Powell returns to Congress "hearing seat" to face multiple inquiries from politics and economics

According to the Zhitong Finance APP, Federal Reserve Chairman Jerome Powell will attend two congressional hearings this week to defend the stance of maintaining interest rates unchanged at least until September. Despite President Trump's ongoing calls for a quick rate cut to stimulate the economy, Powell seems unwilling to yield to political pressure, emphasizing that a "wait-and-see" approach is more prudent.

Powell will testify before the House Financial Services Committee at 10 PM Beijing time on Tuesday, and will move to the Senate Banking Committee for a hearing at the same time on Wednesday. This series of hearings comes shortly after the Federal Reserve decided to keep interest rates unchanged for the fourth consecutive meeting, and occurs during a sensitive period marked by U.S. airstrikes on Iranian nuclear facilities, escalating tensions in the Middle East.

Here are several key aspects that the public will focus on during this hearing:

1. Interest Rates and Economic Outlook

Powell is expected to maintain the tone from last week in his testimony, indicating that the Federal Reserve is in a favorable position to wait for more economic data before deciding whether to adjust interest rates. "We want to see more data, and in the meantime, we can wait because the economic situation remains solid," he stated at a press conference last week.

Although tariffs imposed by the Trump administration are still ongoing, they have yet to trigger the significant inflation or surge in unemployment that the Federal Reserve had previously worried about. Economists expect that the Fed's preferred inflation measure, the core PCE price index, rose only 0.1% in May, marking a mild increase for the third consecutive month and the most subdued three-month trend since 2020.

Nevertheless, there is not a unanimous consensus within the Federal Reserve. Governors Waller and Bowman have both indicated that the impact of tariffs on inflation may be short-term in nature, and if future data supports it, they do not rule out supporting a rate cut in July.

James Egelhof, Chief U.S. Economist at BNP Paribas, noted, "Powell does not seem eager to make a judgment on the direction of inflation; he is more concerned about the risks of making a mistake."

2. Middle East Situation and Oil Price Impact

Over the past weekend, the U.S. launched airstrikes on Iranian nuclear facilities, marking its formal involvement in the military conflict between Israel and Iran. Although this move has heightened market concerns about energy supply disruptions, oil prices have not seen a dramatic surge.

Powell commented on this at last week's press conference: "Of course, we are closely monitoring the developments like everyone else. Turmoil in the Middle East often leads to short-term upward pressure on energy prices, but these effects typically do not last long, and the lasting impact on inflation is limited."

Congress members are expected to question Powell about the potential economic impacts of the Middle East situation and seek to gain insight into the Federal Reserve's real assessment of current geopolitical risks.

3. Rising Political Pressure

While some Republican lawmakers have expressed a willingness to understand Powell's "prudent strategy," such as Pennsylvania Congressman Dan Meuser publicly praising Powell for "navigating in the most challenging environment of modern times," there are also lawmakers who may adopt Trump's aggressive stance, demanding that Powell explain why he is still unwilling to cut rates in the context of strong employment and cooling inflation.

Trump's recent attacks on Powell have become more intense, bluntly stating that he is "one of the dumbest and most destructive people in government." He even claimed that high interest rates are exacerbating the federal fiscal burdenHowever, the Federal Reserve clearly stated in May that Powell emphasized during his meeting with Trump that the Fed's decisions are "based on detailed, objective, and non-political analysis." Experts expect Powell to maintain his consistent "calm and steady" style during the hearing. Mark Gertler, an economics professor at New York University, stated, "He will not be easily swayed."

In addition, Democratic lawmakers may take the opportunity to warn that the independence of the Federal Reserve is under threat, calling for a steadfast adherence to a technically neutral stance.

IV. Regulatory Policy Direction

In addition to monetary policy, Powell's regulatory stance is also under close scrutiny. Against the backdrop of Trump's push for financial deregulation, Fed Governor Bowman has been promoted to a key role in regulatory affairs and has explicitly supported relaxing capital requirements.

On Monday, Bowman stated that it is time to re-examine the "enhanced supplementary leverage ratio" established after the financial crisis. This regulation requires banks to hold a certain proportion of capital to cope with asset volatility. According to Bloomberg, the Federal Reserve is negotiating with other regulatory agencies on whether to relax this regulation to free up banks' trading capacity in the $29 trillion U.S. Treasury market.

V. Bank Reserves and the Cruz Proposal

Finally, Powell may also be asked about a controversial proposal put forward by Texas Republican Senator Ted Cruz—to prohibit the Federal Reserve from paying interest on bank reserves. Cruz believes this measure could save the federal government about $1.1 trillion over ten years.

However, several economists have pointed out that eliminating this mechanism would severely weaken the Fed's ability to control short-term interest rates. Currently, paying interest on reserves effectively sets a "floor" for market interest rates, helping to stabilize the financial system.

Although Senate Banking Committee Chairman Tim Scott has blocked the proposal from being included in Trump's tax reform and spending bill, he has not completely dismissed the idea. This means Powell may still face intense debate during the hearing