Powell would face questioning at nomination hearing

On Tuesday, at the hearing on his nomination to continue four more years at the head of the central bank of the United States, Jerome Powell will be questioned about the most abrupt change that the Federal Reserve has undergone towards monetary adjustment in decades.

While the 68-year-old Fed chairman enjoys widespread support from Democrats and Republicans, and his confirmation is expected to be easy, members of the Senate Banking Committee are sure to press him on his views on everything, since when. start raising interest rates even if they adopt bank capital standards linked to climate risks. The hearing begins at 10 am in Washington.

“They will focus a lot on the state of politics and where you think it’s going“Said Tom Porcelli, chief US economist at RBC Capital Markets in New York.

The state elections held two months ago “really led to understanding that inflation matters”Said Porcelli, highlighting the sensitivity of legislators to the costs of living before the legislative elections in November.

Interest rates

Investors are betting that the Fed will start raising its benchmark federal funds rate in March, two years after cutting it to near zero at the start of the pandemic in March 2020.

A Labor Department report on Friday showed that the U.S. unemployment rate fell to 3.9% in December, approaching a pre-pandemic low of 3.5%, bolstering expectations and causing some economists to change their forecasts to a rate increase in March.

Amid widespread concerns in Washington about inflation, the minutes of the Fed’s December 14-15 monetary policy meeting, released on January 5, revealed that “various“Officials also”consider that labor market conditions are already broadly compatible with maximum employment”, The final prerequisite for moving forward with rate hikes.

However, the analysis is complicated because the impact of omicron could be different from that of the delta variant, according to Aneta Markowska, chief financial economist at Jefferies in New York. The new variant has led to more widespread labor market disruptions due to faster transmission than in the delta case.

At the same time, it comes during a seasonal slowdown in price pressures, unlike the delta, which hit just as the United States was increasing imports ahead of the holiday shopping season.

Balance sheet

Another potential area of ​​questions relates to discussions by policymakers about when and how to reduce the size of the Fed’s balance sheet, from $ 8.8 trillion. San Francisco Fed Chair Mary Daly said Friday that the central bank could choose to start the process after one or two rate hikes.

That timeline would be quite different from the one seen during the 2015-2018 tightening cycle, when Fed officials waited nearly two years after the first rate hike to begin cutting the balance sheet.

The urgency reflects growing concerns “that maybe they fell behind the curve“To control inflation, said Porcelli.

Powell could also be consulted about the oversight of cryptocurrencies (he has endorsed regulation of stablecoins) and the possible introduction of a digital version of the dollar.

Biden has yet to announce his nomination for the position of Fed Vice Chairman of Supervision, the central bank’s key person when it comes to regulatory affairs, though former Fed Governor Sarah Bloom Raskin is seen as one of the main contenders. More detailed questions are likely to be raised in the audience for that nomination.