Powell's Congressional Hearing Faces Challenges, Monetary Policy and Bank Regulation Become the Focus

According to the Zhitong Finance APP, this week, Federal Reserve Chairman Jerome Powell will testify before Congress, facing dual pressures from Democratic and Republican lawmakers on key issues such as bank regulation, monetary policy, and the economic policies of the Trump administration.

This hearing comes at a time when the U.S. economy is facing many uncertainties. The trade, tax, immigration, and regulatory policies proposed by the Trump administration have complicated the Federal Reserve's efforts to control inflation and maintain stability in the job market.

At the same time, there have also been changes within the Federal Reserve. Vice Chairman for Financial Supervision Michael Barr announced his resignation last month, paving the way for the Trump administration to appoint new regulatory officials. Additionally, the Federal Reserve has yet to achieve its 2% inflation target, with inflation consistently exceeding expectations since 2021, putting pressure on many American households regarding the cost of living.

House Financial Services Committee Chairman French Hill stated, "Many lawmakers have concerns about the Federal Reserve's policies, especially the decisions made after the COVID-19 pandemic." As inflation continues to be a significant issue in the 2024 presidential election, the Federal Reserve's monetary policy is bound to be a focal point of the hearing.

Sarah Binder, a senior fellow at the Brookings Institution, believes this hearing will be "charged with tension." Although the Federal Reserve has traditionally tried to avoid getting involved in political debates, she pointed out that the Federal Reserve "cannot completely isolate itself," as it needs to gain public support for its monetary and regulatory policies.

Powell is expected to emphasize a pause in interest rate cuts during the hearing. Since September of last year, the Federal Reserve has reduced the benchmark interest rate by one percentage point, but recent economic data shows that the job market remains robust, with the unemployment rate dropping to 4%, and inflation still above target, with a 2023 inflation rate of 2.6%.

Although Powell tends to keep a low profile, Democratic lawmakers may press him to clarify whether the tariffs proposed by Trump on Canada and Mexico would raise inflation and impact economic growth. Analysts believe Powell may choose to cautiously avoid these questions.

Derek Tang, an economist at economic research firm LH Meyer, stated, "When policies become reality, maintaining a strategy of silence becomes increasingly difficult." If Powell comments on the tariff issue during the hearing, Republicans may question why he has not spoken out about the inflation risks stemming from the Biden administration's pandemic relief spending.

House Financial Services Committee Chairman Hill added, "Many lawmakers believe Powell should have warned about the significant increase in government spending."

Furthermore, the Federal Reserve will reassess its monetary policy framework established in 2020 this year. Hill believes that the Federal Reserve's evaluation of its inflation target, inflation analysis, and planning will be a core topic of this hearing.

With the Trump administration implementing deregulation policies, the direction of the Federal Reserve's bank regulation is also under scrutiny. The regulatory rules governing bank capital requirements, stress testing, and risk management may face reexamination.

Travis Hill, acting chairman of the Federal Deposit Insurance Corporation (FDIC) under the Trump administration, released a 15-point statement last month calling for a comprehensive review of regulatory policies to ensure they contribute to economic growth This trend may prompt Republican lawmakers to pressure Powell to adopt a more lenient stance on bank capital requirements and stress tests.

On bank regulatory issues, Powell may take a wait-and-see approach, indicating that he will make decisions after the White House nominates a new regulatory vice chairman. The Federal Reserve has previously stated that it will not advance significant regulatory rule changes until a successor is confirmed.

Congressman Hill stated, "The decision-making power on bank regulation belongs to the Federal Reserve Board, and Powell is the chairman of the board, so he must respond to this issue."

Trump has publicly criticized the Federal Reserve's policy stance multiple times, but recently his attitude seems to have softened. After the Federal Reserve's recent decision to keep interest rates unchanged, Trump initially expressed opposition but later reversed his stance, saying, "Keeping interest rates unchanged is the right decision."

U.S. Treasury Secretary Scott Basset stated in a media interview, "I believe Powell will do the right thing, so there will be no criticism."