Jerome Powell Sees Rates Rising Somewhat Further

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  • Fed must act decisively, with appropriate force to new threats
  • He vows to support economy on march toward ‘full recovery’
Amherst Pierpont’s Stephen Stanley discusses Jerome Powell’s prepared remarks he’s scheduled to deliver Tuesday.

President Donald Trump’s nominee to head the Federal Reserve is making one thing clear as he prepares to testify before lawmakers: He’s not here to shake things up at the U.S. central bank.

Jerome Powell

Photographer: Olivier Douliery/Bloomberg

Jerome Powell, in a statement to the Senate Banking Committee ahead of his confirmation hearing on Tuesday, signaled broad support for how the Fed operates, regulates and guides the economy, offering a full-throated defense of the government institution he’s about to lead.

“Our aim is to sustain a strong jobs market with inflation moving gradually up toward our target,” Powell said in the text of his remarks, which the Fed released on Monday. “We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink.”

That keeps Powell firmly in line with the trajectory for monetary policy set out by current Fed Chair Janet Yellen, whom he’ll succeed in early February if he’s confirmed. Under Yellen, the Fed has raised rates just four times in two years and put its $4.5 trillion balance sheet on a very gradual path of slimming down.

Fed officials are scheduled to meet Dec. 12-13 in Washington and are widely expected to raise their benchmark interest rate by a quarter percentage point.

‘Far Stronger’

On regulation, Powell struck a similar note, pledging to protect financial stability, even as he spoke of refining post-crisis regulatory reforms.

“Our financial system is without doubt far stronger and more resilient than it was a decade ago,” he said. “We will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms.”

Powell said those core banking rules include strong minimum levels of capital and liquidity, stress testing and living wills for large banks in case they collapse. His defense of those reforms is likely to draw criticism from some Republicans on the panel who would prefer the Fed move to more aggressively roll back rules they believe are stifling lending.

Fed’s Structure

Powell, 64, was even more resolute about defending the unorthodox structure of the Fed, which includes the Washington-based Board of Governors, appointed by the president, and 12 privately incorporated regional reserve banks.

“I am a strong supporter of this institutional structure, which helps ensure a diversity of perspectives on monetary policy and helps sustain the public’s support for the Federal Reserve as an institution,” he said.

While his defense of the status quo may irk some lawmakers, Powell is unlikely to face trouble in winning confirmation in the Republican-controlled Senate.

He has the added luxury of taking over at a time of relative economic calm. Where Yellen inherited a still-deeply damaged economy in 2014, Powell will step into office with unemployment at a 16-year low and inflation below the Fed’s 2 percent target.

Powell said that, if confirmed, he’ll strive “to support the economy’s continued progress toward full recovery.” While some Republican lawmakers have criticized the Fed for the extent to which it acted during the crisis to shore up the financial system, Powell struck a tough tone about how he’d address the next threats to the country’s economy.

“Even as we draw on the lessons of the past, 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,” he said.

In his pursuit of the Fed’s two aims -- maintaining price stability and fostering maximum employment -- Powell said he be guided by facts rather than politics.

“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,” he said. “I would be guided solely by our mandate from the Congress and the long-run interests of the American public.”

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