Fed Chair Jerome Powell: We Need To See 'More Good Inflation Data' Before Long-Term Rate Cuts
During a Senate Banking Committee hearing prior to the Congressional recess, Sen. Bill Hagerty (R-TN) spoke about inflation and interest rates.
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript
Stay Connected
Forbes on Facebook: http://fb.com/forbes
Forbes Video on Twitter: http://www.twitter.com/forbes
Forbes Video on Instagram: http://instagram.com/forbes
More From Forbes: http://forbes.com
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript
Stay Connected
Forbes on Facebook: http://fb.com/forbes
Forbes Video on Twitter: http://www.twitter.com/forbes
Forbes Video on Instagram: http://instagram.com/forbes
More From Forbes: http://forbes.com
Category
🗞
NewsTranscript
00:00Thank you, Mr. Chairman.
00:04Chairman Powell, welcome.
00:06Chairman, last week in Portugal you said that you wanted to be, quote,
00:10more confident that inflation is moving sustainably
00:12down before you begin to cut rates.
00:15You also said in your testimony that you need greater confidence
00:18and more good data before lowering rates.
00:20Can you give us any color as to what it is you're looking for in the data
00:24and how long it might take us to get there?
00:27We need just to see more good inflation data.
00:29That's all.
00:30We, you know, we had seven months of good inflation data at the end of last year.
00:33Then we had a quarter, really a month or so, where inflation went up.
00:37And now it may be we had one really good inflation reading and one pretty good one.
00:42We just need to see more so that confidence rises.
00:45I'm not going to-
00:46Are we weeks away, months away?
00:49Yeah, I mean, I'm going to try to avoid sending any really specific signals
00:53about time today because it's going to depend on the data.
00:56It also matters what's going on in the labor market, though.
00:58You know, we've also said that if the labor market weakens unexpectedly,
01:01that could be a case for loosening policy as well.
01:05Really, we're weighing both those factors.
01:07Here's one of my concerns.
01:08I'm sure you probably share it, but we're coming off of a 40-year high in inflation.
01:13We've seen the rate of inflation coming down, but we haven't gotten to the 2 percent target.
01:18And my concern, for lack of a better term, is whether or not this might be transitory
01:21in terms of the data that we're seeing right now.
01:24That's exactly why we're approaching this question carefully.
01:28I thought that might be your answer.
01:29Thank you, Mr. Chairman.
01:30Can we shift now to the issuance of Treasury debt?
01:33You know, the Fed is the largest holder of Treasury debt.
01:38In February, you and I talked about the pressures that our fiscal deficit is exerting
01:41on interest rates, which by extension makes your job more difficult.
01:45I'd like to talk this time about how Treasury issuance is impacting our economy
01:49and our monetary policy.
01:51First, just a basic question.
01:52If Treasury issuance were to shift drastically, either to the long end or the short end
01:57of the curve, would that affect interest rates?
01:59Or maybe more simply, do changes in supply
02:01across maturities impact interest rates in the yield curve?
02:06I mean, I think in theory they can.
02:08No, I agree.
02:10As you know, the Treasury Borrowing Advisory Committee recommends that T-bills comprise
02:15between 15 and 20 percent of total U.S. debt.
02:18Right now, the Treasury is issuing T-bills significantly above that recommended range.
02:23Some people, including myself, believe that this is being done
02:26to artificially stimulate markets in the run-up to the election.
02:29And it's shocking how little attention this is getting.
02:32Any manipulation of debt management of this nature stimulates inflationary pressures
02:37and increases taxpayer burden because it's higher cost to issue these bills.
02:42So given that Treasury is issuing an excess of short-term debt,
02:45which pulls down longer-term rates, isn't it working at cross-purposes
02:49with your monetary policy goals of taming inflation?
02:52So we take Treasury's debt management decisions.
02:56We don't comment on them.
02:57We just do our jobs.
02:58I'm not asking for a comment on their decision, but just as a simple mathematical truth,
03:03if they're pulling down demand on the long end of the curve, doesn't that work?
03:07I wouldn't say that that has important inflation implications, no.
03:11You know, it just feels to me the same way
03:13that the Biden administration drains the strategic petroleum reserve.
03:16That undermines our ability to respond to energy shocks.
03:20When the Treasury manages its debt in this manner, it constrains our ability
03:23to respond to future economic shocks, and that opens our nation up to very real risk.
03:29Whether it be amplifying the effects of the Fed's balance sheet reduction,
03:33flooding the supply of one of the most important short-term debt instruments,
03:36the risks seem to me to be mounting for Treasury market disruption.
03:40I'd like to know what your thoughts are, Mr. Chairman, about how the Fed will navigate this
03:43and whether you've had discussions with the Treasury
03:46about this growing dangerous dynamic.
03:49No, we don't have a seat at the table on Treasury debt management.
03:52Treasury makes those decisions, and they don't have a seat at our table on monetary policy.
03:56I just think the risk is very obvious here, though,
03:59where we're headed with this type of portfolio.
04:01Honestly, it's just, it's completely out of bounds for me to comment
04:05on Treasury debt management in any way.
04:07I think you've been dealt a very difficult hand here, Mr. Chair.
04:10The Biden administration's policy is aimed to gin up the economy ahead of the election.
04:14These efforts directly undermine your policy goals at the Fed.
04:17That includes excessive issuance of short-term debt, think about it,
04:21Freddie Mac's backstop of second mortgages, unlawful student debt loan cancellations,
04:26the draining of the Strategic Petroleum Reserve to suppress fuel prices,
04:30and President Biden's own jawboning of the FOMC to lower rates.
04:34As you know, the Federal Reserve was structured to shield monetary policy
04:37from political influence, and that independence has given the Fed unique credibility
04:42in executing its mission.
04:43If the FOMC were influenced in any way by political calculation rather than economic data,
04:47it would severely damage the Fed's credibility as an independent institution,
04:51it would increase uncertainty in our markets,
04:53and it would jeopardize the dollar's status as the global reserve currency.
04:57Thank you, Mr. Chair.
04:58Senator Warren of Massachusetts.