Fed Chairman Powell grilled by cranky senators over inflation and climate change

Federal Reserve Chairman Jerome Powell adjusts his tie as he arrives to testify before a Senate Committee on Banking, Housing and Urban Affairs hearing on “The Semi-Annual Monetary Policy Report to Congress” on Capitol Hill in Washington, July 15, 2021.

Kevin Lamarque | Reuters

An economic rebound, rising wages and falling jobless claims were not enough to spare Federal Reserve Chairman Jerome Powell from criticism in the Senate on Thursday.

In testimony before the Senate Banking Committee, Democrats toasted Powell over the central bank’s support for climate change initiatives and his rollback of financial protections, while Republicans questioned candidate Trump about his commitment to controlling inflation.

“The big banks are raising money – and they are spending it on executive compensation, dividends and buyouts, instead of lending to communities or raising capital to reduce risk,” the committee chairman said, Senator Sherrod Brown, D-Ohio. “The Fed should fight this trend, shield our progress from the greed and recklessness of Wall Street – not making it worse.”

Ranker Senator Pat Toomey, R-Pa., Criticized what he sees as the Fed’s inaction on inflation.

“The Fed’s policy is particularly troubling because the warning siren of problematic inflation is getting louder. Inflation is there, and it’s more severe than most – including the Fed itself – expected. “, did he declare. “Since the Fed has been shown to be unable to predict the level of inflation, why should we be sure that the Fed can predict the duration of inflation?”

Beards on both sides of the aisle may seem unfamiliar to Powell, who has otherwise received praise from lawmakers for acting quickly to drain the U.S. economy of cash as the Covid-19 pandemic has forced thousands of people ‘businesses to close.

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Recent criticisms of the Fed and its leader may have less to do with the economy than with political positions. With members of both parties seeking an early advantage in the key 2022 midterm election, Powell could find himself with fewer public allies in Congress.

Ranking member of the House Financial Services Committee, Patrick McHenry, RN.C., proved a notable exception on Wednesday, when he backed Powell’s candidacy for a second term.

“You have won and deserved another term as chairman of the Federal Reserve,” he told Powell. “You have proven to be a firm hand throughout this pandemic or this ongoing recovery. “

Progressive Democrats can hope to pave the way for President Joe Biden to appoint a Democrat to head the central bank.

Brown and other members of his caucus pushed Powell to force lenders to tackle climate change, reduce income inequalities between executives and their employees, and increase the capital requirements of the nation’s largest banks.

Some, like progressive Democratic Massachusetts Senator Elizabeth Warren, argue that the Fed should be led by a president who proactively seeks to strengthen surveillance of Wall Street. Those hoping for a Democratic Fed chairman said Fed Governor Lael Brainard was a great option for Biden.

“What I’m looking for is that the Fed’s track record over the past four years is one move after another to weaken regulation on Wall Street banks,” Warren told Powell Thursday.

“There is no doubt that the banks are stronger today than they were when they brought down the economy in 2008,” she added. “But that’s not the right standard: the question is whether or not they are strong enough to withstand the next crisis and whether the Fed is tough enough to protect the US economy and the US taxpayer.”

A congressman from one of the relevant committees told CNBC that these criticisms need to be taken in context and that the Fed often becomes an easy punch bag for politicians hoping for re-election with promises of economic reform.

Still, the staff member said Powell’s handling of the coronavirus crisis has proven successful and offers President Joe Biden a compelling argument to keep him for a second term. Powell’s term expires

The Fed is “an easy target when things aren’t going perfectly or when the economy isn’t booming. It’s really easy to turn to the Fed and say, ‘What are you doing to fix it? this issue? “” said the staff member.

The staff member added that lawmakers are grateful for the Fed’s leadership throughout the pandemic and that Powell remains highly regarded by members of both parties on Capitol Hill.

Powell has spent much of his time in the House and Senate answering questions about the central bank’s inflation outlook and its plans for its accommodative monetary policies.

He began his biannual testimony on Wednesday by saying that the Fed is still a long way from adjusting its monthly purchases of $ 1 billion in Treasury bonds and mortgage-backed securities, and is not currently considering changing them. interest rate.

He seemed to balance that somewhat on Thursday, when he admitted in the Senate that “inflation is way above target.”

Ultimately, the pace of inflation and employment gains will determine when Powell and his colleagues change the Fed’s monetary stance. Markets tend to turn when the Fed telegraphs its intention to tighten monetary policy, so the timing of any potential cut or rise in interest rates could play a decisive role in November 2022.

“We said we would start cutting back on our asset purchases when we believe the economy has made further substantial measured progress from last December,” Powell said Thursday. “We are actively thinking about it now.”

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