WASHINGTON, D.C. – U.S. Representative Ritchie Torres (NY-15), as a member of the House Financial Services Committee, today participated in a hearing where the Hon. Jerome H. Powell, Chairman of the Board of Governors of the Federal Reserve System, presented the central banking system’s semi-annual monetary policy report to Congress, as required by law. Additional relevant background can be found here.

VIDEO of Rep. Torres’s five minutes of questioning can be found here.

VIDEO of the full hearing can be found here.

A RUSH TRANSCRIPT of Rep. Torres’s remarks and questioning is below, as delivered:

REP. TORRES: Thank you, Mr. Powell. As you know, the U.S. has foreign adversaries such as the CCP that seem intent on de-dollarization. How seriously should the threat of de-dollarization be taken in your view?

THE HON. JEROME H. POWELL, Chairman of the Board of Governors of the Federal Reserve System: The status of the United States, of the dollar, as the world’s reserve currency is a very important thing to us. I think the reason we have that status is largely due to our great democratic institutions, the rule of law, and the fact that we have, generally speaking, strong levels of price stability. And I think the dollar will remain the reserve currency as long as those things are in place.

REP. TORRES: I want to explore that answer because commentators often speak of the dollar as the world’s reserve currency as the cause of America’s economic dominance. Do you think of it as the cause of America’s economic dominance or a consequence of it?

MR. POWELL: To me, it’s more a consequence and also there tends to be an equilibrium where one currency becomes the accepted global standard, and that has been the dollar for some time. And I expect it will be for some time continue to be.

REP. TORRES: It’s often said that the Fed has a dual mandate of maximum employment and price stability. Do you view these mandates as equally binding upon the Fed or does one supersede the other?

MR. POWELL: They’re perfectly equal under the law.

REP. TORRES: And I’m curious what it means in practice to have a 2% inflation target. The latest pause notwithstanding, does it mean the Federal Reserve will continue raising interest rates until the 2% target is reached, even if doing so comes at the expense of maximum employment as well as financial stability?

MR. POWELL: No, it doesn’t mean that. It does not. So, the way we think about it is most of the time the two goals are aligned in the sense that if you’re achieving one, you’re achieving the other. And if you’re alittle bit off, the other one, they move in the same direction. Today’s situation is unusual in that we’re over achieving in effect the maximum employment goal, but we are far from achieving the inflation goal. So, in our system, we have a constitutional document, and what it says is that when that’s the case, you look at how far you are from the goal and you look at the speed with which you would move back to that goal. So, that would tell you today that we should focus heavily on inflation, but as it becomes closer, as you know, as the two things become more aligned, then then they go back into perfect equality under the law.

REP. TORRES: So, the Fed engages in a delicate balancing act between employment and inflation. So, what extent do you factor in financial stability, safety, and soundness when raising interest rates?

MR. POWELL: So, you’re right, we do have a financial stability mandate, but we try to, try to…

REP. TORRES: Well, you have a financial stability mandate with respect to your role as a bank regulator when it comes…

MR. POWELL: Also, just generally we’re the lender of last resort. Central banks were originally created to support the financial system in times of stress and to make sure we don’t get into times of stress. So, I would say um, sorry what was your question before that?

REP. TORRES: To what extent do you factor in safety and soundness in setting interest rates?

MR. POWELL: So, we really try hard to use our financial stability tools for financial stability purposes, and our monetary policy tools for monetary purposes. The reality on the ground is much messier than that. They’re very much entangled and one affects the other, so the separation is not at all perfect. But we do think of these as separate, separate things with separate tools.

REP. TORRES: Do think that the Silicon Valley Bank failure revealed a deeper tension between the safety and soundness mandate of the Fed as a bank regulator, and the mandate of the Fed as an administrator of monetary policy?

MR. POWELL: I would say no, and I’ll tell you why. Interest rate risk is one of the most basic banking risks we supervise for it. Overwhelmingly, U.S. banks did manage their interest rate risk. Silicon Valley Bank didn’t. Even though we, supervisors were pointing that out to them. They just didn’t take it the bank didn’t take action quickly enough. So, I would have thought that, you can say that it was interest rate hikes that cause portfolio losses, but it was managing that failed to hedge against those losses and failed to hold appropriate liquidity.

REP. TORRES: In the pre-COVID world, we had the best of both worlds: low unemployment, low inflation for decades. Do you believe that we could return to that best of both worlds, or are high interest rates a new normal in the American economy?

MR. POWELL: So, we will return to 2% inflation and maximum employment. What will be the level of interest rates there? That’s a really good question, and ah…

REP. TORRES: Do you suspect it’s going to settle at a higher level that we’ve known historically?

MR. POWELL: I think it’s really hard to know. It’s a great question and we talk about this a lot. The people who argue that they will move back down and just point to the fact that it was really global factors that drove rates down in the first place. Maybe the truth is somewhere in the middle.

CHAIRMAN BARR: The gentleman’s time has expired.

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