About this transcript: This is a full AI-generated transcript of Fed chair Kevin Warsh testifies on monetary policy in House hearing from PBS NewsHour, published July 14, 2026. The transcript contains 28,687 words with timestamps and was generated using Whisper AI.
"We'll come to order without objection. The chair is authorized to declare a recess of the committee at any time. Without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is entitled to the Federal Reserve's semi-annual monetary policy report...."
[00:00:00] Speaker 1: We'll come to order without objection. The chair is authorized to declare a recess of the committee at any time. Without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is entitled to the Federal Reserve's semi-annual monetary policy report. Without objection, all members of the record, I now recognize myself for a four-minute opening of the state. I now recognize myself for a four-minute opening of the state. Personally, welcome, new chairman of the Federal Reserve. Annual inflation is still running above the Fed's 2% target. Annual inflation is still running above the Fed's 2% target. One only needed to recall the better experience of double-dip inflation from the 1970s and early 1980s. And the actions of then-chairman Paul Volcker was forced to take to defeat it. There's no more punishing tax on American industry or on the hard-working innovative citizens of our nation than inflation. Mr. Chairman, the FOMC said that it, quote, will deliver price stability, Mr. Chairman, the FOMC said that it, quote, will deliver price stability, quote, quote. "And keep it until price stability is achieved." Today we face the consequences of some of the Fed's former choices. Today we face the consequences of some of the Fed's former choices. In August 2020, the Federal Reserve adopted a flexible average inflation targeting framework, in which it decided to allow inflation to run, quote, quote, "moderately above 2% for some time," quote, quote, "after periods in which it had been running persistently below 2%." This framework combined with the irresponsible fiscal policy and a slow response to inflation that began in March 2021 led to an inflationary surge that began in March 2021 led to an inflationary surge, the likes of which had not been seen since with early 1980s. In 2025, the Fed wisely abandoned its flexible average inflation targeting framework. Going back to, further today, we will also review the consequences of the Fed's experiments with large-scale purchases of Treasuries and agency mortgage-backed securities, better known as quantitative easing, QE, though perhaps justified in its first round during the immediate onset of the 2008 global financial crisis, long past that crisis, the Fed repeatedly expanded QE, with the cost of each successive round of QE higher, with the cost of each successive round of QE higher, with the cost of each successive round of QE higher, with the cost of each successive round of QE. And while the emergency facilities in QE were resurrected in early 2020, and while the emergency facilities in QE were resurrected in early 2020, in response to the unknown economic and social ramifications of the COVID-19 pandemic, yet with the clear V-shaped recovery well underway, those facilities and policies were not ended and promptly phased out. The result of these decisions was a Fed that held a quarter of the federal debt in 2022, and though that share has decreased, it still creates incentives for fiscal policymakers, and though that share has decreased, it still creates incentives for fiscal policymakers, to avoid the tough decisions on debt and deficits today, you have said recently that inflation is a choice. For years the Congress chooses unrestrained deficits and out of control debt, and has repeatedly drafted the Fed into being an enabler, both in my view have to stop. The Fed is engaged in regulatory and supervisory policy in the recent past, the Fed is engaged in mission cream, resulting from political capture by certain partisan actors attempting to accomplish policies through the Fed, on which they cannot build a consensus and pass through the Congress. Not the Fed's role to make decisions for the American people on major questions of political or economic significance, that's Congress's responsibility. The Fed needs to avoid repeating mistakes of the past and reform itself to guard long-term monetary policy independence and restore the reputation of the Fed in an apolitical, as an agent carrying out the Congress's statutory directives. I look forward to your testimony today, Mr. Chairman, and I yield back. I now want to recognize our distinguished ranking member of the committee, Mrs. Waters, for four minutes for an opening statement.
[00:04:49] Speaker 2: Thank you, Chairman Hill. Chairman Walsh, you are taking the helm of the Federal Reserve at an important moment. Congress designed the Fed to stand apart from politics so that it can support stable prices, maximum employment, financial stability, and the long-term interests of the American people, and not the personal interests of a president. Today, working families are being crushed by the rising cost of living. They pay more at the grocery store, more at the gas pump, and more for housing than they did a year ago. Just today, the Bipartisan Joint Economic Committee reported that Americans have paid a total of $56.4 billion more in gas since Trump began his endless war with Iran. That's $477 for each household in America, in fact, the Federal Reserve's own research shows that one in 10 Americans skips meals because they simply cannot afford it. Workers are also worried about what artificial intelligence means for their jobs and their financial security. One common thread of all of this is Trump, whose policies and actions made the economy and the concerns of American people so much worse. His tariffs have driven up costs for consumers and businesses. His attacks on independent financial regulators have undermined confidence in the mission of institutions that have protected the public. His war in the Middle East, which has no end, continues to hurt gas and grocery prices. Despite this pain being felt by American families, there is one family making fists full of money, the first family. The Trump family has earned more than $2 billion since Trump returned to office, primarily from new crypto ventures that Trump's administration is supposed to oversee. Yet, instead of addressing these growing conflicts of interest, Republicans are legitimatizing all of them. They blocked all efforts to stop this profiteering when they passed the stable coin and crypto legislation. Chair Walsh, I understand you have committed to divesting all of your financial assets to avoid conflicts of interest. That should also be the case for the President of the United States of America. Turning to the Federal Reserve, Trump has repeatedly attacked your predecessor. Chairman Jerome Powell, Chairman Jerome Powell, because he refused to kiss the ring and ban monetary policy to the President's demands. His administration continues to try to remove your colleague, Governor Lisa Cook. I hope we hear from you today how exactly you will defend your colleagues and the Federal Reserve. You should also take no comfort in the Supreme Court's shielding the Fed when it overturned Humphrey's executor. The court vastly expanded presidential authority over independent agencies, and it is likely to still come for other functions of the Fed, like bank supervision next. Committee Democrats will continue fighting to protect the independence of the Fed and other agencies, strengthen consumer protection, and build on an economy that prioritizes working families, not the President, the wealthy or the well-connected. So I look forward to your testimony today.
[00:08:50] Speaker 1: I yield back the balance of my time. The gentleman yields back. I now recognize the Chair of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, Mr. Lucas of Oklahoma for a one-minute opening statement.
[00:09:05] Speaker 3: Thank you, Mr. Chairman, and welcome, Chairman Walsh, to your first hearing as Chairman, and congratulations on your confirmation. We look forward to your testimony today on the monetary policy report. In your first meeting, you announced a number of welcome reforms, including establishing five task forces that many members are eager to get your thoughts on. For example, former Chair Powell had committed to review some of the Fed's communication tools, and although we expected that to be completed last August, alongside the review of the consensus statement, it is yet to happen. A review of the Fed's communication tools is long overdue, and we look forward to your focus on completing that project through the task force. We also spent time this Congress examining the composition and the size of the Fed's balance sheet, an effort that you are now undertaking at the Fed. It is vital that the Fed get this right. We welcome continued collaboration on that front, and I have a lot to talk about today. I look forward to your testimony and our discussion, and I yield back, Mr. Chairman. Thank you, Mr. Lucas.
[00:10:02] Speaker 1: I recognize the ranking member of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, Mr. Vargas of California for a one-minute opening statement.
[00:10:10] Speaker 4: Thank you, Mr. Chairman, and ranking member Waters for calling this hearing. Further, thank you, Chairman Warsh, for coming before this committee, especially so early on after being confirmed. Public service is a noble undertaking, as you know, so thank you once again for taking it on. We appreciate it. I enjoyed our conversation. Last week, and as ranking member of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, I will remain vigilant of the actions you take as chairman. The independence of the Federal Reserve is my top concern. No influence from the President or others to raise or lower interest rates whenever they want to. That independence is one of the essential pieces that maintained the strength and reliability of the U.S. monetary policy. I encourage you and the entire Federal Reserve to keep that independence for the betterment of all of us, not just a few. With that, Mr. Chairman, I yield back. The gentleman yields back.
[00:11:05] Speaker 1: Today, we welcome the testimony of the Honorable Kevin Warsh, Chairman of the Federal Reserve, Board of Governors. Chairman Warsh, we thank you for taking time to be with us today. You'll be recognized for five minutes to give an oral presentation of your written testimony. Without objection, your testimony will be made part of the record. I now recognize you for five minutes.
[00:11:23] Speaker 5: Thank you very much, Chairman Hill, Ranking Member Waters, other members of the committee. Good morning. It's a real privilege to join you. At my very first appearance here before this panel, I'm particularly honored to represent my superb colleagues from the Federal Reserve System. In submitting the monetary policy report, as is our obligation and our duty, I think of a long line of central bank chiefs that have appeared in this very room before Congress in keeping with the Federal Reserve Act. One of the largest figures in Federal Reserve history is Alan Greenspan, who passed away about a month ago after a century of life. We at the Fed recall the Chairman's strong and steady leadership, his strong hand, in a period of rapid economic change. And today, we honor his memory. As a country, we just marked our 250th year. And when Americans count our blessings, we include an economy predicated on the brilliance of our constitutional design and a system of ordered liberty. An economy without equal in all it's done for human flourishing. Some forms of Fed communications, which I've spoken about previously, are discretionary, but not this one. And for good reason. It's a prudent and wisely conceived obligation designed to keep the Fed accountable, responsible, and faithful to its congressional mandate of full employment and price stability. These obligations are of a piece with the Fed's rightful independence in the conduct of monetary policy. Stepping back, I would say today as we sit here, Mr. Chairman, we're at a hinge point in history. It's up to all of us to meet this moment. The task for this generation of policymakers and of individuals and households in the private sector is to ensure that the American economy excels far into the future. Now, at the Fed, our number one objective is getting monetary policy right. That's our clear and constant aim. The star we steer by. And if we get policy right, and I can assure you 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 meeting of the FOMC. My colleagues and I recognize that high inflation has been an undue burden on American households and businesses. And while monthly price volatilities and variations are inevitable, especially in an unsettled world, underlying inflation over longer time horizons is determined largely by monetary policy. As the chairman said at the outset, inflation is a choice. The members of our committee have no tolerance for persistently elevated inflation. And we share a resolute commitment to ensure price stability. This was the focus of our June meeting, at which we decided to hold the target range in the Fed funds rate at three and a half to three and three quarters percent. Now, naturally, our work at the Fed demands a proper reading on economic conditions. As you see in our report, economic activity grew at a solid pace, showing remarkable resilience in the face of recent developments. Household consumption, moderate. Manufacturing output, it moved up steadily this past year. The housing sector, however, gives us somewhat different picture and continues to lag. I want to highlight the most striking feature of this economy right now and its business investment. The rapid pace, which appears to be accelerating, reflects in part the construction of data centers and other infrastructure and the immense demand for AI-related equipment and software. Investment in equipment overall increased about eight percent for the year in the first quarter. Within that category, high-tech spending logged an especially impressive growth rate of nearly 25 percent. At the Fed, we don't yet know fully the extent to which the economy will benefit from AI. Yet, it seems inevitable that that which we're now calling AI investment will soon just be called investment. Even so, new opportunities for the economy introduce new challenges for central bankers. We at the Fed are monitoring the implications for employment and for inflation. That brings me briefly—I'll end here so I don't go afoul of the time commitment to the supply side of the economy, which deserves equal measure of discussion. Productivity growth has been strong, predating gains from AI adoption. America's labor force appears stable. Job creation has, in fact, kept pace with the workforce. The unemployment rate is low and changed little over the last year. And we've seen relatively few layoffs. In closing, I will say this: I came to my new position as a believer in the very best of the Fed's traditions. I'm heartened by the welcome I've received and by the encouragement of my colleagues in considering how best to advance the conduct of monetary policy. We have a duty to point this institution forward. Take a fresh look at current practices to make sure we're serving the objectives you gave us. And we're going about it systematically. I've appointed task forces that you've already referenced in five key areas to improve the broad conduct of monetary policy. One, Fed communications. Two, our balance sheet policy. Three, our use of existing data sources. Fourth, productivity and jobs in an era of remarkable transformation. And five, and not least important, the Fed's inflation frameworks. The purpose of this initiative is to equip the Fed to make better decisions in monetary policy. And put these years of high inflation behind us. We're starting a new chapter, Mr. Chairman, at the Federal Reserve. In this consequential time for our nation, I can report to you that we at the Fed intend to be fit for purpose and focused on the future. We are the Federal Reserve, Mr. Chairman. And we're determined as ever to fulfill the mission that Congress has given us. Thank you, Mr. Chairman. I welcome your questions.
[00:18:19] Speaker 1: Thank you, Mr. Warsh. We'll now turn to member questions. I'll recognize myself for five minutes. As outlined in your statement, inflation is the result of many factors. Of these, the Fed has control only over one monetary policy as expressed through its interest rate and balance sheet policy. Today, a potential second surge of inflation is appearing due to factors outside the Fed's control. What the Fed can't control is how it reacts. Though upward pressure on prices may diminish on its own, it's not a sure thing. The Fed may be able to look through these inflationary pressures, but the Fed has believed that before and has been wrong. High inflation affects Americans in the here and now, not in some hypothetical future composed of long-term projections or of inflation expectations. Mr. Chairman, I was very encouraged to hear both in your testimony in your opening FOMC statement about restoring price stability as a top priority for you. When we think about that in the near term, though, how do you and your colleagues on the Open Market Committee plan to accomplish that given the policy tools at your disposal?
[00:19:26] Speaker 5: Well, thank you, Mr. Chairman. We want economic growth to be more broad-based, and we want the change in prices, the increase in inflation, to be more limited. There are a lot of things that are happening that are outside of our control, as you mentioned. Conflicts overseas and the rest. We can't have and shouldn't have a direct control on that. But inflation is a choice. We monetary policy makers need to choose lower prices, and that's the commitment my colleagues have made. In direct answer to your question, I would say we're doing three things. One, commitment. What you heard at our first FOMC meeting, and I hope you heard today, is we're committed to the Fed to deliver price stability. We're committed to the 2% inflation goal. And so for businesses or households or market participants who came into this saying, well, they said before they were committed, but they seem to have tolerated a higher level of inflation, that commitment is resolute. Second thing that we can do is take ownership. This isn't a time for us to pass the buck to blame others. The Federal Reserve can and will deliver price stability. We have the tools that you mentioned, both interest rates and balance sheet policy, that can help us achieve that aim. And we have the tools to deliver that. So it's a function of commitment, responsibility, and tools, and we're three for three and we'll deliver. Thank you.
[00:20:56] Speaker 1: A reference in my opening statement about the 2020 decision on tolerating higher inflation and that it's now been abandoned by the board. Clearly, I think that was a policy error. It was praised by some at the time in August of 2020, but I found it alarming at the time it took place. First of all, do you agree with the FOMC's decision to abandon that? And secondly, how do you consider this past six years of experience when you look at the task force work on the framework question for looking at inflation?
[00:21:31] Speaker 5: Yeah. So there's no secret that at the time that the framework in 2020 was announced, the new framework, which was intended to get inflation higher, that at the time and in subsequent years before finding my way into this job, I was very critical of it. That central bank wasn't the first central bank to ask for a little more inflation and end up with a lot more. It was a mistake. The framework did not succeed in its objectives, and I am pleased that before my arrival that my predecessors took that and cast it aside. All central bankers are going to make some share of mistakes, but when they make a mistake, they've got to call it out. Had that mistake been called out sooner, I don't believe we would have been burdened with this undue tax over the last five years. It's nearly the same degree. That's why we are reform-oriented. That's why my colleagues and I are so driven by these task forces to think about them anew. And in final response, I'd just say one of the task forces you mentioned is to revisit the inflation frameworks that the Federal Reserve uses so that we can better understand what will cause inflation to rise and fall and what we can do about it.
[00:22:50] Speaker 1: Well, thank you and you also reference courage in your opening statement and you've just outlined the toughness of the set of policy choices that you and your fellow governors have. So difficult that your long-time predecessor, Arthur Burns, described that mission as the anguish of central banking to try to cope with the different structures. So in the last seconds I have left, will your task force work review the issue of what you have control over versus what is in the control of the Congress and regulatory and executive branch authority?
[00:23:25] Speaker 5: Yeah, I'll be brief in my response given the time. There's no anguish in central banking here, Mr. Chairman. We have the commitment, the power, and the responsibility to deliver on the mandate that this committee gave us and we will. We've got full ability to do it so you will not hear me blaming anyone else.
[00:23:43] Speaker 1: Thank you, Mr. Chairman. My time has expired and I recognize the ranking member and Mrs. Waters for questions for five minutes.
[00:23:49] Speaker 2: Thank you, Mr. Chairman. Chair Walsh, Section 10 of the Federal Reserve Act states, and I quote, "No member of the Board of Governors of the Federal Reserve System shall be an officer or director of any bank, banking institution, trust company, or Federal Reserve Bank, or whole stock in any bank, banking institution, or trust company." Quote, unquote. This prohibition ensures there's no conflict of interest arising from your role in making decisions as a regulator that could lead to your personal profit. Yes or no? Do you think that's a sensible prohibition?
[00:24:36] Speaker 1: Check your mic, Mr. Chairman.
[00:24:38] Speaker 5: Excuse me, ranking member. It's the law you've written and it's the law we will follow.
[00:24:43] Speaker 2: Let me keep going. Vice Chair Baumann and FDIC Chair Hill testified last year that this prohibition is good public policy as it ensures that bank regulators serve the public's best interest and not their own. Now, unfortunately, President Trump undermined the independence of financial regulators mandating the White House must now review and approve regulatory rules put forward by banking regulators, including the Fed, except when it comes to monetary policy. and instead of focusing on the job Americans elected him to do, the president grossly profiting off of his position to the extent the president and other executive branch officials now have a say in regulations in the Fed issues. Chair Walsh, should those officials be prohibited from owning any businesses where they have a role in regulating them, whether it is crypto company or bank or anything else? Yes or no?
[00:25:55] Speaker 5: So, ranking member Waters, I don't mean to disappoint you, but we're going to stay in our lane at the Federal Reserve. The more we stay in our lane, the more we stay out of politics. The rules and obligations for others outside the Federal Reserve are not something at which I feel it's appropriate for me to opine.
[00:26:11] Speaker 2: I have here President Trump's most recent financial disclosure, which shows that Trump made billions of dollars in the first year of his presidency, the bulk of which came from his family's crypto businesses, all while he is responsible for overseeing the agencies regulating crypto. This is an egregious conflict of interest, and Congress must put an end to it. Now, I want to just show you, in case you haven't had time to look yet, that this is the president's disclosure of his financial interest. He had, this is, how many pages? Nine hundred. Nine hundred. This is nine hundred pages of financial interest. When you have time, I want you to go through them so that you'll know and understand exactly what I'm talking about. So, let me ask you, do you believe we must put an end to it?
[00:27:11] Speaker 5: Ranking member, you've given us a big job. We've tackled, we've begun in six short weeks to tackle the big job, and I'm focused on that.
[00:27:21] Speaker 2: Well, let me just go further with the prediction markets. I'm deeply concerned by the potential for regulators to profit from the use of material non-public information on prediction markets. There's a pattern of insiders appearing to profit ahead of market moving Trump administration decisions, like when officials with close ties to the administration make trades prior to major tariff announcements. Chair Walsh, what oversight does the Fed conduct over its employees with regard to insider trading? And given the rise of prediction markets, is the Fed increasing its oversight for its employees profiting from the use of material non-profit information?
[00:28:10] Speaker 5: Ranking member, at the end of my very first week on the job, I sent a letter to the 23,000 employees of the Fed, reminding them the best of the Fed's traditions, which is our culture, and included in that culture is integrity. Included in that culture is ensuring that we abide by the law on the very highest standards. That's a commitment that we've made to each other and will make to you.
[00:28:34] Speaker 2: Well, thank you. Chair Walsh, in 2019, I posed a simple question to former Chair Powell. I asked, if you get a call from the President, and he said, I'm firing you, pack up, and it's time to go, what would you do? Chair Powell said, of course, I would not do that. The answer would be no. The gentleman's time has expired.
[00:28:55] Speaker 1: I asked further.
[00:28:56] Speaker 2: He does not want me to go any further. Do you think the President doesn't have the authority? He can answer that answer.
[00:29:01] Speaker 1: He can give you an answer in writing, and I'm sure he will do that in a timely way. Thank you so much. The Chair recognizes the Chair of our Task Force Monetary Policy. Mr. Lucas of Oklahoma, you're recognized for five minutes.
[00:29:12] Speaker 3: Thank you, Mr. Chairman, and Mr. Chairman, I want to start off discussing these task forces you've created. Clearly, Chairman Hill's Monetary Policy Task Force ID is catching fire as we see this go across the landscape. What do you anticipate the result of the task forces to be? Can we expect public reports or other documents? How do you envision presenting the results of these findings, Mr. Chairman?
[00:29:35] Speaker 5: Thank you very much. Right now, they're in discovery mode. I've given the five task forces a tall task, to go back to first principles, see what we're doing, see what can be improved upon. They were starting with a blank sheet of paper, and you had a highly credible central bank running the most important monetary policy in the world. What would we do? Are there existing practices we could improve upon? Are there hard questions we could answer? Are the changes in the economy relevant to that? In terms of disclosure, we're going to make sure that the external, independent task forces, which are staffed by some superb Fed staffers, that they get to share their views first with the decision makers. There are 15 of us around the table that are committed to listen to them with an open mind and make decisions. But there's going to be nothing held in secret here. This is a public discussion on these five, and I'm happy to share the results and the thinking periodically between now and the end of the year, at which point I hope we've got some real conclusions.
[00:30:37] Speaker 3: Of course, the committee task force is very sensitive on this thing. Let's move to the communications and balance sheet. A concern I raised with your predecessor is the potential for confusion on the purpose of adjustments to the Fed's balance sheet absent clear and frequent communication. For example, the trading desk announced yesterday it's continuing the $10 billion in bill purchases this period, presumably to maintain ample reserves. I understand not wanting to preempt the work of the communications task force, but can you share your thoughts on balance sheet policy communication? Will you make it clear to the markets when shrinking the balance sheet is intended to tighten monetary policy rather than a deregulatory effort to avoid market distortions? Yeah.
[00:31:19] Speaker 5: You raise a couple of very good points. First, that some of the boundaries of these task forces will overlap. In some sense, each of the task forces are charged with obligations that are ultimately the FOMC and the Board of Governors. So the communications task force and the balance sheet task force, there might be some overlap in their work. Let me cut to the chase. The balance sheet policies since the global financial crisis when I last served, the balance sheet regime has changed quite significantly. The size and duration of assets the Fed's holding have changed massively. They changed first in a period of crisis. That was the design of this new balance sheet policy. I don't want to prejudge decisions that this task force makes, but it's no secret of my long-held views. And I'll just state them three ways. One is the balance sheet is part of monetary policy. Monetary policy is made both through interest rates and through the balance sheet policies. The balance sheet isn't merely about plumbing. So that's point one. Second, I want to assure you that if there were a change in balance sheet policy, that we would preview it, explain it, debate it, and no changes in balance sheet policy would happen without good advance notice to the likes of this committee and broadly financial markets. And three, as we think about balance sheet policy, we at the Federal Reserve have to do, I think, a strong and compelling job to stay clear of fiscal policy. We want to be out of the fiscal policy business, which is between you and the Treasury Secretary and the President, and focus on monetary policy. Those are among the big questions I've asked this group of three distinguished leaders to take on. And I look forward to hearing what they have to say about it.
[00:33:06] Speaker 3: The composition of Treasury purchases continues to trend towards more price-sensitive market participants. The NPR details this trend along with the strong demand and increased liquidity. Though we know from experience conditions can worsen quickly in the crisis. How are you thinking about financial stability and the threat of fiscal dominance as Congress fails to get spending under control while the demand for our debt, including the Federal Reserve, continues to change?
[00:33:34] Speaker 5: So it's an excellent question. As we sit here today, the average duration, that is the average outstanding stock of assets that are held by the Fed and U.S. Treasuries is about six and a half years. The Treasuries that held in the market are about four and a half years. I understand in periods of crises, like the 2020 pandemic and the '08 crisis, central banks, by design, needing to step into markets to create a fair price. But in more benign times, when our overall holdings are larger than the market, that's something where monetary policy is, in the language of former Chairman Volcker, on the edge of its authority. These are among the questions that this task force will look at. Thank you, Mr. Chairman.
[00:34:22] Speaker 3: You're back.
[00:34:23] Speaker 1: Mr. Chairman. The gentleman is back. The chair recognizes the ranking member of the House Small Business Committee, Ms. Velasquez, of New York, for five minutes.
[00:34:30] Speaker 6: Right here. Welcome to the committee. I would like to start with a straightforward, simple question. Do you work for Donald Trump? Yes or no?
[00:34:45] Speaker 5: If I'm permitted to say, we're an independent central bank. We're honored to be independent. Our independence came from you.
[00:34:52] Speaker 6: Okay. That's enough. Thank you. What steps would you take if the president or others in the administration target you or your fellow governors, because he doesn't like how many of them are voting on interest rate policy?
[00:35:10] Speaker 5: So, it's not my intuition to engage in hypotheticals, but I'll tell you this. The Supreme Court said-- That's an easy way out. The Supreme Court said that the Federal Reserve and the conduct of monetary policy is independent. To the extent there were questions about it, the courts answered those questions.
[00:35:28] Speaker 6: So, what would you do?
[00:35:31] Speaker 5: I would continue to do my job.
[00:35:33] Speaker 6: Okay, good. Chair Walsh, do you agree that current monetary policy exists in an extremely polarized and politicized environment?
[00:35:44] Speaker 5: Outside the four walls of the Federal Reserve, there's no doubt a lot of politics. But my goal inside the central bank is for there to be no politics. To the extent there's politics there, we're going to get rid of them.
[00:36:00] Speaker 6: Well, I, along with many on my side, will say that the attempted firings of a sitting Fed governor and Fed chair in the central bank's 111-year history is quite the politicization and polarization of the Fed. Chair Walsh, at your nomination hearing a few months ago, you said, and I state, I am committed to ensuring that the conduct of monetary policy remains strictly independent. You just said that. Are you still committed to conducting independent monetary policy today? Absolutely. Given the current mistrust of government and the political environment surrounding your appointment, the decision to limit communications and offload Fed objectives to clandestine task forces with no clear transparency calls your motivations into question. Can you commit today to institute an explanatory framework that details the reasoning of the Fed's actions following policy changes?
[00:37:13] Speaker 5: I'm here today, Congressman, to do just that. And I think I've demonstrated in my first six or seven weeks in office a commitment to independence and a commitment to reform. Those two are of common importance and I'm going to deliver on both of them.
[00:37:30] Speaker 6: I'm glad to hear that. Thank you. Chair Walsh, at your first post-AOMC meeting as chair, you were asked how you intend to handle Fed communications going forward. You answered, and I quote, "We made some changes today. I expect more changes to come, and some of those might well be worthy of a press conference." To me, that is not a very definitive standard. Can you commit today to creating a fixed public standard for which FOMC decisions and procedural changes trigger a press conference rather than deciding case by case which ones might be worth it? Yes or no?
[00:38:27] Speaker 5: So if I can be a slightly longer than yes or no, the last 63 months, maybe 64 months of high inflation above the Fed's objective suggest that it is immediately important to think about reforms, including in communications, and that's what we're going to do. I don't expect any of the changing communications to be about hiding the ball. The purpose of a change in communications is to do one thing right, which is to get monetary policy right.
[00:38:57] Speaker 6: I hear you, but are you instituting any standards that will qualify for a press conference as worth news for the public and here, us, in Congress?
[00:39:13] Speaker 5: So in a word, yes, and we have a task force that's going to help us think about how to do that and do a better job of getting policy right and making sure that you know what we're doing and why.
[00:39:22] Speaker 6: Can you give me a single objective or criteria right now on how you will determine whether or not a change at the Fed is significant enough for you to hold a press conference on it?
[00:39:36] Speaker 1: Mr. Chairman, I'd invite you to answer that question in writing, please, for the gentlewoman from New York. The chair recognizes the gentleman from Texas. Mr. Sessions, you're recognized for five minutes. Mr. Chairman, thank you very much. Chairman, welcome.
[00:39:48] Speaker 7: We're delighted that you're here. This is your first time here, but you'll get used to coming back. You'll be here twice a year, so your report to Congress is important, and we do count on the factual nature of that. I'd like to refer, if I can, to three questions and allow you to speak instead of myself most of the time. Number one, housing interest rates. That would be on page 21 and 37. Then, understanding better the agricultural stability of that marketplace. I represent a hugely agricultural district. And second, or lastly, the labor market outlook. That's page 16. I'll let the gentleman please move forward, and I'll prompt you now on the first one. Housing interest rates. You would please talk to us. Your view of that, it's higher than what I want, but you're the person that's in the seat today.
[00:40:42] Speaker 5: So, as I mentioned in my opening statement, prepared remarks, the economy is solid. Financial markets look like they're in very good condition. When we look at housing markets, the story is much more uneven. 30-year fixed-rate mortgages, which is really the relevance of much of this discussion to a lot of hardworking Americans. It's higher than it's been, and in part, that's because of inflation that has been above the Fed's objectives.
[00:41:14] Speaker 7: Okay, and looking forward, your goal. What can we look at you and say, what is our new chairman going to do about that?
[00:41:24] Speaker 5: So, he's going to deliver price stability with his colleagues at the FOMC. And what we can do in making sure that people are confident that the change in prices is at such a level, they don't have to think about it, and they don't have to talk about it. That is consistent with long-term treasury yields being lower, and that's also consistent with mortgages being more affordable.
[00:41:46] Speaker 7: Well, I agree with that, and I'll look forward to that. I agree with that. I agree with that.
[00:41:51] Speaker 5: As you know, the Fed does not target particular sectors, but that doesn't mean these sectors aren't incredibly important. The housing economy matters to the economy, the overall economy, and so does the ag economy. It's the breadth and diversity of the U.S. economy that gives us its strength. It's the dynamism of what's happening in each of these sectors, including in agriculture, that gives us great comfort that economic growth can be materially higher than it is. We are not afraid of productivity-led growth, and that's not unique to AI. That's across all sectors of the economy. As I mentioned to Chairman Hill, we're looking for growth to be broader, and the change in prices, the inflation in prices to be more limited. Agriculture is not immune to either of those developments.
[00:42:48] Speaker 7: Well, the Agriculture Secretary has been added to some of your important committees to make sure there's discussion. I hope that you will listen to her. It is important for you to understand that when people talk about the stock market or investment, farmers and ranchers look out in their backyard at the cost of their equipment, at the cost of their land, at the cost of things. They don't have a stock market. They have their own investment, and I think that the Secretary can be there to completely continue to remind you of that. Labor market outlook really looks good. Page 16, sir, your take.
[00:43:28] Speaker 5: Yeah, so the labor market has been remarkably resilient. The increase in nominal wages has been solid. You might have heard in my comments at the beginning of this a bit more focus on the price stability part of the mandate. I want you to know, though, that there is no disfavored part of the legislative remit that you gave us. The dual mandate is your word to us that we're going to focus on price stability and on full employment. I intend to do just that, and if I could add one other thing. In my view, the two parts of the mandate are not in conflict. This is not an either-or proposition. The more we can do to deliver low and stable prices, the more we can get it such that people aren't worried about inflation. More employers are going to want to hire more workers. So you gave us a remit. We take both parts of it seriously. As we look out the window now, the labor markets look to be in pretty good balance. We've got some work to do on the inflation front.
[00:44:30] Speaker 7: Well, we in the one big beautiful bill encourage people to go back to work, and that is why we do not tax overtime pay and why we do not tax what would be tips. We need to get people back in the marketplace. We hope you helped us out. Mr. Chairman, welcome to us. Mr. Chairman, thank you for your time.
[00:44:50] Speaker 1: The gentleman from Texas yields back. The chair recognizes the ranking member of our capital market subcommittee, Mr. Sherman of California, for five minutes.
[00:44:57] Speaker 8: Mr. Chairman, first I want to commend you for looking to improve the data on which you base your monetary policy decisions. Up until now, we've relied on survey data as a substantial part of that, and increasingly Americans just don't voluntarily answer survey questions. I want to commend you for declaring your independence. We saw what happens in Argentina, Venezuela, and most notably Turkey when federal central bank independence is eroded. I would say ironically that had your predecessor caved to Trump at lowered interest rates below what economics would call for, we would have much higher inflation today, and that would have been bad for Americans. It would have been absolutely terrible for the Republican Party. So your agency has saved Donald Trump from himself. And finally, I would say don't rely on this distinction between the Cook and the slaughter cases. The idea that every congressionally created independent agency isn't independent except yours. You don't want to be relying on that. The distinctions the court makes between your agency and every other agency are rather weak historically. Our capital markets support our business expansion and our economy. Money market funds are an important part of that, buying short-term commercial paper from corporations. Our payment system is designed to meet the needs of honest Americans. That's why we have an anti-money laundering, know-your-customer rule that makes it a bad system for drug dealers, sanctions evaders, etc. There's a rival to these institutions, and that is a cryptocurrency, which literally means hidden money, and is designed to -- and then we have in particularly stable coins, which are just like a money market fund, except you earn zero interest, and everything is hidden. Now, the Federal Reserve established liquidity facilities to support money market funds in the last crisis. Will the Federal Reserve support cryptocurrency or stable coins if they face a runoff from investors?
[00:47:30] Speaker 5: So, Congressman, thank you for mentioning many of those issues. We talked about a lot of them in your office, so I appreciate it. I still have the scars from the 2008 financial crisis. We all do. I still have the scars from the extraordinary efforts that my colleagues and I under Chairman Bernanke's leadership had to do. That is not something we want to repeat.
[00:47:50] Speaker 8: Can you assure us that you will not be bailing out stable coin and cryptocurrency?
[00:47:57] Speaker 5: So, I don't want to -- I can be more broadly than that. We do not want to be in the bailout business full stop.
[00:48:04] Speaker 8: But your predecessor did provide a liquidity function for stable -- for money market funds. If, God forbid, we faced a similar circumstance in the crypto world, would you bail them out?
[00:48:18] Speaker 5: So, I want to be very clear. We're going to do everything we can to mitigate those sorts of extraordinary risks. If and when they were to come in the next four years, we want to be in a position we're not bailing out anybody, including crypto.
[00:48:35] Speaker 8: You're not really answering the question. Obviously, everybody prefers our economy works well. I'm certainly concerned with giving non-banks direct access to the payment system, and this crack in filing with the Kansas City Fed is concerning. But I want to move on to Basel III. Your predecessor said that the capital requirements for banks in 2019 were about right. The current re-proposal substantially raises those capital requirements. Were capital requirements about right in 2019, or should they be higher than that today?
[00:49:15] Speaker 5: The good news is we have a proposed capital rule that's out for comment. I'm quite interested in getting the reports and the comments on that, and I look forward to reviewing those and making a judgment. I want to say, as a first principle, strong capital ratios, strong liquidity ratios, strong supervision, and strong market discipline. They're all of a piece to ensure we don't find ourselves in a world where there's unsafe or unsound institutions.
[00:49:44] Speaker 8: We, of course, want strong limits. On the other hand, if you go overboard, you hurt economic growth and hurt the economy. I hope in that review process you'll look at low-income housing tax credits, where you've already moved from 400 percent to 100 percent. It should be closer to 20 percent. These are very stable assurants. I hope that my time has expired.
[00:50:07] Speaker 1: My time has expired. I appreciate you, Mr. Chairman. The Chair recognizes the Chair of our Subcommittee on Financial Institutions, the distinguished gentleman from Kentucky, Mr. Barr.
[00:50:17] Speaker 9: Thank you, Mr. Chairman, and Chairman Warsh, congratulations on your confirmation and swearing in as the 17th Chairman of the Federal Reserve. I am grateful for your commitment to reforming the Fed, and that appreciation is surpassed only by our shared love for Kentucky thoroughbreds and your love of the great sport of horse racing. Well, let me just ask you, first of all, since you're swearing in over seven weeks ago, things seem quite a bit different over at the Fed. A few examples, elimination of forward guidance, abstaining from the dot plot, creation of these five specialized task forces, and maybe most impressively, taking accountability. Instead of blaming inflation on the pandemic or supply chain interruptions or tariffs or the Strait of Hormuz, you are saying that inflation is always and every time the result of the Fed supporting printing too much money. Tell me, Mr. Warsh, you appear to be quite different from your predecessors. How are you different?
[00:51:25] Speaker 5: Well, I've known five of my predecessors. I've learned particular lessons from each of them. I can only be my own man. I served before at the Fed for about five and a half years under Chairman Bernanke, and I learned a lot of things then. But you're right. In six weeks, we have caused, I think, a sea change in new thinking, the beginning of a set of reforms that are going to be put in place across at least five dimensions in monetary policy. And it's a broader discussion about reforms that will be forthcoming in everything we do, including supervision and regulation, where there's already been a good start in payments and the rest. We made a lot of progress in six weeks, but I think it's important to use this opportunity wisely. The 63 months of inflation above target has been an unfair burden and has been a tax on the American people and businesses. We plan on getting rid of that tax. If that means we need a regime change in policy and we need new consideration of practices, some of which have been working, some of which haven't, that's what we aim to do. We're just getting started.
[00:52:33] Speaker 9: Well, I appreciate your commitment to being different. Let's talk about overhauling Fed communications. This from a Wall Street Journal editorial on June 15th. They write, "Few innovations since 2008 have been as counterproductive as the adoption of forward guidance as a policy tool. The constant yammering, long policy statements, press conferences after every FOMC meeting, non-stop speeches by Fed officials, above all the quarterly summary of economic projections has exposed how little the Fed understands about the economy and trapped officials in errant policies." Chairman Warsh, why is it important to do away with the dot plot and end, once and for all, forward guidance?
[00:53:22] Speaker 5: Well, Congressman, I've made no secret probably over the last 15 years of my views on communications. I think when central bankers speak like I am before you, it's either one under obligation, or in this case under obligation and purpose, which is to share a set of new reforms so that American households and businesses might say to themselves, "This is a regime change in policy." We're only beginning it. I'm keenly interested in the views of these five task forces, and ultimately these are decisions that are going to be made jointly. The rest of the Fed's traditions are to work collegially, and I've really been quite impressed how open-minded my colleagues have been to take it up, specifically in communications. If we were to share with you our every passing thought, I worry not that there's anything wrong with us, but we're human. And if we were to give you my projection today about what we'll do when we meet in two weeks, what we'll do over the course of the year, that we then find ourselves sort of taking information that's consistent with our priors and rejecting information that's inconsistent. It's not the way we want to do things. We want to get policy right, and I think being somewhat more circumspect in our communications, at least for me, is a better way of calling balls and strikes.
[00:54:42] Speaker 9: Kelly, thanks for your commitment on dealing with this mission creep. In recent years, the Fed has concerned itself with matters outside of its dual mandate, including diversity, equity, inclusion, climate change, and the like. That's why the Fed's joining the network of the greening of the financial system distracted the Fed from the very important job of price stability. How will you keep the Fed from rejoining the network for the greening of the financial system or veering into these peripheral and distracting matters that go beyond the statutory remit of the Fed?
[00:55:11] Speaker 5: By being very clear of our obligations. You told us that our job is full employment and price stability. You gave us plenty of other hard work to do. We'll have a series of reforms outside of monetary policy. Our plate is full. We will not be wandering into other areas, I can assure you, Congressman. Thank you. I yield back.
[00:55:29] Speaker 1: The gentleman from New York, the ranking member of the House Foreign Affairs Committee, Mr. Meeks, you're recognized for five minutes. Thank you, Mr. Chairman.
[00:55:36] Speaker 10: And congratulations, Mr. Chairman. Let me just jump into this. Because in your testimony, you talked about the Federal Reserve's, and I quote, "rightful independence in the conduct of monetary policy," which is good. Now, as the Chairman Hill has indicated, I also do some foreign affairs work. And I'm very concerned about what's taking place in the state of Homoose, in rising cost of gas. Because we know that when those prices go up at the pump, it's getting higher transportation and energy cost. And they work their way through the economy, generally making groceries, higher in household goods, et cetera. So, it depends upon handling it. So, Mike, if the administration's handling of the conflict with Iran contributes to another inflationary shock, will you make the decision you believe is in the best interest of the American people and the American economy in that rightful independence stance?
[00:56:36] Speaker 5: Congressman, that is always our commitment, to make the best decision we can, consistent with the remit and our understanding of the world. And as I said to the Chairman of the Outset, we'll deliver price stability.
[00:56:47] Speaker 10: So, and that's, you know, still based upon what we've seen from the President thus far. Now, I just want to be clear, make sure that, because I got to be clear on this, that if the President publicly pressures you to pursue a different course than the one you believe is in the economic, that you believe the economic data supports, will you follow the President's wishes or follow the data?
[00:57:12] Speaker 5: My commitment to you is to follow the law and follow the data, follow our very best judgment.
[00:57:17] Speaker 10: And that's even if he publicly criticizes you for doing it. If you decide this is the way to go, this is where the data shades, and he publicly criticizes you and tells you how disappointed he's in you and all of that. Will you still do what the data tells you to do? I will, Congressman.
[00:57:38] Speaker 5: You ready for that? I'm ready to follow the law and I'm ready for the Fed to deliver on the expansive remit that you gave us. I'll make only one other note. We have a wide lens. We're interested in what's happening in the war. We're interested in what's happening in military conflicts around. We have to take that all in, but then we have to shut the door and make our very best decision. That's what we're going to do in a couple of weeks, and that's what we'll do in the remainder of my tenure.
[00:58:10] Speaker 10: Thank you. Now, I want you to know that I support innovation, but I also believe that the Federal Reserve has a responsibility to protect the integrity of our payment system from political pressure and short-term enthusiasm. And I believe that the administration has made expanding access to fintech and digital asset firms a clear priority of his, but the Federal Reserve has long evaluated access to its payment infrastructure based on safety and soundness. Operational resilience and effective risk management and the stability of the financial system, not politics, not political priorities. So, can you, you know, and what I should say this also, because what I'm concerned about is that there are firms that's connected to our nation's payment infrastructure that must have robust cybersecurity, fraud prevention, compliance, and operational controls, because failures can, undermine public confidence in the financial system and leave consumers exposed to significant harm. So, my question is, can you commit that decisions about access to the Federal Reserve's payment rails will remain grounded solely in the Fed's independent assessment of systemic risk, safety, and soundness, and not political direction?
[00:59:34] Speaker 5: We're, we're, we're, we're, we're, we're, we're going to keep politics out of the Fed. We're going to stay focused on the responsibilities you've given us. And I think you highlight something very important. This new technology revolution, which is hitting the Federal Reserve and the economy provides huge opportunities. The United States can lead in payments. Our economy can be the strongest in the world and improve its growth rate, but it's not without risks. And we at the Fed are going to strike the right balance between the challenges and the opportunities in payments and more broadly.
[01:00:07] Speaker 10: Let me just ask this, I got 28 seconds, but what objective standards must any firm satisfy before you conclude that the benefits of innovation outweigh the risk to consumers and the broader financial system?
[01:00:19] Speaker 5: I like the way you think a benefit cost test is a good test for economists like us and the benefits exceed the cost and that's the kind of policy procedure and objective we want to pursue. Thank you. Thank you, Congressman.
[01:00:33] Speaker 1: The gentleman yields back. The chair recognizes the chair of our capital market subcommittee. Ann Wagner of Missouri, you're recognized for five minutes.
[01:00:39] Speaker 11: Hi, thank you, Mr. Chairman. And welcome, Chairman Warsh, and congratulations to you. My work on the capital market subcommittee as chairman has been focused on giving the American people and our small businesses more options and access to our markets, giving the everyday investor and the local employer better opportunities to grow their financial future, and kind of on their own terms, I'd say. Under the previous administration, we saw heavy handed regulatory approach that aimed to strip risk out of our markets entirely. And time after time, the Biden-Harris administration pushed policies that limited financial freedom and stifled growth. Our capital markets are, as we all know, the envy of the world. And that is because we allow Americans, Americans to weigh risk and reward for themselves and make the financial decisions that are best for them and their families. Chairman Warsh, at a high level, how do you view the Fed's role relative to the financial system, both as a central bank and as a bank regulator? And I guess what I mean is, should the Fed try to engineer all risk out of our economic system, or should it act as a prudent observer that only intervenes when truly necessary?
[01:02:19] Speaker 5: Well, Congressman, it's a leading question which I can answer with a, we need to strike the right balance. We are not trying to take risks out of markets in normal times. The economic growth that I mentioned to your colleague just a moment ago comes about because of a certain dynamism in our financial markets, which comes from a dynamism in the real economy. That isn't created by the Federal Reserve, but we can be a foundation with clear, steady policies delivering on the remit that you gave us so that the American spirit and American economic growth can continue to be the envy of the world.
[01:02:57] Speaker 11: Something on the top of mind for myself and certainly for my constituents in Missouri's second congressional district is the state of the economy, including the cost of living, job growth and interest rates. Though it is often characterized as being tasked with a dual mandate, the Fed, in fact, has multiple statutory mandates, including stable prices, maximum employment, moderate long-term interest rates and financial stability. When the Fed leans into one of these goals, sir, it can create ripple effects on the others, forcing a balancing act between competing priorities. Chairman Walsh, how do you weigh these different mandates and the trade-offs between them?
[01:03:57] Speaker 5: Chairman Walsh: I'm a little different than some in economics profession on that, Congressman. I do not think we have a cruel choice between stable prices and full employment. I think the mandate that you and Congress gave us are entirely consistent. If we can ensure stable prices, the American economy can thrive, businesses can hire more employees, and the dynamic economic engine we talked about can continue to be the envy of the world. Chairman Walsh: I don't think we have to run a balancing test. I don't think it's an either/or proposition. We're in the business of doing what we can to ensure financial stability over a business cycle and financial cycle, and we're always in the business of ensuring stable prices and full employment. At different times, our focus, our lens has to turn to one of those priorities, but I think they're entirely consistent with each other.
[01:04:50] Speaker 11: Chairman Walsh: Which leads to my next point here. There are some who believe, Chairman Walsh, that the Fed should be used as an everything regulator, where instead of acting as an observer of markets, the Fed attempts to actively manage them beyond its statutory responsibility. Chairman Walsh, how does this mission creep affect the Fed's reputation, and should the Fed take actions beyond those specifically authorized in federal law?
[01:05:23] Speaker 5: Chairman Walsh: We should follow the law. There is a tendency when circumstances get tough for any regulatory agency, any agency to go to the edge of their authorities, but that's when politics enter the door. Chairman Walsh: My objective, the objective of my colleagues is to keep politics out, and the way we do that is we steer clear of things that we aren't authorized to do. Chairman Walsh: Thank you. Chairman Walsh: The gentleman's time has expired.
[01:05:49] Speaker 11: Chairman Walsh: My time's expired, and I think that's the answer we're looking for. I yield back to you.
[01:05:53] Speaker 1: Chairman Walsh: The chairman recognizes the ranking member of our subcommittee on digital assets, Mr. Lynch of Massachusetts, for five minutes.
[01:05:59] Speaker 12: Chairman Walsh: Thank you, Mr. Chairman. Welcome, Chairman Walsh. Good to see you. My congratulations. Chairman Walsh: I was pleased to see that in your opening remarks you spoke to the issue of artificial intelligence. And as the ranking member on AI and crypto, I was just curious to try to tease some more of your thoughts out on that. You know, not only in the financial services context, but AI in general. I mean, in the past, the Federal Reserve has been able to identify risks of impact to the financial system, but also in a wider context as well. And I wonder if you'd share some of your concerns about that. And I guess I'd like to know, under your leadership, what will be the Fed's approach on AI and how you protect the system from some of the risks that may be attendant to the adoption of AI?
[01:07:03] Speaker 5: Chairman Walsh: Thank you, Congressman. We talked about this a bit in your office, and I appreciate the time. This is perhaps the most significant change in our economy in my adult lifetime. I take the new investments in intelligence, in some sense, to be one where we have to recognize it's a huge opportunity, but it also comes with risks and challenges. It is not the job of the central bank to provide or be certain of what the consequences are over the next 12 or 24 months. But we recognize that the United States is likely to be a big winner. The United States is at the forefront of these technologies. Both the human capital and the capital provided from investors are happening here. So the efficient frontier of these technologies are happening in the United States. This is a benefit broadly to our economy. But I don't want to sound overly complacent about it. These technologies also offer threats when they find their way into adversaries' hands. The infrastructure at the Federal Reserve, the infrastructure at our banks, large and small. They must feel new pressure as people are looking to use these technologies to do harm. So these technologies can be used for good and for harm. Over the long term, I think the U.S. is the winner. Over the long term, I think there is a material improvement in productivity, which should have a material improvement ultimately in wages and the strength of the economy. But the long term can be quite far out and we've got to monitor things month by month, quarter by quarter as we get there.
[01:08:42] Speaker 12: Yeah, the thing that troubles me is every time we talk about AI, I hear about this race and it's us against China or it's us against South Korea or countries in the EU. But the problem with that thinking is that in this race and we're seeing the velocity of change is an onus. It's exceeding obviously our ability to regulate AI. At the end of the day, I don't see the United States as the winner. You know, artificial super intelligence as the winner. That's where we're rushing along this course and at the end of the day, we're creating either us. It doesn't matter whether the creator of artificial super intelligence is a good guy or a bad guy or a good gal or a bad gal. That super intelligence itself will be the entity that we have to confront. And I just worry about the broader impact of what's going on right now. There's tremendous resources, as you know, being poured into AI. I just hope that the course of regulation does not meet the same fate that the regulation of crypto did, where the crypto industry spent close to $250 million up here on Capitol Hill and they got the bill they wanted. If that happens, if that happens with AI, we are in serious existential trouble, not only in this country but in this world. And I do believe that the Fed, your position, has influence, has the ability to seek out those dangers that others may not identify. And I just ask you to please consider your role and the resources that you have that maybe you can put a task force together to look at the broader implications of this, the adoption of AI. They can't even show us -- they can't even explain some of the things that they're using right now. The explainability gap is enormous. But I welcome you. I wish you the best. I really do. I wish you the best for all of us. The gentleman's time has expired.
[01:11:08] Speaker 1: I yield back. The chair recognizes the gentleman from Georgia, the vice chairman of our financial institution subcommittee. Mr. Loudermilk, you're recognized for five minutes.
[01:11:16] Speaker 13: Thank you, Mr. Chairman. And Chairman Marsh, welcome. Thank you for being here. Godspeed with the position you now have. And we wish you the best of luck. Thank you. First, I want to talk about Operation Choke Point. As you are fully aware, Operation Choke Point 2.0 involved partisan actors at the Fed using, as a quote, "reputation risk" as a means to target and debank firms and individuals in the digital asset ecosystem. The energy industry and really anyone that partisan actors at the Fed believed unworthy of a bank account or loan. This was especially egregious given the fact that the Fed does not have a statutory authority from Congress to supervise for reputation risk. While I'm happy that reputation risk has been wiped from the Fed's guidance to examiners, can you please tell us what steps the Fed can take to durably ensure that statutory silence is never, again, abused by partisan actors to attempt through the Fed what they cannot make through law in Congress, and also what actions that you may be taking?
[01:12:25] Speaker 5: So thank you, Congressman. Reputational risk has been removed from the dashboard that supervisors and regulators will have anything to do with. My view is that being a good supervisor and regulator is a tough business, and we don't need to make it harder by bringing politics into it. Vice Chair Bowman has begun a series of reforms before I arrived in this, and I think you're going to find in the coming quarters and years, we're going to continue to reform and refine our regulatory system so that we can have a safer and sounder financial system, and I'll add a more competitive one, too.
[01:13:03] Speaker 13: All right. Thank you for that, and we appreciate your work in that area. The Fed currently holds a considerable share of federal debt and has for almost two decades now. With a ready buyer and low interest rates, it's not surprising that Congress has been incentivized to run up large and growing deficits over the same timeframe. You've spoken before about the Fed's role here and the threat of monetary dominance and fiscal dominance. How can the Fed get out of the business of underwriting Congress's fiscal irresponsibility?
[01:13:35] Speaker 5: One thing we can do is think hard about when we're going to be buying debt from the Treasury. This might not sound like perfect virtue, but when we have a crisis like in 2008 and 2020, my view is you created the central bank to take extraordinary actions. In more normal times, in a more normal business and financial cycle, fiscal policy needs to be a decision that you make with the administration. The Fed should have nothing to do with it. I've set up a task force to focus on the balance sheet, to ask the question, first, what's the effect of the balance sheet on the conduct of monetary policy and ultimately inflation? Second, what are the pros and cons of different regimes? I'm not of the mistaken view we can go back to where we were when I arrived at the Fed in 2006, but I think there are several other sustainable equilibrium we can achieve. And the third question is equally important. It took us nearly 18 years to find our way into this balance sheet. We're holding a lot of long-term Treasury debt, long-term mortgage-backed securities. We won't be able to make changes overnight. Any changes that we make would be well deliberated, would be public, would be understood, and there would be quite a bit of time before any of that was operationalized. I look forward to the recommendations of the task force, and I look forward to hearing from my colleagues around the FOMC as we contemplate alternatives.
[01:15:02] Speaker 13: Thank you for that. And what are your greatest concerns with regard to the threat of monetary dominance?
[01:15:07] Speaker 5: Yeah, so you have a different job than we do. The independence that many of your colleagues have spoke about this morning is a political and economic decision to give us the pen on interest rates, to let us be the deciders of monetary policy. I've always taken that as part of a bargain. You're giving us independence on that, and my judgment is we should be staying out of fiscal policy. We shouldn't be weighing in, no matter how tempting it might be, either directly by buying assets that have some flavor of fiscal policy or by opining on subjects that really isn't our business. We're going to try to stick in our lane at the Federal Reserve. We've been good at that for the last six weeks, but there's always a temptation to wander in other areas. I'm going to try to be reserved in my comments on fiscal policy with you and your colleagues. That's your job. It's not mine.
[01:16:01] Speaker 13: Well, thank you for those answers. They're very thorough and very refreshing to hear. And with that, Mr. Chairman, I yield back.
[01:16:08] Speaker 1: The gentleman yields back. The chair recognizes the gentleman from Houston, Texas, Mr. Green, who is a ranking member of our subcommittee on overview. The committee on oversight and investigations. Mr. Green.
[01:16:18] Speaker 14: Over here, Mr. Chairman. Thank you. Thank you, Mr. Chairman. I thank the ranking member as well. And I welcome you to the committee, Mr. Chairman, but I would also say to you that I will pray for you. And I'll pray for you because many of the questions that have been predicated today hinge upon a belief that you will sanction the president's desires. It is thought among the general public that you're in the position you're in because the president could not have the influence that he wanted to have with the prior chair. And he believes he can have it with you. So I hope that you will stand firm and honor your commitments that you're making. Though some of them are not firm commitments, as I understood your language. You indicated that you're interested in war. I appreciate this. But I believe you should also be interested in speculative bubbles. My assumption is that you are. Are you interested in bubbles, speculative bubbles, Mr. Chairman?
[01:17:31] Speaker 5: We've got a wide lens. We spend a lot of time thinking about what's happening. I'm going to take that as a yes.
[01:17:38] Speaker 14: Now, given that you're interested in speculative bubbles, let's just talk about a bubble that occurred. President Trump's meme coin, dollar sign Trump, profited an average of $1.74 million per day over his first year. $1.74 million per day. This amounted to approximately $636 million in total royalties and licensing fees generated at its launch. While this was happening, during that same period of time, nearly 1 million investors lost a combined $3.8 billion. This was because that meme coin lost value. Dropped precipitously in value. It was a bubble. By the way, it is nothing. Anybody who's listening to me, if you've invested in a meme coin, you've invested in nothing. Zero. In a righteous world, it would be illegal. But given the Secretary of the Treasury that we have currently, it is not. And that's very unfortunate. SEC. The Secretary of the SEC. It is not. I think that we should concern ourselves with these speculative bubbles. And whether you like it or not, you have to concern yourself with it because when you lower interest rates, you lower the rates such that there's more capital available for people to use for speculative reasons. So you have to be concerned about it whether you want to or not because you don't want to see a speculative bubble. Can I have your assurance that you will be concerned about these speculative bubbles, Mr. Chairman?
[01:19:36] Speaker 5: So, Congressman, we want a resilient, strong, safe financial system. And we are looking at financial markets and we're looking at the real economy to make sure we deliver on what we can. Some of these other subjects are really more in your purview and responsibility.
[01:19:52] Speaker 14: They're in my purview. Excuse me for interrupting, but I have to. They're in my purview, but only because I choose to have them in my purview and I make an issue of them. I have to vote on them. But they're in your purview, too, because you decide whether the rates go up or down. And if you lower them, then people can engage in these speculative bubbles, such as the Trump meme coin, and they can lose a lot of money. Losing billions of dollars while the president makes millions on a daily basis? This is the epitome of ridiculosity. At some point, we all have to take a stand, Mr. Chairman. This is going to be your opportunity. You're going to have to take a stand at some point because this president is interested in making money. He puts money ahead of the people of this country. The people of the United States of America are secondary when it comes to the president. They may even be tertiary or quaternary, but they're not first. And at some point, you're going to have to make a tough decision as it relates to this president. Look, I'm not going to prejudge you. I'm going to assume that given your statements and the latitude that the Supreme Court has given you, that you'll make the right decision. But you're going to have to be concerned about a speculative bubble, especially as it relates to crypto. This is something that we'll all have to address. I thank you very much.
[01:21:21] Speaker 1: The gentleman yields back. The Chair recognizes the Vice Chairman of our full committee, Mr. Huizago of Michigan, for five minutes.
[01:21:27] Speaker 15: Thank you, Mr. Chairman. And Chairman Warsh, congratulations. I join many of my colleagues in seeing you there as a very positive thing. In late 2021 and 2022, as has been referenced by a few others, the Fed had recognized inflation was not transitory. I'm reminded of actually a hearing we had where we had then Secretary Yellen, former Fed Chair Yellen, sitting next to the then current Fed Chairman. And when I brought up the question about whether it was transitory, they did not have the same answer. And it was interesting seeing how that lag sort of played into the fear that many of us had that there had been more to this foot dragging coming out of the Biden administration. The quick question is, while the appropriate speed of a response depends on what is driving inflation, I think you would certainly agree. I'm curious your view of how the Fed should make that judgment and act quickly once it does. Because I think, as has been pointed out, there was a lag.
[01:22:52] Speaker 5: So, Congressman, I appreciate the question. We only look to the past for lessons learned. We're not trying to re-litigate the decisions that are made of our predecessors. But the reforms that I've already announced in communications, the task forces that have been established, are an attempt to make the conduct of monetary policy better, swifter, more sound, so we can deliver price stability. Our number one objective is to get policy right. And my judgment, as I said to one of your colleagues before, is that demands an open mind. That means not pre-committing to decisions before we take it up inside the four walls of the Federal Reserve. And so, you'll hear from me a lot less forward guidance and a lot of listening. Generally, as a practice, what we're going to try to do, especially at the beginning, is deeper, more serious discussions among us, fewer pronouncements.
[01:23:52] Speaker 15: So, I appreciate you don't want to re-litigate the past. But I do think, as we all know, we also learn from history. And during the previous administration, the Fed took some pretty major regulatory actions. Some within its statutory authority, and in my view, may be excessive. But others that were clearly beyond what Congress had really authorized. And, you know, everyone agrees a safe and sound banking system is essential to monetary policy, the economy, and the American people. But when the Fed exercises exceeds its, I'm sorry, exceeds its statutory authority or re-interprets old laws to claim new powers, that to me is mission creep. Can you assure us that future bank regulatory proposals will respect the important procedural guardrails established by the Administrative Procedure Act? The APA has been, in many ways, trampled, I believe, which often received only nominal consideration under the previous administration. How are you going to handle this?
[01:24:57] Speaker 5: So, we're going to follow the law just as you say. You've established a set of laws. There's a set of regulations by which changes in supervision and regulation, changes in guidance can be made. We intend to follow them with an objective, as you mentioned, of a safe, sound, and again, I'll add, competitive banking system. There's a huge strength for the United States, and our banking system is stronger and more resilient than most around the global economy.
[01:25:24] Speaker 15: May I expound a little bit about your views of the importance of a banking system to the American people, and the benefits to them of a Fed sticking to the authorities that Congress has given it, rather than going far afield.
[01:25:37] Speaker 5: So, we've got to keep politics out of the Fed. Politics can find their way into the Fed through any of the range of powers that you've given us. Our supervisors and regulators have a lot of authority over the thousands of banks that are regulated in the United States. Explicit authority and also authority when they knock on the door and they ask a series of questions. One of the great strengths of the U.S. economy is the diversity of institutions we have in the banking business. Most of the G20 counterparts we have, they have a handful of banks. They're implicitly backed by their government. One of the untold strengths of our economy is the diversity of our banking system. We've got regulators that need to ensure that the regulation and supervision are tailored to what happens in those institutions. One size fits all might work for other countries. It doesn't work in the U.S. And the vision I have, Congressman, is liquidity and credit that comes up from the real economy through the banks. Thank you. And gets aggregated, not top-down liquidity provided by the Federal Reserve.
[01:26:41] Speaker 15: Thank you. I yield back.
[01:26:43] Speaker 1: Thank you. Chair recognizes the ranking member of our Subcommittee on Housing and Insurance. Mr. Cleaver, you're recognized for five minutes.
[01:26:49] Speaker 16: Thank you, Mr. Chairman. Let me first, before I ask any questions, express my personal appreciation for you and ranking member Waters for allowing and giving my partner Mike Flood and I the opportunity to go out and deal with this housing issue that, frankly, I think is going to add a whole new dimension to our ability as a federal government to increase this human need for housing. So, thank you very much. I appreciate, and I know he does as well, all of the freedom that you guys gave us. Thank you, Madam Mikey Member. Mr. Chairman, congratulations for your new step and your career and for being here. I appreciate it, having a good conversation with you prior to this hearing. And I'm sure that you're not surprised that there's a great deal of interest in independence. And in theology, you said there are four endowments of the human species. And one of them is independence, that we have an independent wheel. And I'm interested in a declaration of independence, if you will. Wax eloquent on your view about the independence of the Federal Reserve.
[01:28:40] Speaker 5: So, the independence of the Federal Reserve is sacrosanct. Part of the reason for the Fed's power comes not just from a printing press, though it can be useful from time to time. It comes from our credibility, our credibility to make the best choices we can, consistent with the law that you've written for us. And that credibility is bolstered if we are and are perceived to be independent. And so, that's a commitment I can make to you, because that's the way we can best do our job.
[01:29:14] Speaker 16: Well, thank you. Thank you very much. Independence is a big deal in the real world and then certainly with the Federal Reserve. But I also have to say that, you know, there is a terror of the unknown, part of who we are. And the oldest and strongest of the human emotions is fear. It's almost the first thing we have. Even babies will jump because there's a fear of falling. Even, they may not even realize they are in the world, but there is this fear. And I'm not sure what to call this, maybe AI anxiety, but I clearly have it. And my youngest son is an actor and it would be inappropriate for me to tell everybody here to watch Sweet Magnolias on Netflix. However, I am concerned, you know, he's concerned, as many people in that business, about what AI can do to that whole profession. But there is this fear that at some point that AI may become more intelligent to human beings and then put us in a situation where we become obsolete. Do you have, as the Chair of the Federal Reserve, concerns about AI that you wish we knew and would address?
[01:31:00] Speaker 5: Thank you, Congressman. This is the most exciting opportunity, but with it comes the kinds of risks and challenges that you highlight. We at the Central Bank need to look at these with a view towards what do they mean for our mandate. What does it mean for our expectations of inflation over the next couple of years and beyond? What does it mean for employment? You told us that's our job. And so we have to look at artificial intelligence and the surge of technology with open eyes about it. I must admit that part of these challenges, I see huge amounts of talent and thinking inside at the Federal Reserve. But I wanted to bring in some outsiders to share a view. So I've created a task force on productivity and jobs to help us think about that connection. We're not outsourcing anything. The gentleman's time has expired. We're ultimately going to make these decisions. But American ingenuity has found its way into artificial intelligence and it's an exciting time, but one that we're not complacent about.
[01:32:06] Speaker 1: Appreciate it. Thank you, Mr. Chairman. Thank you. The chair recognizes the chair of our subcommittee on digital assets. Mr. Stile of Wisconsin, you're recognized for five minutes.
[01:32:16] Speaker 17: Thank you very much, Mr. Chairman. Chairman Warsh, thank you for being with us today. A year ago on Saturday, the Genius Act was signed into law. And with that, a series of deadlines for rules to be promulgated began and the clock began to tick. You came into your job confirmed approximately two months ago. The deadline for the Fed to promulgate rules is this Saturday. Will the Fed meet that deadline?
[01:32:47] Speaker 5: Well, that's a fair and open question. I have been corrected. I've not been in the job six weeks, but seven. We're racing to put that out by this deadline. I'll just add one other thing, Congressman, without taking too much of your time. I think rulemakings from the bank regulators are best when we have a family fight between and among us so that there would be one proposed rulemaking for comment. It might not be exactly true this time, but that's my objective, that we'd be coordinating and issuing our rulemakings at the same moment.
[01:33:23] Speaker 17: I appreciate that. I think from this body, I think there's a huge opportunity with stablecoin in particular to make sure that consumers are protected. That was one of the drivers of us passing that legislation. There's a lot of work to be done. You're new in your new role with the Fed, but we would like to be updated if, in fact, that deadline is not made. And then, in fact, when those rules will be promulgated, we're all anxiously awaiting, so appreciate your attention to that. Let me shift gears. There's been a lot of talk about AI, obviously, as any new technology, as you have said, brings forward opportunity but also risk. One argument, of course, is the labor market could collapse. We heard that offered by a couple of our colleagues. Of course, as we look back at other technological cycles in the United States, we've actually seen standards of living increasing. Jevon's paradox tells us that, actually, as technological cycles come through, we have opportunities for greater employment, in particular if we get the rules of the road right, as in many ways the United States has in previous technological cycles. How are you analyzing your role with full employment, in particular, as it relates to this next technological wave?
[01:34:34] Speaker 5: If this cycle, Congressman, is like the previous positive technology shocks, the U.S. will be richer, will be more productive, there'll be more labor, there'll be more wages, there'll be more compensation. That is, if this follows prior trends, this technology shock is likely more significant. This is probably the biggest change in my adult lifetime, because it's not just the creation of a new widget. What it is, it's changing the method of innovation, and the speed of innovation, and I can't think of a country on Earth as well positioned to take advantage of it. So that's on the one hand, but on the other hand, it can lead to disruption. My own best guess is that the advent of the technology will be augmenting existing work, that employees that were there will be more productive. And ultimately, at the end of the day, I don't believe in the lump of labor fallacy. All the jobs that are there have already been created, and the technology will remove some. Well, it might be disruptive in the near term, but it'll create a lot of other jobs. Just to give one example from history, and then I'll close. Who knew at the creation of the internet that the internet would create a million and a half Uber and Lyft drivers? I certainly didn't. So I want to be very open-minded about the job producing elements of it. But we have a day job, and it's to deliver on price stability and full employment. I've asked this outside task force of a few incredible experts to think hard about it over various time horizons. And we'll keep our eye on making sure we deliver in every one of those time horizons to ensure stable prices and full employment as best we can.
[01:36:19] Speaker 17: Thank you for that. I think there really is optimism, although there is downside risk. And I think one of the imperative aspects here is that we get the rules of the road right so that the innovation development is occurring in the United States of America and not offshore. One of my big concerns is how the Biden administration looked at emerging technologies in the financial services space, is that they were pushing that innovation development offshore rather than encouraging that here in the United States of America. With 30 seconds left, a lot has been said on the positive numbers that came out today. How does that shape your short-term and long-term outlook with the final 25 seconds?
[01:36:53] Speaker 5: So it's one data point. The reason I created a task force on data is I don't want to over-read or cherry-pick data. There might be some that look at this morning's data and say, oh, mission accomplished. Everything is swell. That is not my view.
[01:37:09] Speaker 17: Thank you, cognizant of the time. Appreciate you being here today, Chairman. Thank you. Mr. Chairman, I yield back.
[01:37:14] Speaker 1: Thank you. The chair recognizes the ranking member of our Subcommittee on Financial Institutions, Dr. Fulster from Illinois. You're recognized for five minutes.
[01:37:22] Speaker 18: Thank you, Mr. Chair, and welcome. Congratulations. And I hope that you cherish the scars from surviving the financial crisis that we both suffered through 20 years ago. I entered Congress and the Financial Services Committee in March of 2008, where I was right in the front row there, about two meters from Ben Bernanke and Hank Paulson as they came to Congress to ask for a $700 billion bailout, watching the sweat drip down Hank Paulson's forehead. So I hope you don't have to go through that. So I hope you don't have to go through that. But, you know, one of the Fed's most important roles outside of monetary policy is the operation of the central bank swap lines. And these, as you know, were absolutely crucial in preventing the global financial crisis from becoming a global depression. And I think, to my mind, remains the major reason why the U.S. dollar is the world's indispensable reserve currency, in an area where, by the way, the Chinese are trying to become increasingly competitive. And so the problem, of course, is that right now we have in the White House an occupant who sees his every power as a means of rewarding his friends and punishing his enemies, domestic and foreign. We saw that, an example, in the Argentine bailout, where he implemented swap lines using the Treasury's Exchange Stabilization Fund. I think he pretty much maxed it out. But to reward one of his MAGA allies internationally with a $20 billion loan at well below market rates, or probably they couldn't get a loan from anyone at that point. And so the question that I have, that when you and the FOMC are operating those lines, particularly in times of crisis, do you see yourself as an agent of the president or as an independent actor?
[01:39:05] Speaker 5: Thank you, Congressman. I appreciate the question. The swap lines that we put in place in the 2008 financial crisis, like you, I think, played a remarkable benefit in trying to mitigate the risks for the U.S. economy. And it reinforced that the dollar is the dominant currency in the world. Now, my judgment as central bank chief is to let the dollar policy be discussed by the Treasury Secretary and leave that to him. But historically speaking, I think the swap lines played a major role. The dollar liquidity swap lines that the Fed has put in place are about the conduct of monetary policy. So those are independent, but I just want to distinguish one thing. The Treasury has separate authorities and can use the exchange stabilization fund for swap lines that are unrelated to our powers and responsibilities.
[01:39:56] Speaker 18: Yeah, but the Fed's the big dog in swap lines. I mean, you know, the ESF is somewhere a little bit north of $20 billion, I think, is the most that they could deploy, which they did, you know, much, I have to say, not to the benefit of U.S. farmers that I represent. But anyway, he decided to bail out his friend in Argentina. But that was the Treasury and that was different. You know, so the question is what happens if there is a crisis and you get a call from the president and says, I got this friend that I want you to bail out or punish by politically allocating those swap lines. Is there an independence there that we have to protect as well?
[01:40:32] Speaker 5: So the independence and the conduct of monetary policy and everything that comes along with it is independent. But just to go back to the 2008 financial crisis, when all that happened, as you'll recall, the Treasury secretary and the Fed chairman, they often had to work in tandem. It's hard to distinguish in crisis times, separate from more benign times, exactly where those roles and responsibilities are. And when we put in those swap lines, when I was a governor at the Federal Reserve, I remember frequent discussions between the Treasury and the Federal Reserve. We have our independent authority, but I don't want to leave you with the impression that in 2008 or '09, we did that without a discussion with the Treasury.
[01:41:12] Speaker 18: Okay. Well, I just, you know, be very careful of that because you are going to be coming under extreme pressure. Now, let's see, I applaud all of your focus on data, which we talked about when we talked, and particularly your need for better real-time data. You know, the question of whether we could have picked up the inflation earlier with more leading and real-time indicators, I think is a very valid point, and I applaud you for having your committees investigate that. But does this interest also go into real-time regulatory information as well, which I think is really going to be crucial in a world where there's, you know, 24/7 banking operations? Banks and financial institutions can get in trouble fast, and so are you also going to be looking at the need and benefit for regulatory data on a faster timescale?
[01:42:00] Speaker 5: Absolutely. I've only been here for seven weeks. The focus in those first seven weeks, I must admit, is making sure that monetary policy gets back on track. But many of these lessons learned, like in data, how do we make real-time decisions isn't just as monetary policymakers, it's as supervisors and regulators. The world, as the discussion about AI suggested, the world's moving fast, the world's accelerating, and the Fed has to move with that speed. Thank you. Yulibank.
[01:42:28] Speaker 18: Thank you. Yulibank. Thank you.
[01:42:30] Speaker 1: The Chair recognizes the Chairman of our Subcommittee on National Security, Mr. Davidson from Ohio, for five minutes.
[01:42:36] Speaker 19: Thank you, Chairman Hill. Chairman Warsh, thank you for your testimony today, and frankly, for leading at the Federal Reserve. You know, the Constitution gives Congress the responsibility for monetary policy, and since 1913, that's fallen to the Federal Reserve. And, you know, a lot of people say, well, what did we create when we created the Federal Reserve? And the fight over the shape of our monetary policies is as old as, you know, Alexander Hamilton versus Andrew Jackson. So, I think a lot of my constituents wonder, you know, what happened to the purchasing power of their dollar? So, could you share with us what you consider to be the definition of sound money, and what's the state of that today?
[01:43:20] Speaker 5: The discussion we had in your office was a lot of economic history about the First and Central Bank of the United States. I'm gratified that this is our third Central Bank of the United States, and it's more than 100 years old, and hopefully we've learned some lessons. One of those lessons in ensuring that we are as focused, at least as focused, on the real economy as we are the financial assets and what's happening on Wall Street. This committee had long committed to a 2% inflation target. That is our resolution. That's what I'm here to say and double down on. But as we discussed privately, I'll say publicly, my broader definition of price stability is a change in prices such that households and businesses don't have to worry about it, don't have to think about it. And the test today about whether inflation is too high is represented by this committee. Inflation is the dominant set of questions because it matters to households and businesses. I'd like the change in prices to be such that no one's talking about it. That was a definition from the Volcker era, and I dare say the Greenspan era. It should suggest to you that as I sit here today, this Fed will deliver price stability consistent with what we have been saying for several years, which is inflation shall be delivered at a level of 2%. That broader price stability objective is still one in the back of my mind, and we'll see whether there's further reforms to be had.
[01:44:49] Speaker 19: Yeah, thanks for clarifying, because if you measure it by what people are talking about, they know that the affordability isn't there, they know the purchasing power isn't there. And whether you put it in a number like 2% or whatever, you look at, for the long run, it's been significantly higher than 2%. But it seems like one of the biggest roles of the Fed is to prevent deflation. And if you're going to have a number where the mean is 2%, and you've got a long period of time where you've had it well above 2%, you'd have to have some significant periods of time where it would be below that. But I wish you the best in your challenges, because my constituents are counting on us to get this right. So it truly is one of the most consequential things for our country. Sound money is truly essential to defending freedom. So I think the stakes are really high. One of the things that we look at is the connection to the way that the market functions. The Federal Reserve covers massive fiscal deficits, and they certainly do that when they're the purchaser of treasuries. They load up their own balance sheet. In some ways, you don't get a price signal. What's the real 10-year? What's the real 30-year? Well, when the buyer is the Federal Reserve, you don't know whether they're creating a higher rate or preventing a higher rate from happening, because it distorts the market. And we also talked about, in this regulatory role, there's a sort of bridge between the Federal Reserve as a regulator and a monetary policy role. So I wonder, when we think about what we created with this version of the Federal Reserve, do you consider the Federal Reserve subject to executive authority? I mean, when there are executive orders that are issued, let's say, just relating to the regulatory side, not monetary. I get some of the concerns on steering monetary policy. Presidents have always had an opinion on that. But if you put out a regulatory framework and the executive order relates to the regulatory structure of the Federal Reserve, is the Federal Reserve subject to executive orders?
[01:46:42] Speaker 5: Yeah. So it's a good question. Let me say a word, if I can, in 53 seconds about that, and go back, if I can, to say something about what you were talking about in setting prices rather than taking prices. First, as you know, I'm prepared to do everything I can to ensure the independent conduct of monetary policy. You can hear from all sorts of people. But we're going to call it the best we see it. On regulatory and supervisory policy, I do think it works best when the bank regulators, who you've all given authority to, when we can work in concert. I tend to not like it when there's a regulatory arbitrage, if an institution is trying to choose between whether to be regulated by the OCC, the FDIC, or the Fed. So I'm encouraged to have a robust discussion with my colleagues at other bank regulators about what we think is the right public policy. But if we think the right public policy is different than theirs, we'll put it out for comment and notice, perhaps even as early as Saturday.
[01:47:41] Speaker 19: My time has expired, and I yield back.
[01:47:44] Speaker 1: The Chair recognizes the Ranking Member of our Subcommittee on National Security, Ms. Beatty, also of Ohio, for five minutes.
[01:47:51] Speaker 20: Thank you, Mr. Chairman and Ranking Member, and to you, Chairman Walsh. Thank you for being here today. And let me first start out by thanking you for reaching out to have a dialogue with me, and I look forward to making that happen. Also, I certainly appreciate your response, particularly to Congressman Meeks and Congressman Foster, on you holding firm on independence and that you would protect the data and the law. That goes a long way with me. Thank you. I want to start with a question about the housing market. As you are aware, the Federal Reserve monetary policy heavily influences the United States housing market through setting of benchmark interest rates that directly dictate the mortgage rates and housing affordability. Many homeowners were able to access mortgages at historically low interest rates during the pandemic. But rates have more than doubled since then, and I'm concerned about the impact this is having on first-time home buyers and minority borrows in particular, who are also facing high home rates and insurance policies. Homeowners are exiting pandemic-related forbearances and also are struggling to enter into affordable repayment plans due to the high interest rates, which in many cases could push them into foreclosures. Now, I understand that the Fed can't increase housing supply or prevent foreclosures directly, but I'm interested to hear your thoughts on the impact of rate heights on the housing market, especially for those more vulnerable home buyers. And certainly, you know, we have a new amazing housing bill in the 21st century. I have to get that plug in that I have six bills in that. So now I yield to you. Thank you, Congressman.
[01:49:53] Speaker 5: We stay out of housing policy, and as the debate that's been had in this room suggests, you all have a lot to say about what housing policy is going to be. But I don't want to suggest that we don't touch it. We don't target housing. We don't target any particular sector. But the decisions we make have a big effect on housing. And housing plays a huge role in most households' family budgets in their savings. So we recognize the importance of it.
[01:50:22] Speaker 20: And rate heights, correct?
[01:50:24] Speaker 5: Absolutely. As I said in my opening statement, I think broadly about the conduct of policy today. I sounded quite optimistic about what was happening in manufacturing, what was happening in output. But you heard me say a somewhat more cautious note about housing. And I think that's in part because monetary policy, when rates were cut to extremely low levels, provided what was thought of as a once-in-a-lifetime opportunity to get the first house. I would prefer a set of monetary policies that are not boom and bust. That don't just make one generation more fortunate about being able to afford their first home than the next. So what we can do in monetary policy is try to be clear about our objectives, deliver price stability in the context of full employment, and not react overtly to any data that happens one day or the next.
[01:51:19] Speaker 20: We have an effect on long-term rates, and we take it very seriously. And you'll be sensitive to the issues that I'm bringing up. Okay. In my last minute, let me now turn to fraud and scams, which is one of the top concerns that we've been dealing with lately in this committee and my subcommittee. As you know, payment frauds, including scams, often involve multiple institution and payment methods, and no single agency or entity can solve it alone. What specific role do you believe the Fed Reserve should play in helping build a more coordinated cross-sector approach to frauds and scams?
[01:51:56] Speaker 5: Yeah, so it's another fair one. The Financial Stability Oversight Council, which the Fed is a key member of, fraud is on that agenda. That committee is run by the Treasury Secretary under the law. But the Fed has equities there, and the Fed needs to ensure that, especially with this new generation of technologies, that the American people don't lose confidence in our payment system, don't lose confidence in the banking sector that we regulate. So we do have an important role to play there as well.
[01:52:27] Speaker 20: I'm going to interrupt only because I have a few seconds later. I'm glad you mentioned this new generation. I've received feedback that better information sharing between financial institutions and online platforms is key. Do you agree?
[01:52:42] Speaker 5: Absolutely. Real-time information between lender and borrower is a way to make credit more available to more hardworking Americans.
[01:52:49] Speaker 20: Thank you, and I yield back.
[01:52:51] Speaker 1: The Chair recognizes the gentleman from Tennessee, Mr. Rose. You're recognized for five minutes.
[01:52:57] Speaker 21: Thank you, Chairman Hill, and thanks to Ranking Member Waters for holding the important hearing. And, Chair Warsh, thank you for being here with us today. Chairman Warsh, prices for agricultural inputs have, after experiencing a spike during the Biden inflation that began in 2021, have remained stubbornly high. Needless to say, families in my district were themselves hit by the rise in food prices that began under Biden and your predecessor in 2021. And grocery prices remain persistently high. This strains household budgets and makes it harder for people in my district to put food on the table while also paying for all of life's other necessities that are also more expensive following that inflationary period. We saw in the 1980s how hard it is to deal with persistent inflated prices and the difficult decisions it can place on the Fed to get and keep them under control. Can you please tell us what is the Fed doing and what do you intend to do to ensure that a resurgence of inflation does not materialize?
[01:54:04] Speaker 5: So that's job number one. We cannot, I don't want to overstate, we cannot have a direct immediate effect on short-term particular prices at the grocery store and agricultural goods. But the job you gave us, the job we are resolute about accomplishing, is to make sure that any short-term changes in particular prices don't broaden out, don't change to a generalized change in the price level. Unfortunately, that's what's happened in the last 63 months and those days have to be a thing of the past. I'll make one other note. Good economics going back a couple of generations talks about sticky prices. And the longer that prices have been above the inflation target, it's usually a bit harder to dislodge them and get them lower. Our job, my commitment to you, is to take sticky prices and to unstick them.
[01:54:59] Speaker 21: Thank you. I agree wholeheartedly with that sentiment, so I thank you for your perspective. The Fed made some interesting judgment calls during the last administration when it came to its supervision and regulation decisions. Whether it was the war on digital assets, the crusade to make the Fed a climate regulator, or the use of reputation risk to debank disfavored firms and individuals, the Fed allowed itself to become the instrument of partisan actors pursuing goals beyond the powers that Congress has authorized. The Fed needs to stay in the lane that Congress has handed it and not veer off course whenever political winds shift. When the Fed does the latter, it undermines its standing in the eyes of Congress and the American people. Chairman, will you commit to getting the Fed back to truly sticking to its lane? And if so, how do you plan to do it?
[01:55:52] Speaker 5: So I can make that very commitment. Our credibility in monetary policy, our credibility as supervisors, our credibility in payments, these are all tied together. And the way we erode that credibility are two things. We wander outside of our lane into your lane or into the lane of another executive branch. We don't deliver on our promises. The first thing we can do is to deliver on our promises. And the second thing is, as you said more eloquently than I did, stick in our lane. That's what we're going to do.
[01:56:23] Speaker 21: Thank you again. Both the G7 and the administration have issued statements or executive orders on quantum computing, encouraging financial authorities and U.S. federal agencies to step up their timetable for transitioning to post-quantum computing encryption algorithms. With just a few years until experts warn that quantum computers could break widely used encryption algorithms, what is the Fed doing to address this future risk?
[01:56:51] Speaker 5: Yeah, so like you, Congressman, it's a future risk. Since I graduated from college more than 30 years ago, quantum computing was always just a few years away. I hope we're there this time, because like in artificial intelligence, I think the United States can be a huge beneficiary. But like with AI, there's risks. I've spent quite a bit of time in my seven short weeks at the Fed thinking about our vulnerabilities as an institution. Thinking about if bad actors were to take technologies that are now at the frontier or might be with quantum in a few years, and try to pressure us to do harm to the perception of the U.S. or the Federal Reserve in the system. So we need to harden our technologies. We've got an enormous amount of talent at the Fed. The world's moving faster, and we've got to move fast with it. Thank you, Chairman Warsh.
[01:57:42] Speaker 21: I see my time is about to expire, so Mr. Chairman, I yield back. The gentleman yields back.
[01:57:47] Speaker 1: The chair recognizes the ranking member of our task force on monetary policy, Mr. Vargas, California. You're recognized for five minutes.
[01:57:55] Speaker 4: Thank you very much, Mr. Chairman, and thank the ranking member. Of course, I want to thank you, of course, Marcia. I appreciate, like everybody else, the communications that we had, and I want to be honest with you that I wish you the best success. I really do. Thank you. I think if you're successful, I think the Fed will be successful, and if the Fed's successful, I think our economy will be successful. If our economy is successful, I think the American people benefit. So I'm one of the ones cheering for you, and I hope the best for you. Now, I have to say, though, I'm glad we're not litigating the past, though. It seems that a lot of my colleagues like to. We talk about the past chair and some of the things the previous president said, so I'm not going to litigate, but I would remind them that they passed their big, ugly bill and put trillions of dollars in the deficit and the debt, and they seem to forget that, so there's a little bit of amnesia there. They remember some things well, but they forget others. Now, one of the things that I have sort of strange in my background, or maybe not, I studied to be a Catholic priest for a long time. I was a Jesuit, and they make you do things that are kind of odd when you're starting off as a novice. One of the things they made me do is to take communion to people who are sick, and they would do it as an experiment to test you and to do different things. I remember one person very clearly. He was a man who had been blinded, I should say, at World War II. Wonderful guy. Lived in the Santa Barbara area, and I'd take communion to him, and I had to sit there and listen to him for a long time. And he would just talk and talk and talk, and I'm thinking, "I'm not getting anything out of this other. I'm sitting with this guy," which is fine. And I finally started listening to him, and I actually learned a whole lot from him. I understood why my novice master had sent me there. And one of the things he said was really interesting, I never forgot this. He said, "Yeah, people march around, and they look pretty in their uniform, but you never know how a person's going to react until they're under fire." And the reason I say that is, you know, you kind of mentioned it, too. In ordinary times, it's easy. You know, when the crisis hits, that's when the issue is. That's why if you litigate the past, you know, yeah, okay, you can litigate the past. But the truth of the matter is, things happened. The Great Depression, things happened. We were, you know, so blindly stuck on the gold standard and other things. And, of course, we talk about the great wealth that the dot-com did. Well, I remember the dot-com bust, too. Five trillion dollars disappeared just like that. And then, of course, you talked about the 2008 crisis when you were here. And all of a sudden, there you had, you know, the government working together. The Fed Chair and the Secretary of Treasury had to because, you know, the economy was melting down. Now, I don't wish any of that upon you. But the truth is that you could get that. You could get an AI collapse. I mean, the Magnificent Seven have really driven the market tremendously. And, sure, there's great opportunities. And I hope that it is successful. But if it's not, then I hope that you also have the flexibility to figure things out. I mean, my colleagues love to talk about, you know, what Chairman Powell did. They seemed to forget that there was a pandemic and that we could have been slipping into a depression if we hadn't done some of the things. They seemed to forget, too, the person who closed down the government. It was actually in the economy. It was actually President Trump. It wasn't Biden. Everybody blames it on Biden. I was here. It was Trump that did that. You know, the decision he made. I don't know if it was good or bad, but it was the decision he made under fire. So, anyway, I wish you the best. But I do want to ask you about that. You know, what happens when, as they say, it all hits the fan? You know, how will you react? Will you react in a way that's flexible or will you react in a way that almost seems today almost robotic?
[02:01:37] Speaker 5: Well, I appreciate it. I take that as a blessing that my four years will be ones of calm and peace and price stability and full employment. So, I take it in the way it was granted. But we have to be prepared for shocks that are unanticipated. We have to be open-minded to things that might happen. So, while it might not be common for the economics profession, we have to show a lot of imagination. My general view, again, coming out of the '08 crisis, is we need to think ex ante about what we might do when the shocks happen. And it'd be okay to share with the world how we're buying insurance. How we're trying to protect the resiliency of the Fed systems. How we want the banking system, if times aren't always perfect, to be strong and resilient and competitive. And in the conduct of monetary policy, we want to anchor stable prices, deliver full employment. So, if and when the shock happens, we have rebuilt the credibility that may have been somewhat lost in 63 months of higher prices. I am not relitigating the past. I know my colleagues have been trying to deliver on stable prices and full employment for a long time. My time is up. And I intend to do so, too.
[02:02:53] Speaker 4: They were honorable people. And I think they did the best they could. And I hope you do, too. I know you're an honorable person. Good luck, sir.
[02:03:00] Speaker 1: The gentleman yields back. The Chair recognizes the Chair of the House Small Business Committee, Mr. Williams of Texas, for five minutes. Thank you, Mr. Chairman.
[02:03:08] Speaker 22: And also, Chairman, congratulations to you. America's banking system is the engine of prosperity in this country, and it plays a critical role in creating opportunities. From the community banks that serve small towns and main street businesses to the larger institutions that support our capital markets, access to credit is essential for families, entrepreneurs, and job creators. And as a businessman who has owned and operated a small business for 57 years, I know firsthand how important it is to have a banking system that is both safe and accessible. And the American public and the American people expect a chance to pursue their American dream, and access to no affordable credit is often what makes that possible. So under the Biden administration, we saw proposed regulations that threaten that dream by making credit more expensive and harder to obtain. So my question would be, can you tell us how you think the Federal Reserve's supervisory role can promote a safe and sound banking system while ensuring businesses and families continue to have access to the credit they need to pursue the American dream? That's a great question, Congressman.
[02:04:08] Speaker 5: That's a great question, Congressman. I'd say two broad things. One is we need a highly competitive, diversified banking system. This is the secret, one of the unheralded secrets of the U.S. economy. Our banking system is larger. The number of institutions of various sizes serve different constituencies. I think part of the reason why the U.S. has grown faster than our G7 and G20 colleagues is because the banking system here is fundamentally different. Secondly, what I would say about how we do that is we need to have tailored regulation that befits the kind of institution and the customers that they're treating. One size does not fit all. And finally, I'd say I am all for international coordination of banking standards. It is a useful effort so that we meet in Basel to try to come to some international standards. But the Basel endgame is not America's endgame. That is not the Federal Reserve's endgame. Our endgame is ensuring that we have the right rules that befits our economy so that we have a safe, sound, and competitive banking system. And anything we agree on with international counterparts have to be in service of the American economy.
[02:05:22] Speaker 22: Thank you. And businesses depend on clear, consistent rules. When Congress passes a law, it reflects the will of the American people. And agencies like the Federal Reserve have a responsibility to faithfully carry out those laws. And regulatory certainty gives businesses like mine the confidence to invest, hire, and grow. So the question would be, can you tell us how you intend to guide the Federal Reserve? And will you commit to ensuring the Fed carries out the laws of Congress that Congress passes without expanding beyond its statutory authority?
[02:05:53] Speaker 5: Yeah, I can make that commitment to you, Congressman, because that's how we keep politics out. That's how we stay independent in the conduct of monetary policy. The Federal Reserve is not a repair shop for broken statutes or we aren't empowered to go wander into areas outside of our remit. We've got a big and important job, I understand it, but it's bounded and we have to stay inside of those bounds.
[02:06:18] Speaker 22: My last question real quick, Chairman. One lesson I've learned in business is that your word matters. And when you make a commitment, people expect you to follow through and consumers' trust is earned by doing what they say you are going to do. So the Federal Open Market Committee has made a commitment to the American people to restore price stability. Families and small businesses across the country are trying to plan for the future. And they are counting on the Federal Reserve to deliver. So, Mr. Chairman, in the short time we have, what is your strategy for restoring price stability? And what confidence can you give the American people that the Federal Reserve will achieve its price stability target?
[02:06:53] Speaker 5: So I can give you the commitment that we will deliver price stability. I was comforted at my very first meeting about a month ago. As I looked around the table of my 18 colleagues, there was no willingness to tolerate higher prices. There was a commitment that was unambiguous and unanimous that we're going to deliver. So the next question is, how are we going to deliver it? First is, I would say, make it very clear to you and the American people and to US businesses that that is not a commitment we're going to walk away from. And we're not finding acceptable the higher inflation that has endured in this country for more than five years. The second thing that we're going to do is take responsibility. As I mentioned to one of your colleagues before, in our view, in my view, there is no anguish in central banking. This isn't saying, oh, I wish this or that were to happen. You gave us a lot of the tools to deliver on that commitment. We intend to do it. And the third and final thing I'll say is we have the tools to do it. We have a printing press. We have a balance sheet and interest rates. They have both provided significant accommodation and restrictiveness during different parts of the business cycle. And over the coming period, I'm going to ask our colleagues and have a good family fight about the extent and timing in which we would need to deploy the promise.
[02:08:13] Speaker 22: I appreciate your leadership. I yield back.
[02:08:16] Speaker 1: Chair recognizes the gentleman from New Jersey. Mr. Gottheimer, you're recognized for five minutes. Thank you, Mr. Chairman.
[02:08:21] Speaker 23: Chairman Warsh, congratulations again and thank you for your service to our country. Thank you. You stated that the use of AI technologies is, quote, a paradigm shift and that the United States would be, quote, a big winner in the medium term. How has the use of AI impacted your view and the future of the global economy and how is the Fed reacting? How should it react and especially vis-a-vis China and our other competitors?
[02:08:48] Speaker 5: So I don't view the U.S. economy as in a zero-sum game. I don't think that weakness abroad is good for the U.S. But what I do mean to say is if there was one thing that is the biggest driver of American prosperity, it's productivity. Productivity gives companies the ability to invest in new capital. Workers then have that new capital and can deliver and ultimately have higher real take-home wages. This is a supply shock in the United States. I have to admit it's happening faster than I would have projected 18 months or two years ago. We're seeing this technology and the capability of these models grow at exponential rates. Something like a hyper Moore's law is happening. I don't want to suggest that we know exactly how this is going to shake out, but the U.S. is best positioned to be a winner. But again, as I may have mentioned earlier, you gave us a job to deliver stable prices and full employment. What are the consequences, what are the implications of this positive technology shock to that? I've taken three experts, I've asked them to deliver their views to us over the coming three to six months. And then internally at the Fed, we're going to do a lot of work. I'm confident that at the end of the day, the U.S. is a winner, but it's not going to be a linear path. And I'm open-minded to challenges both to the full employment and price stability part of our mandate.
[02:10:14] Speaker 23: Right, because as part of that, I assume the workforce employment is going to be, what should our goals be? Should they shift? I assume those are the kind of questions you all are debating?
[02:10:21] Speaker 5: Yeah, we're debating just those questions, Congressman. And if I were to look over the last few months, it looks to me as though this technology hasn't displaced workers at this point. It's made them a bit more productive. And I say a bit because I think the productivity is in front of us. But a year or two from now, will these intelligence tokens be adding to the workforce or causing the workforce to temporarily be disrupted? That's something that we're very focused on as we think about what the economy looks like 12 and 18 months from now.
[02:10:53] Speaker 23: Thank you. We're seeing an unprecedented number of children using apps on their phones like prediction markets or sports books to gamble. Research is showing especially young people are very active in the past year. 11 to 17 have gambled in the last year, 36% of them. What is your view regarding possible insider trading on these markets? Are you thinking about that? Do you think we should be doing more to protect our children on these betting apps? Have you thought about that at all?
[02:11:20] Speaker 5: Well, I thought about it in two respects. First, when I was sort of a junior in junior high school and high school, I was the nerdiest kid probably in this room. So I wasn't wandering into those. That's saying a lot. You should meet the chairman. Yeah. Go ahead. But generally, the questions about the use of kids and smart phones and whether insider trading is happening and the rest is almost entirely outside of the Fed's jurisdiction. So I'll defer to other people around both in the Congress and the executive branch to take those on. I don't really have much more for you.
[02:11:55] Speaker 23: Let's pivot to something else. Modernizing and expanding certain aspects of the federal deposit insurance remains an important priority for me. We'll help ensure that small businesses remain stable and mainstream is able to thrive. What are your thoughts on mandated federal deposit insurance standards across the board for all banks? Should there be specific asset thresholds, a tiered system? Is there a middle ground in this debate?
[02:12:16] Speaker 5: Yeah, so we're going to follow the law and we're not going to weigh in on what we think the right deposit insurance caps are, but I don't want to walk away from the question entirely. The FDIC insurance caps should be binding. That is, we need to have a supervisory and regulatory system such that if a few banks get in trouble, either myself or the Treasury Secretary don't have to, in unusual and exigent circumstances, provide backstops for everybody, including depositors. So the way I think about it is deposit insurance reform and proper deposit caps should be of a piece with strong reform-oriented supervision and regulation. So the law that you decide should be the right caps for individual deposits, that should be the case both in good times and bad.
[02:13:03] Speaker 23: Last question, do you think that people in my district, young people, keep coming out to me and saying they're not going to be able to afford a home to be able to get a mortgage? Do you think, do you feel confident in your tenure people are going to still be able to afford to get a mortgage?
[02:13:15] Speaker 5: I'm a great believer in the American dream and I know that a mortgage and a first-time house is one important step to do that and we'll do what we can to support it.
[02:13:24] Speaker 23: Thank you. I yield back. Thank you and congratulations again.
[02:13:26] Speaker 5: Thank you, Congressman.
[02:13:28] Speaker 1: The gentleman yields back. The chair also wants to, as I call on the gentleman from South Carolina, just offer condolences to the gentleman from South Carolina and all the people of South Carolina on the loss of Senator Graham. And with that, the chair recognizes the gentleman from South Carolina, Mr. Timmons, for five minutes.
[02:13:46] Speaker 24: Thank you, Mr. Chairman. And thank you, Chairman Warsh, for appearing before the committee today. The Federal Reserve has an important responsibility to carry out the mission Congress assigned to it. Maintaining public confidence depends not only on sound economic policy, but also on staying within the statutory mandate. In recent years, many Americans question whether the Federal Reserve moved beyond that mission through actions involving climate-related financial regulation, digital assets, and reputational risk. I appreciate the steps that have been taken to refocus the institution on its core responsibilities. Looking ahead, it is important to ensure that the Federal Reserve remains focused on the responsibilities Congress has given it. Chairman Warsh, what steps will you take to ensure that the Federal Reserve remains faithful to its statutory mandate and develops institutional guardrails that prevent future departures into area beyond the authority Congress has delegated?
[02:14:40] Speaker 5: So this is no time to wander, Congressman. The job you gave us that's clearly in the four walls of our authority and monetary policy and payments and supervision regulation. We're early in a reform agenda. All of our assets, all of our resources, the remarkable talent of my colleagues need to be focused there. Good intentions are not enough, and it is not the culture of the Fed or the best of the Fed's traditions to wander into areas that are not our responsibility. And when we do, we sacrifice the credibility we need to accomplish our core tasks.
[02:15:13] Speaker 24: Thank you for that. More broadly, the issue of mission creep has challenged many federal agencies over time, and the Federal Reserve has not been immune. Following the financial crisis of 2008, the Federal Reserve assumed an increasingly expansive role through extraordinary monetary interventions. More recently, the institution became involved in matters such as climate-related financial supervision, digital asset regulation, and the application of reputational risk in bank supervision, leading many to question whether these activities extended beyond the responsibilities Congress intended the Federal Reserve to perform. Mission creep carries meaningful institutional cost. It diverts resources from core responsibilities, exposes agency actions to legal uncertainty, and risks undermining the Federal Reserve's credibility as an independent institution that derives its authority from Congress rather than from evolving policy preferences. A central bank is strongest when it exercises the authority Congress has granted with discipline and restraint. So, Chairman Worsh, as Chairman, what principles will guide your efforts to ensure that the Federal Reserve remains focused on its statutory responsibilities and resists institutional pressures to expand beyond the role Congress has assigned?
[02:16:22] Speaker 5: The most important thing at the Federal Reserve, as I mentioned before, is not the printing press. It's our culture. It's our culture. And the best of the Fed's traditions tell us what our culture should be: accountability, responsibility, and performance. By reiterating that, by reminding all of our colleagues that that's what drives us, I've started to do it in my first seven weeks, but it's resonating. It's, I hear it back in the hallways. I hear it at the cafeteria. And so, at some level, people might think of this job as getting the answer right well to the right of the decimal point. And occasionally, we do have to wander there. But in order to deliver on what you've asked us to do, I've always thought that most of this job is the left of the decimal point. We're going to get the culture right. We're going to get the strategy right. We're going to get policy right. And we're going to get the organization right. And if we can do those big things, getting the right answer to the right of the decimal point, I think, will be a lot easier. Thank you for that.
[02:17:25] Speaker 24: I would also like to discuss inflation, because maintaining price stability remains one of the Federal Reserve's most important responsibilities. American families have experienced the highest inflation in more than four decades. Rising prices reduce purchasing power and place real restraint on household budgets. While inflation has come down from its peak, recent data suggests that inflationary pressures remain and price stability has not yet been fully restored. The people I represent should not have to endure another sustained period of elevated inflation. Stable prices are fundamental to long-term economic growth, household financial security, and confidence in our monetary system. Mr. Chairman Walsh, what is your assessment of the current inflation outlook, and what policies will the Federal Reserve pursue to ensure that restoring and maintaining price stability remains its foremost monetary policy objective?
[02:18:13] Speaker 5: First, I agree, Congressman, with your diagnosis. For too long, American households and businesses have suffered the undue hardship of high inflation. This Fed will deliver price stability. This Fed has the power to do it. We have the tools to do it. What I would also say is I'm not in the business of trying to prejudge what the committee that I'm honored to lead decides. I think we need to have continued good family fights on this subject. That will start again in a couple of weeks. And when we have news for you about exactly the methods of solving this problem, we'll be very clear about what they are and so will the American people to deliver price stability.
[02:18:57] Speaker 24: Thank you. I yield back, Mr. Chairman.
[02:18:59] Speaker 1: The gentleman yields back. The chair recognizes the gentleman from Massachusetts. Ms. Presley, you're recognized for five minutes.
[02:19:04] Speaker 25: Thank you, Mr. Chair. And welcome, Chair Walsh. Congratulations. And welcome to the Financial Services Committee. I represent the Massachusetts 7th Congressional District, a beautiful, dynamic district, and also one that is deeply unequal. In fact, in a three-mile radius from Cambridge, home to your alma mater, to Roxbury, a historically black, vibrant community in my district. That being said, median household income drops by $50,000 and life expectancy by 30 years. That's just in a three-mile radius. And those inequities are not naturally occurring. They are man-made. They're the result of intentional and deliberate government action. So I'm here, and what guides me is the work to be just as intentional and just as deliberate in making sure that government works for all people. And I know we're just getting to know one another, but I hope I can count on your partnership in that mission, Mr. Chair. I'm going to begin with what should be an easy yes or no question. Are you committed to fulfilling the maximum employment requirement of the Federal Reserve's statutory mandate?
[02:20:23] Speaker 5: Congressman, absolutely. We have no disfavored part of the job that you gave us. Price stability and maximum employment are not an either/or proposition. I'm committed to both of them.
[02:20:34] Speaker 25: Well, that was my next question. If you viewed this mandate as equally important as the price stability mandate. Now, since Trump took office, hundreds of thousands of people have been pushed out of the Federal workforce. The current unemployment rate is 4.2%, which is higher than when Biden left office. And if you look deeper into the data, black unemployment writ large is at 6.6%. Now, the Federal Reserve semi-annual report highlights that black people have continued to have higher unemployment rates and lower wages than white workers. This is a problem. Now, it's a problem for black workers. It's a problem for the black family. But it's really, it's a problem for everyone. It's a problem for workers like Teresa in my district, who despite being educated, qualified, and good at her job, was let go from her public health position due to government funding cuts. And with the state of HHS, our country needs to employ all the public health experts that we can find. But this is also a problem for our national economy and financial stability. Let me illustrate what I mean. According to one report, black Americans held a buying power of $1.6 trillion in 2020. Economists estimate that 2% of black women being fired has led to $37 billion being lost in GDP spending. So when that money is lost, it impacts everyone. It impacts our small businesses that spur local economies and workforces. So the point is, when black workers lose, everyone loses. So, Chair Walsh, given the persistent racial disparities in unemployment, will you, as Federal Reserve Chair, commit to confronting these workforce challenges that black workers are forced to endure?
[02:22:33] Speaker 5: So, Congresswoman, I'll say this, which is the U.S. can ill afford to leave any individuals behind. The economic opportunity, which is essential for America's growth trajectory over the next five and ten years, means that every American needs to have opportunities to be productive. And I believe, unlike some in economics profession, that productivity-led economic growth is a good thing, not a bad thing. Thank you, Mr. Chairman. And I'm hopeful that the Fed, we can be supportive of opportunities for economic growth.
[02:23:13] Speaker 25: And I want to say, specifically for black workers, because of a problem of this magnitude, there are 700,000 unemployed black women right now. If a problem of that magnitude was happening to any other group, we would do the analysis and we would have a plan. So, I'm going to ask of you what I ask of your predecessor, for you to come and brief the Congressional Black Caucus on your strategies and efforts, specifically to the black worker, given the disparate impact. You know, you've talked about the refusal to tolerate a persistent high inflation. I need the same rigor, the same rigor, the same vigor, and the same commitment when it comes to the black worker. It's already a part of your mandate.
[02:23:48] Speaker 5: So, American workers, no matter their backgrounds, have my commitment to do what we can at the Federal Reserve to make sure they have all the opportunities in front of them, regardless of any characteristic.
[02:23:59] Speaker 25: Well, Mr. Chair, experts believe we need targeted structural efforts to address unemployment disparities. So, I'm asking for focus.
[02:24:06] Speaker 1: The gentleman's time is fired, and I invite the Chairman to answer your question in writing, and thank you. Okay. The Chair recognizes the Chair of our Subcommittee on Oversight and Investigations, Mr. Muser of Pennsylvania. You're recognized for five minutes.
[02:24:18] Speaker 26: Thank you, Mr. Chairman. I want to thank you, Mr. Chairman. Thank you, Mr. Chairman. We also appreciate very much yours and Vice Chair Bowman's work on fraud and scams. We have a report coming out next week from my subcommittee, which we'll be looking forward to sharing with you. As you know, CPI came out this morning. Well, underestimate, we could say. For all intents and purposes, the underlying economy is strong. The small businesses and community banks I speak to throughout, for the most part, throughout Pennsylvania, report steady demand and positive business outlooks. As well, the businesses are profitable. Tax revenues for the federal government are up 6.9% in 2026, which is phenomenal. In Pennsylvania, by the way, they're up 2.4% in this last fiscal year, and they're glowing about that, raving about that. So, federal revenues are way up, which shows businesses, again, are profitable. Many of us in this committee have made the case for quite a while now that the Fed needs to review the big picture, as you've been making commentary towards. Supply-side growth and lower interest rates are not in conflict. They are, in fact, very often complementary. As lower interest rates encourage more cap investment, they can put downward pressure on inflation simply by using the well-known equation when supply exceeds demand, prices go down. And I'm glad you appreciate that very much. So, Mr. Chairman Warsh, you've created these task forces, which we're all pleased to see, I think. And will you express how these task forces will help achieve the Fed's goal of 2% inflation?
[02:26:02] Speaker 5: Thank you, Congressman. I'd be happy to. The five task forces are an attempt to go back to first principles. Ask whether the way the Fed has conducted business for more than a generation, the way we've gathered data, the way our models make forecasts about what's going to happen next, our understanding of changes in productivity and changes in the supply side. These are all big fundamental questions, and I think we are better equipped to make smarter decisions on policy so that we can deliver price stability and full employment if we get the benefit of some outside views. Again, we're going to then decide what to do with them. We're going to make the decisions. We're not going to outsource them. But if there was ever a reason after a long period of inflation that was too high to go back to first principles, this is it. And like you, while I reviewed the data that came out this morning on CPI and it was positive relative to expectations, I'm not for cherry picking. I'm not going to show up here and say mission accomplished. And what I'd say is there's plenty of work to do, and I would feel more confident if we had better data to inform our decision making. We have a task force that's going to be focused on doing just that.
[02:27:20] Speaker 26: And I know you're also going to utilize the balance sheet process as well. You've critiqued the QE planning or activities for a while. You've stated you plan to reduce the Fed's balance sheet. How do you plan to do that? What role does the private sector play?
[02:27:37] Speaker 5: On the balance sheet, again, I don't want to prejudge the conclusions of the task force, and I can't speak for 18 of my other colleagues. As a first approximation, I'll say now what I've been thinking for years. In normal times, the Federal Reserve should be a price taker, not a price maker. We should be observing what is the price for a 10-year treasury between a willing buyer and a willing seller. We shouldn't have our thumb generally on the scale. Now, when it comes to a crisis, I don't want to suggest that we're going to be able to sit on the sidelines. I would hope we could, but I can't say that for sure. The Fed balance sheet, both its size and duration, are worthy of a very worthwhile review. I'm inclined to think that there are better regimes we can go to, but we're not going to do it without due consultation with the markets and with members of this committee.
[02:28:34] Speaker 26: Great. Certainly, the reserve requirements of banks and all may put this in the hands more so of the private sector, as I think you believe. Chairman Greenspan, in the '90s, recognized that a productivity boom of computers and the internet was putting a downward pressure on inflation, and he cut rates based on that data, ahead of the data. Does AI present that same kind of opportunity today?
[02:28:59] Speaker 5: If you've seen one productivity boom, you've seen one productivity boom. Okay. I take very seriously the productivity booms that we've had, and generally, if you look at the surge in productivity in the post-war era in the United States, we tend to move from a relatively low productivity realm environment, where productivity grows about one and a half percent a year, and then for a decade or longer... The gentleman's time has expired.
[02:29:23] Speaker 1: ...to a higher productivity realm.
[02:29:25] Speaker 5: I think this could be that opportunity, but I can't say it for certain as of yet. Thank you.
[02:29:30] Speaker 1: The chair recognizes the gentleman from Illinois, Mr. Caston, for five minutes.
[02:29:34] Speaker 27: Thank you, Mr. Chairman. Chair Warsh, nice to see you here. Welcome. I want to start with just a purely academic question for you, just on economic theory, but with some context. You talked to Dr. Foster about your experience in the 2008 downturn. I was not here in 2008, but I remember in 2020 when former Chair Bernanke came in as someone who had some experience steering through a crisis. I remember that we had this meeting in March of 2020 saying, "We've never seen unemployment spike this quickly since the Great Depression. We've never seen GDP collapse as quickly since the Great Depression." And here's someone who steered the economy through an $800 billion bailout, which at the time seemed like a big number. I mentioned that, number one, because I hope you don't find yourself in the future being asked to address Congress based on your own expertise steering through a crisis. Although, certainly, Chair Powell got his chance there as well. But the difference in the way that we responded to COVID and the way we responded to 2008 was a much heavier fiscal stimulus, whereas the 2008 crisis was largely QE and monetary, as big as $800 billion was. We also recovered from COVID a ton faster, not only faster than everybody expected, but faster than all of our peers. And should we find ourselves in another crisis? What do you just, as an economist, how do you think about the right shaping of fiscal and monetary policy? Obviously, you only have purview over one of those, but your voice is going to matter.
[02:31:13] Speaker 5: As I said in analogy to one of your colleagues, I'll say it here. If you've seen one financial crisis, you've seen one financial crisis. So I'm careful about extrapolating. More generally, I would say the response to the 2020 pandemic had some very similar areas with respect to monetary policy. That is the central bankers in 2020 took some of the toolkit that we innovated on in 2008 or 2009 and they provided overwhelming liquidity. That's in our remit in crises, not in more normal times. My judgment in 2008, judgment in 2020, and if we were to have a crisis when you and I are in these roles, I would be describing to you what the central bank can do. I would also try to describe to you the limits of our authority such that you have the opportunity to make whatever decisions you think are right. But I'm going to make a promise to you now that I would hope to hold to then, which is the fiscal policy response is going to be a decision of you and the administration. We're going to do our very best to steer clear of that.
[02:32:21] Speaker 27: Well, I appreciate that and I think none of us want to go there again, but we also want to make sure that monetary policy can target some sectors of our economy, not the others. We need to work together. On a similar subject, I want to pivot and I was spinning through and I love your, I love these reports all the time. Send them to me. It's always good reading. I want to talk specifically about figure one and figure 43. Figure one shows US CPI over the last decade or so. Figure 43 shows global CPI trends and what's very clear is that US inflation picks up immediately after Liberation Day on account of the tariffs. Global inflation picks up after the Iran war. You can see the spike. So, you know, we had inflation generally coming down after 2020, starts picking up on account of tariff policy and then starts picking up again on account of foreign policy in the United States. And you can just see in those charts what was domestic and what was international. The, how effective is monetary policy when it's fighting with fiscal policy or foreign policy or economic policy? Because I don't, I don't really understand the theory of the case that interest rates undue tariffs or that interest rates undue high oil prices. Or for that matter, QE or the other thing. So like, how concerned should we be about monetary policy that's got a different set of goals than the outcomes of fiscal policy right now?
[02:33:51] Speaker 5: So generally, Congressman, I'd say a couple things. First, we are takers of the fiscal policy decisions that you and your colleagues make. We will take that into account. I'm not suggesting that we act in isolation.
[02:34:05] Speaker 27: To be clear, we didn't vote on tariffs or the Iran war.
[02:34:09] Speaker 5: But the policies that are made of the executive branch and of Congress, we're aware of them. We have a wide lens. But we then take those on board and make whatever decisions we best can consistent with our remit.
[02:34:20] Speaker 27: Do you have the tools to counter them?
[02:34:23] Speaker 5: We have tools that are powerful. Whether they're working at cross purposes or consistent with them is never easy to know in real time. But let me make one other important distinction. Military conflicts overseas, changes in trade policy, changes in immigration policy, those have an effect and we can take them into account. Often they have an effect on prices in the short term. Gentlemen, time has expired. Our business is whether those prices in the short term end up spreading out. And that's our responsibility.
[02:34:55] Speaker 27: I'm out of time, but let's stay coordinated would be my recommendation.
[02:34:58] Speaker 1: Chair recognizes the gentlewoman from California, Ms. Kim, who also chairs our Asia Pacific Subcommittee on House Foreign Affairs. You're recognized for five minutes.
[02:35:06] Speaker 28: Thank you, Chairman and Ranking Member for hosting today's hearing. Chairman Morish, welcome. This, I understand, is your first appearance before our committee since your confirmation. So congratulations. Earlier this year, you may have heard I introduce Payments Access and Consumer Efficiency Act, PACE Act, with my Democratic colleague Sam Licato. Because I kept hearing from my constituents in Orange, Riverside, and San Bernardino counties about how important these payment modernization is in helping small businesses owners make payroll and make sure that their workers get their paychecks on time. And President Trump understands that, which is why he issued the executive order earlier, and signed that to call for a financial system that is more innovative and is affordable for American families and businesses. So Chairman Morish, I understand you shared that goals and vision for the Federal Reserve as well. But currently, the situation is the payments company holding money transmitter licenses in all U.S. states and complying with every Bank Secrets Act role and holding customer funds in a one-to-one liquid reserve still has no legal pathways to access the Federal Reserve payments rail directly. So as a result, small businesses and consumers bear the burden of increased costs and slower payments. So the PACE Act is trying to address that by creating OCC supervised activity-based registration for sophisticated payment companies that trade federal safeguards, BSA compliance, and capital reserves for direct access to FedNow, FedWire, FedACH. So Chairman, can you talk about how you plan to work with the OCC and Congress to ensure that well-regulated payment companies have access to the infrastructure they need to lower costs for American consumers?
[02:37:18] Speaker 5: So thank you, Representative. I look forward to working with you on any details of your legislation without picking sides. What I would say is the payment system that the Federal Reserve supports needs to be resilient, needs to not play favorites, needs to be able to withstand shocks, and needs to be reliable and accessible so that we can do our part to ensure that the payment rails in the United States are strong. I would make a distinction between that and any payments that interact directly with retail customers. This is a business that the central bank needs to and should stay out of. A competitive banking system, a competitive payment system provides huge benefits to the U.S., so I wouldn't want to infringe on the businesses and practices of the private sector.
[02:38:12] Speaker 28: I appreciate that. As you know, I took my team and I talking to the stakeholders quite a bit since last year until we introduced it in a bipartisan way. So I look forward to having that conversation with you. But I think we agree that across the board, we need to modernize and reevaluate how we consider banking charters to ensure that our financial system continues to be the most competitive in the world. So to that end, I just want to let you know that the PACE Act is again in response to President Trump's executive order. And when you know that the U.S. is the only G7 country that does not have a system that allows FinTech or non-banks direct access to traditional payment networks, I think it's really important that we work together. And I do want to work with you on this issue of a master account access and the PACE Act. So I hope we can take the time and I hope that you and your team, now that you are in office, to review it. And we hope to get your technical assistance on the PACE Act from your team shortly. Thanks. Another major priority of mine has been expanding access to workforce housing. Last week, as you know, we, as part of the 21st Century Road to Housing Act, I was able to increase the cap for investments in community lending and affordable housing. So as we continue to build on that momentum of expansion of the low income housing tax credit, one thing that has caught my eye is the 100% risk weight for these types of investments in the proposed Basel Endgame rulemaking. Historically, these types of investments are extremely low risk, with very few resulting in foreclosures. So, Chairman Warsh, can you offer any insight into how you are considering the risk weight for these investments?
[02:40:09] Speaker 1: Mr. Chairman, I'd invite you to answer that question offline as the gentlewoman's time has expired. Chair recognizes the gentlewoman from Michigan. Ms. Tlaib, you're recognized for five minutes.
[02:40:20] Speaker 29: Thank you, Chairman. Thank you, Chair, for being here. You know public transparency and democratic accountability is important to American people, not just to my residents at home. So, just bear with me here in regards to this. You know that you've said that the Fed should talk less to reduce the influence on financial markets. Is that correct?
[02:40:42] Speaker 5: When the Fed speaks, it should matter.
[02:40:45] Speaker 29: Yeah. But there's a difference between giving less guidance to traders, you know, but explaining less to the public is what I'm concerned about. You know, these hearings exist because Congress is paired with the dual mandate with, you know, we have a duty to report on progress towards various goals. So, you know, again, it matters what kind of communication you reduce. So, for instance, you know, transparency in regards to, like, one of the things that bothered me is, like, you as the Fed chair has to publish the calendar, your calendar, right? Correct?
[02:41:23] Speaker 5: I believe subject to FOIA requests, we turn over, consistent with FOIA, the appropriate entries.
[02:41:29] Speaker 29: But when you provide it, you don't actually put the topic of what those meetings were about.
[02:41:34] Speaker 5: So, I've only been in office seven weeks, so I haven't even provided it yet, but we'll fully comply with the law when such requests are made.
[02:41:42] Speaker 29: Yeah, I just think, you know, I think what the American people want, or anybody, is not just who you're meeting, but what the topic is, I think is important. So, let's get back to what you provide to the public. So, when the Fed communicates less, how does the public or the committee judge whether or not the evidence was, or the method was responsibly implemented?
[02:42:06] Speaker 5: So, I draw, Congresswoman, an important distinction. Yes. Our number one objective is getting policy right, and if we get policy right, we can deliver lower prices. Transparency and communication is usually quite essential to do that. So, I'll draw a distinction between our internal deliberations, where we get to have a good family fight and talk about the hard issues, and then our decisions. I think our decisions are things that you should know everything about, you should understand our rationale, we should be responsible and accountable, and if we don't deliver what we say, you should hold us account. Yeah. So, in that I favor full transparency.
[02:42:44] Speaker 29: Yeah. So, it sounds like you will be open to absolutely being, in regards to the method and the rationale and the thinking behind the decisions. Yes. Okay. So, if, you know, again, this is something of a concern for me, because I, when people say that to me, I'm like, if the Fed speaks less than public, then the words that are spoken in private to banks and invited audiences and off-the-record settings, you know, that's why the calendar, it's like, don't just provide the calendar, provide what topic, because I think it's important. So, what specific steps will you take so that a quieter Fed, because that's what you sound like you're towards, you want a quieter Fed, isn't a Fed heard only by the well-connected?
[02:43:25] Speaker 5: So, I don't think there should be any special dispensations to the well-connected. My judgment is what matters most is the real economy. Yeah. Financial prices, then, can capture what's going on. My message more broadly to you, but also to people that are in the cottage industry of following the Fed. I know.
[02:43:46] Speaker 29: But, you know, the regular person out there is not going to get a meeting with you, not going to know a lot of these things. That's why I'm asking. So, like, will you at least commit to publishing readouts of your meetings with the market participants?
[02:43:56] Speaker 5: I'm committed to follow the law, and I'm committed to do more than that.
[02:44:01] Speaker 29: But we should know what you're telling them, because not the 750,000 people in my district can get a meeting with you, and you want to talk to the public less. So, I just, I don't know, I just want to make sure that we understand the intent and the decisions that are being made. So, in 2025, you said that Fed had, quote, redefined its legislative remit and signaled a willingness to accept, like, a higher inflation. And all that stuff really, you know, my folks are thinking this isn't going to impact employment. This is going to, you know, like, what is going on here? Yeah.
[02:44:35] Speaker 5: So, what went on is the Fed changed its academic framework and its operational framework, and it led to higher prices, which did more harm to the least well-off among us than any policy that I could have imagined. And so that's why we have to reform it. I know. The Fed's begun that reform, and we're going to continue it. Okay.
[02:44:52] Speaker ?: Last question.
[02:44:52] Speaker 29: At your June press conference, you said that there is, quote, "no cruel choice," that strong employment and low prices are mutual compatible. If there's no trade-off, pursuing maximum employment costs you nothing in terms of inflation. So, Chair, what concretely are you doing to pursue maximum employment right now?
[02:45:10] Speaker 5: So, concretely, what we're doing is going to deliver price stability. And when we deliver that, households and businesses will be stronger.
[02:45:17] Speaker 29: Explain that more.
[02:45:18] Speaker 5: Explain that more. So, I can think of a few things.
[02:45:20] Speaker 1: The gentleman's time has expired, and I invite the chairman to carry on that explanation in writing, and I thank the gentleman. The chair recognizes the gentleman from Wisconsin, Mr. Fitzgerald, for five minutes.
[02:45:33] Speaker 30: Chairman, thank you so much for being here. Thank you. Chairman, I'm trying not to be redundant on the questions you've already been asked. Chairman, the June FOMC statement reaffirmed the Fed's policy of maintaining ample reserves in the banking system. While your balance sheet task force is reviewing the benefits and risks of that framework. So, if you go back to 2019, when reserve scarcity kind of contributed to stress in the short-term funding markets, what market indicators, in your opinion, should the Fed watch most closely to determine whether balance sheet reduction is moving too quickly, which is a concern?
[02:46:15] Speaker 5: So, Congressman, we have to look at a mosaic of information to judge how best to conduct policy. I wish there were some simple rules that we could rely on for monetary policy or clear and simple rules on the balance sheet. What we have to do right now is go back to first principles and ask ourselves whether this large balance sheet of a duration that is much higher than it was some years ago, whether that's consistent with good monetary policy. And then we're going to ask ourselves whether there's a better regime, and finally, how to get from the current regime to something else. We haven't prejudged any of those answers, but the goal isn't to be disruptive to markets. It's such that markets, the banking sector, and the real economy can understand the change and have time to adjust if we end up doing so.
[02:47:03] Speaker 30: Thank you. Chairman, in the interest of time, I'm going to yield my time back.
[02:47:10] Speaker 1: I thank the gentleman. The chair recognizes the gentleman from New York. Mr. Torres, you're recognized for five minutes.
[02:47:18] Speaker 31: How are you, Chair? Thank you for your service. During your Senate confirmation hearing on April 21st, 2026, you said, quote, The measures I prefer looking at are things that are called trim averages, where we take out all of the tail risk. Separately, on May 31st, 2026, the Wall Street Journal reported that you want the Federal Reserve to give greater weight to the Dallas Fed's trim mean PCE. And so I want to offer a critique and then have you respond. Trim mean PCE lag behind core PCE in detecting the inflation shock that began in 2021. Core PCE crossed the Federal Reserve's 2% target in March 2021. Trim mean PCE did not cross that same threshold into July, a four-month lag. By February 2022, core PCE had risen to 5.4%, while trim mean PCE stood at only 3.6%, a divergence of nearly two percentage points. And so here's my question. If trim mean PCE detected the inflation shock later, understated its severity, and diverged from core PCE by nearly two percentage points, why should the Fed place greater weight on it when setting monetary policy? And to put a final point on it, your core criticism of the Fed is that it was behind the curve on inflation. That same criticism can be leveled against your preferred measure on inflation. So why the disconnect?
[02:48:40] Speaker 5: So none of those are very good measures of underlying inflation. That Wall Street Journal story that you referenced is incorrect, that I have a preferred measure from one of the reserve banks. If I had a preferred measure, I wouldn't have called for a task force to go back to first principles. And the data task force will be looking, importantly, at inflation measures. My view is that we need new measures to understand the underlying changes in inflation. Am I interested in what's the mean or median price of a good in a big box retailer? You bet I am. And none of these measures capture that. I am super interested in finding new measures to do a better job to help us inform our decisions so that the inflation in the last five years don't continue.
[02:49:29] Speaker 31: You have repeatedly described inflation as a choice. A simple yes or no question. Do you mean a choice by the Federal Reserve?
[02:49:35] Speaker 5: I mean a choice by the Federal Reserve and fiscal policymakers both, but I'm not trying to push the responsibility onto you. The Congress said that we're in the business of ensuring stable prices, and that's exactly what we're going to do.
[02:49:48] Speaker 31: So combating inflation is part of the Fed's statutory mandate, and you view inflation as a choice by the Fed. Combating unemployment is also part of the Fed's mandate. Do you view unemployment as a choice by the Fed?
[02:50:01] Speaker 5: We have no legislative orphans. We can't just take one part of the statute you give us and disown the others. I will just add a touch of complexity. We have more control over the price level ourselves than we do the unemployment rate. We have some say there, but so do all the policies that you and your colleagues put into place.
[02:50:20] Speaker 31: But obviously if you aggressively raise interest rates, that could have the effect of causing unemployment. So in that sense it's a choice, right? There are multiple forces that shape both inflation and unemployment, and the Fed is one among many. Quantitative easing. Do you believe quantitative easing is inherently inflationary?
[02:50:37] Speaker 5: Yes or no, and then? That question I can answer simply. I don't think it's inherently inflationary, especially if we adopt quantitative easing in the depths of a crisis. It can often provide liquidity to markets that need it.
[02:50:52] Speaker 31: So from 2008 to 2014, the Federal Reserve's balance sheet grew by a factor of five, from about $900 billion to about $4.5 trillion. Yet over the same period, average headline PC inflation was 1.7%, and average core PC inflation was 1.5% below the Fed's 2% target. So the notion that quantitative easing may be inflationary fails to explain the non-inflationary effects of a multi-trillion dollar five-fold expansion of the Fed's balance sheet from 2008 to 2014. Can you explain that for me?
[02:51:30] Speaker 5: Yes, Congressman, I can. If the balance sheet expansion were our only policy tool, then that is a reasonable conclusion to draw. But we have several policy tools. The dominant one is interest rates. And so we need to think about both of them in the context of monetary policy.
[02:51:47] Speaker 31: And I want to quickly interject. Do you believe changes in the size of the Fed's balance sheet have an effect on inflation comparable to changes in interest rates?
[02:51:57] Speaker 5: You had me except for comparable. They can substitute for each other. They can complement each other.
[02:52:03] Speaker 31: But you don't see them as comparable.
[02:52:04] Speaker 5: But the balance sheet, they have different effects. The balance sheet tends to work more through asset prices first and interest rates more through the real economy.
[02:52:12] Speaker 31: And I want to interject. Do you acknowledge that IORB weakens the relationship between the size of the Federal Reserve's balance sheet and inflation?
[02:52:19] Speaker 5: Not precisely. I don't know if I can answer that fully in one second.
[02:52:23] Speaker 1: You need to answer it in writing and it will be very interesting because these were good questions. I look forward to doing that. Thank you. With the time we have remaining that the Chairman's allocated to us, the Chair now recognizes the Chairman of our Subcommittee on Housing and Insurance, Mr. Flood. And I recognize you for four minutes. Thank you, Mr. Chairman.
[02:52:41] Speaker 32: And thank you for being here, Chairman Warsh. I'd like to begin by emphasizing the importance of the independence of the Federal Reserve. Markets rely on our financial system and the dollar as a stable, safe place to put their money. The stability of our financial system is at the center of our global influence. Our adversaries know that if they can break our debt markets, if they can break the dollar, they can remove one of the largest and most significant advantages we have as Americans. The strength of our system and, in turn, our ability to stand up against foreign adversaries that seek to destabilize it is partially a function of having an independent Federal Reserve. If we lose an independent Federal Reserve, we will lose the confidence of people around the world that use the U.S. markets and the U.S. dollars as a safe haven. And that would be devastating for our economy and the economic security alike. Thank you for your work. I want you to know that I strongly support your ability to operate in an independent fashion. And to that end, Mr. Chairman, before I get into the rest of my questions, I wanted to give you an opportunity to speak on the importance of an independent Federal Reserve.
[02:53:46] Speaker 5: Thank you, Congressman. I'm happy to do it. The Fed will remain independent on my watch. I think Fed independence is essential to the proper conduct of monetary policy and I expect and will ensure that monetary policy is independent over the four years of my term. And like you, I think it provides extraordinary benefits in everything we do and strengthens the role of the United States and the U.S. dollar in the global economy.
[02:54:15] Speaker 32: I really appreciate that. Next, let's talk about the Federal Reserve's balance sheet, kind of following on what Mr. Torres was talking about. I've had longstanding concerns with the effects of the long-term effects of the Federal Reserve's balance sheet. In particular, I also worry about the use of quantitative easing in times of economic trouble. It can take a long time to unwind, leading to a Federal Reserve balance sheet that continues to grow and grow over time. Mr. Chairman, would you mind commenting just broadly on the use of quantitative easing in monetary policy?
[02:54:46] Speaker 5: I'd be happy to do it, Congressman. In periods of crisis, when markets aren't clearing, I am willing to be quite aggressive in what the Fed does with its balance sheet, the assets that we buy as necessary in unusual and exigent circumstances. When crises are over, monetary policy, in my view, should be driven almost exclusively by interest rate policy. One of my former colleagues said it best when he said interest rates get in the cracks. I'll go on to say interest rates don't favor one class of people versus another. They don't favor those that have financial assets more than folks that are living off their bi-monthly paychecks. So, I like interest rates as the dominant ways to make monetary policy, and I'd prefer all the things being equal to use balance sheets when the crisis are real. However, we've inherited -- I've inherited a very large balance sheet with a very complicated set of assets, and I am open-minded to reforms, as are my colleagues, and I'm keen to continue to work with this task force to achieve that.
[02:55:52] Speaker 32: Real quick, and I'm skipping to the end because this question matters a lot to me. I have a lot of community banks in Nebraska. It's the lifeblood of agriculture. Can you talk about how you see supervision working and respecting the role of a community bank, especially in rural America?
[02:56:09] Speaker 5: Congressman, as I mentioned to you in your office, I'm a big believer in the diversity of financial institutions. The U.S. economy benefits enormously by not having a half a dozen big institutions at the top do everything for everybody. The ag community, other communities, are well served by the banks that are closest to them. Supervision and regulation needs to take that into account. The thousands of banks that we have are an enviable good, and the Fed needs to do what it can to support them.
[02:56:38] Speaker 32: Thank you very much, Mr. Chairman. I yield back.
[02:56:41] Speaker 1: The gentleman yields back. I want to thank Chairman Warsh. This is Season 1, Episode 1 of Warsh at the Fed. We look forward to Episode 2 tomorrow. We want to thank you for your testimony today. Without objection, all members will have five legislative days to submit additional written questions to the Chair. The questions will be forwarded to the witness for your response. Chair Warsh, please respond no later than August 18, 2026. And with that, this committee hearing is adjourned. Thank you.
[02:57:30] Speaker ?: Thank you. Thank you.