The most difficult testimony in history? Powell will face four major "interrogations" tonight.

Author: Jin10

Federal Reserve Chairman Jerome Powell will have two opportunities this week to explain to Congress why he and most of his colleagues are determined to keep interest rates unchanged until September, despite President Trump's ongoing calls to lower borrowing costs.

The Federal Reserve Chairman will testify before the House Financial Services Committee at 10 PM Beijing time on Tuesday and before the Senate Banking Committee at the same time on Wednesday.

Just a week ago, Federal Reserve officials agreed to maintain interest rates at their current level for the fourth consecutive meeting. However, before his appearance this time, the United States recently attacked Iran, heightening concerns about soaring oil prices and global economic risks.

In a post, Trump stated that he hopes Congress can "properly knock on" Powell and argued that U.S. interest rates should be "at least two to three percentage points lower." Last week, the Federal Reserve kept the benchmark federal funds rate in the range of 4.25% to 4.5%.

Trump said, "For many years to come, we will pay the price for his incompetence, and the committee should take action."

The following are the remarks prepared by Powell and noteworthy points from the Q&A session with the members of Congress:

Interest Rates and the Economy

Powell is expected to cautiously follow the message he conveyed last week, when he stated that the Federal Reserve "is in a good position to wait and learn more about the possible direction of the economy" before considering any changes to interest rates.

"We hope to obtain more data, and at the same time we can do this because the economy is still in a robust state," Powell told reporters last week. "Ultimately, the costs of tariffs must be paid, part of which will fall on the final consumer."

So far, the tariffs imposed by the Trump administration have not led to the price increases and rising unemployment rates that policymakers warned about. In fact, economists expect that this week's data will show that the Fed's preferred core inflation measure rose only 0.1% in May, marking the third consecutive month of such an increase, which will be the mildest three-month inflation growth since 2020.

Two Federal Reserve governors, Waller and Bowman, have both indicated that the impact of tariffs on prices may be temporary, and they may support a rate cut in July.

James Egelhof, Chief U.S. Economist at BNP Paribas, said, "Powell seems to lack a sense of urgency to act on the potential direction of inflation, and he appears to believe that the risk of making a wrong assessment is quite high."

The Israel-Palestine Conflict

Powell is almost certain to be asked about the potential impact of the Middle East events on the economy. Over the weekend, the U.S. directly joined the conflict by bombing Iran's nuclear facilities. Trump announced a ceasefire between Iran and Israel, which led to oil prices plummeting to levels seen the day before Israel attacked Iran.

At last week's press conference, Powell took a cautious stance on comments regarding the conflict and its potential impacts. "Of course, we are monitoring the developments like everyone else," he said. "We may see higher energy prices. In the past, when there has been turmoil in the Middle East, you might see energy prices spike, but they often recede afterwards. These events typically do not have a lasting impact on inflation."

political pressure

Republican lawmakers are expected to pressure Powell to provide a clear justification for his wait-and-see stance, although some are almost certain to take a less aggressive approach.

"Chairman Powell deserves praise for successfully navigating some of the most difficult periods in modern history," said Dan Meuser, a member of the House Financial Services Committee from Pennsylvania, in a social media post over the weekend. "But with inflation cooling and a strong labor market, the benefits of rate cuts are becoming hard to ignore."

But if other lawmakers follow Trump's example, Powell may face even fiercer criticism. Trump's recent attacks have focused on the costs that interest rates impose on the federal government. He has also become increasingly personal, calling the Federal Reserve chairman "one of the dumbest and most destructive people in government."

According to the Federal Reserve, when Powell met with Trump in May, he told the president that the decisions of the Federal Open Market Committee were based on "prudent, objective, and non-political analysis." He is expected to demonstrate more of this steadfast attitude.

"He will behave completely calmly," predicted Mark Gertler, a professor of economics at New York University.

Powell may also hear encouraging words from Democrats, who may warn that the independence of the Federal Reserve is under threat from Republicans.

bank regulation

Federal Reserve observers will also have the opportunity to gauge Powell's views on the ongoing critical regulatory reforms. The White House is pursuing a deregulatory agenda, and several federal agencies are currently working to relax rules. As part of this, Trump nominated Bowman to serve as vice chair for supervision at the Federal Reserve.

On Monday, Bowman stated that it is time to re-examine a key capital buffer, as some regulators and bankers believe that this buffer limits banks' trading in the $29 trillion Treasury market. According to Bloomberg, the Federal Reserve and other regulators will propose lowering the so-called "Enhanced Supplementary Leverage Ratio" (eSLR), a rule introduced in 2008 that forces banks to hold a certain amount of capital relative to their assets.

Powell may also have to answer questions about the proposal recently put forward by Texas Republican Senator Ted Cruz to prohibit the Federal Reserve from paying interest on bank reserves. Cruz claims that this move would save $1.1 trillion over ten years, but some analysts believe it could jeopardize the Fed's ability to control short-term interest rates.

Senate Banking Committee Chairman Tim Scott blocked the proposal from being attached to the Trump tax and spending plan still under consideration in Congress, but did not completely dismiss the idea.

The Federal Reserve's payment of interest on bank reserves effectively prevents banks from lending at rates lower than the Fed's expected rates, thereby setting a lower bound for the overnight market.