Before Senate committee, Powell earns support from Republicans for tenure, work he has done

Support for the chairman of the Federal Reserve Board – including for the job he is doing and for staying on the job – was offered by senators Thursday from the same party as the president of the United States, whose criticism of the central banker has been withering.

During a hearing before the Senate Banking Committee, as Federal Reserve Board Chairman Jerome H. (“Jay”) Powell offered his semi-annual report on monetary policy, Republican senators were outspoken in their support – and thanks – for the Fed chairman.

President Donald Trump, a Republican, has repeatedly berated Powell for not lowering interest rates, an action which Trump asserts would make the economy grow even faster. He has reportedly mused privately about replacing Powell as chairman of the Fed Board and asked White House attorneys to look into it. Powell has repeatedly said that the law is clear about his four-year term as chairman (he can only be removed for cause), and that he intends to serve his full term.

Some of the Republican senators at Thursday’s hearing seemed to support Powell’s position.

Sen. Richard Shelby (R-Ala., a senior member of the committee and former chairman) thanked Powell for his keeping the Fed free from influence from both political parties while doing the job as central bank leader. “Thank you for your work to keep the Federal Reserve independent of both parties, and doing your job for what it was set up to be,” the veteran lawmaker said (with a slight smile on his face). “We salute you for that,” he added.

Pennsylvania Sen. Patrick Toomey (R) said he watched Powell’s testimony (on the same subject) the day prior in the House Financial Services Committee. Toomey said he noted the question to Powell about his intention to serve out the remainder of his four-year term as chairman of the Fed Board (which, Powell again said, he intended to do).

“I, for one, am glad to hear that that is your conclusion – in part because I do think it is important that the Fed remain insulated from political pressure. But I also want to say for the record that I do think you have done an outstanding job,” Toomey told Powell.

Toomey noted that the day Powell was sworn into office, the federal funds rate (the gauge for interest rates generally) was close to zero, the Fed had an enormous balance sheet (and had not exited the effort at “quantitative easing”), and there was “no road map” for unwinding that position.

Toomey told Powell that the Fed chairman had to figure out a way of “normalizing” the Fed’s policies, “and you went about doing that.” He tied the Fed’s efforts to Congress’ passage of the 2017 tax legislation and the 2018 regulatory relief bill in making changes to the way the economy was addressed.

“And what’s the result? The result is the strongest economy of my lifetime,” he said, citing high growth, low unemployment numbers and rising wages. “That’s exactly what we hoped for,” he said. “You were able to normalize, with some very terrific consequences,” Toomey said.

Sen. Tom Tillis (R-N.C. and up for election next year) – after a number of questions about the payments system and the Fed’s study of a broadly available, real-time payments system – thanked Powell for his service. “Thank you for the great work you are doing; I think you do great work as chair,” Tillis said. “I appreciate everything you do in some of the most confusing times for somebody in your position.”

In other comments, Powell told Sen. Mike Rounds (R-S.D.) that it was too early to make changes to capital requirements for big banks. Rounds had asked the Fed chairman if the agency would consider revising capital requirements for larger banks under the Fed’s stress testing program (particularly under the comprehensive capital analysis and review (CCAR) stress testing program).

But Powell pushed back. “The tests will have to evolve over time, or they will become out of touch with reality,” Powell said. “We’re committed to making appropriate changes,” he added, but noted that “the amount of capital in system now is just about right. I do not think that it should be less, particularly for the largest banks.”

There is much work going on with an evolving CCAR, Powell said – “but we are going to preserve the overall strength and power (of the stress tests), while being transparent.”