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HFSC CARES Act Oversight Hearing

House Financial Services Committee

Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response

Wednesday, December 1, 2021

Witnesses

 

Opening Statements
Chairman Maxine Waters (D-Calif.)
In her opening statement, Waters recounted Democrats’ accomplishments responding to the pandemic, job growth under the Biden Administration, and passage of the infrastructure bill and urged the Senate to pass the Build Back Better plan (BBB). She stated that we must look out for minority communities, women, and renters during the pandemic recovery.

Ranking Member Patrick McHenry (R-N.C.)
In his opening statement, McHenry praised Powell for staving off a financial crisis during the pandemic, said we should not be reacting to every new COVID variant, and decried growing inflation. He blamed Democrats for partisanship, the poor labor force participation rate, and policies driving up inflation and gas prices and harming the pandemic recovery.

Rep. Al Greene (D-Texas)
In his opening statement, Greene emphasized the higher unemployment rate for minority workers than white workers and the continuing wealth gap.

Rep. Tom Emmer (R-Minn.)
In his opening statement, Emmer highlighted the high cost of gas this year, stating that this inflation is not transitory, and that we must stop reckless spending before it economically cripples our nation.

Testimony
Janet L. Yellen, Secretary, U.S. Department of the Treasury
In her testimony, Yellen said December has the potential to be very consequential based on two decisions facing Congress– the debt limit and Build Back Better legislation. She said if we do not address the debt limit, we will eviscerate our current recovery, and Americans would suffer financial pain as critical payments, like Social Security checks and military paychecks, would not reach their bank accounts. Regarding BBB legislation, Yellen applauded the House for passing the bill and is hopeful that the Senate will soon follow. She said this legislation and its investments, they expect, will lead to a GDP increase over the long-term without increasing the national debt or deficit by a dollar. Yellen added that she believes the offsets in these bills will actually reduce annual deficits over time.

Jerome H. Powell, Chair, Board of Governors of the Federal Reserve System
In his testimony, Powell said many forecasters and the Fed expect that inflation will move down significantly over the next year as supply and demand imbalances abate. He explained that though difficult to predict the persistence of supply constraints, it now appears that factors pushing inflation upward will linger well into next year. He said the recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Powell concluded that greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.

Question & Answer
Inflation
Waters asked Powell if he views recent wage growth trends as positive and if current inflation is transitory. Powell said he likes seeing the wage growth, but that the growth is not moving up in a way that would spike inflation. He added that the inflation we are seeing is connected to pandemic related factors but that it has also spread more broadly in the economy. Waters asked if passing BBB will help address inflation, but Powell would not comment. Rep. Michael San Nicholas (D-Guam) asked Powell if the current inflation is global or confined to the U.S. Powell said other countries are seeing inflation as well, largely related to the pandemic recovery. Rep. Ayanna Pressley (D-Mass.) asked Yellen what the real causes of inflation are and how policies to address the pandemic will help fight inflation. Yellen said the causes of inflation reflect the impact of the pandemic on the economy, adding that policies supporting income have enabled a return to normal employment levels and that a huge demand for goods has contributed to supply chain problems. She also said that some low wage workers do not yet feel safe returning to the workplace. Rep. Madeleine Dean (D-Pa.) asked Powell how domestic investment in manufacturing would address supply chain challenges and impact inflation. Powell declined to comment on any legislation but said that making products locally could reduce inflation.

Rep. Ann Wagner (R-Mo.) asked Powell if it is still his view that these price increases are neither large nor persistent. Powell said that is no longer his view. Wagner said it is time to retire the term transitory. Powell said the word transitory to the Fed means that this episode will not leave a persistent long run string of high inflation behind. He said many forecasters think inflation will come down significantly within the first half of the new year. Rep. Anthony Gonzalez (R-Ohio) asked Powell if he has second thoughts about updating the Fed goals to achieve inflation about two percent for some time. Powell said the framework was designed to address the Fed’s mandate in the environment of zero interest rates.

Tapering
Gonzalez said we have let inflation run “too hot for too long” and asked what is most concerning about the ramifications of tapering. Powell said the taper should not be a disruptive event to the markets, adding that the economy is strong, and it is appropriate they consider wrapping up tapering a few months early.

Labor Force Participation
Waters asked Yellen if BBB investments in childcare would help with the quit rate. Yellen said the quit rate is a sign of a strong labor market that benefits workers who feel jobs are plentiful. But she added that low wage workers do not yet feel comfortable reentering the labor force in the face of the pandemic.

Build Back Better
Reps. Ed Perlmutter (D-Colo.) and Pressley asked Yellen how BBB will help the recovery and create opportunity for Americans. Yellen said BBB focuses on long term economic issues and benefits children and households through subsidies for childcare, tax credits, and universal pre-kindergarten (pre-k). Rep. Vincente Gonzalez (D-Texas) asked Yellen is investing in childcare and pre-k will bolster the labor market, and Yellen confirmed, adding that BBB will make childcare affordable, boosting employment. Dean asked Yellen what ways wealthy individuals and corporations avoid or fail to pay taxes. Yellen said compliance rates for multiple income streams is high, but rates for opaque sources of income are low. She added that improving the IRS’s auditing capacity will help the IRS collect revenue.

Wagner asked about the consequences of too much fiscal spending on the financial markets and price of consumer goods. Reps. Van Taylor (R-Texas) and Lee Zeldin (R-N.Y.) said the deficit spending is unparalleled and that BBB legislation is not paid for. Yellen said CBO scored BBB as resulting in $367 billion in deficits over ten years, but that score was made clear that it does not include the revenue that will come from enhancement of resources and tax enforcement. Rep. Pete Sessions (R-Texas) said the Treasury and CBO’s scores for BBB are confusing. Yellen said they respect the CBO score and analysis, but CBO made it clear their methodology assumes very little shift in the behavior of taxpayers. She said Treasury and outside researchers have their own analysis of the impact from new IRS resources.

IRS Audits
Rep. Lance Gooden (R-Texas) asked if more Americans would be audited by the Internal Revenue Service (IRS) if BBB becomes law. Yellen said fewer Americans with incomes below $400,000 will be audited, and the IRS will have the resources to direct audits towards tax cheats which tend to be higher income Americans and complex partnerships.

SAFE Banking Act
Perlmutter asked Yellen if the SAFE Banking Act’s provisions would make the IRS’s job easier, and Yellen confirmed.

Minority Businesses
Gonzalez asked Yellen how we can better reach minority owned businesses to ensure their access to business relief resources. Yellen said that the most recent relief funds were reserved for MDIs and CDFIs and that Congress has provided considerable resources to those institutions, improving their ability to reach businesses in underserved areas.

Recovery Funds
San Nicholas asked Yellen if the final rule will be materially different from the interim rule for local recovery funds. Yellen said the interim rule can be relied on but did not speak to the possible difference from the final rule.

Gas Prices
Gonzalez asked if greedy corporations and speculators are driving up gas prices. Powell said energy is a global market, and it is a combination of very strong demand in the face of supply blockages.

Climate Change
Rep. Rashida Tlaib (D-N.Y.) asked Powell to outline his plan to address climate risk to our financial system, if the Fed intends to join the upcoming Office of the Comptroller of the Currency (OCC) climate risk guidance, and if the Fed plans to conduct bank climate risk assessments in 2022. Powell said the Fed will supervise and regulate institutions to make sure they can manage their risks and added that the Fed will be incorporating climate change into some of its mandates. He then said the Fed would provide guidance but not join the upcoming OCC guidance and that the Fed is in dialogue with all of the banks, trying to understand the implications of climate risk for their business models and how to address these risks. Tlaib also asked Powell if the Fed will do something similar to the European Central Bank having climate risk guide its monetary policy. Powell said he is focused on the U.S. and the Fed meeting its existing mandates but will not make climate risk its focus right now. Rep. Alexandria Ocasio-Cortez (D-N.Y.) asked Yellen why the Financial Stability Oversight Council (FSOC) climate report fails to mention globally acknowledged targets to prevent climate change degradation and if the U.S. should phase out new investments in fossil fuel supplies. Yellen said FSOC’s job is to identify financial stability issues and coordinate across agencies to address those issues, adding that Treasury is involved in putting together policies to address climate change. She also highlighted climate change policies in BBB and said Treasury has no authority to tell institutions that they must pursue certain lending policies to support the Paris Climate commitments.

Taxes
Rep. Jesus “Chuy” Garcia (D-Ill.) asked Yellen what Treasury is doing to streamline the process for Individual Taxpayer Identification Number (ITIN) filers. Yellen said Treasury is trying to speed the delivery of child tax payment to individuals who did not file a return in 2019 and 2020 and that many ITINs may be in that category. She added that Treasury made a mobile app, also available in Spanish, to make sure recipients receive payments they are entitled to. Garcia asked what Treasury can do to monitor the success of the child tax credit in Latino communities and ensure funds go to every possible recipient. Yellen said Treasury has conducted outreach to make sure there is awareness in low-income and minority communities of eligibility for these payments, adding that it is important to get the word out. She also said Treasury has asked Members of Congress to help get the word out by publicizing the availability of these benefits in their districts.

Debt Limit
Rep. Frank Lucas (R-Okla.) asked when to prioritize the threat of U.S. debt rapidly outpacing economic growth. Powell said the U.S. needs to get back on a sustainable fiscal path and that it needs to be done when the economy is strong, taxes are rolling in, and employment is high. He added that there needs to be a plan to get the economy growing faster than the pace of the debt.

Paycheck Protection Program
Rep. Blaine Luetkemeyer (R-Ky.) asked why Yellen has not shown up at the Small Business Committee to report on the Paycheck Protection Program (PPP). Yellen said Congressional oversight is important, and she has over the last ten months testified 12 times and offered the Deputy Treasury Secretary to testify before the Committee. She added that during the new Administration, Treasury has had essentially no role in the PPP.

Chinese Investment
Luetkemeyer asked Powell if he is alarmed by investors investing in Chinese bonds. Powell said they do not have a role in that.

 

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