Fed chief nominee Powell backs ‘gradual’ rate hikes
Trump pick wants to ease tight rules on banks
Federal Reserve chairman nominee Jerome Powell told Congress on Tuesday that the case for a December interest rate hike is “coming together” and that he supports legislation that would roll back some of the sweeping banking regulations enacted since the 2008 financial crisis.
In his confirmation hearing before the Senate banking committee, Powell found himself in several testy exchanges with Democrats over his willingness to ease some rules on banks without toughening any of them. And he largely deflected Democrats’ questions about the merits of the Republicans’ controversial tax-cut plan and its impact on the national debt.
Powell, 64, is widely expected to be confirmed by the Senate and take the Fed’s helm when Fed Chair Janet Yellen, a Democrat, steps down in February. Powell, who was nominated by President Donald Trump this month, is considered a middle-ground pick who largely would maintain Yellen’s strategy of gradual rate increases so as not to disrupt the 81⁄2-year recovery. But analysts have said he seems to be somewhat more receptive to loosening bank oversight.
On interest rates, Powell said, “I think the case for raising interest rates at our next meeting is coming together . ... I think the conditions are supportive of doing that.”
The Fed has hiked its benchmark short-term rate twice this year to a range of 1 percent to 11⁄4 percent and signaled a third, quarter-percentage-point increase is likely in mid-December. But with annual inflation still below the Fed’s 2 percent target, Powell has been among the core Fed policymakers arguing there’s little need to bump up rates rapidly.
“We’re raising interest rates on a gradual path,” he told committee members. “I expect that will continue.”
Powell said he backs a Senate bill that would relieve large regional banks of heightened Fed oversight and allow banks with less than $10 billion in assets to make potentially risky trades with their own money. Asked by Sen. Jon Tester, D-Mont., if he’s concerned about any parts of the legislation, Powell said, “I really don’t see anything.”
Brian Schatz, D-Hawaii, pressed Powell on why it makes sense to dial back oversight when banks are making record profits. “Doesn’t it make sense to err on the side of caution?” he asked.
Powell agreed but said some of the rules are unnecessary and make financial institutions less efficient. “It doesn’t help anyone for banks to waste money,” he said. “Our job is to be efficient and effective as well as (promote) safety and soundness.”
Sen Elizabeth Warren, D-Mass., asked Powell if he believes any provisions of the banking reform law can be strengthened.
“I can’t really think of a place where we’re lacking,” he said. “I think they’re tough enough.”
Warren shot back, “I’ve got to say, that worries me.”
Powell has said he is largely aligned with Yellen in seeking to preserve the stricter oversight of banks but ease rules on community banks that didn’t contribute to the financial crisis.
Trump has complained that the Dodd-Frank financial reform law restricts lending, presumably by forcing banks to hold more capital to cover losses in a crisis. But asked about those requirements at a Senate banking committee hearing in June, Powell said, “I happen to think we’ve got it about right today.”
Sen. Chris Van Hollen, D-Md., asked whether Powell is concerned about Congressional Budget Office projections that the Republican tax-cut plan would increase the deficit by about $1.5 trillion over 10 years.
Powell said he is worried about increasing the deficit, which could sharply push up interest rates, curtailing economic growth.
But he added, “I think the idea would be to get GDP growing faster than the debt over a longer period of time.”
Although Republicans have said lowering taxes could boost economic growth and government revenue to offset any deficits, many economists are skeptical that’s the case. Van Hollen also noted that Yellen and her predecessor, Republican Ben Bernanke, have more forcefully argued against rising deficits.
At the same time, Powell said he strongly supported the Fed’s independence from the White House and Congress and opposes Republican proposals to audit the Fed’s monetary policy decisions.
“I think that’s not something that would serve us well,” he said.