Virtual Hearing - Monetary Policy and the State of the Economy (EventID=113907)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Wednesday, July 14, 2021, at 12:00 p.m. (ET) full Committee Chairwoman Waters and Ranking Member McHenry will host a virtual hearing entitled, “Monetary Policy and the State of the Economy." __________________________________ Witnesses for this one-panel hearing will be: • The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System Purpose and Background The Federal Reserve Act directs the Chairman of the Board of Governors (Board) of the Federal Reserve System (Federal Reserve or Fed) to testify before the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs twice a year on how the Board handles monetary policy and its observations on economic developments.1 Each appearance requires the Board to supply the Committees with a written report known as the Monetary Policy Report.2 The Federal Reserve System consists of a 7-member Board of Governors, as well as 12 Reserve Banks located in various regions around the country. The Fed’s functions include conducting monetary policy, promoting financial stability, supervising and regulating certain financial institutions, and fostering payments and settlements. The Board has seven Governors, including a Chair, a Vice Chair, and a Vice Chair for Supervision. Chair Powell is serving a term as Chair that began in February 2018 and will expire in February 2022. There is currently one vacancy on the Board.4 Monetary policy decisions are made by the Federal Open Market Committee (FOMC), which is comprised of the Board, the president of the Federal Reserve Bank of New York, and an annual rotation of four of the remaining Reserve Bank presidents. Overall Economic Outlook and Monetary Policy Following the declaration of the COVID-19 pandemic and widespread financial market turmoil, the FOMC announced on March 15, 2020 that it would cut the overnight interest rate 1 percent, to a range between 0 and 0.25 percent (also called the “zero lower bound”). At the same time, the FOMC announced that it would make large scale asset purchases (LSAPs) of $500 billion in Treasury securities and of at least $200 billion in agency mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac, and Ginnie Mae over the next few months. In the months since, the FOMC has continued making LSAPs, which are often referred to as “quantitative easing,” purchasing $80 billion of Treasuries and $40 billion in MBS each month.8 The Fed’s total holdings of Treasury securities on its balance sheet has grown by over $2 trillion compared with February 2020, and its holdings of MBS has increased by nearly $1 trillion over the same time period. Through the CARES Act and Consolidated Appropriations Act of 2021, Congress provided trillions of dollars in fiscal relief to the economy, including the authorization of $454 billion for emergency lending facilities set up by the Federal Reserve. With the exception of the Paycheck Protection Liquidity Facility, which will expire on July 30, 2021, the CARES Act facilities have now been shut down. On March 11, 2021, President Biden signed a $1.9 trillion COVID relief package called the American Rescue Plan (ARP) into law. Among other provisions, the ARP funded $160 billion for a national vaccination program, $360 billion in aid to state and local governments, expanded child care assistance, $300 in supplemental weekly unemployment insurance benefits through September 6, and increased child tax credits designed to support the families of 66 million children.12 At his June 16, 2021 press conference following the FOMC’s meeting, Chair Powell credited “[w]idespread vaccinations, along with unprecedented fiscal policy actions,” with “providing strong support to the recovery.” The economy has added 3.25 million jobs since January 2021. The strong growth observed in the first quarter of 2021 has sparked concerns about inflation, which has grown more rapidly than expected in the first half of the year. In May 2021, the 12-month change in the consumer price index reached 5%,15 although this includes food and energy prices that are highly volatile and therefore excluded from the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) index. The annual change in core PCE remained elevated above 3% throughout the spring,16 though Powell has maintained that this is likely “transitory” inflation. For instance, Powell has stated that supply bottlenecks related to the pandemic have forced up prices of commodities like lumber, although this is beginning to subside. Other pandemic-driven factors, such as a surge in... Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=408105