The Chairman of the U.S. Federal Reserve Board spoke during his re-nominations hearing on Capitol Hill.
The US economy is in need of tighter monetary policy, according to Federal Reserve Chairman Powell.
Powell said during his confirmation hearing that he expects a series of interest rate hikes this year, along with other reductions in the extraordinary help the Fed has been providing.
He told the committee members that if things go well, they will be raising rates over the course of the year. At some point this year, we will start to allow the balance sheet to run off, and that is just the beginning of normalized policy.
During a 212 hour session, he praised the Fed for its handling of the economy and criticized the central bank for ethical violations. Some Republican senators were worried that the Fed was straying too far from its stated objectives of price stability, full employment and banking oversight.
Powell appeared to be headed for confirmation from the full Senate. The committee chairman and the ranking Republican both said they would support the nomination of President Joe Biden. During a hearing last year, Elizabeth Warren called Powell "dangerous" and said she would oppose the nomination.
Many of the questions from both sides of the aisle were about inflation, which is running at a close to 40-year high. The Fed is expected to raise rates three or four times this year, after declaring the surge "transitory" for much of the year.
The Fed and Congress have provided more than $10 trillion worth ofStimulus, which has slowed down the flow of money, which has led to higher inflation.
Powell said that if inflation persists at high levels longer than expected, then they will have to raise interest more. We will use our tools to get inflation back.
The Fed has added more than $4.5 trillion to its balance sheet since the beginning of the Pandemic thanks to its monthly bond purchases. The balance sheet is likely to be reduced later this year by allowing a set amount of proceeds to run off each month, though the Fed could also sell assets.
Powell said the moves are in response to an economy that has a strong jobs picture, with an unemployment rate of 3.9% in December, but with inflation expected to top 7% year over year for the same period.
Powell said that the economy no longer needs or wants the accommodative policies that have been in place to deal with the epidemic. We are moving to a policy that is closer to normal this year. It is a long road to normal from where we are.
He was questioned about why the Fed got its inflation call wrong, as well as about the issues related to the Pandemic, which has caused supply chains to be disrupted, and could threaten the recovery.
He said that if high levels of inflation get entrenched in our economy and people's thinking, that will lead to much higher monetary policy from this. That could lead to a recession and it will be bad for workers.
Powell was questioned about the financial activities of several officials around the time the Fed was about to implement a series of rescue measures just before the declaration of the swine flu.
Richard Clarida, the Fed's Vice Chairman, announced Monday that he is stepping down a few weeks before his term ends due to disclosures about his buying and selling of equity funds. The presidents of the regional Feds resigned in 2021.
Powell said that the Fed would soon publish rules that would prohibit similar activities.
He said that the old system was in place for a long time.
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