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Thursday, March 28, 2024

Watch Live: Warren Accuses Powell Of Weakening Regulations For Megabanks

Courtesy of ZeroHedge View original post here.

Update (1050ET): The first hour or so of Thursday's Senate Banking Hearing has been more or less what we might have expected. Sen. Pat Toomey, the ranking minority member, started by accusing the Fed of being incorrect about its assumptions regarding inflation and its "transitory" state.

Questioned again about a central bank digital currency, Powell replied that he was "undecided" on the matter.

Finally, Sen. Elizabeth Warren laid into Powell for the Fed's decision to roll back requirements for megabank stress tests, specifically regarding the "living will", a plan for unwinding the bank in a way that would avoid systemic shocks like what the world witnessed in 2008. "I see one move after another to weaken regulation for Wall Street banks," Warren said. Powell tried to explain that he has "actively resisted" attempts to weaken capital requirements for the largest banks, which he believes are a more important feature of banking regulation, but was quickly silenced by Warren (remember, politicians prefer answers to aggressive questions like these to fit into the 'yes or no' format).

Later, Powell again insisted that the Fed would react if inflation expectations continue to rise aggressively. He also noted that the American economy (as measured by GDP) has increased beyond its size from before the pandemic.

As for how the central bank's asset purchases impact inflation, Powell said he believes the Fed's purchases of MbS have "about the same" impact on inflationary pressures as Treasurys.

* * *

In what's likely to be a re-run of yesterday's hours-long testimony before the House, Fed Chairman Jerome Powell will join members of the Senate Banking Committee for another remote hearing where J-Pow will once again be forced to defend the Fed's policy stance amid a torrent of criticism from Republicans and Democrats.

In his prepared remarks and answers to lawmakers questions from yesterday, Powell insisted that the US economy isn't far enough along in its recovery for the Fed to even consider tapering its asset purchases or lowering interest rates, therefore he's in no hurry to roll back the Fed's monthly purchases of $120 billion in Treasury of mortgage securities. Pressed about the latest CPI data and the question about whether inflationary pressures might prove more resilient than the Fed expects, Powell says that while the Fed can't say with certainty that inflation will indeed be short-lived, it has plenty of tools to react should inflation prove more persistent.

Powell acknowledged that inflation has "increased notably" (contrary to the Fed's expectations) in recent months, and that it would likely "remain elevated in the coming months before moderating."

Lawmakers were also curious about crypto, specifically the Fed's plans for its own stablecoin (nicknamed "Fedcoin"). Powell said that he believes public comment should be solicited before the central bank develops its own digital dollar. He also said that "you won't need stablecoins, you wouldn't need cryptocurrencies" if the US had a digital currency. At least, that's Powell's view.

The Fed has committed to continuing bond purchases at this pace until it achieves "substantial further progress" toward its inflation goal.

Readers can watch Thursday's testimony below. It's set to begin at 0930ET.

Powell's full prepared remarks are below (pdf link)

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