Federal Reserve Chair Jerome H. Powell, hearing Tuesday with lawmakers showed there is little urgency to lower interest rates as the economy and inflation are still too high.
Powell, who testified before the Senate Banking Committee, will face a much different economic and political environment than when he last appeared in Congress in July. The Fed still suspends its rate-cutting plan at inflation, and questions are swirling about how President Trump will navigate the economic and institutional impacts of tariffs and other policies on the presidency. Masu.
“We don't have to hurry to adjust our policy stance,” Powell told lawmakers.
The six-annual hearing, which will continue on Wednesday before the House Financial Services Committee, follows the Fed's move to a new phase in years' efforts to curb price pressure. After cutting the rates all the way back last year, the Fed will quickly release grip on the economy and become a valuation pattern to facilitate borrowing costs.
Powell emphasized that the overall labor market situation “lives remain solid and appears to be stable.” This has made the central bank latitude patient with the next step. In particular, it has not been progressing towards a 2% inflation target these days.
“If the economy remains strong and inflation does not continue to move sustainably to 2%, we can maintain policy restraint for longer,” Powell said. “If the labor market is unexpectedly weakened or if inflation drops faster than expected, policies can be eased accordingly.”
The inflation data coming in is a bit more comforting, with price increases ultimately being eased in key sectors like housing. But the sweep proposal proposed by Trump, which affects immigration, tariffs and taxes, made the Fed's job much more difficult.
The Fed did not respond to what is commonly perceived as a one-off jump in prices caused by tariffs during Trump's first trade war. Instead, central bankers have focused on oxidizing business sentiments and pullbacks to global demand, urging them to cut interest rates in 2019 to strengthen the economy.
The Fed can follow the same playbook this time. However, much depends on whether consumer and business expectations of future inflation are being restrained. The background is very different from 2018, so the fear is that if inflation rates are too low, Americans who emerge from the worst shocks on prices in decades are more sensitive to additional increases.
Powell said the Fed's job is not to comment on tariff policy, but to “try to respond to it in a thoughtful and wise manner.” He later added that it is “unwise to speculate” about the economic impact, but the Fed focuses on the “net effect” of Trump's pursuit in terms of deportation, fiscal spending and taxes. He said.
Already there are signs that people are becoming brave due to higher inflation. Expectations about what will happen this year have risen sharply, according to a preliminary survey released by the University of Michigan on Friday.
Because such short-term indicators tend to bounce back a bit, Fed officials are focusing on long-term expectations. New measures announced Monday by the Federal Reserve Bank of New York showed in January that inflation expectations remain stable, but the horizon has risen slightly for more than five years.
Powell on Tuesday expressed concern about American expectations about future inflation, saying, “Policy is well suited to address the risks and uncertainties we face.” .
Since Powell's last testimony, the rules and regulations governing Wall Street have also been focused on lawmakers. The central bank suspended “major rulemaking” after Wall Street top police officer Michael Barr decided to step down as vice-chairman for the superintendent a month ago. He has abandoned his federal governor, though he has abandoned that role to avoid a long legal battle with Trump, which he feared could damage the Fed. He said he is doing so.
Mr. Burr was facing intense resistance from Wall Street and his own colleagues as he was trying to impose stricter rules on major banks. He was ultimately forced to scrap his first proposal and issue a new proposal with significantly less troublesome requirements. Powell on Tuesday said the capital levels of the largest banks are “almost right,” but having a global standard of regulation known as the “Basel III endgame” has resulted in US banks and the economy. He admitted it was “good” for both.
Powell faced many questions about “getting away” from the Republican senator. This refers to the bank closing its customer account for politically motivated reasons. The Fed chair said he was “troubled by the amount of these reports,” and said the practice was “fair to give it a fresh look.”
Powell confirmed that the Fed has removed the language in the Regional Reserve Bank manual on the Master Account. This allows financial companies to access the Fed's payment system. The reserve bank said it should “consider the implementation of the institution and its leadership” and that it should have an outlook of “overreputation risk” before proceeding. One focus was whether the agency was engaged in “controversial commentary or activity.”
The Fed's chairman was also attacked by changes made in annual stress tests made at the nation's largest banks to measure their ability to withstand large economies and financial markets shocks. A group of bank lobbyists sued the agency on the issue in December.
In a letter sent to Powell ahead of a hearing scheduled to shift to the House Financial Services Committee on Wednesday, Massachusetts Sen. Elizabeth Warren joined California representative Maxine Waters to join them. He urged the Fed to resist changes and risky resistance. It allows banks to “game stress tests” in ways that could ultimately undermine the stability of their financial system.
“Like the rollbacks of previous banking rules, the changes that big banks are looking for are coming back to haunt families, small businesses, the economy and increasing the likelihood of another Wall Street-led economic collapse.” The letter stated. New York Times.
Warren, a ranking Democrat on the Banking Committee, and Waters, who plays a parallel role on the Financial Services Committee, has argued that the bank's legal debate is “no merit” and that they would do so. I proposed it. It cannot stand it if the Fed “actively defends clear legality in court.”
The conflict comes amidst anxiety about how the Fed is handling orders from the White House. Central banks operate independently of government agencies and praise the ability to determine interest rates without interference above all else.
“Instead of fighting banks in courts and elsewhere, we are now worried that President Trump's election is calling for a new path to immature surrender,” Warren and Waters He said in the letter. Mr. Powell.
The issue of policy independence grew during Trump's first term. He consistently attacked Mr. Powell for resisting the demand to lower interest rates quickly enough. He has been more cautious in his second term so far.
Asked about what he would do if Trump tried to remove members of the federal government's policy making committee, Powell said “it's clearly not permitted under the law.”
On issues other than policy independence, the Fed has shown a clear will to coincide with the White House when it determines it is appropriate and legal. Recently, the Fed has voluntarily adhered to Trump's executive orders to stop employment. The Fed also reduced its diversity, equity, comprehensive programs and public initiatives related to climate change, namely regions opposed by the Trump administration.
Still, Trump's imprint on the Fed so far pales in the next few other agencies have experienced. The Consumer Financial Protection Agency, a federal government watchdog, was effectively shut down over the weekend, with representative director Russell Vert ordered employees to quit their jobs.
Vought, who heads the Office of Management and Budget, also cut the Bureau of Consumer Affairs, which stems from demands for the Fed. The central bank last handed over $245 million in January, covering a portion of its 2025 budget of around $800 million.
Powell was repeatedly pressed by Democrats on Tuesday about the potential impact on consumers if the CFPB ceased operations. He acknowledged that the Fed has limited jurisdiction and agreed that there is a gap in enforcement.
Powell was also asked about the Treasury payment system, which charges around 90% of government payments, a source of concern after Elon Musk's team was recently made accessible. Powell confirmed that the Fed's sole role is to carry out payments directed by the Treasury, and that the central bank's ability to carry out those duties is “safe.”
