WASHINGTON (CN) – Jerome Powell, President Donald Trump’s pick for Federal Reserve chairman, said Tuesday he believes the central bank “can push harder on employment” by allowing the jobless rate to fall below 4 percent, and predicted the economy will grow by about 2.5 percent next year, although he said it would slow after that, due to lagging gains in productivity.
Powell, who spoke at his confirmation hearing before the Senate Banking Committee Tuesday, also strongly signaled to lawmakers that the Federal Reserve will raise interest rates at its December meeting .
Asked specifically whether he expected a rate hike at the December meeting, Powell says, “I think the case for raising interest rates at our next meeting is coming together.”
As for the longer term, Powell said he is committed to an independent Fed, and that he has not had any conversations with anyone in the administration that gives him concerns on that front.
He also said the 2010 Dodd-Frank financial overhaul law achieved its major goal of making the financial system stronger. But he says there are areas where it can be made more efficient.
Powell said while no bank is too big to fail now, the law, in some ways, imposed unnecessary burdens on banks.
But the longtime member of the Fed board of governors was reticent when pressed by Sen. Sherrod Brown, D-Ohio, to give his opinion on what impact the Republican tax cut proposals would have on economic growth and the deficit.
Powell said while the central bank is monitoring the debate in Congress it is not yet clear what form the final measure will take.
He also said it was not the Fed’s job to provide Congress with economic projections on various tax measures it was considering.
But this didn’t satisfy Sen. Chris Van Hollen, D-Md., who noted that former Federal Reserve chairman Ben Bernanke once told the committee that large federal deficits — a potential result of the tax plans currently being debate on Capitol Hill — put upward pressure on interest rates, and that in turn slows growth and productivity and creates a drag on the economy.
Van Hollen also pointed to outgoing Fed chair Janet Yellen’s testimony in July before the House Committee on Financial Services, in which she said spending and taxation decisions the Trump administration had made up to that time could lead to “an unsustainable debt situation with rising interest rates and declining investment in the U.S. that would further harm productivity and U.S. living standards.”
But Powell remained circumspect, prompting Van Hollen to press the nominee on a recent Congressional Budget Office analysis of the House and Senate proposals.
Van Hollen maintained the CBO assessment suggests the tax reform bill will put the health of an economy only recently recovered from a significant recession, at risk.
“To tell the truth, I haven’t looked at that,” Powell responded after the senator’s lengthy discourse.
“So, you have no reason to doubt those [CBO] numbers?” Van Hollen asked.
“I have no reason to know those numbers, let alone doubt them,” Powell said. “It’s a bit of a fine line we have to walk. I’m hoping I can walk it. Clearly, the debt needs to be on a sustainable path, we all agree on that. On other hand, it’s not on [the Federal Reserve] to [participate] in any discussion that you and your elected colleagues are having over this.”
Amid laughter in the chamber, Van Hollen again reminded Powell that “both of your predecessors commented repeatedly over their concern on national debt and you indicated you shared their concern and agreed with earlier statements.”
Even if he doesn’t consider CBO’s analysis accurate, hypothetically, would adding that debt “make a bad situation worse?” the senator asked.
“It would. All things being equal,” Powell said.
Republicans were less critical of Powell. Many of their question focused on his being the first chair in more than 40 nominee to stand for confirmation without holding an advanced economics degree.
Tate Lacey, a policy analyst at the Cato Institute, a Libertarian think tank, said Tuesday that if confirmed, Powell is unlikely to rock the boat at the Fed.
“His main focus will be watching the interplay between raising interest rates and reducing the balance sheet, as he does not want his first year marred by another Taper Tantrum,” Lacey said, referring to a surge in U.S. Treasury yields in 2013 that resulted from the Fed’s practice of gradual tapering off the amount of money it fed into the economy.
Powell prefers to leave plans for interest rates as-is and leave the balance sheet in place, Lacey said.
If another crisis hit the economy, it’s also safe to assume Powell would “lead by consensus.”
Dean Baker, macroeconomist and co-founder of the Center for Economic and Policy Research in D.C., agreed, to an extent.
“With luck, he won’t face any situations that require major departures in policy,” Baker said. “If he does, it is reasonable to be concerned that he would not be prepared to take bold measures. Of course, even Bernanke was overly cautious in his response to the downturn, so Powell doesn’t necessarily stand out that way.”
Powell said if confirmed, he expects the Fed to continue raising interest rates gradually to support maximum employment and stable consumer prices. He has also said he would consider easing regulatory burdens on banks while avoiding missteps that could set off another financial crisis.
“I would be worried that he could over-react to a modest uptick in inflation by raising rates too much,” Baker noted. “I don’t know that this would be his own inclination, but he will gets lots of pressure to have a strong response to any uptick. Lacking the same background as Yellen, Bernanke, and Greenspan, he may feel less comfortable resisting the pressure. This could be mean excessive tightening, leading to higher unemployment and possibly a recession.”