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Comment: Chair Powell’s first day of semiannual monetary policy testimony

The first day of Fed Chair Jerome Powell’s first day of semiannual monetary policy testimony before the Senate Banking Committee started a few minutes earlier than usual, but has so far proceeded much as usual. However, two hours in and Powell has received few questions directly related to monetary policy, and none of these have proved particularly illuminating. Powell’s prepared remarks covered the same ground has his recent appearances, and was in line with the consensus expressed by other policymakers.

If there was a specific point on monetary policy to be made in the Q&A, it is that the focus is on the balance sheet, not interest rates. No specifics were elicited regarding the Fed’s plans for the ultimate size and composition of its holdings, or for the timing of how it will achieve that plan. On interest rate, the Fed remains “patient” and in “no rush to judgment” on the outlook for the economy.

In areas that touched on the political, Powell forcefully defended the independence of the central bank and its policymakers to determine monetary policy.

In regard to fiscal policy, Powell declined to speak in other than general terms that the Fed is concerned about unsustainable government debt.

He was extensively questioned about labor force inequality, wage growth, and ways by which marginalized workers and/or those on government benefits could be incentivized to return to the labor market. He said, it is”very gratifying to see labor force participation move up” over the past year, “which is only a good thing” given the tightness of the market. “For us to hold labor force participation flat” is actually a gain given the demographics. He stressed education and training as necessary to make the US competitive in the global economy. He also noted that while jobs are plentiful, not all workers are geographically placed to take those jobs in addition to lacking skills.

Powell received a number of questions regarding supervision and regulation and how the Fed intends to tailor these to better fit smaller banks. Powell noted that the efforts to do so are ongoing, and that some reforms had been made in the past year.

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