New Fed Chair handles himself well on Capital Hill

The newly sworn in Federal Reserve Board chair, Jerome Powell, barely had time to move into his new office, before it was off to Capitol Hill to address the respective Congressional committees that expected to question him after submitting his prepared address.

In both the House Financial Services Committee, on Tuesday, and at the Senate Banking Committee, on Thursday, he emphasized the economy was not overheating, and that he fully expected that it would continue to make gains.

Some observers felt that there was nothing remarkable in his comments, while others being thus assured, felt the familiar echoes of his recent predecessor, Janet Yellen, In fact the 65-year-old former banker has built a quiet, but significant, reputation as being a consensus builder. And, if part of his remarks seemed as if he was giving a primer on Econ 101 to a group of undergrads, then he seemed to do just that, if required.

One of the issues that has been at stake is the number and amount of increased rate hikes, after years of near zero rates. In fact, while describing the process of how they are developed, some interpreted his words, to mean that there would be a fourth one.

This happened on Tuesday, when noting in some detail, that process, and after the strength that they saw In December after meeting Fed officials “penciled in three hikes in 2018. They meet again later this month,” reported Bloomberg Markets.

“Powell made it clear that the Fed could find reason to raise interest rates more than the three times it forecast for this year, based on the economy and inflation. Powell made the comments when he delivered the first half of his semi-annual economic testimony before the House Financial Services Committee on Tuesday,” causing some concern, sending the stock market down 300 points, and an abundance of sell orders.

Some called it a “rookie mistake” -- and those might be the ones critical of his selection, since he lacks the seemingly credential of a Ph.D. in economics that his predecessor had.

“But others doubt that the comment itself was unintentional, noting it echoed the statement and the minutes from the last meeting headed by his predecessor, Yellen. In those minutes, the Fed gave a nod to the improving economy and said it could be that "further gradual policy firming would be appropriate."

Taking it even further, Grant Thornton chief economist Diane Swonk said the Fed chief's comments were measured and he followed the progression of Fed speakers and releases.” And, again, in teaching mode, citing the data necessary for any moves, he said that it would not be  appropriate to “prejudge” what the Federal Open Markets would do at their meeting in March.

Moreover, in his address, he wrote that “The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment. Moreover, fiscal policy is becoming more stimulative. In this environment, we anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC's 2 percent objective over the medium term. Wages should increase at a faster pace as well. The Committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely<’ and entirely consistent with the data driven work by Yellen, considered an economist’s economist.

Helping to support this view is the banner rate of unemployment of 4.1 percent, the lowest since 207, and inflation under the FOMC target rate of 2 percent.

Powell’s position is not enviable as he has an unreliable partner in the White House, who seems to have a weak grasp of the guiding principles of American economics, plus the fourth goal of keeping Wall Street happy.

President Trump wants to see the economy grow at a rate of 3 percent, a figure that some economists, and even lawmakers question, but that is more of a political goal that the president has set, than one based on data.

Adding to Powell’s challenge is that the recent tax cut and jobs bill cuts revenue and increases spending, especially on the military, and now the announcements of high tariffs on imported steel, affecting even long hell allies increases the global challenges that have now had their ante upped.

Adroitly, he also remarked,“As Chairman Bernanke said, the tariff approach is not the best approach, the best approach is to deal directly with the people who are directly affected, rather than falling back on tariffs,” Powell said. “But again, these are not issues that are consigned to us, they’re really for you and for the administration.”

With that in the background Powell also had to answer the question that House chair Jeb Hensarling, previously of Yellen,  almost becoming incivil at times; with Powell he was gracious, but insistent on determining the wind down of the balance sheet, reserves that the Feds had increased as a bulwark during the Great Recession.

CNBC reported him giving Powell high marks, but also said,  "If there is ever a time to unwind the balance sheet, it's in a good economy,"  and "Now is a good time to do it."

In Hensarling's opening statement Tuesday he said, "The Fed must commit to a credible, orderly and well-communicated normalization policy," all of which impacts interest rates and the Fed's balance sheet.

The congressman said Powell did achieve that in his remarks "in part," but Hensarling still had "concern" over the flexibility of caps on the Fed's balance sheet.

"I don't think I got a really credible answer on the composition of the balance sheet," Hensarling said, and pointed out that right now it's roughly two-thirds Treasury, one-third mortgage-backed securities.”

The Fed chair proved to be nimble in his responses, and also with both the Republicans and the Democrats as they respectively wanted him to say that the new tax bill was creating jobs, and with the letter, that it was causing inflation.

Seeing this dance, it’s easier to assume that Powell may have polished his crystal ball, or watched tapes of Hensarling sparring with Yellen. In either case, coming out ahead, at least in this maiden appearance counts for a lot in partisan Washington.

Complicating matters even more is that some economists are predicting at least a 70 percent chance of a recession heading down the line.

Powell himself has identified four key areas that he sees as primary: the labor market, inflation, global markets and fiscal procedures and oversight. And, seasoned veterans of the Hill noted that his supply side is showing itself, in abundance.

Additionally, he also showed great sensitivity with Rep. Maxine Waters asking, after a letter from her, was sent to the Board, that they consider diversity - racial diversity in their selection for a replacement for the New York governor, vacated by William C. Dudley, and Powell assured her that they would always do just that, with a follow up to her office.

He also was concerned about the amount of student debt that many carry and its deleterious effect on the national economy, currently being held at $1.38 trillion dollars and that is not eligible for bankruptcy filing.

While the issue is primarily one for Congress to tackle, Powell said it could become an economic question.

"You do stand to see longer-term negative effects on people who can't pay off their student loans," he said. "It hurts their credit rating, it impacts the entire half of their economic life."

Powell said he generally supports the idea of a vibrant education loan climate, but added that borrowers need to be informed of the risks they're taking. He also wondered why student debt can't be discharged in bankruptcy.

"I'd be at a loss to explain why that should be the case," he said, while acknowledging that the issue is one for Congress to tackle.

For a first time appearance on the Hill before congressional committees, Powell, in most estimates, did an excellent job in traversing what could have been a minefield of misquotes and frayed nerves, yet kept an enviable cool, in what was the hottest seat in a town known for placing the highest at their mercy.