ICYMI: Rounds Grills Fed Chair Powell on Inflation, Basel III Endgame in Banking Committee Hearing

WASHINGTON – U.S. Senator Mike Rounds (R-S.D.) questioned Chair of the Federal Reserve Jerome Powell this week in a hearing of the Senate Banking Committee. The hearing was Powell’s semiannual appearance in front of the Committee to address monetary policy in the United States.

Rounds asked Powell about revisions to the Basel III Endgame proposal, as well as how the bad policies of the Biden administration have fueled inflation. According the Joint Economic Committee, the average South Dakota family is paying over $1,000 more per month in living expenses for needs such as shelter, food and energy compared to when President Biden took office.

“Since President Biden took office, gasoline prices have risen over 54%, energy prices have risen 41%, fuel oil prices have risen 37%. Now, I can go on and on, but you understand what I'm saying is that energy has increased substantially,” said Rounds. “I think one of the reasons for this has been additional demand as we've come out of a pandemic. But the other part of this has been whether or not investors really want to go back in and invest in traditional energy resources after the President made this specific determination to cancel the Keystone XL Pipeline on the day that he stepped into office. When he did that, he sent one heck of a message to investors about traditional energy, and investing in traditional energy, in the United States. And the fact that a multibillion dollar contract could be cancelled with a stroke of a pen.”

Watch the full exchange HERE. Read the full transcript below.

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Rounds: Mr. Chairman, first of all, thanks for coming in again and visiting with us. I just want to focus on two specific items. And I'm going to start with the Basel III Endgame discussion. Senator Scott did an excellent job of kind of laying out the concerns that many of us have had with it. I would like to go back into just one particular issue, which I think a lot of folks out there that follow this, and I know it's technical in nature. But let me just ask a specific question and you can kind of pick it apart for me, please. Both you and Vice Chair Barr have confirmed that there will be material changes to every risk type outlined in the proposal. Since there will be significant changes, do you believe where the agencies have landed now would be considered a logical outgrowth of the original proposal from last summer?

Powell: For those people who are not familiar with it, that's the legal test for that turns out to be if it's a logical outgrowth. If it's not a logical outgrowth that would require, legally require reproposal. And I don't want to make the legal judgment. I will just say, again, from my standpoint, my view and strongly held view of some of my colleagues on the board is that it will be appropriate for us to put out the changes again, for a period of comment, just because it's the right thing to do. It's what we would do, typically, in a situation where there’s, you know, material changes to a proposal.

Rounds: Do you feel that you have a consensus in the board to allow that to move forward? In terms of an additional comment period?

Powell: Yes, but of course, we have to get the FDIC and the OCC, you know, we're in discussions with them to work on something that would meet that need. And we have to get their agreement too.

Rounds: Assuming it sounds like that's the path that you would like to go down, if that were the case, would it be fair to say that we probably be looking at final determinations or recommendations for a Basel III Endgame proposal probably in the next year, before it would become anything of a final determination?

Powell: I think that that may be right. You know, something like that could be right. Yeah. I mean, it's, you can't be, it's hard to be precise, you know. We would put it out, it takes some time to write this stuff up, then you put it out for comment, then you get the comments, then you read the comments, then you write the final rule. You know, beginning part of next year is a good guesstimate.

Rounds: The only reason why I push is because there are so many folks directly involved with this and the impact on our economy here. And with a lot of our financial institutions, this is a significant change, and it's one that a lot of people are following. So I'm trying to get you to get into the depth of this as much as possible. And I thank you for that.

I'd also want to go into one other area. And once again, this is something that you and I have had visits about in front of this group before, but I want to talk about what the parts of inflation are and what parts you can control and what parts, as the Fed, you really can't control. The demand side of the equation on inflation is the part that you have the tools to work with. But there is the supply side of the equation, which is still out there. And I want to just lay this out, because as we do this in this setting, it naturally becomes political in nature because the one of the starting points that we talk about is when this administration took office and what happened with supply side issues at that time. And as I work my way through this, I just want to share the concerns that I've got. And I recognize you don't want to be political in it, but I want to lay this out. And then I want to talk about what you can control and what you can't control with regard to making changes on inflation, through the processes that you have.

Since President Biden took office, gasoline prices have risen over 54%, energy prices have risen 41%, fuel oil prices have risen 37%. Now, I can go on and on, but you understand what I'm saying is that energy has increased substantially. And I think one of the reasons for this has been additional demand as we've come out of a pandemic. But the other part of this has been whether or not investors really want to go back in and invest in traditional energy resources after the President made this specific determination to cancel the Keystone XL Pipeline on the day that he stepped into office. When he did that he sent one heck of a message to investors about traditional energy and investing in traditional energy in the United States. And the fact that a multibillion dollar contract could be cancelled with a stroke of a pen.

Now, my question to you is, what percent, or has there been a discussion about what percent or what amount of the inflation that we've seen over 20% increase in terms of affordability for a lot of our products, how much of that is attributable to the demand side, and how much of it really is attributable to supply side challenges that we've seen in this country?

Powell: That's a question that we've thought about a lot. Any attempt to reduce that to a precise number would be inappropriate because it's so uncertain, but I think we can say, I believe strongly there's a significant demand element, and there's a significant supply element. And we've seen the supply side heal so much over the course of the last year or so and we clearly see that that's contributing to lower inflation. We also see cooling demand, for example, in the labor market, so the two forces are working together. I can't really break it down. It would be such an imprecise estimate.

Rounds: Just simply an acknowledgment, though, that it is both demand and it is supply.

Powell: It’s both. It’s definitely both. It is both. Yeah, for sure.

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