Key takeaways from Fed Chair Jerome Powell’s congressional hearing
America’s central bank is in no rush to slash interest rates any time soon, Federal Reserve Chair Jerome Powell told lawmakers Tuesday. Powell also faced a barrage of questions about the Consumer Financial Protection Bureau , tariffs and Elon Musk’s Department of Government Efficiency.
The dismantling of the CFPB — an agency funded through the Fed in order to maintain independence from the political process — took center stage during Powell’s hearing before the Senate Banking Committee, part of his semiannual monetary policy report to Congress. Democrats highlighted the CFPB’s role as a key enforcer of consumer protection laws, frequently citing how it has returned more than $21 billion to consumers, while Republicans said the agency has not been held accountable since its inception.
Most of the Democrats in the committee called out Musk and his associates trying to access sensitive government systems.
Powell also had some exchanges with lawmakers over tariffs and China’s trade practices, though he didn’t wade too deep into that discourse, as expected.
On interest rates, Powell’s stance that the Fed ought to hold rates steady jibes with those of other Fed officials and also with Wall Street, which is betting that interest rates will be held steady at the Fed’s March meeting, according to futures.
“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said.
Powell testifies before the House Financial Services Committee on Wednesday.
A spotlight on the CFPB
The CFPB saga unraveled over the weekend with Russell Vought, recently confirmed as director of the Office of Management and Budget, taking over as the agency’s acting director late Friday. CFPB employees were then informed on Sunday that the agency’s headquarters in Washington, DC, would be closed this week.
Protests erupted outside the CFPB’s Washington office after the consumer watchdog was gutted.
Sen. Elizabeth Warren of Massachusetts, the committee’s ranking member and the architect behind the CFPB, on Tuesday noted the agency’s role in overseeing the massive $18 trillion consumer lending market, probing illegal debt collection and clamping down on junk fees.
“If Musk and his OMB director succeed in killing the CFPB, it’s like putting a sign on every checking account, every credit card, every mortgage application and every car loan, (saying) cops have been fired, let the scams begin,” Warren said during Powell’s hearing.
Sen. Mike Rounds of South Dakota pushed back against Warren’s rhetoric, saying that there haven’t been any changes in laws or rules on consumer protection and that banks are still subject to audits and supervision from other regulators.
In an exchange with Sen. Catherine Cortez Masto of Nevada, Powell said reforms passed into law in the aftermath of the 2008 financial crisis “took a lot of the consumer compliance jurisdiction away from the other banking agencies and and gave it to a newly created agency, the CFPB.” He added that “we do have some residual enforcement authorities, but what we don’t have is examination authority.”
A new economic landscape
In less than a month, Trump has rolled out a flurry of policies that could impact consumer prices, the labor market, economic growth and global stability.
So far, that includes tariffs, mass deportations and cutting down on regulations. While Fed officials don’t comment on fiscal policy, central bankers pay close attention to how Washington is shaping the economy.
When asked by Sen. Jack Reed of Rhode Island if Powell stands by testimony he made in 2018 saying that countries promoting open trade with no barriers led to faster growth and higher incomes, the Fed chief stood by that comment.
“I think the standard case for for free trade and all that logically still makes sense. It didn’t work that well when we have one very large country that doesn’t really play by the rules,” Powell said, which was likely in reference to China. “And in any case, it’s not the Fed’s job to make or comment on tariff policy.”
On Monday, Trump imposed a 25% tariff on all steel and aluminum imports into the United States with no exceptions or exemptions. That’s on top of the additional 10% tariff on Chinese imports that went into effect earlier this month.
Massive tariffs aren’t the only changes Trump is promising to enact.
Later in the year, the administration is expected to tee up the extension of Trump’s 2017 tax cuts. Treasury Secretary Scott Bessent has also proposed bringing down long-term interest rates by targeting the yield on the 10-year US Treasury note, bypassing the Fed.
Trump’s shock therapy has already put American consumers and businesses on edge. The National Federation of Independent Business’ Uncertainty Index, released Tuesday, surged in January to its third-highest reading on record. The University of Michigan’s latest survey, released Friday, showed that US consumers soured this month amid fears that Trump’s tariffs could stoke inflation this year.
Fed economists devise economic models to forecast how the economy could perform under different scenarios and must now make sense of a drastically different economic landscape under Trump.
The US economy remains on solid footing
After slashing its key interest rate a full percentage point over three meetings last year, the Fed has adopted a holding pattern that could stretch on for months.
The US economy expanded a solid 2.5% last year , unemployment in January fell to a low 4% and consumers continue to spend at a healthy clip. That means the Fed can focus on fully tamping down inflation, which has showed limited progress in recent months, hovering closer to 3% than the Fed’s stated goal of 2%.
“Given the economy’s momentum heading into 2025, and with a healthy labor market, we have the luxury of being patient as we assess the path forward for inflation,” Cleveland Fed President Beth Hammack said Tuesday at an event in Lexington, Kentucky. “It will likely be appropriate to hold the funds rate steady for some time.”
The Fed acted aggressively when it began to cut interest rates in September, delivering a bold half-point cut. Signs of the labor market weakening more than expected contributed to that decision at the time, but those fears have since faded.
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