- Fed Chair Jerome Powell testified before the Senate Banking Committee Tuesday.
- Powell said the Fed is in no hurry to lower rates.
- The Fed Chair also discussed stablecoins and tariffs.
Powell testified before the Senate in the Fed Chair’s semiannual address to Congress.
Federal Reserve Board Chairman Jerome Powell testified on the state of monetary policy Tuesday in his semiannual Monetary Policy Report on Tuesday.
In his nearly 2.5-hour testimony, Powell was peppered with questions from members of the Senate Banking Committee, but the primary focus was on the federal funds rate.
In his prepared remarks, Powell said the economy is strong, the labor market has cooled, and inflation has moved closer over the past year to its 2% goal, although it remains somewhat elevated.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Gross domestic product rose 2.5 percent in 2024, bolstered by resilient consumer spending,” Powell said. “Investment in equipment and intangibles appears to have declined in the fourth quarter but was solid for the year overall. Following weakness in the middle of last year, activity in the housing sector seems to have stabilized.”
On inflation, Powell said personal consumption expenditures (PCE) prices have risen 2.6% over the 12 months ending in December, with core PCE prices rising 2.8%. He added that longer-term inflation expectations appear to remain well anchored.
No Hurry to Lower Rates
On monetary policy, Powell reminded the senators that the Federal Open Market Committee (FOMC) has lowered rates a full percentage point since September. After rate cuts in September, November and December, rates are down to the 4.25% – 4.50% range. The recalibration in its policy stance was appropriate due to the decline in inflation and the cooling in the labor market.
“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said. “We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”
Powell added that the extent and timing of additional rate adjustments will be based on incoming financial data, the evolving outlook, and the balance of risks. He did offer some additional insight beyond the boilerplate answer on what happens if inflation does not move lower.
“If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer,” Powell said. “If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”
Powell Supports Regulatory Framework for Stablecoins
In the Q&A portion of the testimony, senators addressed a variety of subjects, including stablecoins.
Powell said he supports the creation of a regulatory framework for the issuance of stablecoins, which are cryptocurrencies that is tied to the price of a currency, like the dollar, or a commodity. Currently, representatives in the House are drafting a bill that would establish a framework for the issuance and operation of dollar-denominated payment stablecoins.
“Stablecoins may have a big future with consumers and businesses,” Powell said. “We can’t know that now, but it is important for the development of stablecoins in a safe and sound manner that protects consumers and savers.”
Powell also agreed that he would never launch a Central Bank Digital Currency (CBDC) as long as he was chair. This was welcomed by many in the crypto industry, as that had long been a concern.
“For far too long, the Federal Reserve has maintained a legal gray area around the possibility of a U.S. central bank digital currency, or CBDC,” Cato Institute Policy Analyst Nicholas Anthony said in reaction to Powell’s statement. “Federal Reserve Chair Jerome Powell’s commitment to never issue a CBDC is a welcome change of pace. CBDCs present risks to financial freedom, privacy, and markets. More central banks should follow Chair Powell’s lead.”
Not Fed’s Job to Comment on Tariffs
Finally, Powell was asked about tariffs and their potential impact on the economy and monetary policy. But he deferred, refusing to make any judgments.
“I think the standard case for free trade and all that logically still makes sense,” Powell said. “It didn’t work that well when we have one very large country that doesn’t really play by the rules. And, in any case, it’s not the Fed’s job to make or comment on tariff policy. That’s for elected people, and it’s not for us to comment. Ours is to try to react to it in a thoughtful, sensible way and make monetary policy so that we can achieve our mandate.”
Markets were mostly down on Wednesday after the Powell testimony, with the S&P 500, Nasdaq, and Russell 2000 trending slightly lower. The Dow Jones was up slightly.
Powell will testify tomorrow before the House of Representatives, starting at 10:00 a.m. ET.