Powell testifies before House on Federal Reserve response to COVID crisis
Yahoo Finance's Brian Cheung, along with Adam Shapiro and Seana Smith, sums up everything that happened during the testimony of the Federal Reserve chairman Tuesday before the House subcommittee.
SEANA SMITH: Welcome back to Yahoo Finance. I'm Seana Smith, along with my co-host Adam Shapiro. And we just listened to Fed Chairman Jay Powell summarizing his testimony in front of a few members of the House of Representatives. He testified before the House of Representatives subcommittee on the coronavirus crisis. And Adam, he really spoke about the Fed's response to the pandemic so far, what he expects in terms of future growth. And I think his tone was very positive.
However, he touched on two areas that are relatively uncertain, at least here in the short term, including job creation, the fact that we have not taken on as many workers back into the workforce as we originally expected here a few months ago. And there was a fiery exchange between Fed chairman Jay Powell and also MP Jordan, the Republican from Ohio. And then of course inflation questions, and Fed chairman Jay Powell insists again that he still sees these inflationary pressures as temporary. Adam, I think you are dumb.
ADAM SHAPIRO: Seana, I'm sorry. You know, some of the things Powell said were things you would expect in response to what we hear from not just Republicans. There are Democrats worried about the steps that have been taken not necessarily by the Fed but by the federal government to keep people healthy and viable through the pandemic, federal government payments.
He said that improved unemployment benefits could be a factor in the labor shortage that we are seeing right now. But he also talked about - remember, when he talked about the discharge rate, a lot of what we see is people quitting because they feel safe. And he referred to the strength of the economy. He also spoke about the concern he has with inflation.
And they tried to talk about whether or not the current course is sustainable. And he talked about the need to control spending and that as an economy grows, it becomes sustainable. So there was nothing really extraordinary about the hearing. But it was a chance for politicians to get their commercials for the people back home. And it was a chance for the Fed chairman to respond to the critics and the people who might get involved in his work. In fact, I think it was a couple of Democrats who said they were concerned that the Fed would lift its easing way too soon.
SEANA SMITH: Yeah, that's a big problem, but if you look at the market reaction, it looks like investors were relatively happy with what they heard from Fed Chairman Jay Powell. We currently see all three major averages in the green, with just under 20 minutes until the trading day. We would like to come to our Fed reporter Brian Cheung, who of course follows the testimony with us all day. And Brian, I guess what did you notice of what we just heard from Fed Chairman Jay Powell?
BRIAN CHEUNG: Yeah, to be honest, Seana, nothing crazy. First of all, we have to acknowledge that for any Fed watcher who is wondering, this seems a little too early to complete because it is not up to the House Financial Services Committee or the Senate Banking Committee. This is the selected subcommittee on the coronavirus crisis which I think only has 12 or 13 members. So it's much smaller than the other chambers you usually see when you question the Fed chairman.
Now, as for the content of the hearing itself, as Adam pointed out, there were some political issues. Some questions have been put to the Fed chairman regarding the origin of the virus itself that, as we know, monetary policy officials do not necessarily know about the virology or the nature of this COVID pandemic. As for policy substance, I think there was a lot expected at this hearing that we could get more clarity from the Fed chair on what the Federal Reserve thinks about tapering.
As we know, the Federal Reserve has withdrawn that term that was about talking about tapering. Those talks really started last week, but no questions on that front. And then no questions about the forecasts we received last week, which show that more members of the Federal Reserve are seeing a rate hike earlier than projected in March. So, by and large, a lot of questions about where the job market is. We heard the Fed chairman say something that said there are still over seven million people on the sidelines.
So the economic upturn is still a long one. And then on inflation, he said he continued to view inflationary pressures as temporary even though we got a bit of new information when he said 5% inflation was unacceptable. Is that of course 5% on PC, 5% on CPI? That's pretty vague. By and large, these were all things we already knew from the Fed chief's press conference last Wednesday.
I think it was repackaged just for this hearing. And every kind of opportunity we've had to hear from the Fed Chairman to respond to people like St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan, who have had their more restrictive views over the past few days uttered wasn't necessarily there. The survey was focused on a higher level.
So I would say that there is nothing particularly crazy about things we learned new today, although the Fed chairman who says the economy still has a long way to go suggests he is in this one Respect one of the more reluctant people is plot projection. Keep in mind that only five of the 18 monetary policy makers did not forecast interest rate hikes by 2023. We don't know if the Fed chairman is one of them. But from his broad comment that the job market still needs more time to recover, it sounds like he's more reluctant than perhaps some of his peers. Guys.
ADAM SHAPIRO: Brian, this whole discussion about sustainability when you were talking about the ability of the United States to maintain its spending and debt was nothing new. I can imagine two previous Fed chairpersons saying the same thing. Is there any kind of understanding when this really becomes a problem? Is the Fed ever talking about when this might actually be a problem for us?
BRIAN CHEUNG: Yeah, well, there have been some questions about whether or not there is a positive test when it comes to debt percentage of GDP, whether it is a sum, or whether or not you are looking at growth numbers. But by and large, I think the Fed chair is trying to shy away from offering any specific line, because that's the level at which we are really in trouble.
But there were some comments and an interesting exchange that made me forget who it was, but he talked about the idea that the United States is still the most powerful country in the world and the economy still comes first. So in terms of paying off his debt, he didn't-- he said the Federal Reserve shouldn't worry about paying any bills it owes to other countries around the world.
That doesn't mean that the federal debt is on a sustainable path. In fact, even before the unprecedented government spending during the COVID crisis, the Fed chairman said that debt was exceeding growth in the United States, which is inherently unsustainable. That's a definition he uses. This is a definition that the Congressional Budget Office also uses.
So he says, yes, we understand that we spend more than we grow. But we had to do this during the pandemic to make sure we can support the economy so that there are companies to return to, so that there are people to return to those jobs. And I think that's what he really wanted to underline there.
But of course, Congress is happy to ask the Fed chair such questions. We saw it with him. We saw it with former Fed chief Janet Yellen, and then with her predecessor, and then with her predecessors. So this is just a big part of the changing line-up of what I think constant questions when it comes to testimony before Congress.
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