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Source: Congress.gov
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The Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity will come to order. Without objection, the Chair is authorized to declare a recess of the Committee at any time. This hearing is entitled, Striking the Right Balance Sheet. Without objection, all members will have five legislative days within which to submit extraneous materials to the Chair for inclusion in the record.
Welcome to the first Task Force hearing of 2026. Our focus today is on the Fed's balance sheet, a record of its assets and liabilities that demonstrate its operations. The Fed's balance sheet has undergone dramatic changes in the last 15 years, growing from less than $1 trillion in 2008, or 6% of GDP, to almost $9 trillion in 2022, or 35% of GDP. In 2008, the Fed moved from a quarter system to a floor system, necessarily demanding an increase in the quality of reserves on the balance sheet. Despite that change, the Fed has continued to express the view that reserves should be at the smallest levels, consistent with the effective implementation of monetary policy. We haven't always seen the Fed stick to that view, instead using its balance sheet to provide economic stimulus, not merely as a means to control rates. In 2008, the Fed engaged in four rounds of large-scale asset purchases, or QEs, with its balance sheet standing at $6.5 trillion today. Yet the academic literature shows mixed results on the effectiveness of QE at economic support. While the jury is out on the benefits of QE, we do know that it raises risks of inflation and market distortion. The Fed should rely on conventional monetary policy tools under its ample reserves regime and avoid market operations that may have unintended and lasting consequences. Additionally, the Fed should clearly articulate under what conditions it uses its balance sheet for economic stimulus, economic contraction, and policy implementation in the future. This is particularly important now as the Fed engages in reserve management purchases. Finally, it may be tempting to allow the news of the day to distract us from the purpose of today's hearing.
I will continue to emphasize that the importance, the independence of the Fed is critical to ensuring it makes sound interest rate decisions that are essential to favorable economic outcomes. We'll do well to remember that decisions made now have lasting implications, not just for the next Fed Chair, but for the next ten Fed Chairs. That said, let's focus our discussion today on the proper use of the balance sheet and its impact on monetary policy implementation and treasury market functioning. I yield back. I now recognize the ranking member of the task force, Mr. Vargas, for four minutes for an opening statement.
Thank you very much, Mr. Chairman, and I want to thank the witnesses for being here today. Mr. Chairman, you have assembled a very distinguished group of witnesses today, and I was looking forward to discussing quantitative easing and quantitative tightening the transition between scarce and ample reserves regimes and other aspects of the Fed's balance sheet. But the development of the past few days have been incredibly alarming. I don't see them as a simple distraction. The Department of Justice has threatened Chairman Powell with a criminal indictment. The threats represent a full frontal assault by President Trump on the independence of the Fed. Just 11 days ago, after the President said, quote, we're going to probably bring a lawsuit against him, end quote, the Department of Justice served the Federal Reserve with grand jury subpoenas. This is not an isolated incident. In August, the President said he was considering allowing quote, considering allowing a major lawsuit against Powell to proceed, end of quote. In November, he said to Chairman Powell, he should be fired and he should be sued, end of quote. These repeated threats are designed to pressure the Federal Reserve into submission. Protecting the Fed's independence and credibility is critical to a stable economy. Credibility keeps mortgage rates low for homebuyers. Credibility keeps borrowing costs predictable for small businesses. Credibility prevents credit card payments from spiking for working families. When monetary policy is guided by data and evidence, families can plan, save, and build financial security. When presidents attempt to interfere with the Fed, markets lose confidence and Americans pay the cost. Congress imposed staggered 14-year terms to insulate monetary policy from political pressure. Yet, President Trump has shown he is willing to ignore that safeguard to reshape the Fed in his own image. Chairman Powell's professionalism, seriousness, and character have earned him respect across ideological and party lines.
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