Fed Chair Powell grilled on inflation at Senate confirmation hearing
Republicans grilled Federal Reserve Chair Jerome Powell over the central bank’s handling of an ongoing inflation crisis during his confirmation hearing before the Senate Banking Committee on Tuesday.
Powell acknowledged to members of the Senate panel that rising inflation was a “severe threat” to achieving the Fed’s goal of maximum employment. The Fed chair said he expects inflationary pressures to continue well into next year and the central bank will adapt to address the threat.
“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Powell said. “We will use our tools to get inflation back.”
Inflation is a key point of focus for lawmakers as Powell seeks renomination for a second four-year term as the central bank’s chairman. The Consumer Price Index is expected to hit a four-decade high on Wednesday as Americans contend with a surge in prices for everyday goods.
The Fed’s handling of inflation drew skeptical remarks from Republicans. Sen. Pat Toomey, (R-Penn.), ranking member of the Senate Banking Committee, expressed concern in his opening remarks that the Fed was “behind the curve” in addressing the situation.
Sen. Richard Shelby (R-AL) argued the Fed has lost “a lot of credibility” for failing to deal with the crisis sooner and pressed Powell to explain why the central bank initially described inflation as “transitory.”
“We said that because we thought that these supply-side bottlenecks and shortages would be alleviated much more quickly than they have been,” Powell testified. “There’s no empirical experience with this before, we haven’t had the global supply chain collapse, we haven’t had this kind of a labor force shock before.”
Republicans repeatedly warned Powell against allowing the “politicization” of the Fed. GOP lawmakers argue that a Democrat-led push for the central bank to address issues related to racial justice and climate change go beyond the Fed’s mandate.
“If this level of politicization continues unchecked, it will not end well for the Fed or for independently driven monetary policy,” Toomey said.
Lawmakers from both parties praised Powell for guiding policy and stabilizing the economy during the COVID-19 pandemic. But the Fed chair also faced scrutiny over plans to tighten monetary policy by hiking interest rates and ceasing bond purchases.
Senate Banking Committee Chair Sherrod Brown (D-Ohio) commended Powell’s leadership, but warned him in opening remarks to avoid actions that would hurt the employment market.
“The Fed must not allow Wall Street to recover, while working Americans are left behind,” Brown said.
Economists expect the Fed to raise interest rates three to four times in 2022 while dialing down pandemic-era policies. Powell said the bank will start to shrink its balance sheet in the coming months, trimming its holdings of nearly $9 trillion in bonds.
“At some point, perhaps later this year, we will start to allow the balance sheet to run off. That’s just the road to normalizing policy,” Powell said.
Powell also faced tough scrutiny from Democrats. Sen. Bob Menendez, D-NJ, said the Federal Reserve has a “serious diversity problem,” adding that a lack of Latino representation at the central bank was “outrageous.”
Sen. Elizabeth Warren (D-Mass.), a vocal critic of Powell who has vowed to oppose his confirmation, pressed the chair on whether corporate greed was contributing to the spike in consumer prices.
Warren also demanded that Powell respond to a recent letter in which she pushed for more details on ethics concerns related to trading activity by Fed officials during the pandemic.
Originally nominated by former President Donald Trump, Powell played a key role in shaping the country’s economic response to COVID-19. President Biden renominated Powell in November.
Powell is expected to be confirmed for another term with bipartisan support.
