Earlier this month, Sen. Jack Reed (D-RI) questioned Federal Reserve Chair Jerome Powell on interest rates during a Senate Banking Committee hearing.
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NewsTranscript
00:00The senior member of the committee will begin the questioning.
00:02Senator Reed.
00:03Thank you very much, Mr. Chairman.
00:05Former President Trump has indicated that he would propose, if elected, a substantial increase
00:15in tariffs of between 10 and 60 percent, and by doing thus, eliminate the federal income tax.
00:23First, in the question of what would be the impact of tariff increases on prices,
00:29consumers, and the economy?
00:31Thank you, Senator Reed.
00:33So I'm going to say that we go very far out of our way not to comment
00:40on campaign-type information.
00:43We just don't do that.
00:44And we also don't comment on trade policy.
00:46We have really specific and important jobs, and we try to stick to those.
00:51Well, I'm glad I allowed you to establish that principle up front, Mr. Chairman.
00:56But let me opine a bit.
00:59Ten percent increases in tariffs is going to have an effect on prices in the shop aisle.
01:04It's going to increase them, because they'll be passed on likely.
01:07Sixty percent tariff increases are significant.
01:10And in fact, I've been told that to replace the income tax, you would have to raise tariffs
01:15across the board 70 percent to make up for the loss of the income tax,
01:21which would, I think, create huge economic problems.
01:25I respect your impartiality and your neutrality, but the numbers don't seem to add
01:31up to anything that would help the country.
01:34Let me switch to something else that might be more within your line of response.
01:40You said in your opening statement that labor markets appear to be in a better balance.
01:46And that's one of the key factors to judge whether interest rates can be raised.
01:52I must say, I'm concerned a bit that we're not on a very faster track
01:59to decreasing interest rates from the Fed, and because of the better balance you cite.
02:06Could you comment on that, Mr. Chairman?
02:08Sure. So the most recent labor market data do send, to your point, a pretty clear signal
02:16that labor market conditions have cooled considerably compared
02:18to where they were two years ago.
02:20This is no longer an overheated economy.
02:23This is an economy, as I mentioned in my opening remarks, that is more or less back
02:27by most measures to where it was before the pandemic.
02:30And that was a strong labor market, but it was not an overheated labor market.
02:34So I think the upshot of that really is that we are, we're well aware
02:39that we now face two-sided risks and have for some time.
02:44But now, you know, the labor market appears to be fully back in balance.
02:47We know that if we move too quickly, we risk, you know,
02:54unnecessarily hampering economic activity and possibly interfering
02:57with the ongoing expansion.
02:59We know that if we move too slowly, that we may undo the good we've done.
03:04Well, actually, it's the other way.
03:05If we loosen policy too late or too little, we could hurt economic activity.
03:13If we loosen policy too much or too soon,
03:16then we could undermine the progress on inflation.
03:18So we're very much balancing those two risks, and that's really the essence
03:22of what we're thinking about these days.
03:24But the direction seems to be going towards lowering interest rates at some point.
03:29We would hope that might be a wish rather than a direction.
03:33But I think if you look at the last summary of economic projections,
03:37I guess I would say it this way, it doesn't seem likely
03:41that the next policy move would be a rate increase.
03:43We don't take things like that off the table,
03:45but that does not seem the likely direction.
03:47The likely direction does seem to be in as we make more progress in inflation
03:52and as the labor market remains strong,
03:54we begin to loosen policy at the right moment.
03:57Just two weeks ago, the Supreme Court handed down two decisions
04:03that impact every federal regulatory agency, including the Federal Reserve.
04:08They overturned the Chevron case, which had eliminated judicial deference
04:16to agency decision-making for many, many decades.
04:19And they also dramatically extended the statute of limitations
04:22under the Administrative Procedure Act.
04:25What is your judgment is the cumulative effect
04:28of these decisions on the Federal Reserve?
04:30More broadly, what does it mean to the economy
04:33if virtually any regulatory decision the Fed makes can be second-guessed
04:37by a judge, what position are we in now?
04:42So we're, you know, we're as an institution very focused
04:46on reading the actual letter and intent of the law and following it carefully.
04:51This is a strong institutional value that we have.
04:54Those are brand-new decisions that just came down and we're really
04:59in the process of just studying some.
05:00I don't have anything for you on them, but we will, of course,
05:03follow the law as the Supreme Court has read it, because that's their job.
05:09Well, thank you.
05:10And I concur with compliance with the law.
05:12But when you do your analysis, and if it is detrimental to your ability
05:18to regulate the banking of the United States,
05:20I think you have an obligation to make that public.
05:23Thank you, Mr. Chairman.
05:25Thank you, Senator Reid.