What To Expect From Fed Chair Powell’s Congressional Testimony Tuesday

Upcoming Testimony of Federal Reserve Chair Jerome Powell

Federal Reserve Chair Jerome Powell is scheduled to testify before Congress on Tuesday, where he will likely face questions about interest rates, the Fed’s independence from politics, and the economic impact of the U.S. entry into the conflict between Israel and Iran.

Key Takeaways

• Federal Reserve Chair Jerome Powell will testify before Congress on Tuesday
• Powell will likely face questions about interest rates and the Fed’s independence
• The economic impact of the U.S. entry into the conflict between Israel and Iran will also be discussed

Powell is scheduled to talk with the House Financial Services Committee about the Fed’s semi-annual report to Congress, which was released Friday. The report touched on the message Fed officials have been sending for months: the central bank is in "wait-and-see" mode regarding its benchmark interest rate.

The Fed’s Wait-And-See Approach To Interest Rates

In the report, the Fed repeated its determination to see how tariffs impact the economy before possibly cutting rates. The Fed is tasked with keeping inflation low and employment high. In recent government reports, inflation has been subsiding, nearly reaching the Fed’s goal of a 2% annual rate by some measures, while the unemployment rate has remained low by historic standards.

The Fed’s current stance of monetary policy leaves it well-positioned to wait for more clarity on the outlook for inflation and economic activity and respond in a timely way to potential economic developments. The Committee will carefully assess incoming data, the evolving outlook, and the balance of risks in considering the extent and timing of additional adjustments to the target range for the federal funds rate.

The Fed’s Independence, And Trump’s Attacks

While economic conditions haven’t pressured the Fed to cut rates, the president of the United States has. Last week, Trump escalated his demands for the Fed to lower interest rates, calling for the fed funds rate to be dropped to 1% or 2%, a dramatic cut that the Fed would typically only make to boost the economy during a recession.

The Federal Reserve is independent of direct control by the White House. The president can appoint officials to the Fed’s leadership committee and nominate its chairperson, but only when their terms of office expire. The Supreme Court recently reaffirmed the Fed’s special status among government agencies. So far, Congress members from both parties have supported the Fed’s independence, with at least one Republican congressman proposing legislation that would reinforce the central bank’s independence.

How The Conflict Changes The Outlook

Powell will also have the chance to weigh in on how the U.S. involvement in the conflict between Israel and Iran affects the outlook for inflation. The entry of the U.S. into the conflict adds yet another risk to an already volatile economic equation. The conflict could disrupt oil supplies and push up gasoline prices, especially if Iran retaliates by closing off the crucial Strait of Hormuz to shipping.

On Friday, before the strikes, the Fed report noted that Israeli air raids on Iran this month had only driven up oil prices modestly. However, if the conflict escalates and gas prices increase, consumers and the broader economy could feel the pinch. With tariff-induced price hikes already set to squeeze household spending power, higher gasoline prices would intensify the strain on consumer pockets, risking a more pronounced slowdown in the economy.

Conclusion

In conclusion, Federal Reserve Chair Jerome Powell’s upcoming testimony before Congress will be closely watched as he faces questions about interest rates, the Fed’s independence, and the economic impact of the U.S. involvement in the conflict between Israel and Iran. The Fed’s wait-and-see approach to interest rates, its independence from politics, and the potential impact of the conflict on the economy will all be key topics of discussion. As the economy continues to evolve, the Fed’s decisions will have significant implications for the future of the U.S. economy.