Jerome Powell, the Chair of the Federal Reserve, just wrapped up his second day of testimony on Capitol Hill. If you thought the first day was intense, the second day did not disappoint, with Powell again fielding a barrage of questions from senators on a range of issues.
The topics thrown at him were varied, from the dismantling of the Consumer Financial Protection Bureau (CFPB) to President Trump’s tariff policies. Ever the diplomat, Powell kept his responses succinct and poised, making for an arguably tedious viewing experience.
Powell presented a balanced view on free trade, stating, “I think the standard case for free trade and all that logically still makes sense. It didn’t work that well when we have one very large country that doesn’t really play by the rules,” a statement that seemed to hint at China. However, he was quick to add that it’s not the Fed’s role to comment on tariff policy.
Sen. Elizabeth Warren, one of the CFPB’s main architects following the 2008 financial crisis, likened the absence of the agency to having “no cop on the beat.” Powell acknowledged that currently, no other regulator is specifically tasked with monitoring banks and ensuring consumer protections, but assured that bank accounts remain “safe.”
Over in the House, the topic of crypto banking emerged amidst the CFPB discussion. Rep. Stephen Lynch questioned if there were any safeguards or firewalls that could protect the traditional banking system should a major crypto issuer collapse.
In response, Powell agreed that it’s “appropriate” to ensure banks are aware of the risks associated with crypto activity. However, he also cautioned against going “too far.” The Chair noted that crypto activities are already happening within Fed-regulated banks, but under a framework that ensures mutual understanding of the operations.
As for monetary policy specifics, the topic ironically received the least attention during the two-day testimony. Powell reiterated that the committee intends to take its time lowering interest rates, stating, “We’re in a pretty good place with this economy. We want to make more progress on inflation.”
His statement came on the heels of the latest CPI report, which showed inflation hitting 3%. Powell acknowledged that although inflation is close to the target, it’s not quite there yet. This led him to suggest maintaining a restrictive policy for the time being.
An interesting aside from Powell came when he briefly mentioned quantitative easing, stating that it’s a tool used only when rates are already at zero. Remember the implications of QE combined with near-zero rates – weaker currency, long-term inflation risks, and more. Let’s hope we don’t get to that point.
In conclusion, Powell’s two-day testimony was a masterclass in diplomacy and restraint, offering insights into the current state of the economy and the direction of future policies.
