Federal Reserve Chair Jerome Powell at the Senate Banking Committee. Luke Newton, Washington and Lee University (W&L), Creative Investment Research.
The semi-annual Senate Banking Committee hearing was held on July 9 with the Chairman of the Federal Reserve, Jerome Powell, as witness. While the hearing may not have been particularly eventful, it served as a lesson on the link between American monetary policy and politics. It also provided insight on what's in store for the US economy.
The United States Senate Committee on Banking, Housing, and Urban Affairs is chaired by Senator Sherrod Brown (D - OH) with Tim Scott (R - SC) serving as the ranking member. Both began the hearing by thoroughly dressing down Chairman Powell for the state of the economy over the last few years. Their opening statements served as a strong display of political grandstanding with little sincerity behind their words. Chairman Brown blamed the increase in price levels and inflation on corporate greed and constantly referred to 'the good citizens of Ohio' that he represented, while Tim Scott spent his time attacking Bidenomics and fear mongering. Unfortunately, as an independent official who must remain as thoroughly non-political as possible, Chairman Powell did not refute any of Senator Scott's statements, which would not have been hard to do. Senator Cynthia Lummis (R - WY) recently said that Senator Scott is being considered as former President and convicted felon Donald Trump's pick for Vice President, so the spectacle of political showmanship that he put on makes sense.
Over a period of roughly two hours, each member of the committee had five minutes to question the Chairman. Mr. Powell faced hard questions from both sides, including questions on affordable housing in Montana, housing appraisals and the racial wealth gap, and what turned out to be the most entertaining 5 minutes of the hearing, courtesy of Senator Elizabeth Warren's (D - MA), on trusting banks to "self-regulate". Republicans levied questions on immigration and the labor market, rising price levels, and the impact of a rate cut on the upcoming presidential election.
Chairman Powell's responses made it clear that he was not conveying any sort of signals regarding Fed policy in the coming months. He defended the Fed's actions, particularly with respect to inflation and the labor market, while delegating responsibility to federal legislators on questions such as affordable housing and the racial wealth gap. He stressed the importance of an independent and politically impartial Fed in the face of former President Donald Trump's signals placing the Federal Reserve under greater control of the Executive Branch should he win another term. Overall, Chairman Powell's testimony conveyed the Fed's commitment to staying the course, meaning business owners and investors should not expect a drastic change in market conditions. Most notably, the Chairman emphasized that the previous cut in interest rates was preceded by seven months of "good inflation data" and the Fed is currently waiting for more "good data" before cutting rates again. They currently have about three months, meaning that the prospect of a rate cut in late September or early October is not out of the question.
While I would hardly call the hearing productive for either Chairman Powell or the senators, few of which were even remotely interested in Powell’s responses and seemed to be just trying to score political points, it did serve as a candid insight into the workings of our democracy and the accountability our public officials face. The idea of having scheduled, dedicated meetings between the Fed chair and multiple Congressional committees several times a year is a good one. Without the hearings, no matter how dull or seemingly pointless, they ensure one of the most powerful, unelected, figures in our country (and quite possibly the world) must, from to time, answer to public officials who, despite all the political showmanship, often represent the interests of the everyday American people.