Jerome Powell’s second testimony day on Capitol Hill was today.
We are not envious of him. Powell was grilled by Senators on all sorts of topics yesterday, from Trump’s tariffs to the demise of the CFPB. Today it was the same.
Powell’s answers were generally short, diplomatic and a bit frustrating.
“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,” Powell spoke. He’s probably talking about China.
“And in any case, it’s not the Fed’s job to make or comment on tariff policy.”
Elizabeth Warren said that not having this agency would be like having a financial crisis. “no cop on the beat.”
Powell acknowledged that no one else is currently responsible for monitoring the banks and protecting consumers. Powell said that accounts in banks are not a part of the financial system. “safe.”
Crypto banking was given a shout-out during the CFPB discussion in the House.
“Are there any backstops that we can use, any firewalls that we can put in place that might insulate the traditional banking system… if we have a collapse of a major crypto issuer?” Rep. Stephen Lynch questioned on Tuesday.
Powell acknowledged that it is a fact “appropriate” Banks should be aware of the crypto risks if they are taking on clients. “you don’t want to go too far.”
“In Fed regulated banks, there are lots of crypto activities happening now,” Powell added. “They’ve just happened under a framework where we made sure that the bank understood, and we understood, exactly what they’re doing.”
Powell reiterated the fact that, in terms of monetary policy specifics, the topic was ironically least discussed on both Tuesday and Wednesday. The committee would take their time to lower interest rates.
“We’re in a pretty good place with this economy,” Powell spoke Tuesday “We want to make more progress on inflation.”
It’s no coincidence that Wednesday’s hearing came just after the CPI showed a 3% inflation rate.
Powell informed reps today’s CPI shows that “we are close but not there on inflation.”
“So we want to keep policy restrictive for now,” Added he.
Powell made a quick statement about quantitative easing that was easily missed by those on the train.
“Quantitative easing is a tool we only use when rates are already at zero,” “He said”
Remember, QE + near zero rates almost always equals pain. There are many things to consider: Weaker currencies, long-term risks of inflation, and so on. Let’s hope we avoid it.
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