POWELL ON THE HOT SEAT
Grilled on inflation by Senate GOP Sweating it out
Republicans grilled Federal Reserve Chair Jerome Powell over the central bank’s handling of the ongoing inflation crisis during his confirmation hearing before the Senate Banking Committee on Tuesday.
Powell acknowledged 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 a second four-year term. 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.
Late in addressing
The Fed’s handling of inflation drew skeptical remarks from Republicans. Sen. Pat Toomey, (R-Pa.), ranking member of the committee, expressed concern that the Fed was “behind the curve” in addressing the situation.
Sen. Richard Shelby (R-Ala.) 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 Democratic-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, who is expected to be confirmed with bipartisan support, 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 chairman Sherrod Brown (D-Ohio) commended Powell’s leadership, but warned him 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 pandemicdriven 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.