Powell favors loosening some bank rules
WASHINGTON — Jerome Powell, President Trump’s pick to be chairman of the Federal Reserve, told senators at his confirmation hearing Tuesday that he believes some bank regulations can be rolled back — something the administration and Wall Street favor. But he stressed that he will protect the central bank’s political independence, calling it vital for the Fed’s role.
Powell also strongly hinted in his appearance before the Senate Banking Committee that the Fed would raise rates again in December.
Powell said he believed that the DoddFrank Act, passed in the wake of the devastating 2008 financial crisis, had succeeded in making the financial system stronger, including ensuring that no major institution now is too big to fail.
But in some areas, such as regulation of smaller banks, the law had imposed unnecessary burdens that should be eased, he said.
Powell’s comments pleased many GOP senators, who have complained for years that Dodd-Frank was hurting the economic recovery by making it harder to get bank loans. Democratic senators, however, pressed Powell to say whether he would cut key consumer protections in the 2010 law, a measure that Trump often attacked on the campaign trail.
Powell stressed that he is “strongly committed” to the political independence of the Federal Reserve. He said he has not had any conversation with anyone in the administration that concerned him.
During two hours of testimony, Powell sought to convey a sense of stability and praised his predecessors Janet Yellen and Ben Bernanke. He said that the Fed would continue on a gradual path of raising interest rates and shrinking its $4.5 trillion balance sheet, which grew fivefold in the wake of the recession as the Fed bought government bonds to push long-term interest rates lower.
Powell said he expects the balance sheet to shrink to $2.5 trillion to $3 trillion over the next three to four years under a program set in motion by Yellen.
On interest rates, Powell said, “I think the case for raising interest rates at our next meeting is coming together.”
When pressed for specifics on a December rate hike, Powell deferred, citing Fed policy not to talk about possible outcomes before officials gathered and heard all views.
Trump tapped Powell on Nov. 2 to succeed Yellen, the first woman to head the nation’s central bank and the first Fed leader in four decades not to be offered a second term as chair. Yellen’s term ends on Feb. 3. She said last week she will leave the Fed once Powell is confirmed by the Senate.
Private economists said there were no surprises in Powell’s testimony. He sought to bolster the reputation he built in his five years as a Fed board member as a centrist in pursuit of the Fed’s dual goals of promoting maximum employment and stable prices.
“I have had the great privilege of serving under (Bernanke and Yellen) and, like them, I will do everything in my power to achieve those goals while preserving the Federal Reserve’s independent and nonpartisan status that is so vital to their pursuit,” he said.
Michael Pearce, U.S. economist at Capital Economics, said Powell gave away “little new on either the economic or policy outlook.”
There was little market reaction to Powell’s testimony, although some big bank stocks did move up, as investors cheered his comments that some bank regulations could be loosened.
The Yellen Fed has raised rates four times since December 2015, including two increases this year. Economists expect a third to occur next month, and they’re projecting at least three additional rate increases in 2018.