Tina Smith Presses Fed Chair Powell On Inflation: ‘What Have We Learned From This Experience?’

3 months ago

Before the Congressional recess, Sen. Tina Smith (D-MI) questioned Chair of the Federal Reserve Jerome Powell on inflation during a Senate Banking Committee hearing.

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Transcript

00:00Smith of Minnesota is recognized.

00:02Thank you, Mr. Chair.

00:03Welcome, Chair Powell.

00:04It's good to see you again.

00:05I want to follow up on kind of the line of questioning

00:08that Senator Tester was on a bit ago.

00:11He was talking about how the U.S. economy has been

00:14outperforming other advanced economies around the world

00:18in terms of growth rates, in terms of unemployment,

00:21in terms of inflation, getting inflation under control,

00:23though I think we obviously can all agree that we're not,

00:26at least from my perspective, we're not done yet.

00:30And we don't want to rest on our laurels,

00:31but I'm wondering if you could share what you think

00:34that we have learned from this experience.

00:37What have we done right?

00:39And why is it that we are doing better

00:42than some of the other advanced economies in the world?

00:47I think that it's down to the fundamental strengths

00:49of our economy.

00:50So as you may know, European economic officials

00:55are very, very focused on this question.

00:57They really, it comes up in all of our discussions.

01:00They, Europe has seen productivity increases

01:03of about 1% a year for 40 years.

01:06We've seen 2%.

01:07If you take a number and compound it at 1%

01:11and compound it at 2%, the difference is just enormous

01:14after 40 years in terms of incomes and living standards.

01:17And their question is why is that?

01:19Why is that?

01:20And the standard answer that Americans tend to give

01:22and that I would give is it's down to

01:25more flexible labor markets.

01:27They, in the pandemic, people were,

01:29they kept, they stayed in their existing jobs.

01:31In the United States, we had people changing jobs

01:33at record levels.

01:35And that's the kind of thing that adds to productivity

01:37and contributes to rising living standards,

01:39going back to school and getting skills

01:41and things like that.

01:42Another one is our financial sector.

01:43We have, we don't just have banks.

01:46We have a highly developed ecosystem of financing sources

01:50that will fund early stage investments.

01:52Banks are really not set up to do that.

01:54They're prudentially regulated.

01:56And so those are some of the things.

01:58I think we just have these natural strengths

02:00as an innovative, more flexible economy.

02:04We can grow faster.

02:06I appreciate that.

02:07You know, I think sometimes there's a tendency

02:08to sort of trash our economy

02:10and to sort of say, oh, we suck.

02:14And actually, I think that there's great resilience

02:16in our economy.

02:17I would argue that it has also to do a lot

02:19with the incredible resilience of our workers

02:22and their creativity and their talent

02:24and the training and the education that they have.

02:28And I think I would also argue,

02:29though I wouldn't expect you to make this case,

02:31that the way in which our federal government

02:35responded to the pandemic

02:38in order to make sure that people weren't evicted,

02:40that they still had money to pay their bills

02:44even when they weren't able to work,

02:47meant that overall our economy survived

02:52and was ready to kind of be off to the races

02:55when we emerged from the pandemic.

02:57But Chair Powell, I'd like to ask you a question,

03:00something that you and I have talked about,

03:01I continue to be thinking a lot about,

03:03which is the commercial real estate risk

03:05that we have in this country.

03:07I think particularly for office space,

03:10we know that that has been under strain

03:12the last several years.

03:13The sector has remained largely stable,

03:15but we are hearing about some additional default risk.

03:18And one thing that I'm noting

03:20is that there's some expectation or concern

03:23that that may fall disproportionately on smaller banks.

03:28I think that commercial and regional banks

03:31hold an estimated 2 3rds

03:32of all the commercial real estate loans in the country.

03:35And so unlike larger banks,

03:37these smaller institutions might find it a little harder

03:41to deal with this.

03:42So could you discuss this with us?

03:44Could you tell us a little bit about how you see this risk

03:48and particularly whether this poses some additional risk

03:52that we might be seeing more concentration

03:54in the banking sector as these smaller banks

03:56are maybe under more pressure?

03:57Yeah, so this, to your point,

04:00this is a risk that has been with us

04:01and will be with us for some time, probably for years.

04:05And banks need to be honestly assessing what their risk is.

04:11They need to be assured that they have the capital

04:13and the liquidity and the systems in place

04:15to manage this risk.

04:17The stress test that we apply to the largest institution

04:19stressed commercial real estate pretty hard.

04:22And again, the conclusion is that the large banks

04:27can manage this problem.

04:29And most small banks can too,

04:30but it is in some smaller banks

04:32that tend to have that local concentration

04:35in commercial real estate.

04:38And we're in touch with those banks,

04:39the supervisors and regulators are in touch with those banks

04:42and making sure that they can manage them.

04:45And it's gonna be an issue for many banks,

04:48but it's one that we're trying to work through,

04:50one that we're very much aware of.

04:52And again, it'll be with us for some time.

04:55I think so much about the importance

04:57of these small regional community banks

04:59in small towns, big towns in Minnesota

05:02and how important it is that in my book

05:05that they can stay independent

05:07and better serve their communities in that way.

05:09So I worry about this risk.

05:10Thank you, Mr. Chair.

Tina Smith Presses Fed Chair Powell On Inflation: ‘What Have We Learned From This Experience?’

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