Investors will get a fresh look at how the Federal Reserve is navigating its pivot toward tightening pandemic-era monetary policy when Chairman Jerome Powell visits Capitol Hill for its confirmation hearing later Tuesday morning.
In the inflation hearing expected to be taken centrally, members of the Senate Banking Committee are likely to challenge Powell on the timing of the central bank’s first interest rate hike and ask him whether there is a way to rein in inflation. Should have worked faster. Powell will be heard start at 10 am,
For Powell, the challenge will be striking a balance between reassuring lawmakers that the Fed is getting inflation under control without shaking the markets that it could act too aggressively and trigger a recession.
“That’s a delicate link he has to walk,” says Cathy Bostjanic, chief US financial markets economist at Oxford Economics. “He really doesn’t want to leave the impression that they are massively behind the curve.”
At the same time, Powell may face questions from progressive Democrats, who want to make sure he’s also focused on the other half of the central bank’s dual mandate: full employment. While the unemployment rate hit a pandemic-era low of 3.9% in December, some progressives have warned against acting too quickly to curb expansion before all workers, especially minorities, are benefited.
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Powell, in his opening remarks, will try to thread that needle in the midst of dealing with rising prices while moving toward maximum employment.
“We know that high inflation is a toll precise, especially for people who are not able to meet the high costs of essentials like food, housing and transportation,” Powell would say, according to his prepared testimony, “We will use our tools to support the economy and a strong labor market, and prevent high inflation from freezing.”
Powell is expected to slide for bipartisan confirmation in the Senate — he was confirmed 84-13 just four years ago — but his testimony will still be closely watched for signs of the Fed’s latest thinking that post-emergency interest How soon to proceed to raise rates. The asset-purchase program kicks off in March. Other Fed officials after the hearing have already suggested a March rate hike is on the table.
For financial markets, a key area to watch beyond the timing of the first interest rate hike is Powell’s remarks about his inflation expectations going forward. And it’s also an area that Powell himself would need to tread carefully.
“If he gives any indication that he thinks inflation expectations are going to move upwards, I think that will shake the market a little bit,” says Neil Dutta, head of economics at Renaissance Macro Research. “The expectations for future inflation have to be met – because once that genie is out of the bottle, it is very difficult to put it back,” says Dutta.
Although Powell enjoys widespread support in Congress, it is not universal. Sen. Elizabeth Warren (d., Mass.) already said She would not support his nomination, citing “failures in regulation, climate and ethics”.
Her questions will be watched closely and may be the toughest facing Powell. on Monday, he called Powell To release information related to Fed officials’ trades and changes to its ethics policy. Hours later, Federal Reserve Vice President Richard Clarida announced that he would resign on Friday; He has faced concerns over his disclosures and trading activities at the start of the pandemic.
Eight other Fed officials are also due to give public comment this week, including Governor Lyle Brainard, who attends his Senate confirmation hearing on Thursday to be the Federal Reserve’s vice chairman.
Write to Megan Cassella at [email protected]