January 13, 2022

At Hearing, Warren Questions Federal Reserve Nominee about Market Concentration and Price Gouging Driving Inflation

Warren Applauds Biden Administration’s Fight Against Inflation, Calls on DOJ and FTC to Use Every Tool to Fight Concentrated Corporate Power and Promote Competition

Warren: "While consumers are facing higher inflation, profit margins for corporations have surged to their highest levels in 70 years."

Video of Hearing Exchange

Washington, D.C. – During a hearing of the Senate Banking, Housing, and Urban Affairs Committee, United States Senator Elizabeth Warren (D-Mass.) called out corporations with concentrated market power that are jacking up prices for consumers and contributing to rising inflation, all while reaping 70-year record profit margins. Senator Warren questioned Lael Brainard, nominee to be Vice Chair of the Federal Reserve, about how market concentration and price gouging can lead to rising prices and the importance of the Biden administration’s actions to enforce antitrust laws and boost competition to fight inflation.

Senator Warren noted that dealing with inflation requires the Federal Reserve to use its tools when the economy is overheated, but when chain bottlenecks and industry consolidation are driving long-term inflation, the Fed’s tools are insufficient. Senator Warren applauded the Biden administration’s efforts to fight corporate power and price gouging by enforcing antitrust laws and boosting competition, and called on the FTC and Department of Justice to break up monopolies and crack down on price-fixing schemes that are jacking up prices for families. 

Transcript: Nomination Hearing - Lael Brainard to be Vice Chairman of the Board of Governors of the Federal Reserve System; and Sandra Thompson to be Director of the Federal Housing Finance Agency
U.S. Senate Banking, Housing, and Urban Affairs Committee
Tuesday, January 11, 2022

Senator Warren: Thank you, Mr. Chairman, and congratulations Governor Brainard and congratulations Ms. Thompson on your nominations.

So, I’d like to talk a little bit about inflation, and about the Fed’s tools to deal with it.

Governor Brainard, let’s start at the beginning. If the economy is overheated, what is the Fed’s primary tool to cool it off?

Governor Brainard: The Federal Funds Rate.

Senator Warren: Yeah, so, increasing interest rates in other words.

But what if inflation is caused by kinks in the supply chain – prices jump because the supply chain is just not functioning. Does the Fed have a tool to deal with that?

Governor Brainard: No, we have a tool that operates on the demand side which is the Federal Funds Rate.

Senator Warren: Ok, in other words, interest rate adjustment is your tool and it doesn’t work on things like supply chain kinks.

When Chair Powell was here on Tuesday, we discussed how market concentration can lead to increasing prices. While consumers are facing higher inflation, profit margins for corporations have surged to their highest levels in 70 years. 

Now, inflation hasn’t gone up because one day corporations woke up and said, “hey, today we’re gonna be greedy.” No, inflation has gone up at this moment because of the way that prices are passed on in a more concentrated market. 

In a highly competitive market, when costs go up, businesses pass those costs along to their customers, but they can’t expand their profit margins because other competitors are just gonna beat them down on prices. But in a very concentrated industry, one with only a few competitors, a dominant corporation can use the excuse of inflation for passing along rising costs and then add in an extra bonus for themselves to increase their profit margins. As Chair Powell put it on Tuesday, those firms are quote “raising prices because they can.” 

So, Governor Brainard, would you agree that increased market concentration has allowed some corporations to profit off pandemic disruptions by raising prices on consumers beyond the increased costs that the corporations have to deal with?

Governor Brainard: Well, certainly a lot of economic research would suggest that in concentrated industries, individual producers have more pricing power, so that kind of dynamic is certainly possible. 

Senator Warren: Okay, so I know the Fed has a role in approving bank mergers, but with respect to broader concentration throughout the rest of the economy, does the Fed have the tools to deal with increased concentration there? 

Governor Brainard: No.

Senator Warren: No. And that’s really the point here. Dealing with inflation requires the Fed to act if the problem is an overheated economy, but dealing with rising consumer prices also involves the FTC, the Department of Justice, in breaking up monopolies and investigating crooked price-fixing schemes that also increase costs for hardworking families.

And that’s why it is so important that the Biden administration is taking action to fight corporate power by enforcing antitrust laws and boosting competition. 

Now, Governor Brainard, do you think that the steps the administration is taking to address market competition and price-fixing have a role to play in helping families that are facing rising prices?

Governor Brainard: Well, I certainly think that, you know, we’re hearing from working families around the country about inflation, and some of it is in areas where we’re seeing those kinds of supply dynamics. But again, you know, we do have a powerful tool and we are going to use it to bring inflation down over time.

Senator Warren: Good. And look, I understand that, but price stability is a core part of the Fed’s mandate, and I know you care about that. And I just wanna make sure that we keep an eye on all of the things that affect prices for consumers. 

Today’s price increases have many causes. And I hope the Fed treads carefully in using its tools to help lower prices for American families. I am glad to see that the administration is using all the tools that it has to bring down prices over a longer arc. That is our collective job, and I appreciate your help in this, and your thoughtful comments here.

Thank you, and again, congratulations to both of you. I’m sorry, Ms. Thompson, that I didn’t get to questions with you. But I’m looking forward to supporting both of you. Thank you. Thank you, Mr. Chairman.