Jerome H. Powell, president of the Federal Reserve, marked the minimum urgent need to reduce interest rates with the economy durable and inflation is still very high in hearing with legislators on Tuesday.
Mr Powell, who has filed before the Senate Bank Committee, faces an economic and political landscape that is very different from what he was when he last appeared before Congress in July. The Fed has stopped cutting plans for interest rates with inflation still above its target and the questions are swirling about how to navigate the economic and institutional consequences of invoices and other policies that President Trump put in the center of his presidency.
“We do not need to hurry to adjust our policy stance,” Mr Powell told legislators.
The six -month hearings, which will continue on Wednesday before the House Financial Services Committee, follow the Fed’s move in a new phase of the year of effort to balance prices. After reducing rates by one full rate last year, the Fed is in a standard of restraint, as it evaluates how quickly its traction will be released in the economy and facilitate borrowing costs.
Mr Powell stressed that conditions across the labor market “remain stable and seem to have stabilized”. This has given the central bank’s latitude to be patient for the next steps, especially because the progress towards the 2 % inflation target was recently abnormal.
“If the economy remains strong and inflation does not continue to move in a 2 %sustainable manner, we can maintain policy restriction for a longer period,” Mr Powell said. “If the labor market will weaken unexpectedly or inflation will fall faster than expected, we can facilitate policy accordingly.”
Incoming inflation data was slightly more reassuring, with prices finally mitigated in key areas such as housing. However, the sweeping proposals submitted by Mr Trump that would affect immigration, invoices and taxes have done the Fed’s job much more difficult.
The Fed, during Mr Trump’s first trade war, did not respond to what he generally perceived as a lump sum jump in prices coming from invoices. Instead, the central bankers focused on business feeling and puncture in world demand, urging him to reduce rates in 2019 to promote the economy.
Fed could follow the same Playbook this time. But many will depend on whether consumers and business expectations of future inflation remain under control. Because the scene is so different from 2018 – when inflation was very low – the fear is that Americans who emerge from the worst prices in decades will be more sensitive to additional increases.
Mr Powell said the Fed’s job was not to comment on duty policy, but to “try to react to it in a thoughtful, reasonable way”. He later added that it would be “unfair to specify” on the financial impact, but said the Fed would focus on the “clean result” of what Mr Trump was planning to seek on deportations, fiscal spending and taxes.
There are already signs that people supported higher inflation. Expectations on what will happen next year have increased sharply, according to a preliminary study published by the University of Michigan on Friday.
Short -term measurements as they tend to bounce a little, so FED officials focus on long -term expectations. A new measure published by New York Federal Reserve Bank on Monday showed that the years of inflation of the year stabilize in January, while five -year horizon has increased slightly.
Mr Powell did not express any concern on Tuesday about Americans’ expectations of future inflation and said that “politics is able to face the dangers and uncertainties we face.”
The rules and regulations governing Wall Street are also at the heart of the legislators, given the numerous changes since Mr Powell has recently deposited. The Central Bank has stopped any “most important rules” after Wall Street leading police officer Michael Barr decided a month ago to resign as vice president for supervision. He said he resigned from this role, but not his government, to avoid a long legal battle with Mr Trump who was afraid he could hurt the Fed.
Mr Barr faced a strong resistance from Wall Street and some of his colleagues to try to impose stricter rules on big banks. He was eventually forced to abolish his original proposal and issue a new with significantly less burdensome demands. Mr Powell said on Tuesday that the level of capital in the largest banks was “for the right” but acknowledged that possession of a global model for regulations, known as “Endgame Basel III”, was “good” for both banks the US and the economy.
Mr Powell addressed a series of questions from Republican senators about “Debanking”, which refers to closing clients for political motives. The Fed chair said it was “troubled by the quantity of these reports” and that it was “fair to take a new look” in practice.
Mr Powell confirmed that the Fed had removed the language in a manual for Regional Reserves Banks on the main accounts, which give financial companies access to Fed’s payment systems. He had said in the past that reserve banks should “examine the behavior of the institution and its leadership” and the prospects of “unjustified risks” before proceeding. A focal point was whether the institution was involved in “controversial comments or activities”.
The Fed chair also came under fire for changes to be carried out in annual stress tests running on the country’s largest banks to measure their ability to withstand major financial and financial market disorders. Banking groups of interests sued the Foundation on the issue in December.
In a letter sent to Mr Powell before the hearings, Senator Elizabeth Warren in Massachusetts joined California’s Maxine Waters representatives, inviting Fed to resist these changes or risks allowing banks to “play stress tests” with A way that could ultimately undermine the stability of the financial system.
“The changes sought by large banks-such as previous repetitions of banking rules-will return to the registration of families, small businesses and the economy, increasing the likelihood of another financial collapse of Wall Street,” the letter was considered by the New York Times.
Ms Warren, the Democratic Banking Committee, and Ms Waters, who serves in a parallel role in the Financial Services Committee, also made the assumption that banks’ legal arguments “have no value” and suggested that they would do so Keep if the Fed will “strongly defend its clear legitimacy in court”.
The confrontation comes amid concern about how the Fed handles instructions from the White House. The Central Bank operates independently of the executive and awards above all its ability to make decisions on interest rates without interference.
“We are worried that, instead of fighting against the banks in the courts and elsewhere, the Fed is now – after President Trump’s election – looking for new ways for early tradition,” Ms Warren and Mrs Waters said in their letter to the letter to the letter to the letter to the letter to the letter to the letter to the letter to the letter to the letter to the letter Mr. Powell.
The issue of politics’ independence was executed during Mr Trump’s first term, as he steadily attacked Mr Powell to resist his demands to reduce interest rates quite quickly. He was more careful so far in his second term, even saying that the Fed’s decision to stop the interest rate cuts in January “was the right thing to do”.
Asked what he would do if Mr Trump tried to remove a member of the Fed Surgery Council, Mr Powell said: “It is not clear enough by law.”
In addition to the independence of politics, the Fed has shown a clear willingness to align with the White House when it considers it to be suitable and legal. More recently, the Fed voluntarily entails Mr Trump’s executive mandate to stop hiring. The Fed has also reduced the programs of diversity, equity and inclusion, as well as public initiatives related to climate change – areas that Trump administration has dismissed.
Still, Mr Trump’s footprint for the Fed so far is deformed next to what other organizations have experienced. The Financial Consumer Protection Office, the Federal Government’s Financial Industry Observer, closed the weekend with the active director of Russell Vought, ordering employees to stop working.
Mr Vought, who is leading the Administration and Budget Office, also derives the funding of the consumer office, which comes from requests to the Fed. The central bank has recently transferred $ 245 million in January to cover part of the 2025 budget of about $ 800 million.
Mr Powell was repeatedly pressured by the Democrats on Tuesday on the possible impact on consumers if the office ceases to business. He acknowledged that the Fed had limited jurisdiction and agreed that there would be a gap on enforcement.
Mr Powell was also asked about the payment system of the Ministry of Finance of the Ministry of Finance, which channels about 90 % of the government’s payments and is a source of concern after recently access to the Elon Musk team. Mr Powell confirmed that the Fed’s only role is to make payments directed by the Ministry of Finance and that the Central Bank’s ability to perform these duties was “safe”.
