Jerome Powell gets grilled on the Hill

This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.

Jerome Powell was back on Capitol Hill for his second day of testimony today.

We do not envy him. Senators yesterday grilled Powell on everything from the dismantling of the CFPB to Trump’s tariff policies, and today was more of the same.

Since Powell is Powell, he generally kept his answers short and diplomatic, making it particularly exasperating to watch.

“I think the standard case for free trade and all that logically still makes sense. It didn’t work that well when we have one very large country that doesn’t really play by the rules,” Powell said. We’re thinking he’s talking about China here.

“And in any case, it’s not the Fed’s job to make or comment on tariff policy.”

Sen. Elizabeth Warren, a key architect of the CFPB’s creation in the aftermath of the 2008 financial crisis, said not having the agency is akin to having “no cop on the beat.”

Powell agreed that there is no other regulator currently tasked with monitoring banks and ensuring consumer protections. He added, though, that bank accounts are “safe.”

Over in the House, crypto banking did get a little shoutout in the midst of the CFPB-talk.

“Are there any backstops that we can use, any firewalls that we can put in place that might insulate the traditional banking system… if we have a collapse of a major crypto issuer?” Rep. Stephen Lynch asked on Tuesday.

Powell conceded that it’s “appropriate” to make sure banks understand the risks that are involved in crypto activity if they’re taking on these clients, but at the same time “you don’t want to go too far.”

“In Fed regulated banks, there are lots of crypto activities happening now,” Powell added. “They’ve just happened under a framework where we made sure that the bank understood, and we understood, exactly what they’re doing.”

In terms of specifics on monetary policy, which was somewhat ironically the least-discussed topic on Tuesday and Wednesday, Powell simply reiterated that the committee will take its time lowering interest rates.

“We’re in a pretty good place with this economy,” Powell said Tuesday. “We want to make more progress on inflation.”

Wednesday’s testimony of course came after the latest CPI report showed inflation hit 3%.

Powell told reps that today’s CPI proves that “we are close but not there on inflation.”

“So we want to keep policy restrictive for now,” he added.

For those riding the quantitative easing train, it was easy to miss Powell’s quick comment about the practice, but he did make one:

“Quantitative easing is a tool we only use when rates are already at zero,” he said.

Remember, QE + near zero rates almost always equals pain. Weaker currency, long-term inflation risks, the list goes on. Here’s to hoping we don’t get there.

Source