Powell Says Fed Has to ‘Stay the Heck Out of Politics’

Thanks for joining us. Here are five key takeaways from Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee on Thursday:

• Powell reiterated that it’s likely the Fed will cut interest rates this year. “We’re waiting to become more confident that inflation is moving sustainably at 2%,” he said. “When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction.” He also said the Fed is well aware of the risk of cutting too late.
• The Fed chief faced another wave of questions about proposals to boost bank capital requirements, and said the central bank “won’t hesitate” to abandon particular draft rules or even the entire proposal put forward last year as officials work toward a consensus on the matter. He anticipates a final set of rules will be released this year.
• Powell also said that the Fed is looking at innovative approaches with regard to liquidity rules – after the sudden exodus of some banks’ deposit bases during the March 2023 banking crisis. As for commercial real estate issues, the Fed is talking with banks to make sure they are on top of potential losses. He echoed Treasury Secretary Janet Yellen’s take that there will be some failures, but the situation will be “manageable.”
• The chair said that any digital version of the dollar is a long way off, and assured lawmakers that there’s no way the Fed would abide by a structure that would give the central bank visibility into what individuals are doing with their money. That’s the system in China, Powell said.
• Financial markets showed little reaction to the hearing, which largely saw a set of exchanges similar to the Wednesday House testimony. The hearing was peppered with lively exchanges including Democrat Elizabeth Warren charging Powell with being “weak-kneed” on regulation, and Republican John Kennedy using the f-word in reading out allegations of sexual harassment at the FDIC.