The US Federal Reserve should “respond decisively” to any new economic crisis, Fed chair nominee Jerome Powell told the Senate Banking Committee yesterday, positioning himself as an heir to the central bank policies of current chair Janet Yellen and her predecessor Ben Bernanke.
At his confirmation hearing before the banking panel, President Trump’s nominee to take over as Fed chair endorsed the core ideas that have defined US central banking since the financial crisis of 2007 to 2009 — a willingness to move aggressively against a downturn, and an insistence on flexibility and independence from political influence in setting policy.
“We must retain the flexibility to adjust our policies in response to economic developments,” said Powell, who has served as a Fed governor since 2012, a term spanning the end of Bernanke’s chairmanship and Yellen’s four years as Fed chief.
“We must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation’s financial stability and economic prosperity.”
During Powell’s time as a governor the Fed has regularly come under the criticism of Republican lawmakers worried that the central bank’s bond-buying and other crisis response programs created risks to the financial system, and that central bankers had accumulated too much discretionary power.
But in his opening statement Powell made clear he feels the Bernanke-Yellen approach should be maintained, with the Fed open to congressional oversight, but in unquestioned control of its policy choices.
“I will do everything in my power to achieve those goals while preserving the Federal Reserve’s independent and nonpartisan status that is so vital to their pursuit,” Powell said, referring to the Fed’s congressionally mandated goals of promoting both maximum employment and low and stable inflation.
Senators will question him about those issues throughout the hearing.
In opening remarks both Committee Chairman Mike Crapo, Republican of Idaho, and senior Democrat Sherrod Brown of Ohio indicated relatively smooth sailing for the nomination.
Crapo said he regarded Powell as “qualified to lead the Fed,” while Brown said his chief concern was the Trump administration’s direction on issues like financial regulation rather than Powell.
“You have supported tough rules,” Brown said.”We have had a good working relationship...I hope that will continue.”
Trump nominated Powell, aged 64, from among five finalists, including Yellen as well as others who have argued for more fundamental changes at the Fed.
Some of the arguments for reform, including the use of rules governing interest rate policy and rooted in skepticism about the Fed’s approach to crisis-fighting, have support among the lawmakers who must confirm Powell as Fed chair.
Early in his time as a governor Powell, a lawyer who has spent the bulk of his career in the private sector as an investment banker and private equity executive, shared some of those concerns.
But he gradually came to emphasise in his public statements that the benefits of current Fed policy, with years of loose money allowing time for displaced workers to trickle back to the job market, outweighed the risks.
The chief exception involves financial regulation.
While Powell said he agrees that the new requirements on banks have made the financial system safer, he wants to look for ways to ease the cost of regulation if it can be done safely.
“We will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms,” Powell said.
On current monetary policy, he said, “We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink.”
Meanwhile, the dollar rose against a basket of currencies yesterday, rebounding from a two-month low hit the previous day, as risk sentiment improved and the confirmation hearing of new Federal Reserve chair kicked off.
The dollar index, which measures the greenback against six rival currencies, was up 0.33& at 93.208. Against the yen the dollar was 0.2% higher.
“The dollar is stronger today on the back of the strong domestic equity market right now,” said Minh Trang, senior currency trader at Silicon Valley bank in Santa Clara, California.
The S&P 500 and the Dow Jones Industrial Average hit records at the open, led by gains in technology stocks, and data showed US consumer confidence at its highest since November 2000.
“There is a lot of bullishness out there and that’s why you are seeing a little bit of a bounce in the dollar,” he said.
Traders were also paying close attention to comments from Powell in his confirmation hearing before the US Senate banking Committee.
“For the most part his prepared remarks painted a similar picture to the outgoing Chair Janet Yellen’s monetary policy strategy,” Trang said.
“What he is trying to convey is that there is going to be consistency in the transition.”
The Canadian dollar weakened to a one-week low against its US counterpart as oil prices fell.
Jerome Powell, chairman of the US Federal Reserve nominee for US President Donald Trump, swears in to a Senate Banking Committee confirmation hearing in Washington, DC, yesterday. u201cWe must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation’s financial stability and economic prosperity,u201d Powell said.
