Federal Reserve Chairman Jerome Powell will be in the limelight this week as he heads to Capitol Hill for his semi-annual testimony on monetary policy, during which the central bank chief is expected to face tough questions from Democrats and Republicans alike as threats to the U.S. economy mount.
Powell is slated to testify before the Senate Banking Committee first on Wednesday, followed by an appearance before the House Financial Services Committee on Thursday.
The hearings come as the Fed takes the most aggressive action in decades to cool the economy and bring down scorching-hot inflation, which was another shocker in May at 8.6% – the highest since December 1981. Policymakers last week approved a 75-basis point interest rate hike, the first of its kind since 1994, and signaled that another increase of that magnitude is on the table at their July meeting.
"We thought strong action was warranted, and today we delivered that," Powell told reporters at a press conference.
But as he confronts rapidly rising consumer prices, the growing threat of recession and a global market sell-off, Powell is also meeting increased skepticism that he can successfully navigate the Fed through one of the most challenging economic periods since the 1970s to secure a "soft landing" – the sweet spot between taming inflation without crushing growth.
Republicans are expected to pummel Powell – who just one year ago classified inflation as transitory and likely to subside soon – for misjudging the price spike and urge him to tighten monetary policy further by raising rates higher and speeding up the reduction of the Fed's $8.9 trillion balance sheet, a Senate Banking Committee Republican aide told FOX Business.
Although the benchmark federal funds rate is at a range between 1.50% to 1.75%, the highest since the pandemic began two years ago, it's still in negative territory when adjusted for inflation.
GOP lawmakers will likely also try to get Powell to agree that President Biden and Democrats bear responsibility for the inflation surge because of the $1.9 trillion spending package passed in March 2021, the Senate aide said. Powell typically dodges the political bear traps, although Treasury Secretary Janet Yellen has acknowledged the rescue plan contributed "modestly" to inflation.
Democrats, meanwhile, plan to press Powell on putting workers first, even as the Fed tries to tame consumer demand and bring inflation closer to its 2% target. Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates are already approaching 6%, the highest since 2008, while some credit card issuers have ratcheted up their rates to 20%.
Sen. Sherrod Brown, the chairman of the Senate Banking Committee, is expected to question Powell over the drivers of inflation as he makes the argument that corporate power and concentration are the real forces of the price spike, a person familiar with the matter told FOX Business. Brown, D-Ohio, will make the case that while tackling inflation is imperative, the Fed should not force working families to bear the brunt of the economic pain from rising rates.
Fears are growing on Wall Street that the Fed will drag the economy into a recession with its war on inflation, with Goldman Sachs, Bank of America and Deutsche Bank raising the odds of a downturn within the next two years.
Although Powell has said the central bank is not trying to induce a recession, he has not ruled out the possibility of a downturn and has admitted the odds of a successful "soft landing" are getting narrower.
"There’s a path for us to get there," Powell told reporters last week, referring to a soft landing. "It’s not getting easier. It’s getting more challenging."