Chris Van Hollen Grills Fed Chair Jerome Powell On Unemployment: ’Do You Share My Concern?’

3 months ago

Before the Congressional Recess, Sen. Chris Van Hollen (D-MD) questioned Chair of the Federal Reserve Jerome Powell on unemployment rates durign a Senate Banking Committee hearing.

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Transcript

00:00Thank you, Mr. Chairman.

00:02Chairman Powell, it's good to see you.

00:05And let me first applaud you and your team at the Fed

00:09for at least so far being on track to bring

00:13down inflation without, so far, triggering a surge,

00:18big uptick in unemployment.

00:21But you know very well that that's a risk

00:24if the Fed does not act with full awareness

00:30of that danger.

00:31When you were here in March, you said that you were, quote,

00:35well aware, unquote, of the risk to unemployment

00:37of waiting too long to cut rates, and, quote,

00:40very conscious of avoiding it, unquote.

00:44Since then, we have seen a slowing in the economy

00:49and a rise in unemployment.

00:51I'm just reading something today in analysis with Diane Swank,

00:56KPMG's chief economist, who summed it

00:59up by saying, quote, the ice is thinning.

01:02Red flags are emerging for the U.S. economy, unquote.

01:06The engine of the economy, the labor market,

01:09is cooling faster than previously known.

01:12The unemployment rate is above 4%

01:15for the first time since 2021.

01:18It is taking workers longer to find jobs.

01:23Economic activity in the service sector,

01:25which is responsible for two-thirds

01:27of economic growth, slowed in June.

01:31So my question, Mr. Chairman, is how do you take all

01:35of these factors into account?

01:38Are you, do you share my concern that, as of today,

01:42there is a real risk of a increase

01:46in unemployment larger than is currently on your radar screen?

01:50CHAIRMAN POWELL.

01:51Yeah, I mean, absolutely.

01:55We, I do, even more so than in March

01:58when we were here, see that.

01:59So we've seen, and I think the latest data show

02:03that labor market conditions have now cooled considerably

02:06from where they were two years ago.

02:07And I wouldn't have said that until the last couple

02:09of readings.

02:10And I would say also that, you know, for a long time,

02:14the risks were more that we would fail

02:16to hit our inflation target.

02:17I think the risks, as to the two statutory targets we have,

02:22price stability and maximum employment,

02:23I think those are coming much more into balance.

02:26My colleagues and I are looking at that, and we fully understand

02:30that we have to manage this process

02:34of administering the federal funds rate and deciding what

02:38to do with it in a way that manages both of those risks.

02:41And, you know, the two mandates are equal under the law.

02:44And so, yes, we do get that.

02:46Well, I appreciate that.

02:48And I appreciate the fact that you've seen that sort

02:51of that calculation change since you were last here.

02:55Because I think the data indicates that we are at risk now

03:01of not acting soon enough to curb the increase

03:07in unemployment, and that if we allow that to go too long,

03:11we may see a real uptick there.

03:16And so I'm pleased that that is very, very much

03:20on your radar screen, and hope that that will be a really

03:25deciding factor, as you

03:27and your other Fed colleagues determine what to do

03:31with respect to interest rates.

03:33And as has been said, in the housing sector,

03:35we are seeing the continuing drag created

03:40by high interest rates.

03:42So that has been a, I think all

03:44of our colleagues, as you probably heard today,

03:48are really hearing from our constituents, understandably,

03:51about the very high housing prices.

03:54And it's slowed investment in other sectors

03:56like manufacturing as well.

03:58In my final minute, I would like to turn to the question

04:02that Senator Warren asked.

04:05Because I asked your colleague, Vice Chair Barr,

04:08about exactly this question

04:10of implementing Section 956 of Dodd-Frank,

04:15when he was before the committee just a short time ago,

04:21May 16th of this year.

04:24And I asked him about why the Fed had not moved forward,

04:32along with other agencies,

04:35with respect to implementing what the law is

04:40and what the law has been for 10 years.

04:42NCUA has signaled their intent to propose a rule.

04:46The SEC has indicated that they're moving forward.

04:50I said to Vice Chair Barr that I've not seen any notice

04:54of proposed rule from the Fed.

04:56And can I get a commitment

04:58that the Fed will quickly begin the process implementing this

05:01law by issuing a notice of proposed rule?

05:04His answer was, and I'm quoting, in discussions

05:08with my colleagues, it became apparent that at the board,

05:12we believe we need to conduct some further analysis before

05:15deciding what steps to take.

05:17We are committed to following the law

05:19to implementing Section 956.

05:22But we have further work to do.

05:25Count me among those who are very frustrated

05:27that we're now 10 years after this law was passed.

05:30Vice Chair Barr committed to following the law.

05:33I'm sure, Mr. Chairman, you would commit

05:35to following the law.

05:37But why is it that it's taking the Fed so long to move forward

05:41with implementation of 956?

05:43So I'd like to look at the actual language

05:45of the statute when I, you know, and what it says is it calls

05:49on the regulators to make determinations

05:51about specific incentive compensation practices

05:55that cause excessive risk-taking.

05:57And then, and we haven't done that.

06:00So we did, you know that we put

06:02in place pretty serious guidance back in 2010.

06:06After putting it out for comment,

06:08we looked at all these questions.

06:09It's been in place for 14 years.

06:12We supervise on it.

06:14And, you know, so the question I'm asking is, okay,

06:17let's just, let's go out and look at what the practices are

06:20that are happening now, not that are happening before the global

06:22financial crisis when it was obvious

06:25that things needed to be changed.

06:26And we put the guidance in place.

06:28It seems to have largely worked, certainly as it relates

06:30to the large firms, and then let's design something

06:33that is designed to the residual risk as opposed

06:36to just taking something off the shelf

06:38from 15 years ago and doing that.

06:40So that, and we're working on that at the Fed now.

06:44And, again, I am, the statute requires us

06:47to prescribe regulations or guidelines

06:51to prohibit those things.

06:52And I, you know, I want to do that in a sense we have done.

06:56So just very briefly, and when, is it your testimony

07:00that the Fed has already met the requirements?

07:03No. Okay.

07:04No. Just want to make that clear.

07:06And we do look forward to the Fed moving forward.

07:09Thank you, Mr. Chairman.

Chris Van Hollen Grills Fed Chair Jerome Powell On Unemployment: ’Do You Share My Concern?’

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