The toughest hearing in history? Powell to face four major grilling sessions tonight
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The toughest hearing in history? Powell to face four major grilling sessions tonight
President lashes out, demanding lawmakers deliver a strong "reprimand," Middle East conflict continues, Fed divided—how will Powell engage in tonight's verbal showdown with critics?
Navigating Web3 tides with focused insightsAuthor: Jinshi Data
Chair Jerome Powell will have two opportunities this week to explain to lawmakers why he and most of his colleagues are determined to keep interest rates unchanged through September, despite President Trump's persistent calls for lower borrowing costs.
Powell is scheduled to testify before the House Financial Services Committee at 10 p.m. Beijing time on Tuesday, followed by a similar appearance before the Senate Banking Committee at the same time on Wednesday.
This comes less than a week after Fed officials agreed to hold rates steady for the fourth consecutive meeting, and amid rising concerns over oil prices and global economic risks following the U.S. strike on Iran.
Trump said in a social media post that he wants Congress to “give Powell a good whacking,” arguing that U.S. interest rates should be “at least two or three percentage points lower.” Last week, the Federal Reserve kept the benchmark federal funds rate in the range of 4.25%–4.5%.
“We will pay for his incompetence for many years to come, and the committee should act,” Trump said.
Below are key topics to watch in Powell’s prepared remarks and during the Q&A sessions with lawmakers:
Interest Rates and the Economy
Powell is expected to carefully stick to the message he delivered last week, when he said the Fed “is in a good position to wait and learn more about the likely path of the economy” before considering any rate moves.
“We want to gain more data, and we can do so because the economy remains solid,” Powell told reporters last week. “Ultimately, the cost of tariffs must be paid, and some of it will fall on final consumers.”
So far, the tariffs imposed by the Trump administration have not led to the price increases and job losses that policymakers had warned about. In fact, economists expect this week’s data to show that the Fed’s preferred core inflation measure rose just 0.1% in May—the third month in a row at that pace—marking the mildest three-month stretch for inflation since 2020.
Two Fed governors, Waller and Bowman, have both suggested the impact of tariffs on prices could be temporary, and they may support a rate cut in July.
“Powell doesn’t seem to feel urgency about acting on where inflation might go, and he appears to view the risk of making a wrong assessment as significant,” said James Egelhof, chief U.S. economist at BNP Paribas.
U.S.-Iran Conflict
Powell will almost certainly face questions about the potential economic impact of developments in the Middle East. Over the weekend, the U.S. directly joined the conflict by bombing Iran’s nuclear facilities. Trump announced a ceasefire between Iran and Israel, causing oil prices to plunge back to levels seen the day before Israel struck Iran.
At last week’s press conference, Powell was cautious in commenting on the conflict and its potential effects. “Of course, we’re watching events like everyone else,” he said. “There is the possibility we could see higher energy prices. Historically, when there’s turmoil in the Middle East, you often see energy prices spike, but they tend to come back down. These events usually don’t have a lasting impact on inflation.”
Political Pressure
Republican lawmakers are expected to pressure Powell to clearly justify his wait-and-see stance, although some may take a less confrontational tone.
“Chairman Powell deserves credit for successfully navigating some of the most difficult periods in modern history,” said Dan Meuser, a Pennsylvania Republican and member of the House Financial Services Committee, in a social media post over the weekend. “But with inflation cooling and a strong labor market, the benefits of cutting rates are becoming hard to ignore.”
However, if other lawmakers follow Trump’s lead, Powell could face sharper criticism. Trump’s recent attacks have focused on the cost of high interest rates to the federal government. He has also become increasingly personal, calling the Fed chair “one of the dumbest and most destructive people in government.”
According to the Fed, when Powell met with Trump in May, he told the president that Federal Open Market Committee decisions are based on “prudent, objective, and non-political analysis.” He is expected to project more of that same resolute demeanor.
“He will appear completely unflappable,” predicted Mark Gertler, a professor of economics at New York University.
Powell may also hear supportive comments from Democrats, who may warn that the Fed’s independence is under threat from Republicans.
Bank Regulation
Fed watchers will also get a chance to gauge Powell’s views on key regulatory reforms currently underway. The White House is pushing an agenda to ease regulations, with several federal agencies now working to loosen rules. As part of this effort, Trump has nominated Bowman to serve as the Fed’s vice chair for supervision.
On Monday, Bowman said it was time to revisit a key capital buffer that some regulators and bankers believe restricts banks’ trading in the $29 trillion Treasury market. According to Bloomberg, the Fed and other regulators are set to propose lowering the so-called 'enhanced supplementary leverage ratio' (eSLR), a rule introduced in 2008 that requires banks to hold a certain amount of capital relative to their assets.
Powell may also face questions about a recent proposal by Texas Republican Senator Ted Cruz to ban the Fed from paying interest on bank reserves. Cruz claims the move would save $1.1 trillion over ten years, but some analysts argue it would undermine the Fed’s ability to control short-term interest rates.
Senate Banking Committee Chairman Tim Scott blocked efforts to attach the proposal to Trump’s tax and spending package still under congressional review, but did not fully reject the idea.
The Fed’s practice of paying interest on bank reserves effectively prevents banks from lending at rates below what the Fed desires, thereby setting a floor for overnight interest rates.
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