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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NewsTranscript
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.