guy: wednesday the 24th of february. 3:00 p.m. in london, tenant latte, new york -- 10:00 a.m. in new york. welcome to "bloomberg markets." greenspan famously use to rewrite his speech from one-day to the next, and up the market didn't quite understand what he was saying. i am looking at the bond market and wondering whether powell thinks the same thing. alix: that he is not going to intervene at the back of the curve, and you are seeing a selloff really ferociously in the u.s., but also in europe. european inflation moving higher as well. that is also part of this narrative. the reflation theme keeps coming. the curve continues to steepen, the has level since about 114. brent up another 2% -- since about 2014. brent up another 2%. the russell really struggling, as well as all of the tech and highflying favorites.

the two-year yesterday sold at a premium. is that risk aversion? what will happen when we get the five-year auction? that will be fascinating to watch as we going to today. guy: that is one of our big stories that we are watching today. the big story is obviously jay powell, second day, today in front of the house financial services committee. the market very much testing chairman powell. johnson & johnson, that is a big story as well. that one shot vaccine very effective, the fda saying. president biden's review of the u.s. supply chain s -- supply chain story is something we need to be talking about as well. let's talk to michael mckee, bloomberg economic and policy correspondent. maybe the market is taking a cue from powell. using that is the case? do you think you will be happy -- do you think that is the case?

do you think you will be happy to see yields rising today? michael: i don't think you will mind it. the fed chairman speaks to congress, but he is really speaking to the markets in these hearings. his message to the market is steady as she goes, but that is not changing its mind at all, no matter how he was asked -- mind at all. no matter how he was asked, he refused to say anything about stimulus. he basically said we will see rising inflation, but that will be transitory, and we are still far from our employment and inflation goals, so we are not going to change policy. you can see the market reaction to that, and you wonder if they are believing them or not. bonds falling again today. those yields rising. one argument is that the market is just repricing for a different economy. we are in a very different economy than we were in the their .5% 10 year yield of last -- in the 0.5% 10 year yield of last august. it is not like we are going way

out of some kind of boundary or range with these numbers. the other side of the trade, is powell wrong? could we get a huge amount of pent-up demand? steve stanley at amherst pierpont says this isn't really like the last business cycle recovery. this is more like the end of world war ii. when we came out of world war ii, we saw very strong growth. we also saw a lot of inflation, and the markets and the economy are very volatile. you can see what happened there. tell could say, look at the right side of that graph -- powell could say, look at the right side of that graph. inflation in most of the 1950's and 1960's was very restrained. we will see if he expands on those ideas, or if anybody asks him today, what if you are wrong. they will ask him about stimulus, i'm sure, but he's not going to talk about it. alix: no doubt. we are maybe at that point of it is the quant and momentum

followers. we are also getting underlying data that is strong, particularly as we get a house vote on the stimulus. michael: it is a very strong report because this puts us at 923,000 sales on an annual basis, which is the strongest in some time. we go up from a revised higher 885,000. it shows that the housing market is still gaining, and that is good news. the new-home sales are much more contemporaneous than existing home sales in terms of when contracts are signed. the fed has seen mortgage rates rise in recent weeks, but we are still seeing strong housing. that is good news for them. alix: mike, really appreciate it. want to take a look at how markets are doing, dig deeper into that ahead of jay powell's day to on capitol hill -- day two on capitol hill.

here's abigail doolittle. abigail: we are seeing a repricing of risk. this tends to be pretty painful. can see here, s&p 500 futures down 0.5%, down for the sixth time in seven days. nasdaq 100 futures down 1.6%, down seven days in a row, the longest losing streak since 2016. it has everything to do with this massive backup and yield -- backup in yields. it calls into question the valuation for those momentum stocks in the nasdaq 100. crude oil is rising, so you have talk about whether this reflation will turn into inflation. if you continue to have hard commodities rise, if the data is there, it is a positive. if the data is not quite a strong, you can have it in place in your situation. some of it is coming up on that positive j&j news, big bond

volatility. what we are looking at on top is the 30 year yield. you can see this huge backup. on bottom, the jp morgan move index, the bond volatility index, absolutely popping, similar to 2013. volatility creeping into the bond market. it is going to be interesting to see whether or not we have continued volatility in the equity market, and let sick a look at where the pain trade is. the nasdaq 100 down for a second day. in fact, down seven days in a row. these tech traders, these mega-cap traders simply not tolerating how quickly yields are rising. guy: we could probably holiday tech tantrum -- probably call it a tech tantrum. is this one of the reasons why yields are as high as they are today?

u.s. regulators finding johnson & johnson's covid vaccine to be 72% effective. that comes before a meeting of the external fda advisors on friday. going is now, riley griffin, bloomberg health care reporter. tell us what we need to know. what did we find out today? riley: u.s. regulators released documents in advance of that friday meeting, suggesting that johnson & johnson's long-awaited covid-19 vaccine is indeed safe and effective. giving americans access potentially to the first such shot to work in a single dose, it has that logistical ease, which is incredibly important. the documents adjusted the vaccine was 72% effective in the u.s.-based arm of the trial of more than 43,000 participants. in addition, the fda's analysis found the shot had a favorable safety profile. there were no covered related deaths in the vaccinated group, nor any other safety concerns that would preclude an emergency use authorization.

that is what we are waiting for right now. come friday, there will be an independent meeting of advisors to the food and drug administration to determine whether or not they should recommend the j&j shop for authorization, and we could indeed see that authorization within days. one thing that will certainly come up during that friday meeting our variants. vaccines from moderna and the partnership of pfizer/biontech were authorized before the first major coronavirus variants were seen in the u.s. and globally. since then, mutant versions have become a major concern, and the vaccines have become less effective in two of the variance identified. one has be seen at higher levels at the u.s. as well. all of this is going to come up on friday. we are already seeing j&j shares up this morning on the news. alix: riley, thanks a lot.

finally, we want to turn to washington. president biden taking another step toward ending reliance on china and other countries for u.s. supply chains. he is ordering a review of those supply chains today. bloomberg chief washington correspondent kevin cirilli has more. kevin: significant developments on the u.s.-china front as president biden is set to issue executive orders for a 100 day review period on u.s. reliance upon global supply chains, not mentioning specifically china, but this no doubt is all about china, particularly with a shortage in the semiconductor field that has left auto plants around the country idle. on capitol hill, democrats in the senate taking these marching orders from the biden adminstration very seriously. senate majority leader chuck schumer, the top democrat in the senate, saying he is calling for republicans and democrats to issue some type of legislative framework to match than overreliance on china for the

supply chain. in the last congress, there were dozens of bills that addressed this on both sides of the aisle. it will be very frank, this is one of the rare areas where republicans and democrats agree. guy: it is going to be interesting to see what it actually results in. dear logistics around this are pretty complicated. greatly appreciate it. get back to the main event, day two of fed chair jay powell's testimony for lawmakers underway. opening remarks underway now. we will obviously bring you the q&a a little bit later on. alan blinder, former federal reserve vice chair, joining us now to give us his take, now at princeton university, and the observatory group vice chairman. thank you for joining us today. yields are sharply higher today across the curve, certainly when it comes to longer duration. the bond market is looking at what i got from powell yesterday and may saying, you know what? we don't believe you.

do you think that is something that will concern the federal reserve? alan: i am not so sure we don't believe you -- i am not so sure it is we don't believe you. maybe it is we believe you and will let inflation run a little higher. the fed has been sounding that drumbeat for a long time, for quite a while. it was wishful thinking. there was no evidence that inflation was drifting higher. by the way, there still isn't, though inflation area expectations are drifting higher. the fed was unhappy about having inflation around 1.7%, and has said very clearly it once it above two per -- it wants it above 2% for a while. alix: how much of the move we have seen is because of a repricing for reflation/inflation, and how much of it is reese business me -- how much of it is repositioning? that is going to make a

difference in how the fed looks at it. alan: it is always hard to tell the difference, you are quite right. when the economy looks like it is strengthening, and it certainly does now, not to mention the additional fiscal stimulus on the near horizon, which also pushes in the same direction, you expect real rates to go up, real long rates to go up. on top of that, inflationary expectations have gone up a bit, not out of bounds in terms of what the fed would like to see, but inbounds of what the fed would like to see for a while. so you've got the real rate and the inflation component pointing up, and some long rates are going up. guy: what is the fed is wrong? the fed seems pretty country will. the chair seems pretty comfortable. there's an idea that they are ok being slightly behind the curve and letting the economy run a little hot. what happens if it runs too hot?

where is that point, and how quickly do you think the fed could recover that ground were it to be lost? alan: it is an excellent question, and if somebody asks jay powell that, he is not going to answer that question, partly because he doesn't know for sure, and partly because he doesn't want to commit himself to something that is a hypothetical. my guess is that for a while, and for inflation -- for a while, if inflation gets above 25%, the fed will start getting a little nervous, but not do any thing about it. if it looks like it is going to stay there or go higher, then i think the fed will start acting to curb inflation. that means tightening money, and then you will really see more than a taper tantrum in that case. but it remains to be seen it will have that scenario. we need to remind everybody, and maybe powell will if the

question comes up, that inflation has been surprising us on the low side for most of the last 20 years. that's a long time. alix: based on that, john authers of bloomberg opinion wrote a piece called the qe regime. do you expect the qe regime to continue? as he employed -- as he pointed out, inflation has gone nowhere fast. alan: the qe regime is going to continue for a while. everything that powell is saying, steady as you go, on the right track, etc., we are in that regime for a while. we all are the taper tantrum's, and the fed will try to give lots of advanced warning to reduce the taper tantrum. but as bill dudley, i think in a bloomberg piece, actually, pointed out to maybe a month ago, there will be a taper tantrum. you are not going to avoid it. the market is going to get hyper excited about that.

so that will happen, and then eventually after that, the fed will probably start raising interest rates, raising the fed funds rate and the interest on reserves. that is not on the near-term horizon for sure, but it is on the long-term horizon, also for sure. guy: when you look at what is happening with asset prices right now, the fed is probably pretty comfortable that stocks are rolling over a little bit. maybe it is ok for that to be knocked off. were there to be a significant down drop in shocks, say more than 10%, would that be something that would concern the fed? with that prompt action? alan: it might. it certainly could. i would think of a number just like you said in your hypothetical. i think it would have to be more than 10%. a little bit of down and up, stockmarkets go down and up all

the time, and the fed doesn't get too excited. when you start talking about a downward movement of 10%, you're talking about an event that could move the economy. that is the kind of thing that gets the fed's attention. so if that happens -- by the way , if that happens, all of this market talk about the fed being behind the curve and interest rates going up, as will all reverse in about a millisecond and the market will start screaming, where is the fed with more ammunition to help us. alix: i'm telling you, twitter, just buying the did yesterday. so if you walk that tension forward, we have seen the market pricing in rate hikes coming in 2023 now. how much more can the market start pricing that and before they have to force the fed's hand in some ways or start dialing it back?

alan: who knows about markets? [laughter] they get hyper excited. i would expect looking more for the dialing it back. the economy is strengthening. the vaccines are going to improve things. how much, we will see, but certainly improve things. there's another stimulus package coming down the road soon, it looks. that is a political prediction, and political productions are hazardous, to say the least. but it looks like the best guess now i think it's pretty soon, congress will pass a very large, maybe $1.9 trillion relief package along the biden lines. that will add further strength to the economy. so i wouldn't be a bit surprised if pretty soon, maybe when the fiscal package passes, markets start pricing in a fed hike

sooner than they now are. guy: how does monetary policy, how does the fed deal with this monetary policy kind of fiscal problem? the fed is independent, and many people would argue that should continue, but in some ways, and these extreme times when monetary and fiscal policy are operating kind of at full tilt, there needs to be some degree of overlap of thinking. we don't have visibility on what the next kind of fiscal story is going to be. we don't know how big the interest rupture plan is going to be. we don't know how this current plan is going to shake out. how does the fed deal with that opaqueness surrounding the fiscal side? do you think there does need to be more integration between the two? alan: well, let me take it back. in times of crisis, serious

crisis, there needs to be more integration between the two, and we have seen that. we saw that back in the financial crisis, and we saw that in the early part of this pandemic crisis. as the crisis eases, even though things are not perfectly on an even tilt, you want to get that separation back. tell your other question, you're related question, the fed looks at what is going on in the government as we do and gathers whatever intelligence it can, as you do in the news media, and makes its best guess as to what fiscal policy will do, never thinking that if the fed will influence that, that being the fiscal decisions, but taking that is what we call an exalted us event -- that is what we call an exogenous event and it got --

and adapting to it. that is the way they look at fiscal policy. alix: allen, it is a real pleasure to catch up with you. we very much appreciate it. alan blinder, former federal reserve vice chairman, thank you very much. now we want to go to fed chair jay powell, delivering his semiannual monetary policy report to congress. this is the first question from represented a maxine waters. rep. waters: -- a greater shortfall than the worst of the great recession aftermath. chair powell, do you believe our economy is in a healthier position right now than it was in 2014, several years into the recovery from the great recession? chair powell: i am reluctant to

make that comparison without thinking about it further. i will just echo that we have 10 million fewer people working on payroll jobs then we had just one year ago today, and the unemployment rate, the recorded rate is 6.3%, but if you include people in the labor force and indeed working in february, and a couple of other adjustments, you get nearly eight and percent rate, so there's a lot of -- nearly a 10% rate, so there's a lot of slack in the labor market. rep. waters: thank you. in that same speech, you mentioned that, and i quote, "fully recognizing the benefits of a strong labor market will take continued support from both near-term policy and longer run investment." it will take a longer run investment to achieve a full

employment economy that finally closes the racial wealth gap. some of my colleagues have said we should "wait and see" before spending more. chair powell, does the economy need additional fiscal support from congress right now? also, how critical is it for congress to make longer run investments if it wants to eliminate the racial wealth cap? -- racial wealth gap? chair powell: what i was really saying with that was that we have shown that we can come over the course of a long expansion, get to low levels of unemployment, and if the benefits to society, including particularly too low and moderate income people, are very substantial, we have shown we can do that. but it is not really a great strategy to wait until the eighth or ninth year of an expansion to get those benefits. to really improve through the

cycle, but i was saying and that set of remarks was it will take the private sector and investments in the public sector , and frankly in the workforce. education, training, policy. support -- policies that support workforce participation. that is what i was getting at there. rep. waters: and with that, i am going to yield back my time and call on the gentleman from north carolina, mr. mchenry, the ranking number of the committee. you are now recognized for five minutes. rep. mchenry: thank you, madam chair. in fact, i think your workforce speech, your labor market speech was a very important one for all of us to take note of. this recovery is different than the recovery from the financial crisis.

it took much longer for us to get to this rate of unemployment then it did post financial crisis, and as i mentioned in my statement, the chairman of the committee was kind enough to quote from, that the labor market now is better than it was in president obama's first term of office. so these recoveries are different. also, you had a broad-based recovery that took almost a decade to come about with post financial crisis, but right now you have segments of the economy , like you mentioned in your statement, chair powell, about hospitality. that is lacking because of state shutdowns. in your testimony, you mentioned the feds exit strategy is contingent on meeting the fed's goals for economic recovery. how close is the economy to

meeting the fed's goals, and what does that look like? rep. mchenry: what we said --chair powell: what we said is that we would be purchasing assets at least at the current pace until we see substantial further progress toward our goals. that is actual progress, not forecast progress. we would want to see that we have moved -- it is what it sounds like. we would like to see actual incoming data that shows us moving closer to our goals, both for inflation and employment. i agree that there is an element of judgment in that, but we will be communicating as clearly as possible and as far in advance as possible how we perceive the path of progress towards those goals. rep. mchenry: consistent with the mandate. so what does the labor market look like when the fed has achieved this goal? what does the labor market look

like? rep. mchenry: i thing it is easier --chair powell: i think it is easier to say with liftoff. we would see employment conditions consistent with maximum employment, and inflation expect it to lou move utterly above 2% for some time. those are the conditions for lift off are quite specific. we have not tried to be as specific about the pace of asset purchases. we have just said substantial further progress. rep. mchenry: yesterday, you also spoke about the digital dollar being a high priority issue for the fed. you said you are committed to transparency to look into the digital dollar. i think that is important. i think that is very important for our system of government. i think it is an important thing for an open society. but let's get into a few specifics on that, if we can. what can the public expect in

terms of learning the details of this project going forward? are some more details -- are you able to share with us today what we can expect from the fed this year, over the course of this year, with the digital dollar project? chair powell: this is going to be an important year, the year in which we engage with the public pretty actively, including with public events that i am not going to announce today, but there are things we are working on. the sense of this is going to be these are the trade-offs. there are policy questions and technical questions, and they are very -- so we are going to want to have a public dialogue about that, with all of the constituencies. that is the idea of what we are doing. in the meantime, we are working on the technical challenges and

collaborating with and sharing work with the other central bank's around the world who are doing this. we will need, depend on what we do, we could well need legislate authorization for such a thing, but that isn't clear until we see which way we are going. we will be engaging significantly with you and your colleagues on capitol hill as well. rep. mchenry: i think the project is vital for american competitiveness, but also, there is a fear that some want to use the digital dollar as a way to kill private-sector innovation and in our banking system, and plummeting monetary policy, modern monetary theory vis-a-vis fed accounts. what do you say to folks hoping to exploit the digital dollar project in that way? chair powell: one thing we need to be very mindful about is that we have a functioning financial system and a banking system and capital markets which

intermediate between savers and borrowers, and they are the best markets, and i would say the strongest banks in the world. we need to be careful with our design of the digital dollar that we don't create something that will undermine that very healthy market-based function. that is one thing for sure. rep. mchenry: final question here. you mentioned the labor market. as far as the fiscal side of the house, what are the things that we should be doing, the biggest challenges to getting people back to work? chair powell: as you well know, unemployment and low activity is concentrated in the service sector, where people gather closely together. travel and entertainment, leisure, hotels, those sorts of things. the sigel most import policy to getting those sectors reopened and getting people back to work

is bringing the pandemic to a decisive end as soon as possible. we are on the past two that, but we haven't done it yet, so i think it is important that we do that quite decisively. rep. mchenry: thank you, chair powell. rep. waters: representative velasquez is now recognized five minutes. rep. velazquez: thank you. you have spoken about the changes in the fomc monetary policy framework in your opening statement. it is clear that the pandemic has had an outside impact on women, minorities, and younger workers. how will the changes in the monetary policy framework benefit workers in these groups? chair powell: what we learned in the course of the last expansion

was we could have employment at historically low levels without seeing troubles in inflation around us. so we took that on board in creating our new framework, and as i mentioned in my remarks, that means we won't tighten monetary policy just because of a strong labor market. we want to see either inflation moving up in a troubling way, or other risks to achieving our goals. that puts us in a place where we can have low levels of unemployment, and when we get to those low levels, we see that they do benefit low and moderate income communities and women and minorities more than others putin to benefit earlier in the expansion. what we have said about employment being a maximum and inclusive goal, that is what that looks like. rep. velazquez: they -- finalized a rule substantially

revitalizing the community reinvestment act, which the fed and the fdic did not sign. in september 2020, the fed proposed its own update. with the change in administration, do you expect the fed to reengage with the fcic on the cra rulemaking? and do you think there is an opportunity for a harmonized rule among all three agencies? chair powell: i think there is an opportunity for i harmonized rule among those three agencies -- for a harmonized rule among those three agencies, and we continue to be engaged with the fdic and the uscc. rep. velazquez: do you have a timeline? chair powell: i think we are just getting started. there will be a new comptroller. but nonetheless, we are working on it. it will be one that has broad support among the community of intended beneficiaries, which

was always the fed's test and my test for what it would take for the fed to support cra. rep. velazquez: that matters, especially at this time when underserved communities, minority and fema businesses and all of that have been impacted by this pandemic, and cra is the way to lift those communities of color particularly. chairman powell, last week, governor brainard gave a speech on the role of financial institutions in targeting the climate challenge. she stated, and i quote, "climate change is already imposing substantial economic costs, and is set to have a profound effect on the economy at home and abroad. would you agree with her statement, and can you give some examples of how you see that to be true? chair powell: i think climate

change is a very important issue, and if you will allow me, i will start by saying that the nation's policy on climate change really needs to be set by elected representatives, and then by the administration, through the agencies that congers has created. our role is really that of assuring that we are using our powers to carry out our mandate in supervising financial institutions to make sure they are responding to the climate crisis. rep. velazquez: can you explain the steps the fed will be taking over the next 18 to 24 months to ensure that the financial system can deal with the future financial and economic risks posed by climate change? chair powell: we are doing right now a great deal of outreach and research and consultation. and by the way, the larger and medium-sized banks are doing the

same thing. it is really the time to have this work and to try to understand that climate change is a longer run issue to deal with, and you will see that the financial institutions themselves are very focused on understanding how it will over time affect their business. we are looking at the same thing from the standpoint of a regulator and supervisor, so research can work to lay out a framework, which will take some time, but it is time for us to do that. rep. velazquez: thank you. i yield back. rep. waters: thank you. the gentlewoman from missouri, ms. wegner, is recognized for five minutes. rep. wagner: thank you. it is good to see you up in -- see you again. thank you for all you and the fed have done during this unprecedented pandemic. under the said's average in's -- under the fed's average inflation targeting, you are looking for inflation to be, and

i quote, "utterly above 2% for some time -- i quote, " moderately above 2% for some time." what does "moderately above 2% for some time" mean specifically, and why do we think this is achievable if the fomc's three-year to injections -- three-year projections for some time now have been forecasting inflation of 2% or less? chair powell: on the first part, what does moderately mean, we don't have a formula, and we are not going to have a formula. the sense of it is that we want inflation to average 2% over time. the reason we want that is because we want inflation expectations to be anchored right at 2% and not below 2%, which is the case now. that is really how we are looking at it. in terms of can we get there, i am confident that we can and that we will, and we are

committed to using our tools to achieve that. the three year timeframe is actually an arbitrary timeframe chosen by us, and we are just being honest about the challenge. we live in a time where there is significant disinflationary pressures around the world, and more centrally, around all major central banks that have struggled to get to 2%. we believe we can do it. we believe we will do it. it may take more than three years, but we will update and assess, and we will see how that goes. rep. wagner: thank you, chairman powell. i know you were asked a number of times by my colleagues in the senate yesterday whether the fed intends to extend the exclusion of low risk assets such as treasuries and reserve balances from a separate mentoring -- from a supplement or leverage

ratio -- from a supplement three average ratio. i strongly supported the decision to make this inclusion, and recognition of the fact that banks are receiving an unprecedented amount of new deposits, largely as a result of the fed's actions that continue to put pressure on leverage ratios. you indicated yesterday that the fed is still considering whether or not to provide an extension. do you agree that the exclusion proved to be an important tool to preserve liquidity in the treasury market? chair powell: yes, i do agree. i don't really have anything for you on that decision, and i didn't have anything yesterday, as you pointed out. so we are looking at that, and we know when the deadline is. we are working on that and will

come for would with something readily soon. rep. wagner: i hope it is relatively soon because, given that you are still considering other accommodations to continue economic recovery, i am concerned, and i am wondering if you are concerned, about arbitrarily removing the exclusion on march 31 that could put additional pressure on the treasury market. making sure that the slr is extended, i think, is very important as we continue this recovery, and is further stimulus actions are considered and put into law.

march 31 is nearly upon us, mr. chairman. chair powell: yes, it is. rep. wagner: come on. surely you can talk to us a little bit more about how important that was over the past year, in terms of our banking industry, and to keep liquidity in the market, given the large number of deposits that were extended to our banking community. chair powell: i am just going to say that we are having discussions on it internally. i really don't want to go any further than that. i'm sorry. we are making the decision. we are considering it. when we have a decision, we will come forward. rep. wagner: i respect that, and i look forward to that decision. madam chairman, i yield back. rep. waters: thank you. the gentleman from california, mr. sherman, who is also the chair of the subcommittee on entrepreneurship and capital markets, is now recognized for

five minutes. rep. sherman: thank you. mr. chairman, it is good to hear about your fed listens events, but i assure you, your best fed listens event is here today. you will not find people in better touch with the 350 million americans. i have served on the committee and senior predecessor's predecessor's predecessor come in here, and republicans attack them for two expansionary -- for too expansionary monetary policy. it is good for me to live long enough to see that many of the republicans are moving in our direction, toward the need for somewhat more expansionary monetary policy, and i would hope that you would be looking at 2.25% rather than 2% as your target.

i also commend you for the quantitative easing. it has allowed you to remit to the federal government $50 billion to 100 billion dollars in each of the last several years, so those who criticize your big balance sheet and are unwilling to identify which taxes they would raise in order to make up for that lost revenue -- also, your quantitative easing, big balance sheet approach is the only tool you have to influence long-term interest rates, which i think are much more important to our economy, since you have to borrow long-term to build back business. i prefer monetary policy to expansionary fiscal policy because all of your tools reduce the federal deficit, and all of our tools increase the long-term federal debt. i want to focus your attention on libor. it now appears as though the libor index will continue to be

published until june 2023. it is almost disappointing to get a reprieve in that it would reduce the pressure on us to solve the problem, but it does give us more time. there is, of course, the alternative reference rates committee, and we have legislation to facilitate how to deal with what will be $2 trillion that don't have backup lang which. i wonder ash backup language. i want -- backup lang which. i wonder ash backup language -- backup language. chair powell: we think it will be. as you know, many libor contracts are going to run off come but there will be a hard tail, as we say, and we do think federal legislation is the best answer. rep. sherman: there are those who think the private sector can

just invent a synthetic libor, and that would solve the problem. is that as good a solution as federal legislation. chair powell: no. federal legislation creating a path for a backup would be the best solution, we think. rep. sherman:. . thank you now i want to move -- rep. sherman: thank you. now i want to move to something we have talked about before, and that is the system for acquitting wire fraud. when we talked about this earlier this month, usually it is somebody trying to buy a home , the first time ever when they will remit $10,000, $20,000, already thousand dollars for the down payment. they are tricked into wiring the money into the wrong account number, and they lose it forever. you are developing the new fast fed now system, and your

bureaucrats have told us that they don't want to engineer that system to avoid this tragedy that affected $150 million just last year. they don't want to do the really simple thing of saying that we remit money once you edify the account number you are sending it to -- once you i done five the account number and the person you are sending it to you. i wonder whether you will go back to your agency and get personally involved, and push them to avoid this tragedy. i don't think your successor -- well, these people at the next fed listens session tenures from mao -- session 10 years from now. can you commit to getting personally involved in the system that will hopefully protect homebuyers? chair powell: i think, as you know, we have looked carefully at this and concluded that pay

matching is not the best way to do it. there are problems in the u.s. system. i would be happy to go back and revisit that. rep. sherman: if there is another way, let me know what it is, because your staff just tells me they don't want to. rep. waters: digital men from oklahoma, -- the gentleman from oklahoma, mr. lucas, is working nights for five minutes. rep. lucas: thank you, madam chair. you know i tend to focus on things that affect the third district of oklahoma. when you were last before the committee in june, you noted the u.s. banking system has been a source of strength during the pandemic. the fed's monetary policy report on february 19 reaffirmed this point, stating that institutions at the core of the financial services system remain resilient. you continue to believe that banks are a source of strength, and will you elaborate both on what that means for the economy

and for banks' abilities to lend, absorb losses potentially, and provide the quiddity in distress markets -- provide liquidity in distressed markets? chair powell: yes. i believe the banks spent 10 years in a strengthening process. higher capital, better risk management, all of those things. then we received a historical sized shock in the pandemic. essentially close to a year into it, almost exactly a year into it, we see so far that our banks have held up quite well, and the big banks' capital has actually increased over the last year, while they have also taken $100

billion plus worth of reserves. they are not a source of weakness. at the beginning of the pandemic, they were very important because they could absorb that huge flow of deposits, and made all of those loans as companies pulled down their credit. those were paid back early on, but at the very beginning when it mattered, they were a source of strength. we have always got to continue to be vigilant on those things, but a first draft of history is that the banks are strong, and i would say the same for small and medium-sized banks as well, the have generally held up well. there are going to be issues, and as we come out of this, there will be businesses that fail, and there will be losses, but it is a very different situation then we had in the global financial crisis. rep. lucas: absolutely. let's discuss for a moment a topic that is very important not only to me, but my friends in the majority on the financial services committee. the national unbacked rate has

been falling steadily for the next -- un-banked rate has been falling steadily for the last years. 7 million u.s. households are without a checking or savings account. unfortunately, the pandemic is likely to contribute to the rate of un-banked households. chair, what would you suggest or do to reverse the impact in the aftermath of the pandemic to assure that no one is left out of the economic recovery? chair powell: i think it is a serious problem to address. we tend to address it through our community affairs efforts to make sure fair lending policies and things like that. i also think there is more congress can do to assure that people have education around

financial matters. the other piece of it is there are people at the lower end of the income spectrum who are living hand to mouth. we need a strong recovery. we need continued support for monetary policy, and we will be providing that as well. rep. lucas: one last question. it impacts the ability of every main street to function. the united states administered more than 63 million doses of covid vaccine. can you expand on how important to the economic recovery, or how dependency recovery is on ramping up that manufacturing and distribution? chair powell: yes. the weakness we see in our economy now is unusually concentrated in a set of industries that involve people getting really close together. hotels, restaurants, travel, entertainment, all of those places. that is millions of people who

aren't working and businesses that may have been in business for generations going out of business. the way to get after that is through successfully, decisively bringing the pandemic to an end as soon as possible. that is the single best economic and prosperity creating measure that any of us can undertake. that is the vaccination, continuing to observe social distancing and wearing masks. hopefully we are on that road now. if we are, we are going to see a dose of optimism in the second half of the year for the economy. rep. lucas: the gentleman -- rep. waters: the gentleman from texas, mr. green, also the chair of the subcommittee on oversight and investigation, is now working that for five minutes. rep. green: thank you very much, madam chair. i think the witness for appearing.

my question has to do with the business credit initiative. this was touted by a republican administration. it has served us extremely well. the chairwoman, with her insight and foresight, has expanded this program to make sure that it covers women and people of color to a greater extent. we are talking about having this initiative be funded with $10 billion in the covid package, and this can drive up to $100 billion of private sector investment in these small businesses. states would be required to submit a plan on how expeditiously these funds can be delivered to help small businesses respond to and recover from the pandemic. a plan to encourage participation of minority

depository institutions, as well as community develop and financial institutions, would also be part of this. my question to you is simply this. how important is it that small businesses receive these capital investments? they have spent time making it exceedingly difficult to acquire funds of this type, the type that we have in this package. how important is it that these funds during a pandemic it to the small businesses? chair powell: well, small businesses are under a lot of pressure at the current time. more so than many of the larger businesses that had resources to get through this. i would say mdi's and cdfi's are very important channels for reaching them. it is not appropriate for me to take a position on this particular provision, and its inclusion in legislation, but i

would just say that it is important for small businesses. as you know, we work very closely with those organizations and think highly of the contribution they make to our economy. rep. green: and i concur with what you said about working closely with them. i happen to be aware of some of your good work. the community banks, as you know , i am very much concerned about them. some of them on the margins, this type of assistance for some of these smaller banks can be a great help to them. i don't want you to comment on a specific bank or specific banks in general, but i am concerned about the need to maintain these institutions that have a niche. they have a clientele that somehow and sometimes will not be met. there needs won't be met because

they don't have these institutions in the community. have you found that it is good to have these institutions in these communities where the need is not always met? chair powell: yes, we think community banks are a very important part of the fabric of our society, and we see them under longer-term secular pressures declining, and we don't want to do anything to enhance that for regulatory burden. we have a subcommittee, a community banker on the board of governors, and we try to do everything we can to not be part of the problem because people are leaving small towns and moving to cities, and things like that, and that is putting pressure on rural community banks, but overall, they know their communities, and we want them to operate safely and successfully. rep. green: thank you very much. i have very little time left, so what i would like to do is simply acknowledge the

chairwoman for helping us to get this $10 billion into the covid package. miss beatty also helps us to modify it, along with my republican colleagues, so that the very small businesses will get some help. there are small businesses, and then there are very small businesses, and we don't want to leave any of them behind. so i think you very much for the opportunity to ask these questions, and i yelled back. rep. waters: thank you -- and i yield back. rep. waters: thank you very much. i now recognize mr. posey for five minutes. rep. posey: thank you very much, madame chairwoman. i am pleased that we have this opportunity here at chair powell's semiannual report on the state of monetary policy. we all shared quite a year since the february 2020 hearing, when the virus was just breaking over the horizon. we continue to be motivated and preoccupied with the horrendous,

unprecedented crisis. families and small businesses experienced perhaps the worst economic downturn in our history. we can be proud of the bipartisan response in the public laws we passed, such as the c.a.r.e.s. act. we are now in a period of somewhat less consensus about the next thing to do. on one hand, the administration and others are saying that we need to go big on spending, and this week the house is slated to vote on their $1.9 trillion big plan. notably, the big plan spends money with a wide scope, and of course, the money will likely all need to be borrowed. others are saying that in many sectors of the economy -- that

in many sectors, the economy is doing well, but another sectors, workers and businesses are still suffering. many people say that a targeted relief will be a better approach to save us barring to the tune of $1.9 trillion, and i associate myself with the targeted approach. mr. chairman, you have been urging that monetary policy can't fully restore the economy, and you have made that tear today, and that fiscal policy -- that clear today, and that fiscal policy must play a role. in 2020, you said, quote the labor market continues to perform well -- you said, "the labor market continues to perform well. we see job creation. we see low unemployment. very importantly, we see labor force participation continuing to move up."

the fiscal policy includes taxes, as well as spending. things looked really good in january 2020. in fact, far better than, say, four years earlier. given your knowledge of this, does fed research suggest that the reduction of personal taxes and corporate taxes, reduction in regulation worked to reduce unemployment to historic lows generally and among many diverse groups? chair powell: the longest expansion in our recorded history actually began in 2009 and ended last year, as you point out, with the arrival of the pandemic. the labor market improved steadily, and the peak job creation year in that extension was 2015.

we did reach low-level of unemployment, particularly for minorities, and there was a whole lot to like about where the labor market was last year. i will just say that many factors contributed to that long expansion, and i have no way to unscramble the omelette on that. rep. posey: thank you. what does the current effectiveness of fiscal policy, of low income and corporate taxes that started in 2017, teach us about the potential effects of increasing taxes and regulation as we try to recover from the pandemic? chair powell: it is not for me to comment on fiscal policy. we have a specific role and specific tools, and i am going to stick that. -- stick to that. rep. posey: so you don't have any opinion of