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    Jerome Powell Will Acknowledge Inflation’s Toll in Senate Testimony

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    Jerome H. Powell, the Federal Reserve chair whom President Biden has nominated for a second four-year term, is set to tell senators on Tuesday that central bankers will use their economic tools to keep inflation — which has been high — from becoming entrenched.Mr. Powell, who is scheduled to testify before the Senate Banking Committee as he seeks confirmation, faces reappointment at an anxious economic moment. Inflation is running at the fastest pace in nearly 40 years. While economists have hoped for months that it would soon fade, that has yet to happen. Higher prices are chipping away at household incomes, even as wages rise and as companies hire at a solid clip.“We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing and transportation,” Mr. Powell will tell lawmakers, according to his prepared remarks. “We are strongly committed to achieving our statutory goals of maximum employment and price stability.”Mr. Powell and his colleagues in recent months have reoriented their policies to pull back on support for the economy in light of the inflationary burst. They are slowing a large bond-buying program they had been using to keep longer-term borrowing cheap and to stoke the economy, and they could raise interest rates as soon as March.“Monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy,” Mr. Powell will tell senators.Economists increasingly expect Fed officials to make three or even four increases this year and eventually to shrink the size of their bond holdings, policies that together will make borrowing more expensive for households and businesses, take juice out of the stock market and slow overall growth.The pivot — which squarely puts the Fed in inflation-fighting mode — could assuage some lawmakers who are worried that the central bank is going to allow inflation to jump out of control. Even so, some may worry what has taken monetary policymakers so long.Others may ask whether the central bank risks overdoing it. Removing support for the economy could slow the job market and curtail hiring while virus concerns and child care issues are keeping many former workers on the labor market’s sidelines.Mr. Powell most likely will also need to address a trading scandal that has rocked the Fed in recent months. Several prominent central bankers traded financial assets for their own portfolios in early 2020, when the Fed was very active in rescuing markets.One, Richard H. Clarida, the vice chair, recently corrected his financial disclosures in a way that made his hot-button transaction — a move into stocks that took place on the eve of a big Fed announcement — look less like the rebalancing that the Fed originally said it had been and more like a response to market conditions.Mr. Clarida announced on Monday that he would resign earlier than planned from the Fed.Mr. Powell did not address that development directly in the prepared remarks, but he pledged to be fair and independent in policy choices.“I am committed to making those decisions with objectivity, integrity and impartiality, based on the best available evidence and in the longstanding tradition of monetary policy independence,” he will say. More

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    Powell Says Fed Could Finish Bond-Buying Taper Early

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    Jerome H. Powell, the Federal Reserve chair, signaled on Tuesday that the central bank was growing more concerned about high — and stubborn — inflation, and could speed up its plan to withdraw financial support from the economy as it tries to ensure that rapid price gains do not become long-lasting.Mr. Powell, whom President Biden plans to renominate for a second term, testified before the Senate Banking Committee at a fraught economic moment. Inflation has jumped to its highest level in three decades and a new coronavirus variant, Omicron, threatens to keep the economy from returning to normal, potentially dragging out supply and demand mismatches. Yet millions of workers are still missing from the job market — and the health threat could keep them on the sidelines.As arguably the nation’s most important economic policymaker, Mr. Powell must navigate that divide. His comments Tuesday suggested that he was preparing to do it with an eye more firmly focused on the threat of inflation.That could mean ending the Fed’s bond-buying program sooner than expected. The central bank had been buying $120 billion in government-backed securities each month throughout much of the pandemic to bolster the economy by keeping money flowing in financial markets. In November, officials announced plans to slow those purchases by $15 billion a month, which would have the program ending midway through 2022. But Mr. Powell said the central bank could wrap up more quickly, reducing the amount of economic juice the Fed is adding.“At this point, the economy is very strong, and inflationary pressures are high,” he said. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner.”His comments further rattled investors, who had already been fretting about Omicron’s potential impact. Stocks, which had been down roughly 0.5 percent for much of the morning, tumbled after Mr. Powell’s comments and the S&P closed down 1.9 percent. Short-term bond yields, which are heavily influenced by expectations for Fed rate increases, spiked as investors began to expect what is sometimes referred to as a “hawkish,” or aggressive approach to interest rate policy.“The tone of his remarks was notably hawkish, suggesting that the Fed’s primary focus is on the risk of more persistent excess inflation,” Krishna Guha, an economist at Evercore ISI, wrote in a research note reacting to the testimony.Mr. Powell said he expected Fed officials to discuss slowing bond purchases faster “at our upcoming meeting,” which is scheduled for Dec. 14-15. He stressed that between now and then, policymakers will get a better sense of the new Omicron virus variant, a fresh labor market report and updated inflation numbers.While he emphasized that much is unknown about Omicron, he said experts could get a better sense of it “in about a month,” and will know at least something about the risks “within a week or 10 days.”For now, he focused on the risk the central bank has already come to know: rapid price gains. Inflation is running at its fastest pace since the early 1990s in the United States, and prices have picked up in Europe and across many other advanced economies as booming consumer demand runs into sharply constrained supply. In the eurozone, annual inflation jumped to 4.9 percent, according to data released Tuesday, the highest since records began in 1997. Global factory shutdowns, clogged ports and unusual shipping patterns have driven shortages in couches, cars and computer chips.Fed officials had for months predicted that the snarls would clear and price gains would fade. Instead, they have broadened — and that has made central bankers like Mr. Powell increasingly worried.“Generally, the higher prices we’re seeing are related to the supply-and-demand imbalances that can be traced directly back to the pandemic and the reopening of the economy, but it’s also the case that price increases have spread much more broadly in the recent few months,” Mr. Powell said Tuesday. “I think the risk of higher inflation has increased.”Monetary policymakers had spent recent months focused on helping the economy to heal, hoping to pull the millions of workers still missing from the job market back into work.To that end, the Fed’s policy interest rate, its more traditional and more powerful tool, has remained set to near zero. Officials had been stressing that they would be patient in pulling back that support and cooling down the economy, giving missing employees more time to return.But their tone appears to be shifting as prices for food, rent and goods are jumping.The Federal Reserve chair, Jerome H. Powell, and Treasury Secretary Janet L. Yellen appeared at a Senate Banking Committee hearing on Tuesday.Sarahbeth Maney/The New York TimesSlowing bond purchases quickly would put officials in a position to raise borrowing costs sooner than previously forecast. Lifting interest rates earlier or faster would pump the economic brakes, helping to slow home-building, business expansions and consumer spending. Weakening demand would in turn help to weigh down prices over time.By trying to rein in price increases, the Fed would probably slow hiring. Doing so could be painful while people still remain out of work partly out of virus fears or a lack of child care.That’s why Omicron could pose such a big challenge. If the new variant shuts down factories and slows shipping routes while keeping would-be job applicants at home, it could put the Fed in a tough spot. Central bank policymakers are supposed to foster both full employment and keep prices stable, and such a situation would force them to choose between those goals.Mr. Powell’s willingness to pull back support faster despite the new variant — and his full-throated recognition that price gains are not poised to be as short-lived as officials had once hoped — caught investors’ attention.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Elizabeth Warren Calls Jerome Powell a ‘Dangerous Man’

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    Senator Elizabeth Warren, Democrat of Massachusetts, blasted the Federal Reserve chair, Jerome H. Powell, for his financial regulation track record and said that she would not support him if the White House renominated him, calling him a “dangerous man to head up the Fed.”Mr. Powell’s term as head of the central bank ends in early 2022, and the Biden administration is considering whether to reappoint him. Mr. Powell, a Republican, was nominated to the Fed’s Board of Governors by former President Barack Obama and elevated to chair by former President Donald J. Trump.While some prominent Democratic economists and advocacy groups support Mr. Powell, who has been intensely focused on the labor market during his term as Fed chair, some progressives openly oppose him. They often cite his track record on financial regulation — as Ms. Warren did to his face on Tuesday, as he testified before the Senate Banking Committee.“The elephant in the room is whether you’re going to be renominated,” Ms. Warren said, looking down at the Fed chair during the hearing. “Renominating you means gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again.”Ms. Warren, and those who agree with her, have worried that leaving Mr. Powell in place will prevent the Fed from taking a tougher stance on financial regulation. Mr. Powell has said that when it comes to regulatory matters, he defers to the Fed’s vice chair for supervision, noting that Congress created that job to lead up bank oversight following the 2008 financial crisis.“I respect that that’s the person who will set the regulatory agenda going forward,” Mr. Powell said during a news conference last week. “And furthermore, it’s fully appropriate to look for a new person to come in and look at the current state of regulation and supervision and suggest appropriate changes.”Ms. Warren’s colleague Senator Michael Rounds, a Republican from South Dakota, followed her scathing comments by saying that Mr. Powell deserved to be renominated, and that he looked forward to working with him for the next several years.The White House has so far given little indication of whom it will pick to lead the central bank.President Biden already has the opportunity to fill one open governor position at the Fed, and several other roles will soon become available: The governor seat of the Fed’s vice chair, Richard Clarida, will expire in the coming months, as will Randal K. Quarles’s position as vice chair for supervision. The openings could give the administration a chance to remake the central bank from the top with its nominations, who must pass Senate confirmation.Other lawmakers at the Senate hearing pushed Mr. Powell to focus on improving diversity at the central bank — highlighting another key concern among Democrats as the leadership shuffle gets underway.Senator Sherrod Brown, a Democrat from Ohio and the head of the Senate Banking Committee, pointed out that there had never been a Black woman on the Federal Reserve’s Board of Governors in Washington, while also referring to reporting from earlier this year that showed a dearth of Black economists at the central bank.He asked if Mr. Powell believed that the central bank should have a Black woman on its Board of Governors.“I would strongly agree that we want everyone’s voice heard around the table, and that would of course include Black women,” Mr. Powell said. “We of course have no role in the selection process, but we would certainly welcome it.”Lisa Cook, a Michigan State University economist, and William Spriggs, chief economist of the labor union AFL-CIO, are often raised as possible candidates for governor positions or leadership roles. Both are Black. Lael Brainard, a white woman who is currently a Fed governor, is frequently raised as a possible replacement for Mr. Powell if he is not renominated, and Sarah Bloom Raskin, a white woman who is a former top Fed and Treasury official, is often suggested as a replacement for Mr. Quarles.Mr. Powell, as he noted, has no formal role in selecting his future colleagues at the Fed Board.He and his colleagues at the Fed Board will, however, have a chance to weigh in on who will take over two newly open positions around the Fed’s decision-making table. The central bank has 19 total officials at full strength, seven governors and 12 regional bank presidents.Robert S. Kaplan, the Dallas Fed president, and Eric S. Rosengren, the Boston Fed president, both announced their imminent retirements on Monday, amid widespread criticism of the fact that they were trading securities in 2020 — during a year in which the Fed unrolled a widespread market rescue in response to the pandemic.Mr. Powell addressed that scandal on Tuesday, pledging to lawmakers that the Fed would change its ethics rules and saying that the Fed was looking into the trading activity to make sure it was in compliance with those rules and with the law.“Our need to sustain the public’s trust is the essence of our work,” Mr. Powell said, adding that “we will rise to this moment.”Beyond grabbing headlines, the departures will leave two regional bank jobs available at the Fed. The regional branches’ boards, except for bank-tied members, will search for and select replacement presidents. The Fed’s governors in Washington have a “yes” or “no” vote on the pick.The Fed has never had a Black woman as a regional bank president, either. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, is the first Black man to serve in one of those roles.At the Board of Governors, Mr. Quarles’s leadership term ends most imminently, on Oct. 13. His position as governor does not expire until 2032, and he has signaled that he will likely stay on as a Fed governor at least through the end of his leadership term at the Financial Stability Board, a global oversight body, in December. Mr. Powell’s leadership term ends in early 2022, though he could stay on as governor since his term in that role does not expire until 2028. Mr. Clarida will have to leave early next year unless he is reappointed. More

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    Janet Yellen and Jerome Powell warn that the Delta variant is slowing the recovery.

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    America’s two top economic policymakers will warn lawmakers on Tuesday that the Delta variant of the coronavirus has slowed the economic recovery but will convey optimism about the economy’s overall trajectory, according to prepared remarks.Treasury Secretary Janet L. Yellen and the Federal Reserve chair, Jerome H. Powell, will testify before the Senate Banking Committee as the U.S. economy is at a crossroads, with businesses facing labor shortages and consumers coping with rising prices amid a resurgent pandemic. Congress is also grappling with a thicket of legislative challenges in the coming days, all of which could have an impact on the economy. They include extending federal funding to avoid a U.S. government shutdown, raising the debt limit to prevent defaulting on the nation’s financial obligations and passing President Biden’s infrastructure and social safety net packages.“While our economy continues to expand and recapture a substantial share of the jobs lost during 2020, significant challenges from the Delta variant continue to suppress the speed of the recovery and present substantial barriers to a vibrant economy,” Ms. Yellen will say, according to her prepared remarks. “Still, I remain optimistic about the medium-term trajectory of our economy, and I expect we will return to full employment next year.”The testimony will offer Ms. Yellen and Mr. Powell a chance to publicly press lawmakers to take action to raise or suspend the nation’s borrowing cap and to warn of the calamitous consequences if the United States defaulted on its obligations. Ms. Yellen has cautioned that debt-limit brinkmanship is eroding confidence in the United States and that a default, which could happen as soon as mid-October, would do irreparable harm to the economy.For weeks, Ms. Yellen has been quietly pressing lawmakers to put politics aside and ensure that the United States can continue to meet its fiscal obligations. She has been in touch with Wall Street chief executives and former Treasury secretaries as she looks to keep markets calm and find allies who can help her make the case to recalcitrant Republicans, who believe Democrats must deal with the debt limit on their own.“It is imperative that Congress swiftly addresses the debt limit,” Ms. Yellen will say. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”Mr. Powell is slated to tell senators that the Fed will continue to support the economy with its monetary policies, which influence how expensive it is to borrow and spend. But he will also make it clear that Fed officials will act if a recent jump higher in prices persists.“Inflation is elevated and will likely remain so in coming months before moderating,” Mr. Powell is prepared to say, based on remarks released Monday afternoon.He will cite the lingering coronavirus pandemic as a risk to the economic outlook, according to his prepared statement.Mr. Powell has also fretted about the debt limit in recent weeks, saying during a news conference last week that default is “just not something that we should contemplate,” and that “no one should assume that the Fed or anyone else can protect the markets or the economy in the event of a failure, fully protect in the event of a failure to make sure that we do pay those debts when they’re due.”Ms. Yellen and Mr. Powell will testify again on Thursday before the House Financial Services Committee. More

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    Powell Focuses on Economic Need at Key Moment in Markets and Politics

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyPowell Focuses on Economic Need at Key Moment in Markets and PoliticsThe Federal Reserve will continue to support the economy, its chair, Jerome H. Powell, pledged, even as concerns about inflation rise.Jerome H. Powell, chair of the Federal Reserve, during a hearing on Capitol Hill in December. He told lawmakers on Tuesday that America’s economy is a long way from recovered.Credit…Al Drago for The New York TimesFeb. 23, 2021Updated 6:57 p.m. ETThe economy is down nearly 10 million jobs since last February, prospects for a rapid recovery — while brighter — remain far from assured, and as Democrats try to move a $1.9 trillion relief package through Congress, Republicans argue that it’s too big and could lead to inflation that would hurt consumers and businesses.Speaking against that tense backdrop on Tuesday, the chair of the Federal Reserve, Jerome H. Powell, delivered a blunt message to lawmakers that the economic outlook remains wildly uncertain and that the central bank must continue its extraordinary efforts to support the economy.It’s a pledge Mr. Powell has made many times in the last 11 months, but it also resonated through financial markets, which had begun to quiver as investors worried that a rapidly improving economy would prompt the Fed to pull back on its efforts to bolster growth.In testimony before the Senate Banking Committee, Mr. Powell declined to weigh in on the Biden administration’s spending plans but pushed back on the idea raised by multiple Republican senators that the economy is on the cusp of running too hot and sparking inflation.“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Mr. Powell said. “There is a long way to go.”To bolster growth, the Fed plans to encourage lending and spending by holding interest rates near zero, where they have been since March, and by continuing to buy large quantities of bonds to keep money pumping through the financial system. Investors have grown concerned that the Fed might slow those bond purchases sooner rather than later if inflation begins to rise.Those worried investors had driven down stocks for five consecutive days. On Tuesday, the S&P 500 fell nearly 2 percent before snapping back after Mr. Powell’s remarks.In the bond market, interest rates on longer-term government debt have been climbing, reaching their highest point in a year this week. Those rates are the basis for corporate borrowing and mortgages, and their rise contributed to the stock market’s jitters.“We’re in one of these market mania moments in which there’s an intense focus on inflation,” and “he was very sanguine, very calm,” said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist. “He kept turning attention back to the labor market.”Mr. Powell reiterated that the Fed plans to keep buying bonds until it sees “substantial further progress” toward its twin goals of full employment and stable inflation. America can “expect us to move carefully, and patiently, and with a lot of advance warning” when it comes to slowing that support, Mr. Powell said.Joblessness has come down sharply after surging last year, but the official unemployment rate remains nearly double its February 2020 level. Job losses have been more acute for members of minority groups and those with less education. Though spending has bounced back, activity in the service industry is still subdued.Vaccines are feeding hopes for a stronger and more complete 2021 rebound. Prices are expected to rise temporarily in the coming months, both compared with the weak readings from last year and, potentially, as consumers spend down savings amassed during the lockdown on restaurant dinners and vacations.But Fed officials have been clear that they do not expect inflation to pick up in a lasting way and that they plan to look past temporary increases when thinking about their policies. Price pressures have been stubbornly tepid, rather than too high, for decades and across many advanced economies.Mr. Powell said that longer-running inflation trends do not “change on a dime” and that if prices start to rise in an alarming way, the Fed has the tools to fight that.“I really do not expect that we’ll be in a situation where inflation rises to troubling levels,” Mr. Powell said. “This is not a problem for this time, as near as I can figure.”He also pushed back on the idea that government spending is poised to send prices rocketing out of control.“There perhaps once was a strong connection between budget deficits and inflation — there really hasn’t been lately,” Mr. Powell said. He noted that while he does expect inflation to jump around in coming months, there is a distinction between a temporary pop in prices and a sustained increase.Still, he declined to weigh in on how much more government support is appropriate.“I, today, will really stay away from fiscal policy,” he said near the very start of the hearing. He went on to tiptoe around or simply decline to answer questions about the minimum wage and the size and various components of the White House’s spending proposal. At one point, he was asked whether he would be “cool” with passing the spending bill or not.“I think by being either cool or uncool, I would have to be expressing an opinion,” Mr. Powell said.The Fed is politically independent and steers away from partisan issues, but it has been providing advice to policymakers in Congress and weighing in on socioeconomic disparities and financial risks tied to climate change over the last year. Some of that outspokenness has drawn Republican attention.Senator Patrick J. Toomey, Republican of Pennsylvania, warned on Tuesday that the central bank should avoid moving beyond its core duties.“As noble as the goals might be, issues such as climate change and racial inequality are simply not the purview of our central bank,” Mr. Toomey said.Mr. Powell did talk about how strong labor markets help people on the margins — those who aren’t trained or those with criminal records — to succeed. He made it clear that the central bank is hoping to return to a strong labor market, like the one that preceded the pandemic.The Fed’s bond purchases can help to bolster the economy by lowering longer-term interest rates and by prodding investors out of safer assets, like government bonds, and into stocks and other more active uses of their cash.Mr. Powell said the economy over the last three months hasn’t “really been making” the substantial progress the Fed is looking for as a precondition for slowing its purchases, as job gains have slowed. But he said there’s an expectation that progress should “pick up as the pandemic subsides.”When it comes to the Fed’s main interest rate, the federal funds rate, which helps to guide borrowing costs across the economy, Mr. Powell also struck a cautious tone. The Fed wants to achieve full employment, hit 2 percent on inflation and believe that the economy is on track for even faster price gains before raising that rate.“Right now, our focus is on providing the economy the support it needs,” Mr. Powell said at one point, summing up his message.Matt Phillips More