Bipartisan agreement: Fed must ‘stay independent’
WASHINGTON – Republican and Democratic senators voiced strong support for an independent Federal Reserve during a hearing with Fed Chair Jerome Powell, one day after President Donald Trump launched another attack directed at Powell on Twitter.
“Stay independent,” Sen. John Kennedy, a Republican from Louisiana, told Powell during Wednesday’s hearing. “I think you’re doing a great job. All of us in politics are going to give you advice, but call ’em as you see ’em.”
The support from members of the Senate Banking Committee suggests Trump’s attacks on Powell and the Fed have found little traction among members of his own party on Capitol Hill. Powell has made numerous visits to Senate and House members’ offices since being appointed chair by Trump in February 2018.
Trump has called Fed officials “boneheads” and argued that the central bank should cut interest rates further. The Fed’s benchmark rate is currently in a historically low range of 1.5% to 1.75%.
‘Under assault’: Sen. Mark Warner, Democrat from Virginia, said that many other government institutions are “under assault” from the Trump administration, citing White House attacks on intelligence agencies and turmoil at the Justice Department over the prosecution of Trump’s associate Roger Stone.
Warner said that if Powell were to “see any efforts made to undermine the Fed’s independence that you make us aware of that.”
“The Fed’s independence is more important than ever at this point,” Warner added.
Other senators, including Mike Rounds, Republican from South Dakota, and Democrats Jon Tester from Montana and Jack Reed from Rhode Island also expressed similar sentiments.
The comments came on the second day of Powell’s semiannual appearances before Congress. On Tuesday, he testified before the House Financial Services Committee, when Trump criticized him.
Trump tweeted Tuesday that the Dow was falling as Powell spoke “as usual,” and said interest rates in the U.S. were too high.
Trump has repeatedly publicly criticized the Fed chair since announcing that he had nominated Powell in 2017, a break from recent tradition. Previous presidents have pressured the Fed privately.
Powell told both committees that the U.S. economy is in generally solid shape, having weathered the headwinds last year stemming from the U.S.-China trade war and slower overseas growth. The unemployment rate is near half-century lows, Powell said, and businesses are increasingly willing to hire workers with insufficient skills and train them.
“There’s no reason why it can’t go on,” Powell said Wednesday. “There is nothing about this economy that is out of kilter or imbalanced.”
Still, China’s viral outbreak remains a threat to the U.S. economy that the Fed is monitoring closely, Powell said.
“We do expect there will be some effects” on the U.S. economy, Powell said, but added that it is too early to speculate on the impact.
Economists at Goldman Sachs estimate that the coronavirus, along with the shutdown of Boeing’s production of its troubled 737 MAX aircraft, could reduce economic growth by three-quarters of a percentage point in the first three months of this year. But growth would likely bounce back and make up for some of the slowdown by the second half of the year, Goldman said.
Powell also defended the Fed’s intellectual openness and diversity after being questioned by Sen. Rounds, who asked about “group think” at the Fed.
“It’s critical to have diverse perspectives,” Powell said. “But I really think we do though. We have had plenty of dissent at the Fed over the years.”
The question was likely a preview of the debate that may take place over one of Trump’s recent nominees for the Fed Board of Governors, Judy Shelton. Shelton supports a range of unorthodox views on monetary policy and has questioned whether the Fed should be independent of the White House. A hearing on her nomination is scheduled for Thursday.
The Fed cut its benchmark interest rate three times last year to its current range of 1.5% to 1.75%, historically a very low level, to offset the drag from a weaker global economy and to push inflation higher. Powell said in prepared remarks that rates at that level “will support continued economic growth, a strong labor market” and annual inflation returning to the committee’s 2% target level.
AP Economics Writer Martin Crutsinger contributed to this report.