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Federal Reserve Chair Powell testifies before the Senate committee on monetary policy — 3/7/24

CNBC Television・117 minutes read

Senate committee votes 12-11 to nominate Ron Bakowski as director of The Office of Financial Research; Senator Paul emphasizes Fed's role in stabilizing prices and employment, urges protection from Wall Street influence. Federal Reserve maintains focus on maximum employment, stable prices; economic activity expands by 3.1% in 2023, housing sector subdued due to high mortgage rates.

Insights

  • Senator Paul emphasizes the need for the Federal Reserve to lower interest rates to address high living costs and corporate price gouging, urging the Fed to protect the financial system from Wall Street influence and hold banks accountable for risky behavior.
  • The Senate committee votes 12 in favor and 11 opposed on Ron Bakowski's nomination as director of The Office of Financial Research at the Department of Treasury, indicating a close decision that could impact financial risk identification and mitigation across the system.
  • Concerns are raised about rising interest rates as a response to inflation caused by Democratic spending, impacting national debt servicing costs, with predictions of a 32% increase in interest payments on the national debt this year, surpassing defense spending.

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Recent questions

  • What is the Senate committee voting on?

    Ron Bakowski's nomination as director of The Office of Financial Research at the Department of Treasury.

  • Who discusses the Federal Reserve's role?

    Senator Paul

  • What is the impact of high interest rates?

    Housing costs and the economy are affected.

  • What is the Federal Reserve focused on?

    Dual mandate of maximum employment and stable prices.

  • What is the economic impact of inflation?

    Balancing risks to employment and inflation goals.

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Summary

00:00

Senate Committee Votes on Bakowski Nomination

  • The Senate committee convenes to vote on Ron Bakowski's nomination as director of The Office of Financial Research at the Department of Treasury.
  • Bakowski, if confirmed, would oversee identifying and mitigating financial risks across the system.
  • The committee votes on Bakowski's nomination, with 12 in favor and 11 opposed.
  • The nomination is reported favorably to the full Senate.
  • Senator Paul discusses the Federal Reserve's role in promoting stable prices and maximum employment.
  • Paul emphasizes the need for the Fed to lower interest rates to address high living costs and corporate price gouging.
  • He urges the Fed to protect the financial system from Wall Street influence and hold banks accountable for risky behavior.
  • Paul highlights the impact of high interest rates on housing costs and the economy.
  • He criticizes corporations for prioritizing profits over consumer affordability, citing examples like shrinkflation.
  • Senator Scott raises concerns about the economic impact of inflation, illegal immigration, and regulatory red tape on American families and the economy.

23:16

Federal Reserve Balances Employment and Inflation

  • Federal Reserve focused on dual mandate of maximum employment and stable prices
  • Inflation above 2% but easing, without significant increase in unemployment
  • Risks to employment and inflation goals balancing out
  • Committee attentive to inflation risks, especially for vulnerable populations
  • Economic activity expanded by 3.1% in 2023, driven by consumer demand
  • Housing sector subdued due to high mortgage rates
  • Labor market tight but improving supply-demand balance
  • Job gains averaging 239,000 per month, unemployment at 3.7%
  • Inflation above 2%, with total personal consumption prices rising 2.4%
  • Federal Reserve maintaining federal funds rate at 5-5.5%, aiming to return inflation to 2% goal

39:41

Latino Fed Governor, Immigration Impact, Housing Concerns

  • Historic Milestones: First Latino Federal Reserve governor and president celebrated.
  • Economic Impact of Immigration: Surge in employment due to immigration key to economic rebound.
  • Housing Inflation: Nationwide housing shortage attributed to zoning, interest rates, and underwriting.
  • Affordability Concerns: Housing becoming less affordable for low and middle-income Americans.
  • Mortgage Restrictions: Imposition of debt service payment ratios affecting low-income households.
  • Capital Requirements Proposal: Potential increase in mortgage costs for disadvantaged borrowers.
  • Consensus on Capital Framework: Efforts to reach consensus on the Basel 3 endgame proposal.
  • Concerns on Proposal: Negative effects on mortgage lending and home affordability highlighted.
  • Inflation and Federal Funds Rate: High inflation attributed to fiscal policies, impact of interest rate hikes.
  • Non-Bank Lending Risks: Growing reliance on non-bank financial sector poses stability risks.

55:22

"Proposed Legislation: Modernizing Discount Window, Basel 3"

  • Legislation proposed for mandatory use of the discount window
  • Concerns about stigma and mechanics of the discount window
  • Need to modernize the discount window technologically
  • Importance of eliminating stigma and ensuring banks can use the discount window
  • Concerns raised by Senators about Basel 3 proposal
  • Proposal to repropose Basel 3 due to industry concerns
  • Discussion on increasing capital requirements responsibly
  • Timeline for reevaluating and potentially repropose Basel 3
  • Impact of rising input costs on businesses and inflation
  • Discussion on banning stock buybacks and dividends and its effects on inflation and capital markets

01:10:54

"Financial Examiners Face Misconduct and Challenges"

  • A female risk management examiner had a lunch with a male examiner where he complained about his marriage, stating he wasn't getting enough sex.
  • The male examiner allegedly made a suggestive comment about the female examiner being naked in his office.
  • Mr. Randall Ditch, a supervisory examiner in Denver, was demoted to a non-supervisory position in Tulsa after having sex twice with a subordinate female employee and violating rules.
  • Mr. Ditch allegedly urged the woman not to "be a close" and drink whiskey during work hours.
  • Senator Kennedy exceeded his time limit during questioning, prompting the chairman to intervene.
  • The FDIC's role in Basel III and its impact on the banking community was questioned.
  • Housing affordability crisis in California was discussed, with renters spending over 50% of their income on rent.
  • The Federal Reserve's monetary policy's impact on affordable rentals was questioned.
  • The calculation of rents and inflation's impact on lower-income households was explained.
  • The issue of insurance gaps due to climate change affecting financial stability was raised, with insurance providers withdrawing from California.

01:25:26

Economic trends impact housing and prices.

  • Prices compared to a year ago are down, but up compared to six years ago.
  • Food costs are impacted by commodity costs and supply chain expenses.
  • The US economy is performing better than other advanced economies, including China.
  • Housing supply issues affect data used by the FOMC for decision-making.
  • Housing prices don't directly affect data, but housing starts and renovations do.
  • There is an underlying shortage of housing due to zoning difficulties.
  • The Federal Reserve is not a climate policy maker and focuses on bank safety.
  • Central Bank digital currency is not imminent, and the Fed aims to follow technology evolution.
  • Commercial real estate faces risks due to changes in work patterns.
  • The Fed is working with banks on commercial real estate and uninsured deposits.

01:39:48

Fed's Rate Strategy Amid Inflation Concerns

  • The Fed allowed rates to offset below-target inflation in 2021 and early 2022.
  • Markets expected the Fed to cut rates despite being well above the inflation target.
  • The Fed aims to ensure sustainable 2% inflation before adjusting rates.
  • Interest rates are currently above neutral and in restrictive territory.
  • The Fed plans to start dialing back restrictions as the economy progresses.
  • The Fed's balance sheet has dramatically expanded to 7.5 trillion, doubling since the pandemic.
  • Government spending's impact on interest rates concerns the Fed.
  • The Fed is considering shifting its holdings towards short-term treasuries.
  • The Fed is reviewing comments on the Basel 3 rules for big banks.
  • The Fed's long-term debt proposal aims to make smaller regional banks more resolvable.

01:54:45

Impact of Democratic Spending on Rising Interest Rates

  • Rising interest rates are a response to inflation caused by Democratic spending, impacting the national debt servicing costs.
  • CBO reports predict a 32% increase in interest payments on the national debt this year, surpassing defense spending.
  • Concerns arise in Washington about fiscal and monetary policy convergence, potentially affecting the Fed's rate-setting decisions.
  • Discussions on fiscal sustainability are crucial, requiring bipartisan cooperation for effective solutions.
  • Liquidity regulations are under review, with a focus on thorough understanding before implementation.
  • The Federal Reserve is considering liquidity innovations, evaluating the form and duration of new requirements.
  • Prior to issuing new liquidity requirements, the Fed aims to conduct comprehensive data collection for meaningful analysis.
  • The Federal Reserve cannot introduce a US Central Bank digital currency without Congressional authorization.
  • The Fed targets headline inflation, including food and energy costs, while core inflation is a better predictor of overall inflation.
  • Constraints on lending under Basel 3 may lead to reduced loans and a shift towards non-bank lenders, impacting consumers and small businesses.

02:12:10

"Corporations profit while workers struggle, consumers impacted"

  • Corporations are keeping more profits from worker productivity gains, leading to a gap between wages and productivity.
  • Worker wages should track productivity increases for a more inclusive economy.
  • Corporations are charging high prices for groceries despite record profits, impacting consumers.
  • Concerns raised about Basel III capital requirements affecting clean energy tax credit investments.
  • The Federal Reserve supports Basel III efforts but acknowledges issues with clean energy investments.
  • The Federal Reserve avoids commenting on fiscal policy and focuses on achieving 2% inflation through monetary policy.
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