Fed Chair Powell questioned by grumbling senators about inflation and climate change

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The economic recovery, rising wages and declining unemployment claims were not enough to spare Federal Reserve Chairman Jerome Powell on Thursday his grip in the Senate.

Testifying before the Senate Banking Committee, Democrats questioned Powell about the central bank’s support for climate change initiatives and its rollback of fiscal protection measures, while Republicans questioned Trump’s nominee about his commitment to controlling inflation.

“Big banks are making cash — and spending it on executive compensation, dividends and buybacks, rather than lending to communities or raising capital to reduce risk,” said committee chair Senator Sherrod Brown, D-Ohio. “The Fed must fight this trend, protect our progress from Wall Street greed and recklessness — and not make it worse.”

Rating member Senator Pat Tomey, a Pennsylvania Republican, has offered criticism for what he sees as the Fed’s inaction on inflation.

“The Fed’s policy is particularly concerning because the warnings about problematic inflation are getting louder,” he said. “Inflation is there, and it’s more severe than most of them – including the Fed itself – expected.” “Since the Fed has proven unable to predict the level of inflation, why should we be confident that the Fed can predict the duration of inflation?”

Barbs from both sides of the aisle may feel unfamiliar to Powell, who has been lauded by lawmakers for acting quickly to flood the US economy with cash as the COVID-19 pandemic has forced thousands of businesses to close.

The latest criticism of the Federal Reserve and its leader may have less to do with the economy and more to do with political situations. With members of both parties seeking an early advantage in the 2022 major midterm elections, Powell may find himself with fewer public allies in Congress.

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

Kevin Lamarck | Reuters

House Financial Services Committee Member Patrick McHenry, a nationalist Republican, proved a notable exception on Wednesday, when he endorsed Powell’s nomination for a second term.

“I have earned and deserved another term as Fed chair,” he told Powell. “You’ve proven to be a steady hand throughout this ongoing pandemic or recovery.”

Progressive Democrats may hope to open a path for President Joe Biden to nominate a Democrat to lead the central bank.

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

Some, like progressive Democratic Senator Elizabeth Warren of Massachusetts, argue that the Fed should be led by a president who proactively seeks to strengthen Wall Street’s oversight. Those hoping for a Democratic Fed chair said Fed Governor Lyle Brainard is an excellent choice for Biden.

“What I’m looking for is that the Fed’s record over the past four years is step by step to deregulate Wall Street banks,” Warren told Powell on Thursday.

“There is no doubt that the banks are stronger today than they were when they devastated the economy in 2008,” she added. But this is the wrong standard: the question is whether or not they are strong enough to withstand the next crisis, and whether the Federal Reserve is strong enough to protect the American economy and American taxpayers.

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A congressman on a related committee told CNBC that such criticism should be taken in context, and that the Fed often becomes an easy sack for politicians hoping to win elections with promises of economic reform.

However, the employee said, Powell’s handling of the coronavirus crisis has proven his worth and offers President Joe Biden a compelling case to keep him in office for a second term.

The employee said: The Fed is an “easy target when things aren’t going well or the economy isn’t thriving. It’s really easy to turn to the Fed and say, ‘What are you doing to fix this?’” “.

The employee added that lawmakers are grateful for the Fed’s leadership throughout the pandemic and that Powell remains well-liked by members of both parties on Capitol Hill.

Powell spent most of his time in front of the House and Senate answering questions about the central bank’s inflation outlook and easy monetary policy plans.

He began his semi-annual testimony Wednesday by saying that the Fed is still far from adjusting its monthly purchases of billions of dollars in Treasuries and mortgage-backed securities, and currently has no plans to adjust interest rates.

He seemed to offset that somewhat on Thursday, when he admitted to the Senate that “inflation is well 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 swing when the Fed intends to tighten monetary policy, so the timing of any potential rate cut or rate hike could play a decisive role in November 2022.

“We said we would start reducing our asset purchases when we feel the economy has made more of the significant progress measured since last December,” Powell said Thursday. “We are in an active study of it now.”

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