The implications for the U.S. economy are “highly uncertain” in the wake of the Russian attack on Ukraine, the leader of the Federal Reserve Board said Wednesday, although he also pledged that the agency would be closely monitoring the situation.
In comments to the House Financial Services Committee for its semiannual hearing on monetary policy, Federal Reserve Board Pro Tempore Chair Jerome H. (“Jay”) Powell said the “near-term” effects of the invasion – coupled with the ongoing war, the sanctions imposed by the United States and its allies, and of events to come – remain highly uncertain.
“Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook,” Powell said.
In other comments, the Fed chair (who was given the “pro tempore” addition to his title by his colleagues on the board in anticipation of his confirmation by the Senate for another four-term term as board chair) said his agency’s approach to dealing with inflation will start with increases – if any – to the federal funds rate. Reduction in the in the size of the Federal Reserve’s balance sheet will follow.
“As the FOMC noted in January, the federal funds rate is our primary means of adjusting the stance of monetary policy,” Powell said. “Reducing our balance sheet will commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments.”
He also did something unusual for a Fed chair: he stated his preference for an interest-rate increase. Referring to the March 16 meeting of the rate-setting Federal Open Market Committee (FOMC), Powell said he was “inclined to propose and support a 25 basis point rate hike” during the meeting.
Meanwhile, Powell noted the new ethics rules adopted for Federal Reserve Board members and district banks last month, which he said “substantially strengthen” the board’s investment restrictions for senior Fed officials.
“Maintaining the trust and confidence of the public is essential to our work,” he told the committee. “These new rules will guard against even the appearance of any conflict of interest. They are tough and best in class in government, here and around the world.”
Testimony by Chair Pro Tempore Powell on the Semiannual Monetary Policy Report to the Congress