Powell faces challenges in congressional hearing, monetary policy and bank regulation become focus

This week, Jerome Powell, Chairman of the Federal Reserve, will testify before both houses of Congress, facing dual pressure from Democratic and Republican lawmakers on key issues including banking regulation, monetary policy, and the economic policies of the Trump administration. The hearing comes at a time when the U.S. economy faces many uncertainties. The trade, tax, immigration, and regulatory policies proposed by the Trump administration have made the Fed's efforts to control inflation and maintain stability in the job market more complex. At the same time, there have been internal changes at the Fed. Vice Chair for financial supervision, Michael Bostic, announced his resignation last month, paving the way for the Trump administration to appoint new regulatory officials. In addition, the Fed has not met its 2% inflation target, with inflation persistently exceeding expectations since 2021, putting pressure on many American families in terms of living costs. Chairman of the House Financial Services Committee, French Hill, said: "Many lawmakers have doubts about the Fed's policies, especially its decisions after the COVID-19 pandemic." As inflation continues to be a major issue in the 2024 presidential election, the Fed's monetary policy is likely to be a key topic of discussion at the hearing. Sarah Binder, a senior fellow at the Brookings Institution, believes the hearing will be "explosive." While the Fed has always tried to avoid political controversy, she pointed out that the Fed "cannot completely isolate itself" because it needs public support for its monetary and regulatory policies. Powell is expected to emphasize a pause in interest rate cuts at the hearing. Since September of last year, the Fed has cut the benchmark interest rate by one percentage point, but recent economic data shows that the job market remains strong, with the unemployment rate dropping to 4%, and inflation still above target, reaching 2.6% in 2023. Although Powell tends to maintain a low profile, Democratic lawmakers may demand that he address whether Trump's plans to impose tariffs on Canada and Mexico will raise inflation and affect economic growth. Analysts believe Powell may choose to cautiously avoid these issues. Derek Tang, an economist at LH Meyer, an economic research firm, said: "When policy becomes a reality, keeping silent becomes increasingly difficult to maintain." If Powell comments on the tariff issue at the hearing, Republicans may question why he has not spoken out about the inflation risks posed by the Biden administration's pandemic relief spending. Chairman of the House Financial Services Committee, Hill, added: "Many lawmakers believe Powell should have warned about the significant increase in government spending." Additionally, the Fed will reevaluate its monetary policy framework adopted in 2020 this year. Hill believes the Fed's assessment of inflation targets, inflation analysis, and planning will be core topics of the hearing. With the Trump administration implementing a policy of deregulation, attention is also being paid to the Fed's banking regulatory direction. Regulatory rules for bank capital requirements, stress tests, and risk management, overseen by the Fed, may be subject to renewed scrutiny. Travis Hill, Acting Chairman of the FDIC under the Trump administration, released a 15-point statement last month calling for a comprehensive review of regulatory policies to ensure they contribute to economic growth. This trend may lead Republican lawmakers to pressure Powell to take a more lenient stance on bank capital requirements and stress tests. On banking regulation issues, Powell may take a wait-and-see approach, indicating that decisions will be made after a new vice chair for regulation is nominated by the White House. The Fed has previously stated that it will not advance major regulatory rule revisions until a successor is confirmed. Congressman Hill said: "The decision-making power for banking regulation lies with the Fed's board of governors, of which Powell is the chairman, so he must respond to this issue." Trump has publicly criticized the Fed's policy stance on multiple occasions, but recently his attitude seems to have softened. After the Fed's recent decision to keep interest rates unchanged, Trump initially opposed it, but later said that "keeping interest rates unchanged was the right decision." In an interview with the media, U.S. Treasury Secretary Scott Bennett said: "I believe Powell will do the right thing, so there will not be any criticism."