The Fed isn't being hammered on Capitol Hill
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Fed chair Jerome Powell on Wednesday at the House Financial Services Committee. Photo: Nathan Howard/Bloomberg via Getty Images
If you were told 15 months ago that the Fed would raise rates by 5 percentage points, walloping financial markets and triggering bank failures, it would have been a surprise.
- But you would be more surprised if told that would happen, and that Fed chair Jerome Powell and his colleagues would receive a broadly positive reception from their Congressional overseers.
Driving the news: Powell testified Wednesday before the House Financial Services Committee in his semiannual monetary policy testimony. Simultaneously, a Senate confirmation hearing took place for vice chair nominee Philip Jefferson, governor nominee Adriana Kugler, and Lisa Cook, a current governor who has been renominated for a full term.
- While not without criticism, lawmakers have been generally supportive of the Fed's inflation-fighting campaign.
Why it matters: One of the hazards of central banking is that taking aggressive action to fight inflation will bring political blowback that undermines the policy and limits room for maneuver. It isn't happening right now.
State of play: Financial Services Committee chair Patrick McHenry, R-N.C., was critical of the possible tightening of bank regulations under review by Fed vice chair Michael Barr.
- But when it came to inflation and monetary policy, McHenry used his time to quiz Powell on an apparent contradiction in the Fed's action last week — holding off on rate increases yet signaling more hikes are in train.
- "Those two things are entirely consistent," Powell said. "The level to which we raise rates is a separate question from the speed of which we move."
- "Given how far we've come, it may make sense to raise rates higher, but to do so at a more moderate pace," he said.
On the Democratic side, Rep. Bill Foster of Illinois, the ranking member of the subcommittee, said, "I recognize that the necessary monetary policies put forth to combat inflation have not been without stress" but that conditions have been "more of a soft landing than a disaster for our economy."
- Ranking member Maxine Waters, D-Calif., said that the Fed "made the right decision to pause" its rate hikes last week.
Between the lines: This is not the kind of reception that, say, Paul Volcker received during the Fed's last aggressive tightening to bring inflation down, or that Ben Bernanke received in the global financial crisis.
- Both were pilloried in a way Powell and his colleagues are not. Even this time a year ago, when inflation had surged but the Fed's rate hikes were still playing catch-up, there was more hostility in the room.
Yes, but: That would surely change if progress toward lower inflation reverses, or if the job market starts to crack more substantially than it has so far.
