On Monday, U.S. Senator Katie Britt spoke with Federal Reserve Chairman Jerome Powell during a Senate Committee on Banking, Housing, and Urban Affairs hearing. The conversation addressed the generationally high inflation as well as other topics.
“Over the past two years, we have seen the highest inflation of my lifetime – driving up costs for American families across the board,” Britt said. “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.”
Britt continued, “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 four percentage points,” Britt said. “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 acknowledged the inflation but said, “We need the inflation that’s already underway in the goods sector to continue.”
“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,” Powell said. “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,” Powell continued. “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 a while 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.”
“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?” Britt asked.
Powell acknowledged that unleashing American energy dominance would drive down prices; but that their focus is on core inflation.
“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,” Powell said.
“I’d like to ask you about labor participation,” Britt said. “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%,” Britt said. “If there were an increase in people coming back into the workforce, would that be a positive factor with regards to driving us down to the 2% rate [of inflation]that you want to achieve?”
Powell acknowledged that growing the labor participation rate “would be great for the country and great for them.”
“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,” Powell said. “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 labor force.”
Alabama’s labor participation rate is substantially lower than the national average at around 57% versus 62% nationally.
“We are working to increase our labor force participation rate by eliminating any and all barriers to enter the workforce,” Gov. Kay Ivey said during her state of the State address on Tuesday night.
“I believe that increasing capital requirements on financial institutions would have a chilling effect on the economy and the availability of financial services,” Britt said. “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 said that increasing the capital requirements would make banks safer, but that will also mean less credit available.
“So, I think it’s always a balance,” Powell said. “We know that higher capital makes banks safer and sounder. We also know that you will, at the margin, provide less credit the more capital 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.”
A recent report insists that the Federal Reserve is acutely aware of the effects that inflation is having on the economic health of average Americans.
Katie Britt serves as a member of the Financial Institutions and Consumer Protection Subcommittee of the Senate Committee on Banking, Housing, and Urban Affairs.
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