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Powell at the House Financial Services Committee. Jonathan Rosen, Impact Investing Intern, American University.

 


             On Thursday, June 23, 2022, Chairman of the Federal Reserve Jerome Powell testified before the Committee of Financial Services in the House of Representatives. During this testimony, Powell discussed many of the issues relating to the responsibilities of the FED, largely explaining what role they were currently playing in the role of shaping monetary policy. With the rise of inflation, the federal reserve has decided to utilize the tools that they have access to, by raising interest rates by .75 percent. This is the largest increase in benchmark interest rates in almost 30 years, which shows how seriously the Federal Reserve views the rise in inflation that is currently occurring in the United States. However, during the questioning period of Powell’s testimony, it was clear that the two parties represented on the committee had vastly differing views on the causes of inflation, and what role the Federal Reserve should play in combatting its rise.

              The Democrats on the committee, led by Chairwoman Maxine Waters, argued that the rise of inflation came because of a few factors. They argued that inflation has largely risen because of corporate greed, the war in Ukraine, and global supply shortages. Chairman Powell did not dispute the occurrence of any of these factors, however, he stated that none of these were the responsibility of the FED to address and deal with, since they were unrelated to monetary policy. The Republicans on the committee, led my Ranking Member Patrick McHenry, argued that inflation was largely rising because of “irresponsible” fiscal spending. Many members believed that the 2021 American Rescue Plan, which was a stimulus package of almost $2 trillion, was the primary cause of the current inflation rates. Again, while Powell did not dispute that this may be a factor, he stated that fiscal policy was not something that the Federal Reserve has influence over, or comments on.

              What was shown in this committee hearing, was a continuation of what we have seen in recent years. There is a consensus that there is a problem, but widely differing views on what the cause or solution would be. Unless some consensus is reached, it will remain impossible for congress to address the issue of inflation, in a way that complements the decisions made by the Federal Reserve and Chairman Jerome Powell.

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