00:00Thank you, Mr. Chair. Good morning, Chair Powell, and welcome to the committee.
00:08So, Chair Powell, a few months ago, you issued a warning about the trajectory of our national debt.
00:14Speaking at a New York Times event, you said the U.S. federal budget is on an unsustainable path.
00:21The debt is not only at an unsustainable level, but the path is unsustainable, and we know that we have to change that.
00:27Would you still agree that that is true?
00:30Yes, that's the one thing that I would always say and that my predecessors have said, and that's kind of the only thing we say about fiscal policy.
00:36Exactly, exactly, and I would agree with that.
00:39At a time when Americans are struggling to figure out how to afford their lives and have low confidence in the economy,
00:44to add to the deficit now, as the Big Beautiful Bill does, just strikes me as unsustainable.
00:50Now, I'm not asking you to moderate between Republican and Democratic policy differences on the Big Beautiful Bill,
00:56but would you agree that the Big Beautiful Bill adds to the deficit based on the data that you've seen?
01:02I'm just not going to comment on the reconciliation.
01:06Okay.
01:06Well, I would just point out to my colleagues that the CBO says that it adds to the deficit.
01:12The Joint Committee on Taxation says that it adds to the deficit.
01:15The Yale Budget Lab says that it adds to the deficit.
01:18The Committee for a Responsible Federal Budget says that it adds to the deficit.
01:23The Penn-Warton Budget Model says that it adds to the deficit.
01:26And even some of my Republican colleagues, Senator Johnson, Senator Paul, say that it adds to the budget.
01:32And as Senator Johnson says, it's wrong and immoral.
01:36So I appreciate that you won't comment on any of this, but let me just ask you an economic question.
01:42Can you talk a bit about what impact a rising deficit has on our goal of lowering costs for Americans,
01:49especially in the Trump tariff environment that we are in right now?
01:54I'm sorry.
01:56What impact does a rising deficit have on our goal of lowering costs for Americans,
02:02particularly when we are in this Trump tariff environment, the unpredictability of that?
02:06So I think it's likely that when markets are pricing longer-term Treasury securities,
02:13there's something baked into that in the markets thinking about interest rates,
02:18you know, what should be the appropriate interest rate.
02:20But it's, you know, it's hard to unpack that with any precision.
02:22These are factors that have lots of interplay amongst between one another.
02:26Yes.
02:27Yes.
02:28And Chair Powell, could you just comment briefly about the sort of the potential risks of stagflation,
02:35where we have slower growth and higher inflation?
02:38I know this is something that the Fed guards against.
02:40And could you just comment a bit on the risks of that
02:43and what it means for regular Americans trying to afford their lives?
02:46So that's, we're not seeing that now.
02:48Yeah.
02:48And I don't, it isn't really the base case that that's what we're going to see.
02:52But of course, that's a very difficult thing because, you know,
02:54a stagnant economy wants more, wants more stimulus,
02:58but an economy with more inflation wants less stimulus.
03:02So it puts the central bank in a, in a hard, hard place.
03:06We've warned of it, but it's, it's honestly not something that we're facing
03:09or that we, that we expect to face.
03:11But it's, you know, it's something we're monitoring is what, what's happening.
03:16I want to follow up on a question I asked you the last time you were before the committee.
03:21I asked about the impact of severe weather events,
03:24otherwise known as climate change, on home insurance costs.
03:27And you testified that, I think you said, if you fast forward over 10 or 15 years,
03:31there are going to be regions of the country where you can't get a mortgage because of the,
03:37you know, you can't get a mortgage because of the,
03:38because of the impact of the challenges of insurance companies just not being able to provide that.
03:47Since February, when I asked you that question, home insurance rates have continued to climb.
03:52A recent analysis about climate risk from First Street found that financial burdens from severe weather
03:59are driving up household costs and triggering increased mortgage defaults.
04:04Now it's at about 8% now, but they project that by 20, 20, 2035, pardon me,
04:1030% of all foreclosure losses would be related to climate impacts, which is like pretty stunning.
04:18Now I realize this is a complicated issue because insurance is regulated primarily at the state level,
04:24though there are exceptions, flood insurance and terrorism insurance are exceptions.
04:29But I wonder if you would comment on this.
04:33I'm thinking a lot about what impact this has on housing costs, which is a big component of inflation
04:40and a place where housing costs are rising higher than the general inflation rate right now.
04:46Many, many things are driving up housing costs.
04:49Yes, that's true.
04:50It is, it's, it's, of course, mortgage rates, but more, it's also, you know, zoning costs and things like this
04:55for properties that are near the water, particularly, for example, we spend some time down in Florida,
05:00and property insurance just gets more and more and more expensive and to the point where it almost makes sense to self-insure.
05:08And that's because of just big, big losses.
05:11Companies are just putting that in their models and, and they're charging what they need to, you know,
05:16to charge to make a return.
05:18And if they can't get that, then they'll get out of, they'll leave that state.
05:21So that seems to be what's, what's happening.
