‘This has devastated hardworking Americans’
WASHINGTON, D.C., March 7, 2023 — U.S. Senator Katie Britt (R-Ala.) today at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs spoke with Federal Reserve Chairman Jay Powell regarding generationally high inflation, protecting American financial consumers, and ensuring that financial regulators do not moonlight as climate policymakers.
Responding to a question from Senator Britt, Chairman Powell affirmed that unleashing American energy dominance would indeed drive down prices for consumers. Chairman Powell also agreed that driving up the labor force participation rate would bring inflation down.
A video of Senator Britt’s line of questioning can be viewed here.
A transcript of Senator Britt’s remarks follows:
Britt: Over the past two years we have seen the highest inflation of my lifetime – driving up costs for American families across the board. According to the U.S. Department of Labor, the annual inflation rate in 2021 was 7%, and in 2022, it was 6.5%. According to the U.S. Department of Agriculture, the cost of food went up 10% in 2022.
And the real effect of that is moms and dads across this nation that are working to put food on the table for their kids, for their babies, had a harder time doing that. This has devastated hardworking Americans, causing a kitchen table crisis in every corner of our country, as the price of food, energy, and housing have all skyrocketed.
In response, the Federal Reserve has raised the Federal Reserve Funds Rate more than 4 percentage points.
Being far from being transient, inflation has remained persistent — high and well above the Fed’s long-run goal of remaining under 2 percent.
In the coming year, what factors and indicators are you paying attention to as you and the Federal Open Market Committee decide on whether to continue to increase rates?
Powell: So, I’d say a couple things to that. First we are going to be looking at inflation in the three sectors that I mentioned. The goods sector, housing sector and the broader service sector. We need the inflation that’s already underway in the goods sector to continue, that’s really important. In the housing sector we just need the time to pass so that reported inflation comes down, and it’s effectively in the pipeline as long as new leases are being signed at relatively small increases.
So, we will be watching very very carefully though at the larger service sector, which is 56% of consumer spending and more than that of what’s currently inflation. So, that’s one thing we will be watching very carefully.
Also, we raised rates very quickly last year, and we know that monetary policy, tightening policy, has delayed effects, it takes awhile for the full effects to be seen in economic activity, inflation. So, we are watching carefully to see those effects come into play. We are aware that we haven’t seen the full effects yet, and we are taking that into account as we think about rate hikes.
Britt: So, when you are looking at this, obviously not to get into a policy discussion, but if there were an increase of energy production in this country, do you feel like that would help drive down inflation?
Powell: I think over time more energy would mean lower energy prices, but we are very focused on what we call core inflation, because that really is, that is what is driven by, really by demand and our tools are really aimed at demand.
Britt: Right, understood. But I feel like the cost of energy is not just what you pay at the pump, it ends up affecting every good across this great nation. Additionally, I’d like to ask you about labor participation. So when you look at the unemployment rate, and we’ve heard my colleagues discuss people having to be displaced in order for us to maybe get to the inflation rate that we would like as a nation.
I’d like to focus on the labor participation rate, so right now it’s 62.4%. If there were an increase in people coming back into the work force, would that be a positive factor with regards to driving us down to the 2% rate [of inflation] that you want to achieve?
Powell: I think that it would. I mean, remember that those people coming into jobs, that would be great because the economy clearly wants more people than are currently working. Of course those people would then spend more, so it wouldn’t be a zero sum game, but it would be great for the country and great for them if they were able to come into the laborforce.
Britt: Amen. I believe that increasing capital requirements on financial institutions would have a chilling effect on the economy and the availability of financial services.
Last week, I joined many of my colleagues in sending you a letter that expressed concerns that if the Federal Reserve decides to conduct a “holistic review of capital standards,” as we heard Senator Scott talk about earlier.
So is the Federal Reserve concerned that the impact to the economy of increasing capital requirements on financial institutions at a time when inflation remains persistently high would cause an issue?
Powell: So, I think it’s always a balance. We know that higher capital makes banks safer and sounder, we also know that you will at the margin provide less credit the more capitol you have to have, but it’s never exactly clear that you’re at the perfect equilibrium and it’s a fair question I think to look at that.
Britt: I know out of respect for the Chairman and trying to stay in my time I will just end by saying I heard what you said that the Federal Reserve is not and will not be a “climate policymaker” I just want to thank you for your public statement on that. I agree with you that there is a difference between policymakers and financial regulators and certainly look forward to working with you in the future.
Senator Britt is a member of the Financial Institutions and Consumer Protection Subcommittee of the Senate Committee on Banking, Housing, and Urban Affairs.
Video of Senator Britt’s remarks at today’s hearing can be downloaded for media usage here.