January 11, 2022

At Hearing, Warren Presses Chair Powell on the Role of Corporate Concentration in Driving Inflation

Powell: [Big corporations] “raising prices because they can”

Warren also urges the Fed to step up to climate change: “the world is running out of time to deal with the climate crisis… I hope the Fed will step up."

Hearing Exchange (Youtube)

Washington, D.C. - Today, United States Senator Elizabeth Warren (D-Mass) pressed Fed Chair Jerome Powell on the role of corporate concentration in driving up prices for consumers during his renomination hearing to be Chair of the Board of Governors of the Federal Reserve System (Fed). 

Nearly two out of three of the biggest publicly traded companies in the U.S. report fatter profit margins than before the pandemic. Market concentration has allowed giant corporations to pass along higher costs to consumers and, at the same time, charge more above their costs to expand their profit margins. As a result, consumer prices have increased across the economy and giant corporations have raked in record profits.  

In response to Senator Warren’s questions on market concentration, Chair Powell said that “if you don’t have competition and you’re a monopolist, yes, you can raise your prices,” and that corporations are “raising prices because they can.”

Senator Warren also urged Chair Powell to take action at the Fed to ensure the financial system is prepared to face the threat of climate change. In response, Chair Powell explained that the Fed plays an “important” role in addressing climate risks and safeguarding financial stability. 

Senator Warren also asked Chair Powell about a letter she recently sent calling for transparency into officials' trading and Fed ethics policies and requested that Chair Powell respond to her letter by Monday, January 17, 2022.

Senator Warren has been calling out corporations for their roles in jacking up prices for American consumers and driving inflation. 

Transcript: Nomination Hearing - Jerome H. Powell to be Chairman of the Board of Governors of the Federal Reserve System
U.S. Senate Banking, Housing, and Urban Affairs Committee
Tuesday, January 11, 2022

Senator Warren: Since President Biden took office, we’ve added more than 6.4 million jobs—the most jobs that have ever been added to the economy in US history.

But over the past few months, families have faced higher prices at the grocery store, at the gas pump. Addressing inflation is one of the Federal Reserve’s most important jobs. And if we’re going to solve this problem, then we need to understand why it’s happening.

So, if we can, let’s start with Econ 101. 

Chair Powell, in markets with lots of competitors, are companies’ profit margins generally likely to stay low—that is, in competitive markets, are profit margins likely to stay steady, modestly above the cost of labor, or materials and capital? 

Chair Powell: Microeconomics would tell you that all of the things equal. You'll compete down to your marginal cost.  

Senator Warren: Good. And in markets with greater concentration and not much competition, are corporations generally able to raise prices and increase profit margins, all else being equal? 

Chair Powell: So the connection-- Actually, the connection between concentration and market power is not as clean as we might think it might be. In some of the industries that have-- have concentrated, they've actually-- there actually has been, you know, sort of lower cost increases. It's resulted in lower costs to consumers. And I'm thinking of retail and things like that. So, it's not as direct. 

Senator Warren: Well, but, let me ask it the other way, then. Because we're still kind of doing Econ 101 here. If you’re a corporation that has eaten up most of the competition and cornered the market, is it easier for you to raise prices on your customers and maximize your profits because you don’t have to worry about losing your business? In other words, that's-- you've lost the discipline that the market imposes.

Chair Powell: In principle, if you don't have competition and you're a monopolist, yes, you can raise your prices. 

Senator Warren: Okay. And over the past year, we know that prices have risen because of supply chain problems, unexpected shifts in the demand for goods, and even higher labor costs. 

But if corporations were simply passing along these costs in highly competitive markets, would the companies’ profits margins have changed much? 

Chair Powell: So many things affect-- affect those-- that calculation. But-- in principle, you could be right, but.

Senator Warren: Well, it's very much not what we’re seeing right now. Today, nearly two out of three of the biggest publicly traded corporations in the country are reporting fatter profit margins than they reported before the pandemic which doesn't sound like they're just passing along costs. So let me ask you: does that increase in profit margins, combined with greater market concentration in industry after industry, suggest to you that some corporations may be passing along increased costs and, at the same time, charging more on top of that to fatten their profit margins?

Chair Powell: That, that could be right. It could also just be, though, that demand is incredibly strong and that, you know, they're, they’re raising prices because they can. 

Senator Warren: Well, that’s the point. They’re raising prices because they can, and they're not being competed down. You know, market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins. So the consumer pays more both because the corporation faces higher costs and because, as you put it, because the corporation can increase prices.

The reason I raise this is that higher prices have many causes, and we can’t overlook the role that concentrated corporate power has played in creating the conditions for price gouging.  

Now, before my time expires, I want to ask you about one other important topic and that is about climate change.

Mr. Chair, when you came before the Banking and Housing Committee last July, you said that the transition to a lower carbon economy could quote “lead to a sudden repricing of assets or entire industries…and that we need to be in a position to deal with all of that.” Why is it important for the Fed to assess risks related to climate change in order to fulfill its mandate?

Chair Powell: So our role on climate change is a limited one but it's an important one. And it is to assure that the banking institutions that we regulate understand their risks and can manage them. And it's also to look after financial stability. And with financial stability, the issue really is: can something from climate change arise to the level that would threaten the stability of the entire financial system. So that sounds like more in the nature of what you were reading. Something in the nature of transition risks where some unexpected corp-- you know, government policy change happens which could potentially create disruption. 

Senator Warren: Well, the world is running out of time to deal with the climate crisis, and the Fed has an important role to play here, and I hope the Fed will step up.

Last thing, Chair Powell. I sent you another letter asking for more information about the Fed’s ethics scandal. And I asked for a response by next Monday – can I receive your assurance that I'll get that response by next Monday? 

Chair Powell: I’ll have to look into the status of that. You'll get either a response, or we’ll update you on where we are. 

Senator Warren: Okay. I'd like to have a response. Okay. Very important. Thank you.