On February 11, during a pivotal semiannual monetary policy hearing held by the Senate Committee on Banking, Housing, and Urban Affairs, Jerome Powell, the Chair of the Federal Reserve, unveiled crucial insights regarding the current state of the U.S. economy, monetary policy trends, and financial stabilityThis hearing drew significant attention amid a backdrop of inflationary pressures, volatile financial markets, and uncertainties stemming from government policies under the current presidential administration.

In his prepared remarks, Powell underscored that the inflation rate in the United States continues at elevated levels while economic growth remains robustHe articulated the Fed’s cautious approach toward interest rate adjustments, marking a strategic resolve to avoid both premature and hesitant rate cutsThe Fed, he noted, would take a data-driven approach in assessing economic forecasts and risks before implementing any changes in interest rates.

A Cautious Stance on Rate Cuts

Since September of the previous year, the Federal Reserve has enacted a cumulative reduction of 100 basis points in interest rates, with a decision in January to maintain the current rateThis careful deliberation reflects an ongoing assessment of economic conditions.

Powell cautioned that an overly rapid or excessive decrease in interest rates could hinder or even reverse the progress in tackling inflationHe emphasized the danger of acting too late or insufficiently, pointing out that it could unduly impair economic growth and employment. "Given our current policy stance is significantly more restrictive than before, and with the economy remaining robust, we do not need to rush to adjust our policy stance," he said.

Recently, market expectations for rate cuts in 2025 have shown little change, with analysts predicting that further cuts may only materialize as early as September of this year, potentially amounting to fewer than two reductions across the entire year.

Powell indicated that the current unemployment rate and labor market dynamics are not perceived as sources of inflationary pressures

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He noted that should the labor market unexpectedly weaken or inflation decrease at a faster pace than anticipated, the Fed would have the flexibility to adopt a looser monetary policyConversely, if the economy performs strongly and inflation fails to converge towards the 2% target, the Fed may consider maintaining a tighter policy for an extended period.

Recent employment data discussed by Bloomberg painted a picture of a labor market that, although experiencing a slowdown, remains resilientFor instance, the job market in January saw the creation of 143,000 new jobs, with the unemployment rate slightly dipping to 4%. Moreover, the favored inflation metric of the Fed is projected to remain above the target level at 2.6% by the end of 2024.

Overall, Powell exuded optimism concerning the economic landscape in the U.SHe noted that while inflation showed significant deceleration in 2023 and slight ease is expected in 2024, it still remains above the Federal Reserve’s targeted level of 2%. Nevertheless, he remarked that inflation expectations aligned “generally” with objectives.

In light of previous fluctuations, the labor market had shown some stabilization after a period of loosening, with unemployment rates at relatively low levelsRobust consumer spending has been a key driver behind steady GDP growth.

Powell reinforced that the Fed will continue to closely monitor inflation data and its implications for economic prospects, adjusting policies flexibly in response to risk assessmentsHe firmly believes that the current policy stance positions the Fed well to navigate uncertainties and potential risks.

During the Q&A session, a senator inquired about the neutral interest rate—suggested to be the rate that neither stirs inflationary pressures nor represses it

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Powell affirmed that the neutral rate has indeed climbed significantly since pre-COVID levels, asserting that previous estimates were “very, very low.”

In regards to President Biden's tariff policies, Powell refrained from giving a direct assessment, emphasizing that it is not within the Fed's mandate to comment and formulate trade policiesHe remarked that it is premature to evaluate the economic impacts of tariffs, stating, “It remains to be seen which tariffs may be implemented, and speculative comments would be irresponsible.” However, he acknowledged one potential outcome of increased tariffs could be to exacerbate inflation.

The Matter of Financial Regulation

Michael Barr, the Fed's head of supervision, announced on January 6, 2025, that he would resign from his regulatory position effective February 28, intending to remain a Fed governor until 2032. One of the reasons for Barr’s departure is to elude possible legal and political conflicts with the Biden administrationHis resignation has sparked conjecture regarding the trajectory of financial regulation in the United States.

As President Biden pushes to ease federal governance regulations, senators raised questions regarding financial oversight during the hearingPowell conveyed optimism that the Fed looks forward to collaborating with the new banking regulatory officials post-Biden’s appointments to achieve a series of global banking supervisory reforms.

He reiterated, "We believe that creating a global standard that mandates foreign banks cannot go below that level is beneficial for U.S. banks and our economy."

Recently, the President designated Elon Musk to head a "Government Efficiency Department" tasked with reviewing several government agencies, with the Consumer Financial Protection Bureau (CFPB) becoming the latest target of scrutiny.

From February 10 to 14, the CFPB’s headquarters closed, directing employees to work remotely

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All regulatory and inspection activities ceasedThe newly appointed acting director, Russell Watt, called for a halt to all monitoring activities and aims to reduce the agency’s budget to zeroProtests erupted outside CFPB headquarters as employees expressed concerns about the agency’s future and data security.

Senators consistently pressed Powell for his perspective on the consequences of diminished CFPB authoritySenator Elizabeth Warren, a Massachusetts Democrat, questioned, “In the absence of consumer oversight, who ensures large banks are not deceiving consumers?”

Powell responded, “No other federal regulatory agency.”

He further clarified that the Fed is still engaged in ensuring compliance among small banks regarding consumer financial laws, asserting, “We are still workingBusiness as usual.”

Furthermore, some lawmakers warned that the “Government Efficiency Department” under Musk has access to the Treasury Department's payment systems, which could be impactfulThey also asserted that the new Treasury Secretary, Bessenet, seemingly seeks to “undermine” the Fed by claiming that the Fed, rather than the Treasury, controls the payment systems.

Powell clarified that within the federal payment system, the Fed functions merely as the Treasury's “fiscal agent,” processing payments without determining how or why expenditures are madeHe expressed confidence in the security of the federal government's payment systems.

When asked whether any members of the “Government Efficiency Department” have accessed the Fed’s federal payment systems so far, Powell replied, “I do not believe so.”

He pledged that if Musk or any member of the “Government Efficiency Department” attempts to enter the Fed's systems or infringe upon its independence, authorities would be alerted.

Challenges to Independence

The independence of the Federal Reserve is facing unprecedented challenges as the Biden administration seeks a greater role in influencing Fed decision-making, particularly in operational directives

The President has openly criticized Powell's rate policies on multiple occasions, even discussing the potential removal of Powell privately.

Furthermore, Musk has recently called for an audit of the Fed on social media, suggesting appointing former Congressman Ron Paul to head the institutionMusk’s remarks align with the President's stance, amplifying concerns about the Federal Reserve’s independence.

In recent months, Powell has made numerous attempts to reinforce the Fed’s autonomy.

In December of last year, during a summit interview, Powell asserted, “I do not worry about us losing our legal independence because I genuinely believe people value it.”

He acknowledged during the hearing that by focusing solely on their responsibilities and steering clear of political influence, the Fed can formulate better policies and mitigate inflation effectivelyPowell reiterated that U.S. law prevents the President from removing Fed governors and that the Fed would remain resistant to pressures from the new administration and bipartisan lawmakers demanding rapid interest rate cuts.

Recently, the Biden administration has sought to downsize the federal workforce through extensive layoffs, hiring freezes, organizational streamlining, outsourcing, and early retirement incentives to achieve a “leaner” government.

In response, one lawmaker questioned Powell if he believed the Fed was “overstaffed.” Powell refuted this claim, stating that the Fed’s personnel might instead be “overworked.”

Other Key Issues

Regarding the issue of U.S

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