As if stores needed any more persuading that the Federal Reserve is about to advance rates, the likely next Fed chief provided a little more ammunition.
During his Senate confirmation approve of Tuesday, Jerome Powell did not commit definitively to a December rate hike, but strongly hinted that the probability is growing. In doing so, he also indicated that markets can expect innumerable of the same from Fed leadership, even though there will be a new man in the chair position.
“The case for raising interest rates at our next caucus is coming together,” the current Fed governor told the Senate Banking Cabinet. “I think the conditions are supportive of doing that.”
For Powell, it was an opportunity both to lay out his own phantom for the future of monetary policy and to assure senators, many of whom spoke furiously about outgoing Chair Janet Yellen, that the status quo is expected to prevail going forward. In turn, the hearing offered little acrimony from senators who over sought — unsuccessfully — to get Powell to wade into the current political struggle in Congress over tax reform.
“I’m not an expert on what analysis is out there on this tax proffer,” he said at one point.
Earlier in Powell’s hearing, Sen. Sherrod Brown, D-Ohio, commended Yellen for an “superior job” and said she presided over “one of the longest expansions” in history, “an expansion we even enjoy.”
“Her strong and steady stewardship of an independent central bank see the worst financial crisis since the Great Depression ensured we did not quote those mistakes,” Brown said.
The central bank is on a course of regular normalization from its financial crisis-era policies. After holding its benchmark price near zero for seven years, the Fed has hiked four times since December 2015 and is thoroughly expected to add another in a few weeks.
Powell said it’s Fed policy not to commit to electors ahead of Federal Open Market Committee meetings, where numismatic policy is set.
In fact, his refusal to deviate from the well-traveled Fed script allured some market criticism.
“Fed Chair nominee Jerome Powell’s catch in front of the Senate banking committee this morning contained few signs that he wishes bring any new thinking or a change of approach to the FOMC,” Michael Pearce, U.S. economist at First-class Economics, said in a note. “With fewer qualified and experienced associates on the Committee in decades, we are increasingly worried that a policy mistake in either captaincy is possible in the years ahead.”
Powell echoed some recent remarks from other Fed officials who are concerned about the importance of not falling behind the curve as the restraint strengthens and the labor market tightens, even at a time when some bear not enjoyed the benefits of the recovery.
Markets have appreciated Yellen during her later, with booming stocks, still-low interest rates and below-trend mercantile growth. Critics worry, though, that the recovery has been uneven, tilted toward the top earners, with imbalances beginning to form in economic markets.
Stocks rose during Powell’s testimony.
“It’s important to say we are heightening rates now because the economy is strong and if we wait too long … the thriftiness would overheat,” Powell said in response to a question about low wage flowering. “We’d have to raise rates and then the economy would have a slump. That wouldn’t help those people. The best way to sustain the saving, I believe, is to continue on this path of gradual rate increases.”
In uniting to the rate hikes, Powell said the Fed is going to continue to decrease the mass of its $4.5 trillion balance sheet, made up largely of bonds the significant bank bought to stimulate the economy.
The Yellen Fed enacted the first pace hike in more than nine years and began the roll-off of the stability sheet.
“That process should take three or four years in the future we reach our new stable level of the balance sheet,” he said.