Powell bravely ventures into Capitol Hill tonight, and Trump will be the absolute focus of the "high-pressure" hearing

Federal Reserve Chairman Jerome Powell will face a series of tough hearings on Capitol Hill this week, where both Democrats and Republicans may question him about Trump's policies, including bank regulation and efforts to eliminate diversity, equity, and inclusion initiatives that have swept the Federal Reserve.

At 23:00 Beijing time on Tuesday, Powell will attend a hearing before the Senate Committee on Banking, Housing, and Urban Affairs and deliver his semiannual monetary policy testimony.

At 23:00 Beijing time on Wednesday, Powell will present his semiannual monetary policy testimony before the House Committee on Financial Services.

As Powell delivers his semiannual testimony, Trump's proposals on trade, taxes, immigration, and regulation have also introduced uncertainty into the U.S. economic outlook, complicating the Federal Reserve's efforts to reduce inflation and maintain a healthy labor market.

Pressure from Republicans has already led to changes at the Federal Reserve. Federal Reserve Vice Chair for Supervision Michael Barr announced last month that he would resign from his position as the top banking regulator within the Federal Reserve, paving the way for Trump to appoint his own regulators from among the other six board members.

The Federal Reserve has also attempted to comply with Trump's executive order to eliminate federal DEI policies (Diversity, Equity, and Inclusion), shutting down pages on its website.

The Federal Reserve has failed to achieve the 2% inflation target since 2021, and lawmakers may raise this target. Inflation continues to make it difficult for many Americans to afford daily living expenses, a decisive theme in the 2024 presidential election and a concern for both parties.

French Hill, the new chairman of the House Committee on Financial Services, said in an interview, "Many of our members are concerned about the Federal Reserve's post-pandemic policies."

Sarah Binder, a senior fellow at the Brookings Institution in Washington, stated that the hearings will be "highly tense." She noted that while the Federal Reserve tends to avoid partisan debates, "it cannot isolate itself," as it needs public support for both monetary and regulatory policies.

For a long time, Powell has sought to build good relationships on Capitol Hill, and now that Trump is back in the White House, he particularly hopes to maintain good relations with many Republican lawmakers.

As for Trump, he criticized the Federal Reserve after its recent decision to hold rates steady but later indicated that he might not intervene. On February 2, he stated that keeping interest rates stable was "the right thing to do." Treasury Secretary Scott - Bensent mentioned Powell in an interview last week, saying, "I believe he will do the right thing, so there won't be any criticism."

Here are some key issues Powell may face during the hearings.

Monetary Policy

After lowering the benchmark interest rate by a total of one percentage point last year, Federal Reserve officials have indicated that they want to take a breather and assess the economy. Powell has no reason to deviate from this messageThe employment report for January showed steady performance, with the unemployment rate dropping to 4%, while the inflation rate remains above the Federal Reserve's target rate, rising 2.6% last year.

However, some Democrats may question Powell about Trump's tariff threats against Canada and Mexico and their potential impact on economic growth and inflation. Powell has been reserved when discussing Trump's policies but may face pressure to articulate these policies more clearly.

Derek Tang, an economist at Washington policy analysis firm LH Meyer, said, "As we now have real policies to evaluate, the silence strategy becomes increasingly fragile."

If Powell does comment on tariffs, it could prompt questions from Republicans asking why he hasn't expressed concerns about the inflation risks stemming from pandemic relief spending during former President Biden's administration.

Newly appointed Chairman of the House Financial Services Committee Patrick McHenry said that "many" members of the House committee believe Powell "should have publicly opposed significant increases in spending."

The Arkansas Republican also noted that the Federal Reserve is set to review the monetary policy framework introduced in 2020, which is a concern for him.

McHenry stated, "The Federal Reserve's assessment of its inflation target, as well as its inflation analysis and planning, is of utmost concern to people, whether at the Federal Reserve on Constitution Avenue or here on Capitol Hill. Therefore, I think this will be a key point."

Diversity, Equity, and Inclusion

Democrats may pressure Powell regarding the apparent measures the Federal Reserve has taken to comply with Trump's executive order aimed at abolishing federal DEI policies.

Under the Dodd-Frank Act, the Federal Reserve and several other financial institutions have obligations related to diversity and inclusion. Powell has stated that the Federal Reserve is working to align its practices with the DEI executive order that is "appropriate and consistent with applicable law."

Maxine Waters, the top Democrat on the House Financial Services Committee, played a key role in supporting the diversity-related requirements in the Dodd-Frank Act.

Last month, she wrote to the Department of Justice and other agencies, stating that Trump's executive order "cannot supersede the requirements of the Dodd-Frank Act, federal anti-discrimination laws, or employees' constitutional rights."

According to aides on Capitol Hill, in light of actions related to DEI, Barr's resignation, and the Federal Reserve's withdrawal from a climate research organization, Democrats may question Powell about his views on the Federal Reserve's independence.

Bank Regulation

Trump unleashed a wave of deregulation within federal agencies, including those that regulate banks.

Travis Hill, the acting head of the Federal Deposit Insurance Corporation appointed by Trump, issued a statement in January that included a "comprehensive review of regulations, guidance, and manuals" to ensure they promote economic growthRepublicans in the House and Senate may test Powell to see if he agrees with certain aspects. The spokesperson for Tim Scott, the Republican chairman of the Senate Banking Committee from South Carolina, stated that Scott will emphasize the burden of compliance costs on small banks.

According to the spokesperson, other topics of interest to Scott include unfinished bank capital proposals and the so-called "de-banking," which refers to the practice of depriving certain individuals and businesses of banking services.

Powell may temporarily avoid discussing new regulatory measures, stating that he is waiting for the White House to appoint a new vice chairman for supervision. The Federal Reserve has indicated that it will not formulate significant rules until Barr's successor is confirmed. However, lawmakers are expected to seek Powell's opinions.

Federal Deposit Insurance Corporation acting director Hill said, "The responsibility for bank regulatory decisions lies with the entire board, and he is the chairman of the board."