:55] Speaker 9: you'll just follow the precedent your predecessor. Senator Kennedy, the floor is yours.
[01:01:02] Speaker 10: Um, well, Senator Van Hollen's my buddy. So I don't, this is not meant toward him, but I always get a kick out of my democratic friends talking about transparency, you know, toward, toward the end. God bless him. You could, you could bake a Thanksgiving turkey in the time that it took President Biden to walk across the stage. And, uh, they kept it quiet until they couldn't. Uh, I'm sorry he was in that condition, but this transparency stuff cuts both ways. What's wrong with you talking to the president of the United States?
[01:01:48] Speaker 3: So Senator, I've got a wide lens. I'm interested in hearing points of view from a whole range of people. We have a narrow remit. I'm interested what's happening in the world in the Middle East and
[01:01:57] Speaker 10: elsewhere. Is there anything wrong with it? Do you have to, when you do it, do you have to like go out and look for the last phone booth in Washington and put a bag over your head and sneak in there and
[01:02:07] Speaker 3: call him or return his calls? Anything wrong with that? I certainly don't feel uncomfortable receiving a call from the chairman of this committee or the president of the United States. Okay. You,
[01:02:17] Speaker 10: do you think Ben Bernanke ever talked to the president? Uh, I, when I was a governor, I recall
[01:02:23] Speaker 3: several conversations and frequent meetings. How about Alan Greenspan? When I was a young staffer in the White House, I remember being honored by, uh, him coming into the White House and meeting with the president and the president's advisors quite frequently. Okay. The, the, the, uh, I think
[01:02:38] Speaker 10: what I would give me concern. And I think it's the basis for my colleagues concern is that, that, uh, you just do whatever the president says, but you're not going to do that. Are you or are you?
[01:02:49] Speaker 3: Senator, I'm going to call it the best I see it. Uh, the president never asked me to do anything inappropriate. And if he did, I wouldn't do it. Okay. Follow the law and do my best to follow
[01:02:59] Speaker 10: the remit you gave us. Okay. So in the last year or so recent past, I'll say the fed cut rates three times because they were worried about the labor market. Is that a fair assessment?
[01:03:10] Speaker 3: That's my sense of what it worked. It worked. Correct. Well, uh, that's a longer discussion. They, well, is the labor market in a mess today? Uh, the labor market's in good shape,
[01:03:22] Speaker 10: but I wouldn't want to draw the causal connection. So it, so I don't have much time, Mr. Chairman. I love you like a taco, but I'm on, yeah, you don't feel a buster on me. Um, so it worked. Okay. Now, well, now we have inflation. Okay. What caused it? Uh, in 20 seconds,
[01:03:41] Speaker 3: in 20 seconds, inflation, uh, is caused when a one-time change in prices broadened out. I know what inflation is in the federal and the federal, uh, monetary policy, sir.
[01:03:53] Speaker 10: Okay. Well, I would say what caused it is causing it is AI. Um, the conflict with Iran. Duh. Um, and probably the residual effect of the fact that some imports have become more expensive. Okay. And I think any fair-minded person would conclude that. Um, there was a lot of economists said, oh, you know, the impact of inflation on the rise and the cost of imports would be a one-shot deal. You know, you can teach that one round or flat. I don't know. I think it's probably had a residual effect. Okay. Is it temporary? Is it permanent? The inflation? Uh, it's not going to be permanent under my
[01:04:39] Speaker 3: watch, Senator. Okay. What are you going to do about it? So we're going to do three things. One is, for those people in markets that think the Fed really was comfortable with a higher level of inflation,
[01:04:49] Speaker 10: we're doing our best to disabuse them. Okay. You're going to talk about it. What's the second thing
[01:04:54] Speaker 3: you're going to do? We're going to take ownership of it. We're going to say we have the power to do something. Okay. You're going to own it. That's right. What's the third thing you're going to do? We're going to look at our tools in the changing economy, both balance sheet and interest rate, and see whether we need to adjust policy to take it head on. You're going to look at your tools.
[01:05:11] Speaker 10: That's the third thing. Um, I'm not asking you what action the Fed's going to take. That would be improper, Mr. Chairman. I wouldn't do that, and you wouldn't tell me anyway. Um, get specifically, like you're talking to a 10th grader. Okay. Not, no. What are your, what are your, what are your, your options? Leave it alone, right? Leave rates alone. Is it one option?
[01:05:40] Speaker 3: That is an option, Senator. Raise rates. Another option. Uh, cut rates. Uh, a third option, a non-exclusive list of options, but yes. And a lot of it depends on whether it's temporary
[01:05:53] Speaker 10: or permanent. So how do you decide whether it's temporary or permanent? I got that in with six
[01:05:58] Speaker 3: seconds left. Uh, well done. You use five task forces to get to the big and hard questions instead of trying to paper it over with, uh, policies that have not been proven as successful.
[01:06:11] Speaker 11: Senator Cortez Vasto. Thank you, Mr. Chairman. Uh, Chairman Morks, good to see you again. Thank you for meeting with me. Thank you. Um, you've talked about the task forces. What's the timeline for
[01:06:20] Speaker 3: getting reports from the task forces? So, um, um, I'm a, I'm not a very patient person. Uh, people have said that to do all this good work, you'll need years. I gave them six months.
[01:06:30] Speaker 11: Wonderful. Thank you. And that will be made public?
[01:06:33] Speaker 3: Yeah. The, the, the details, the, even much of the deliberations, I want to do that in the public square because we all own, uh, we all own these decisions at the end of the day. Ultimately, decisions will be made by my FOMC colleagues. I think they'll start to get briefings on some of the early reports from the task force, early indications, hopefully as early as September with my expectation hope by year end, we're going to hear their conclusions and decide what to do with
[01:07:00] Speaker 11: it. Thank you. And then just for clarification in January of 2025, do you recall the inflation
[01:07:06] Speaker 3: rate? It was about 3%, correct? I'm going to have to take your word for the precise number,
[01:07:11] Speaker 11: but I knew inflation was still well above target. Yeah, it was about 3% and that's when Joe Biden left office and the current inflation rate right now is about 3.5%. Is that correct?
[01:07:21] Speaker 3: Uh, there are various measures. I'm confident in telling you it's been above target for 63 months. Is it above 3%? Uh, by some measures, by other measures, it's not, but I don't want to suggest I'm happy with any of those measures. I'm not. Okay. I appreciate it. Um, let me talk a little bit
[01:07:38] Speaker 11: about an area that is important for me and I think many states that deal with a, um, hospitality tourism industry. Um, unfortunately under this administration, we've seen significant declines in the number of international visitors to the U.S. The current situation has actually led to our travel trade deficit in this country going from a 51 billion dollar surplus in 2019 to a 72 billion dollar deficit today how does the the federal reserve governors consider the specific impact of higher unemployment lower wages and reduced economic activities in communities with large tourism
[01:08:21] Speaker 3: economies like las vegas so we're we are consumers of this information we are keenly interested in the good side of the economy and the services side of the economy my my view which is not universally shared in the economics profession is that there's no limit to what this economy can grow productivity led growth can move higher and that doesn't tell me it's inflationary but we care about the services part of the economy and we're trying to take that into account we try to make decisions about the
[01:08:52] Speaker 11: dual mandate well i appreciate that because you're right your dual mandate is maintain stable prices and full employment let me tell you what's happening in the hospitality industry because of the policies of this administration when you talk about full employment it is not happening what i'm hearing from people in my state is that it's not necessarily full employment with good wages it and livable wages they're patching together multiple low wage jobs because they are taking down from full employment to part-time employment do you consider that in your analysis going from full-time employment to part-time in many individuals having several part-time jobs how do you calculate that into your analysis so we think
[01:09:33] Speaker 3: hard about it you heard in my opening statement um the the clear judgment of of my colleagues and me which is the labor market broadly looks in balance but i don't want to make that sound like it's easy for hard-working americans in your state and other and else and other places there's a lot of dynamism happening in the economy there's a lot of structural change and during periods of transition it's often true that the labor markets um in aggregate look better than people feel in in different parts and during disruption they try to recreate a job they had before through uh the gig economy and other means we take it into account overall i would say the labor market part of our mandate uh looks pretty good the price stability part of our mandate looks less good all right and and
[01:10:22] Speaker 11: and i i'm i am concerned because not just las vegas but many tourism based industries and hospitality what we're seeing is lower full employment and i would hope and this is a conversation i've had with previous chairs as well i would hope that that you're considering that it is a large sector of employment across the country and i know you made a statement that rise in prices is not necessarily inflationary correct at what point do you consider it to be inflationary is there timeline
[01:10:51] Speaker 3: associated with that so when an increase in prices in a in a particular category like oil or like milk or eggs when we see that broaden out and affect the generalized price level that's something we can do something about that's what the way i think of inflation when prices go up i know it hits your constituents every day i'm not trying to sound dismissive of it but i also don't want to say that there's much that we can do about cattle prices or milk prices today but there's a lot we can do to make sure that the entire grocery aisle doesn't have higher prices and that's what we're
[01:11:24] Speaker 12: committed to do thank you senator hagerty thank you mr chairman uh chairman march on july 18th almost a year ago today president trump signed my legislation the genius act into law a thorough rule making process is absolutely vital to ensure that u.s dollar dominance exists here in the digital age and i look forward to seeing the federal reserve's ongoing work in this matter i just want to make that point clear it's important needs to be done and very much appreciate the fed's attention to it i want to turn now though to a broader concern and that has to do with the independence of monetary policy you've had a number of conversations with my colleagues about this i want to emphasize something that i think is quite important the special insulation that the fed receives with regard to monetary policy i think as far as i'm concerned it shouldn't extend every other function of what the fed does i think it should be limited to monetary policy for example you think about bank regulations and supervision that's entirely distinct from monetary policy regulation requires normative policy judgments about capital about credit availability about risk economic growth the structure of the banking system all of these considerations need to roll into it and you think about what's happened in recent years regulation has even strayed far afield you think about what's happened uh with respect to climate policy or michael barr's failed basil 3 proposal these decisions are not the same setting interest rates or managing the fed's balance sheet and quite simply i think their forms of executive regulatory power the supreme court has clarified for example that the fdic is subject to ordinary principles of executive accountability comparable regulatory functions that the fed shouldn't be held to a different standard in my view simply because they sit within the central bank so my question is this mr chairman do you agree that the federal reserve's independence should be narrowly tied to its
[01:13:14] Speaker 3: monetary mandate uh senator thank you for the question like you said independence is at its peak in the conduct of monetary policy i believe that when i showed up at the fed in 2006 i believed at my confirmation hearing uh seven or eight weeks ago i believe it now in the conduct of bank and regulatory policy on things like the genius act my general view is we should be working with our bank regulators uh the other bank regulators the occ and the fdic see if we can't put out our rules together what i don't think we want is any kind of regulatory arbitrage where firms are trying to game who's got the lightest regulation and race there i don't think there's anything wrong with us working together with other bank regulators to try to figure out what's the best policy i've got some extraordinary colleagues at the fed they've been able to think hard about these issues i think those discussions should happen and do happen i i disagree at all
[01:14:09] Speaker 12: with that and i like i like your approach in terms of coordination but there's something deeper that i'm concerned about mr chairman and that is just make make an example let's suppose a future congress decides to embed some sort of regulatory function inside the fed seeking to insulate it from our supervision from our oversight in some way that could become a backdoor that i don't think any of us want to see and what i'm trying to make clear is that beyond monetary policy you've you know i'm just i'll ask you the question do you think that this special insulation applies to other regulatory and supervisory types of
[01:14:43] Speaker 3: functions so i i spent eight weeks as a summer associate law firm so i'm probably not best best position to to opine on the supreme court uh senator warren could do a better job than i i do recall in the most recent opinion a footnote from the majority that says we are not suggesting that if other things went to the federal reserve it would it would get any insulation beyond that i'm on shaky ground and trying to opine on what the supreme court opinion means prospectively i wasn't looking for your legal
[01:15:13] Speaker 12: opinion but i do just think as a matter of common sense i wanted to get that on the record that think there is a real distinction here and i appreciate that um i'm going to turn to another important matter and that's the monetary policy report that um that that you work with the most recent monetary policy report added a new aggregate to the to the measurements the m2 aggregate and i just wanted to ask you to explain why this metric is useful and why why it's been added uh thank you senator
[01:15:40] Speaker 3: that was an easter egg that we hit in there to see if anyone read these monetary policy reports so i'm i'm encouraged that you did um there is there are there is almost a page talking about m2 and monetary aggregates that was done with a purpose um uh i do not show up here as a monetarist i do not show up and say the secret to inflation is if we only knew m2 everything would be swell but monetary aggregates had been taken out of the monetary policy report probably about a decade ago maybe a bit longer my view is that a modern central banker should have a mosaic of information and should not be allergic to any data that happens to be inconsistent with dogma that he or she might have been taught in econ one i have this old-fashioned view that monetary policy has something to do with money i remember an old professor of mine that said who was a proper keynesian economist he said well i don't understand how to how to think about inflation in a place like zimbabwe without talking about money so i think money matters what we witnessed when we looked at some of the monetary aggregates is they are not perfect we don't measure money very well we don't measure the velocity of money very well but it's a pretty good cross check and had we seen the surge and paid attention to the surge in inflation and money in 21 22 we might have seen this problem sooner i apologize senator smith thank you mr chair
[01:17:09] Speaker 13: and ranking member um uh chair warsh uh welcome to the committee so you may know that minnesota senator hubert humphrey who's um once held the seat that i now occupy for minnesota led the charge in congress to include maximum employment as part of the fed's uh dual mandate and we can probably agree that keeping these two goals of maximum employment and stable prices within the com confines of the monetary policy power that the fed wields that just makes sense um because it's a strategy that delivers stable prices you know a static excuse me a strategy that delivers stable prices while working people can't find jobs or can't afford their lives i mean that's not a healthy economy i expect you to agree with that and i do thank you so i was very interested um in the task forces that you established last month to advise you on reform and modernization and i want to just ask you about one of them particular you've created a task force looking at productivity and jobs and that's really good it seems to me this task force should be able to get at the power of the fed's dual mandate and ask also some of the big questions that everyone is asking about the power um the impact of ai on wages and people's income and employment so let me just ask about this particular task force on productivity and jobs so as i understand it um it is led by three people um venture capitalist and investor mark andresen who's made billions from ai and is a major trump donor um another tech executive who recently laid off thousands of people and then an academic economist from my alma mater uh stanford university who is currently on leave to do research at anthropic so i want to ask about this is there anyone on the task force who has experience in the labor market or somebody who can bring the perspective of an employer rather than an investor to the questions that are going to be asked and hopefully answered by this task force
[01:19:17] Speaker 3: so if i could say two things one is those three people you reference are three of the smartest people
[01:19:23] Speaker 13: that i know and i've been i'm not disputing that i'm wondering how you intend to bring into this work the perspective of people who are working people bring in the perspective of labor and not just
[01:19:37] Speaker 3: investors i think it's a fair question um i've got 18 colleagues who are going to join me and consume the deliberations they have in the report and we're the ones that have the dual mandate and as i said to your colleague there is no disfavored part of our mandate and we're awfully focused on full employment so that's my commitment to you we haven't outsourced this decision to three people we've outsourced to is a bunch of thinking about this massive technology shock and i'll only note one other thing chad jones that professor that you mentioned his academic work he's an academic i'll
[01:20:11] Speaker 13: admit that but i'm not opposed to that i'm just trying to but his academic work has been
[01:20:16] Speaker 3: very very focused on what is the effect of the labor markets of these technology shocks both the good and the bad and i think that history he can bring to bear to the work of the task force so can you
[01:20:27] Speaker 13: can you understand why a task force that is led by people in large part who are likely to get richer by ai might not be the most credible people to folks on the ground who are doing the work who are worried about what impact this ai is going to have on their jobs and and there there's the concern of course is that the the productivity that is expected to be delivered by ai if that actually happens that that the benefits of that productivity are going to accrue to capital and not to labor and that it seems to me the credibility of this task force rests on hearing the perspective of working folks in in their
[01:21:10] Speaker 3: deliberations i would expect before they come to their conclusions they are going to hear from folks that will be affected they are going to hear from employers that are getting struck with this technology shock and have disruption in their labor force but i don't want to suggest to you that in any of these task forces that we have the uh 19 people of all different backgrounds but what i want to tell you is if you think they have a credibility deficit i don't i think they're incredibly talented and we will make sure to take both parts of our dual mandate in consideration of their output i think the issues um sir is that
[01:21:46] Speaker 13: um when there are the big guys sitting at the table is there anybody sitting at the table who's bringing the perspective of working people to those really important questions there are labor leaders there are labor economists they are folks that whose expertise is in issues around uh wage stagnation and how that impacts working people and i would ask you to consider bringing that perspective not to be heard on the side but to be actually at the table with the with the big guys i think that is a credibility issue that you could address very easily thank you mr chair thank you senator senator tillis uh good morning
[01:22:23] Speaker 14: good morning i think you're doing a great job today i appreciate your composure uh mr warsh a quick question on uh just uh immigration you know some people are proudly discussing how we had almost net zero uh uh immigration uh in the last quarter but we're starting to look a little bit like china japan european countries in terms of our replacement rate um in terms of uh natural replacement rate so if net immigration were to remain remain near zero for an extended period how would that change your estimates on gdp uh the neutral interest rate and the amount of non-inflationary job growth the economy can sustain and in some ways it touches on i think senator cortez masto's uh question too about jobs unfilled but just
[01:23:17] Speaker 3: curious uh thank you senator you sure didn't toss up a softball there um the way i think about it is immigration policy is said by you and the administration but we yeah i mean i don't want
[01:23:29] Speaker 14: you to talk about policy i what i'm trying to do is communicate to the american people we can make the mistake of western europe japan and other industrialized nations or we can fix this population growth problem if we don't these are policies then how does that make your job more difficult if we were to sustain the current trajectory the way those decisions affect us is it affects
[01:23:52] Speaker 3: potential gdp the biggest hardest decision we make is what can this economy produce how fast can we grow potential gdp is a function of two things how many hours are we working people in this country working but just in a word because i want to ask a few other questions and then second productivity
[01:24:11] Speaker 14: at the end of the day if the worker hours are constant we need a productivity boom just a real quick question would you be thrilled to know that we could guarantee zero net growth for the next decade
[01:24:20] Speaker 3: because that would make your job easier um we're going to take the number of hours the american people and your policies produce and we're going to do i got the best we got a problem you can't fix it but
[01:24:31] Speaker 14: what i'm saying is if we're trying to make your job easier having this on the agenda is not going to make your job easier and i and i understand the position you have to take but i want to point to something that people are high-fiving and talking about net zero immigration growth as if it's a good thing it's only a good thing if you want to repeat the mistakes of western europe japan china and other nations that didn't get their replacement rate right you know bringing in uh great people that may have been born in colombia and aspire to become a senator for example those sorts of things i mean didn't get it right every time but uh no uh the uh and uh mr warsh i i told you also uh and i just for the american people do you have a magic wand where you can just walk in and convince seven people of the fomc to vote exactly the way you want them to uh perhaps i wish i do but i do not have such a wand so so you are one of a body where you have to gain consensus to make an interest rate move right monetary policy move right yes and it's a consensus consensus led organization and based on some of the comments from even uh uh governor waller who we'd consider to be you know pretty hawkish just this week he's not guaranteeing uh that we're going to be able to lower interest rates anytime soon based on data-driven decisions that just occur this week uh in a speech i think up in new york there are diversity of views i wouldn't want to dwell on any one of them in particular it's okay but what i've tried to explain to people who think the president can give you a call you make a decision it happens that never happens wouldn't have happened under powell wouldn't happen under you wouldn't happen under anybody who's responsible uh a chairman um i just wanted to make that point the last thing if you could just tell me i know you don't want to get in i think senator brit asked you some questions i love the fact that you're doing reform i would like to see the program the project charter for the task forces if you have that if people are managing this milestones any sort of dashboard you have the things that any well put together uh set of task forces would would have assembled for a six month project i'd like to just track it not not necessarily for the record but if you could commit to have a meeting with the people running it with me i'd like to see that just to watch the mechanics play out over the next six months and then lastly if you can i believe silicon valley bank is a is a classic example of why the fed needs to have its independence on monetary policy but on bank examination and supervision i believe a u.s senator should minimally be able to go into a skiff and understand why banks like silicon valley bank had multiple matters requiring attention and then matters requiring immediate attention well before they failed and nobody knew except some examiner examiner and likely people and uh and san francisco in the san francisco fed that stuff has got to change i don't see any rational basis for that independence and we've got some legislation i'd like to talk with you about
[01:27:31] Speaker 15: thank you mr chair thank you the chair recognizes mr warnock well thank you so very much madam chair
[01:27:47] Speaker 16: the american economy is heavily leveraged on the success of artificial intelligence and uh this is an issue that i'm very interested in been engaging and talking to folks in the industry and folks outside of the industry various stakeholders according to a bloomberg analysis ai spending most recently climbed to about eight percent of the u.s gross domestic product driving the country's economic growth chair walsh you have long been bullish on ai however up to now despite investors betting being on them none of the major ai models have been meaningfully profitable what are the consequences to
[01:28:30] Speaker 3: our economy if none of these companies ever ever become profitable so if they were to disappoint investors i think the capital markets would dry up for them and some of that capital investment would be curtailed
[01:28:47] Speaker 16: um i guess that's one way of putting it i'm i guess i'm getting at where ordinary folks are in the midst of that these the the markets behind the markets are real people yeah uh who have retirement savings and uh who are trying to make their present as well as their future work american retirement accounts are increasingly tied to ai uh and so there's the the human issue uh driven by massive increases in the stock prices of chip and ai companies you might talk about the the current markets in a way sort of as it's it's tall and narrow uh let's imagine if we are in an ai bubble an ai bubble what would happen to our economy and more specifically americans retirement savings if that bubble popped yeah so so i think it's a it's
[01:29:45] Speaker 3: a fair question senator i take it seriously um i'm not in the business of providing a wall street newsletter but i'll say broadly to your question about the effects on the economy booms and busts do not help the real economy and they don't make the central bank's job easier what the central bank is trying to achieve is price stability full employment all in the context of financial stability on the question of these ai companies certainly they're the surgeon in their investment and the surge in their valuations is notable but i'll also note one of the things senator over the course last couple of months we've seen the market cap both of the public companies and of private companies under some pressure at the overall indices we do seem to see a broadening out now why is that because earnings now for the last several quarters more broadly are moving up i don't want to suggest that that should give us any complacency but what the fed's looking for is economic strength to broaden and the inflation that we talked about earlier to become more narrow
[01:30:53] Speaker 16: so i'd be worried about a massive economic slowdown you know the the impact of wall street on main street and i'd be worried about job losses stock prices tumbling would mean americans could not retire as planned and i i don't want to see taxpayers holding the bag should this ai bubble pop i'm not against ai ai is not going anywhere it has both promise and peril i just want us to be thinking critically about this from all angles earlier this month you announced a new task force to assess the effect of ai on productivity and jobs the three individuals you chose for the task force are tech executives who have directly worked for or with ai labs all three of them yes or no will the fed include anyone on this task force with an alternative viewpoint on ai for example anyone who represents the workers whose lives may be upended by increased adoption of ai tools and technology so senator it's
[01:32:04] Speaker 3: a fair question i as i mentioned to your colleague a few moments ago what i'd say is one of the people on those task force is an academic now i don't want to suggest that the academic is uh representing some some
[01:32:16] Speaker 16: you don't want to suggest that the academic is being academic i don't want to suggest that but this
[01:32:22] Speaker 3: isn't a faculty lounge discussion what i do want to suggest is that academics work has spent a lot of time talking about prior technology shocks and the displacement that it has on labor the assurance i can give you is that these three people on that task force like the other task forces they're not the deciders you're talking to one of the deciders right the 19 of us around the fomc with a breadth of backgrounds and interest we're going to decide what we think of their conclusion as a
[01:32:48] Speaker 16: decision maker i i always want various viewpoints i certainly i have nothing against an academic expertise i think you know that that's important and it's too often ignored uh in some of the appointments that we've seen around here lately but here's my problem americans are worried about what ai i'm wrapping up sir and i'm worried that this viewpoint isn't represented at the fed and i would look to broaden senator lummis your time is yours thank you so much uh thank you mr chairman uh and welcome mr
[01:33:20] Speaker 15: chairman um i have a couple questions about bank supervision before we go to monetary policy the first one is uh vice chair bowman has ordered an independent review of the supervision of silicon bank and signature banks and i think that's a really good thing i applaud her and support her efforts there so have you instructed your staff including the attorneys in the legal division
[01:33:51] Speaker 3: to cooperate with this independent review yeah so so thank you senator lummis this call for a review of what happened around silicon valley bank preceded my time at the fed yes but i'm certainly aware of the ongoing investigation and my general my general rule is that we should be cooperative do investigations and we should try to get to the bottom of the facts of uh on regulatory and supervisory issues you know there are rumors that
[01:34:23] Speaker 15: there may have been destruction of records uh by some of the staff uh at the um division of bank supervision and of course that's a crime so if records relating to the supervision of these banks were intentionally deleted by staff before you were at the fed before you ever became chairman um will you order your staff to assist in recovery of these records and cooperate with law enforcement yes so i made a bold
[01:34:56] Speaker 3: statement to one of your colleagues before that i was opposed to scams i can make a bold statement i'm opposed to criminal activity i have no reason to believe there's any criminal activity here but i think we want to get to the bottom of uh of an investigation if there's an ongoing investigation and investigators generally uh want access to things there's no reason why they shouldn't have access
[01:35:16] Speaker 15: thank you um i want to turn to uh a proposed rule uh that is being considered and ask for your thoughts on the proposed rule and it has to do with the federal reserve board's payment accounts uh skinny master accounts is kind of a term that's used you know my staff has told me that if a a doctor submits uh statements to a uh an insurance company they have two choices they can pay five percent in bank fees or wait 90 to 120 days for a paper check um it seems to me that the federal reserve is really on to something by trying to uh join other countries uh that restrict access to the payment system um to consumer facing banks um and i we're the only major country in the world that restricts access to the payment system to the consumer facing banks so i think the you're on the right track uh to expand the opportunities to serve um consumers and i'm curious about what your thoughts are about the proposal how it's going uh when you expect
[01:36:44] Speaker 3: the rule to be finalized yeah so so as i understand that this uh skinnier account skinnier master account proposals out for comment um it was sent out before i arrived but i'm keenly interested in what the comments are my mental model is that the critical infrastructure the rails that the fed runs should be available to those that are applicable that can comply with our rules and regulations if i were to draw a hard distinction um this is a public good and it's a public good that should be used by intermediaries i don't want the public good to be used by consumers by people that are on the front lines but if financial institutions new and old um want to comply with our regulations and take advantage of this public good my general predilection is to encourage it well i think that's admirable and
[01:37:36] Speaker 15: important um so that's it's out for comment now do you anticipate uh finalizing sometime this year i i owe you
[01:37:45] Speaker 3: a better answer on the timeline from here and i and i pledge to give it to you thank you thank you um i
[01:37:51] Speaker 15: i want to share uh a concern that was expressed by my colleague mr hagerty uh that monetary policy uh should enjoy um a the committee not having to uh be as transparent about it its process i agree with senator hagerty also that the bank supervision component should not enjoy that same level of non-scrutiny i think we need to scrutinize bank supervision i'm concerned that that area was sort of hidden from public view for too long and so i want to just echo what mr hagerty said thanks mr chairman yes ma'am senator kim yeah thank
[01:38:39] Speaker 17: you chairman and and chairman thank you for coming on out i actually wanted to build on something that senator warnock was was going into about ai and i guess i wanted to ask you you know i've seen some public reporting that there was a report produced by treasury staff for secretary best in the federal reserve and other financial regulators that outlines the risks associated with the ai boom are you familiar
[01:39:05] Speaker 3: with this report i can't say that i've read that report but it's certainly a discussion that the
[01:39:12] Speaker 17: secretary and i have had is that something we can follow up on get a sense of of where the status of this report is yeah i'd be happy to both engage in the report and share with you my views yeah but you know regardless of the report itself from what i understand it's raising concerns that that much of our financial system right now rests upon ai meeting expectations for protected productivity gains as profitability and as well as raising concerns about the concentration uh in a small number of firms that are heavily reliant on private market financing um specifically invested in data centers in particular i want to just get a sense do you agree with these underlying economic risks or do you believe that that analysis is overstating the risks so i think this is
[01:40:03] Speaker 3: the most important change in our economy in my adult lifetime i think it has plenty of opportunities and also plenty of risks and i take both of them seriously yeah i mean it's something i'm trying to grapple
[01:40:15] Speaker 17: with too so i'm you know i'm not expecting that you have a fully baked answer right now but i hope we can work on this together because i do think when we're looking at that future trying to think through the data i'm trying to think through what data is going to allow us to understand how exposed we are you know what the concerns are and i guess i would just ask you as you're looking at the data how would you assess our economy the state of our economy if you were to isolate out ai you know which i know is driving so much of our our growth right now how is the rest of our economy doing so it's a it's a fair question we
[01:40:48] Speaker 3: can start to do a little bit of that so i mentioned in my opening statement the importance of capital expenditures to aggregate gdp a good share of that capex boom is broadly in around infrastructure related artificial intelligence um not exclusively but it it's it's part of the real story here if i were to fast forward 12 months whether these ai models continue to grow in their efficacy on some exponential curve or not most of this capex is going into things like data centers new sources of energy and let's say there was a disappointment on the returns and what ai could do many of these investments have alternative uses but if the if the question is really how much productivity do we expect to ultimately get from ai the answer is i don't know but um i'm optimistic that over a longer time horizon it'll be quite good for the united states and good for both parts of the dual mandate lower prices and
[01:41:49] Speaker 17: a stronger labor force well i hope we can work on this together and try to get a clearer understanding of just how much risk there is and look i'm glad to hear about this you know this task force that you're putting together about the productivity side i will just say the concern amongst young people in particular is very potent and very real and and we we we have to come up with a an answer to them to to help them feel reassured right now because i get it they are as you said more native in the technology but that doesn't necessarily help them when the companies themselves are saying we don't need to hire as many you know junior associates or or or uh you know or other jobs especially on the entry more entry level side of things no matter how much native fluency that they have or tech or or understanding and skills if the businesses are saying you know we don't need as many people at the younger lower end and so as you're dealing with this task force i hope it's something that can interact with this committee i hope we have a chance to be able to talk to some of them uh and hear from them in that capacity but i also say you know we need to make sure we're speaking human about this and not just getting kind of caught up in that so i just wanted to flag that for you one last thing i wanted to just touch base on is uh you know senator reed mentioned the concerns about uh whatever we want to call a mythos proofing or ai proofing using ai to be able to shore up our vulnerabilities um you know we number of us have been talking to some of the financial sector other critical infrastructure i guess i just want to ask you does does the fed have all it needs to be able to kind of shore up our vulnerabilities patch up any vulnerabilities has that been a process that you all feel have a confidence in so far closer to a yes
[01:43:39] Speaker 3: or no answer yeah i'm working on it and i look forward to working with you on let us know how we can
[01:43:44] Speaker 18: help yeah thank you senator moreno uh thank you mr chairman and thank you to you chairman wars for being here it is such a pleasure to have you here compared to your predecessor i can't explain to you in words uh the feelings that i had when your predecessor testified versus the feelings of having you here so truly appreciate the hard work some quick questions uh you obviously take we have a whole regulatory structure around banks what's happened to deposits in american banks since last august have they gone up
[01:44:16] Speaker 3: stayed the same or gone down uh generally speaking there are differences but generally speaking deposits held in banks is moving positively over that period and you worry about that of course you
[01:44:26] Speaker 18: watch that because if you had a massive deposit flight that would be a problem correct i worry about
[01:44:30] Speaker 3: it but i also use as a helpful input when average deposit balances are up sometimes that can be for good or bad reasons my sense of the underlying growth is more good than bad right but as a banker
[01:44:42] Speaker 18: if the bankers want deposits to go up they sure and i just find that interesting as a data point mr chairman because we've talked about or we've had testimony anecdotally from uh the bank ceos saying that stable coins were going to drop deposits in banks and i just want to point out for the record that the exact opposite has happened so as they say uh that was a bunch of uh blankety blank argument okay uh you have two mandates let's talk about full employment for a second if we have incentives that we put in place here legislatively for americans not to work does that round counter to your objective of full employment it doesn't make doesn't make the fed's life any easier right so we we say if we actually incentivize somebody from actually participating and being productive in the workforce that's not good things like for example we did the working families tax cuts last year which is to put in place where you have to verify twice a year whether you're working volunteering or studying would be a positive demotivator for not working correct meaning it encourages work
[01:45:52] Speaker 3: i can't opine on the policies you make but for the implications of the fed we're in the business of assessing potential growth the more hours that are worked and the more productive those hours are
[01:46:03] Speaker 18: the stronger the economy which is good when you're mandated and if if you had tens of millions of people entering the country illegally it makes your challenge of full employment more difficult also correct um i'm going to steer clear from immigration policy and leave it with you and the administration to pretend they're just naturally grown humans uh on the soil of america if you have dramatically more humans in the united states looking for work by definition it makes full employment more difficult
[01:46:32] Speaker 3: correct so if those people are employed and are working and are productive that's a good thing no they're not employed well that that that can be a challenge to to one if not both parts of our mandate
[01:46:45] Speaker 18: okay let's talk about data centers really quick so if you felt or the federal reserve felt that data center investment was driving inflation what is the tool that you could use to combat that so i think
[01:47:01] Speaker 3: that investment in data centers and in ai generally do affect the demand side of the economy and we can see it and we can see prices move up but unlike some of these other shocks with a lag it also affects the supply
[01:47:15] Speaker 18: side no but what i'm saying is if you felt that you had to do something about it would it be accurate to say really get you don't have a lot of tools i think some of my colleagues think that you do have a magic wand but ultimately you'd have to raise interest rates the idea would be you're going to make it more expensive uh to borrow money to build these things ultimately that's basically the tool that
[01:47:33] Speaker 3: you have just roughly speaking correct we we have powerful tools to deal with what we deem to be
[01:47:40] Speaker 18: inflation above target right so you would raise interest rates uh if you really is the tool that you'd use does it make any sense for us to be thinking that if inflation is being caused by data center investment and the answer would be to look to the fed to raise interest rates when in reality you have government that's providing tax subsidies which is lowering the cost and thus encouraging more irrational investment doesn't it make more sense to say let's not do any tax subsidies now we can't do that here at the federal level because a lot of these subsidies are coming from cities counties and states i actually believe i think chairman we should think about providing a hundred percent federal tax on these subsidies so that if a company wants to take subsidies from some state tax it at the federal level 100 to discourage it because i think it is absolutely insanity for us to use taxpayer dollars to subsidize multi-billion dollar companies and by the way those incentives don't exist would you agree
[01:48:37] Speaker 3: that that that that seems reasonable um fiscal policy is your decision i'm going to let you guys fight
[01:48:42] Speaker 19: that one out good early thank you senator also rose sorry thank you so much chair scott and ranking member warren uh for holding today's hearing and chairman wash uh it's good to see you again um before we talk about the economy i want to briefly return to your confirmation hearing we're under questioning from senator gallego and myself you said that the president never quote generally or specifically instructed you to lower interest rates and your testimony at the time did contradict reporting by the wall street journal so senator gallego and i sent you a letter on april 26th uh clarifying your testimony and we have we have not yet received a response so as you as we stated in our letter president uh trump told the wall street journal that he thinks you have to lower his quote was he thinks you have to lower interest rates and under your sworn testimony in this committee you said that the president never generally or specifically instructed you on interest rates and so i wonder whether you will just commit
[01:49:47] Speaker 3: to responding to our letter sure i um i stand by every word that i said at my confirmation hearing and now i have a seven week track record subsequent to that and you can judge not just my words but my actions and i'm happy to continue the discussion with you about this topic if you think it's it's fruitful i will say i've spent seven weeks doing a lot of hard business of reform but i'm happy to continue to
[01:50:12] Speaker 19: engage okay and you will respond to the letter that senator gate gallego and i sent to you i'm happy
[01:50:18] Speaker 3: to find the letter i think it came to me before i was confirmed to the fed i'm happy to to find it and and and and work with you and uh and your colleagues answer any questions you have okay thank you now
[01:50:29] Speaker 19: federal uh governor christopher waller recently announced a framework to radically transform uh the fed systems of 12 regional reserve banks and congress deliberately created a centralized system of 12 regional banks to ensure that regional economies and communities are represented when the fed makes consequential decisions the federal reserve bank of richmond which serves maryland employs over 100 of my constituents at the bank's baltimore branch and i share our ranking members concern that these changes are being pursued without consideration of congress and so do you agree that regional presidents and board directors are responsible for day-to-day operations under the federal reserve act and not
[01:51:12] Speaker 3: the federal reserve board in washington so i i love the structure of the board of governors and the reserve banks in the federal reserve act and i love the humphrey hawkins testimony i am obligated to do to give it to you as the federal reserve act makes clear as you know is the reserve banks run operations and their budgets are reviewed and approved but approved by the board of governors with respect more broadly to the proposal you suggested i think we we need to try to do two two things at the same time be good stewards of taxpayer money and continue to drive efficiencies throughout the system and at the same time respect the independence of the reserve banks so that they can show up in washington at fomc meeting and feel as though they have the resources at their disposal to argue their point of view my addition to the to what's already been said publicly is my view is the 12 reserve banks should be 12 centers of excellence and if there is some savings that were necessarily driving through consolidation of overlapping functions they should at the same time be able to build out capabilities and solve any of a number of problems of economic policy that are inside of our remit i've encouraged the 12 reserve banks to think
[01:52:28] Speaker 19: about what they could do to have a center of excellence so mr chair you so you your answer is yes you do agree that the regional presidents and board directors are responsible for day-to-day operations under that act
[01:52:40] Speaker 3: i do believe that's subject to the oversight of the board of governors and the statute okay just one last
[01:52:45] Speaker 19: question now you've suggested that artificial intelligence will generate productivity gains that will reduce inflation and help lower interest rates and and i'm optimistic as well about the promise of ai but we need to be really clear-eyed i think in considering the the whole economy and the impact there the fed has two mandates a low inflation and maximum employment and you've spoken often about ai's impact on prices and inflation but inflation is still high so it's important that the fed also addresses the employment piece of this mandate and just as urgently the fed should consider who benefits from ai so some economic models for ai's economic effects foresee gigantic returns for capital holders but stagnant wages and job losses for workers so as it relates to ai what specifically is the fed doing studying or preparing for under your maximum employment mandate
[01:53:41] Speaker 3: so i i endorse both parts of the dual mandate and i don't want to suggest that productivity and the ai wave only impacts one part of it we've got no legislative orphans and i think that the effect on the labor markets is real and something we're thinking long and hard about short-term medium-term and long-term okay thank you senator banks thank you mr chairman chairman
[01:54:03] Speaker 20: chairman warsch welcome back uh to the committee for the first time as the chairman of the federal reserve i was proud to vote for your confirmation back in may and it's great to have you come back i understand we we do this on the committee mr chairman twice a year i'm looking forward to continue dialogues with you and before this committee for many years to come you're very familiar with my state indiana we've talked about indiana a great deal there's no state in america that has a stronger manufacturing base than indiana manufacturing jobs are the biggest share of our workforce and our state and accounts for about a quarter of our state's economy for decades though policymakers here in washington have turned a blind eye as foreign countries erode our manufacturing base and rely on artificially cheap labor but under president trump we have a renewed focus on fighting back and protecting america's manufacturing edge in addition to president trump's tariffs we are helping american companies compete against foreign competition by investing in new technologies that help american workers make better quality goods more efficiently than companies that rely on cheap labor mr chairman business investment in the u.s is surging right now fixed investment grew at a rate of 10.1 percent in the first quarter of 2026 can you talk more about that and about how rising investment in new technologies like ai and robotics can strengthen america's competitive position against the rest of the world especially when it comes to manufacturing so thank you
[01:55:43] Speaker 3: senator banks the capex surge is remarkable this is a capex investment boom that the country hasn't seen in more than a generation it is the seed corn for productivity and gdp improvement over the next decade the way these waves typically go historically which doesn't mean it has to happen this time is a surge in capex with some lag leads to stronger economic potential stronger growth higher wages and more productivity this surge is different it's happened faster it's probably going to be bigger and it's accelerating in real time uh the effect on the fed's mandate is something we're taking very seriously but i would far rather have uh capital expenditure boom than have large corporate profits go back into share buybacks and dividends investing here is a good thing and all other things being equal it's gonna have fruits for
[01:56:41] Speaker 20: the american economy good um later this year bank regulators are expected to finalize new rules covering capital and stress testing the fed's new rules are a world away from the harmful basal end game proposed uh proposal that the biden regulators tried to jam through which would have hit working families in indiana with a hidden tax on every mortgage and small business loan but the transition still has to be handled well these capital rules touch every part of a bank's planning implementing the new rules with clear and organized with a clear and organized timeline is critical will you commit to coordinating the rollout of these new rules across all major bank regulators so community banks especially can rely on clear guidance to follow yeah i think senator i think clarity here is really important these
[01:57:33] Speaker 3: rules as you know are out for comment i'm keenly interested in the comments as they come in and i think it is a very good thing if the bank regulators can speak with one voice what we saw going to the 08 financial crisis was a lot of regulatory arbitrage where institutions were choosing the regulator that best served their needs i would love to have one standard and i'm committed to work with the other regulators to see if we can achieve it i'll just make one other point you referenced the stress tests the stress tests were a design an idea that we came up with one dark evening in the 08 financial crisis stress tests have been used from that year till this year i'm open-minded reforms around the stress test so the stress tests aren't merely a compliance exercise but help reveal don't both to the regulator and institutions what would really happen under a
[01:58:22] Speaker 20: series of stresses good when you were here during the confirmation hearing you and i talked about the the china threat something that you focused on for years i know you're only two months into the job as chairman but any updates or on how you can assess the threat that china poses to the dollar's role as
[01:58:40] Speaker 3: the world's reserve economy so they're a pacing power they are the ai the fight over ai is one of a proxy fight between these two economies that are striving for significance and influence over the next decade i think we are on the front end of those technologies but i don't want to sound complacent about it and like with all technologies they can be used by friends or adversaries and so if there's a subject upon which i've been focused related to this in my first seven weeks is making sure the institutions we regulate and the fed itself is aware of our vulnerabilities and i i still think we've got some work to do on that good thank you i yield back senator blot rochester
[01:59:24] Speaker 21: thank you mr chairman and thank you ranking member warren uh it's good to see you chairman warsh i will tell you um i've been in and out of the room because i have four committees happening at the exact same time and so going back and forth and i know a lot of the things that i wanted to talk about or questions i wanted to ask some of have already been asked so i may not use the whole time but um when we talked before during your confirmation hearing um i raised questions about primarily three things one was the independence of the federal reserve and you've spoken a lot about that today in in the hearing i talked about transparency around reforms and what does regime change mean and you know how how how does this connect with our regional uh federal reserve boards um and then i also um shared with you just my real deep concerns uh about the impact of ai as well as the opportunities for ai and just the changing landscape particularly when we talk about that um mandate of full employment um maximum employment and and lastly i would also say i've really important to me and i shared that with you as well is that the focus primarily a lot of times what is talked about is the wall street side and not the main street side and so how main street has equal footing to wall street and so a lot of the questions that have come one of the things that you shared in your testimony was about the task forces that you have established which i think is a really um good idea and i think the uh the choices of things that you're focused on from communication uh you know to um to um to uh to ai and the influence all of those things are really important and i think some of my other colleagues might have asked questions i was on the ai one in particular i i hope that there will be the inclusion of other voices beyond economic experts and tech individuals but actually families businesses people that are actually both consuming and impacted by ai so if you could talk a little bit more about the makeup of that one in particular and how you will include people both in the task force and how you will include main street in your ongoing work um at the fed because before we had the fed listens tours we had and i heard positive from both folks on the federal reserve side as well as the community side so could you talk about the inclusion of main street on the task forces and then ongoing in your work how will you include main street yeah so let me address both those
[02:02:33] Speaker 3: questions senator first on the task forces um we have 15 people across five task forces i think there's a breadth of views uh uh perspectives expertise they're all fantastic they aren't decision makers you're talking to one of the ultimate decision makers and i believe like you do in the reserve banks the reserve bank presidents bring a breath of views from their communities from their businesses and they and we are going to be the deciders about what to do with these i don't want you to think that i've outsourced anything to these task forces other than coming up with new ideas which is fine my question is more
[02:03:10] Speaker 21: related to the makeup one of the concerns i have even on technology we've seen incredible advances where voices and were not included of other folks and so therefore we had technology that mistakenly uh uh took a black judge and thought that he was a criminal based on bad input of how the technology so i'm talking about the input in the task forces as well as your ongoing input i i i don't know if you continue will continue with uh like fed listens or any of those things but how will you get feedback from community organizations small businesses um consumers yeah yeah i don't mean to give you an
[02:03:55] Speaker 3: excuse i've been here seven weeks we've been pushing for reforms but you have my commitment the focus under my chairmanship at the fed is what's happening in the real economy and by the way there are plenty of people on wall street who who are upset with me already that i'm somehow not feeding them all the information they've gotten before and if they only had my dot everything would be swell um my message to them is uh play the ball don't play the fed by that i mean figure out what's happening the real economy respond to data that's happening the real economy rather than somehow suggest that we're going to be focused on wall street so you have my commitment to focus on main street because it matters mostly to
[02:04:35] Speaker 21: our dual mandate well i appreciate the time i will also follow up with questions for the record and uh also particularly on the the data piece as well and i yield back mr chairman thank you ma'am
[02:04:46] Speaker 1: for senators who wish to submit questions for the hearing record please do so by wednesday july 22nd the chairman will have 45 days from that day to submit your responses to questions for the record this has been a great hearing thank you well done so far so good we look forward to even more uh time that we could spend together and i frankly believe that the american people will have their trust restored under your leadership as relates to the federal reserve thank you mr chairman absolutely absolutely