Preview of Powell’s semiannual monetary policy testimony

Fed Chair Jerome Powell is scheduled to deliver the semiannual monetary policy testimony – by old habit often called the Humphrey-Hawkins testimony – at 10:00 EST on Tuesday before the Senate Banking Committee and on Wednesday at the House Financial Services Committee.

Powell’s prepared remarks are likely to closely echo the content of the Monetary Policy Report (MPR) to Congress released at 16:00 ET on Wednesday, March 1. The report included the economic data available through February 28. There has been nothing in the major reports released since then that would cause the chair to shade his prepared opening remarks.

The MPR is in line with public comments from Fed policymakers both before and after its preparation and release. The labor market remains “extremely tight” and inflation “well above” the Fed’s 2 percent flexible average inflation target. The report said, “Real gross domestic product (GDP) growth picked up in the second half of 2022, although the underlying momentum in the economy likely remains subdued. Bringing inflation back to 2 percent will likely require a period of below trend growth and some softening of labor market conditions.”

This is the bottom line for whatever Powell will say in the question and answer portion of the testimony, at least regarding monetary policy. The Fed has a dual mandate assigned to it by Congress, an independent central bank has its tools for achieving that mandate, and the current economic data show that a resilient US economy has enough strength to bear the restrictive monetary policy necessary to tame persistent sources of inflation in core services prices.

Of course, the respective committee members never stick to just monetary policy questions. Powell will be asked about 1) supervision and regulation, 2) the value of the US dollar, and 3) the federal deficit and debt ceiling. He will for the first provide updates and offer to follow up, for the second he will defer to the Treasury Secretary, and on the third decline to comment as it is a congressional matter except to say that the deficit is not sustainable and that it is unthinkable that the US would default on its obligations.

Powell will also have to field the thinly veiled accusations that the Fed has or is willing to use its power to favor some sectors in credit markets, is interfering where it shouldn’t on matters of social justice, and is deliberately hurting the US economy at the expense of workers’ jobs. This is familiar political posturing that the chair has in the past responded to without difficulty. He will also likely face a few questions about ethics and the Fed’s efforts to ensure its officers do not take advantage of their inside knowledge for financial gain.