Hill Update: Financial Services Hears from Powell

During the first week of March, the House Financial Services Committee and Senate Banking Committee heard testimony from Federal Reserve Board Chairman Jerome Powell on “Monetary Policy and the State of the Economy.” The Fed’s monetary policy report focused on employment, inflation, supply chain issues, the Fed balance sheet, and interest rate policy. The report notes the banking sector continues to show resilience, but notes issues with “various types of investment funds and vulnerabilities in Treasury market functioning.”

Members of Congress focused their questions on inflation, interest rates, the implications for the financial system due to the crisis in Ukraine, stable pricing mandate, and cybersecurity preparedness among financial institutions. In response to a member’s question on changes to the federal funds rate at the March meeting and beyond Chairman Powell stated, “to the extent that inflation comes in higher or is more persistently high than that, we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.” The Fed’s monetary policy report notes that if interest rates increase further, mutual funds and other financial vehicles with holdings in long-term, fixed-rate debt instruments, such as Treasury securities, agency mortgage-backed securities, corporate bonds and mortgage loans, could lose their value.

Regarding the development of a Central Bank Digital Currency (CBDC), Chairman Powell noted that while the Fed is studying how to design and implement a CBDC, legislation is needed for the project to move forward. Powell also noted the Federal Reserve does not believe there is an increase of cybersecurity incidents from Russia but declared the Fed will remain vigilant in this area.