Powell to Face Questions on Direction of Fed Policy at Senate Hearing

The Senate Banking Committee is to hold a hearing Tuesday on the nomination of Federal Reserve governor Jerome Powell to be the next leader of the U.S. central bank.

Mr. Powell has served on the Fed board since 2012, and the Senate has voted twice in recent years to approve him with broad bipartisan support. In prepared remarks released late Monday, Mr. Powell planned to tell the committee that if confirmed, he'd strive to support the economic recovery and defend the Fed's independence from political pressure.

Though the session isn't expected to be contentious, Mr. Powell will face a slew of questions about the direction he plans to take Fed policy in the years ahead. Here's what to watch at the hearing, which begins at 10 a.m. EST.

Path of Rates

When they met in September, Fed officials projected they would raise their benchmark federal-funds rate once more this year, three times next year and twice in 2019. In his prepared remarks, Mr. Powell said Fed officials still expect interest rates to rise "somewhat further," but provided no details on the likely path of borrowing costs.

Republicans and Democrats will want to know more about Mr. Powell's own projections for the economy and rates, including whether he may step up the pace of rate increases to prevent the economy from overheating.

Fiscal Stimulus

Key to understanding Mr. Powell's rate expectations is how he views the potential effects of a significant tax overhaul, which GOP lawmakers hope to enact before year's end. Some of Mr. Powell's detractors warned that if a tax cut spurs faster economic growth, he might respond by raising rates more aggressively than currently envisioned to keep inflation under control.

Expect lawmakers on both sides of the aisle to press him on the tax plan, including whether he thinks it will help the economy in the long run.

Regulatory Overhaul

Mr. Powell is likely to face some of his trickiest questions on financial regulation. He has defended the Fed's post-crisis regulatory regime and voted for every major rule the Fed has implemented while he was in office.

But he struck a softer tone this year, suggesting some rules -- including bank stress tests and the Volcker rule's trading ban -- should be reconsidered. Lawmakers will likely ask him to explain those positions in more detail. He will have to walk a fine line, as Democrats will press him to commit to preserving key rules, while Republicans will seek assurances that he supports their efforts to ease regulations.

Yellen Redux

The main argument for and against Mr. Powell's nomination, depending on one's perspective, was that he would largely maintain the direction Fed Chairwoman Janet Yellen set over the past four years as the head of the central bank.

He will likely face a simple question Tuesday: How will he be different from his predecessor? How he answers will be important for some GOP lawmakers, including Sens. Pat Toomey (R., Pa.) and Tim Scott (R., S.C.), who voted against Mr. Powell previously and have called for leadership changes at the Fed.

Though Senate Majority Leader Mitch McConnell (R., Ky.) has indicated he will support Mr. Powell's nomination -- an important signal to the rest of the caucus -- some Republican Fed critics could vote against him if it seems he is likely to be confirmed by a wide margin.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

November 28, 2017 05:14 ET (10:14 GMT)