Federal Reserve Chairman Jerome Powell testified this week before the U.S. Senate Banking Committee covering a litany of topics that will impact the banking industry. In testimony during his Senate confirmation hearing on Tuesday, Powell warned that the high inflation we're currently experiencing poses a “severe threat” to the recovery of the US jobs market. Powell was nominated by President Biden to serve a second term leading the Federal Reserve. When questioned by Republican Ranking Member Senator Pat Toomey (R-PA), Powell said the era of pandemic stimulus is over and highly accommodative polices are no longer needed. Alternately, the Chair received pressured from committee Democrats to commit on the record to keeping interest rates low in order to improve the labor market shortage. He declined to commit one way or the other instead made it clear the biggest threat to the labor market is high inflation.
Asked by Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) about whether a central bank digital currency should being developed to enable consumers to have retail accounts with the Fed, Powell confirmed that the Fed does not have the experience or capability to do so. If the Fed were authorized to pursue a digital currency, Powell also confirmed that it should not prevent a privately issued stablecoin from existing with the central bank digital dollar. He did however say there are “good arguments” for granting non-FDIC-insured special-purpose depository institutions Fed master accounts and that the Fed will “make some progress” on the issue. Powell added that the Fed is taking time to consider the SPDI applications because of how important these applications are from a precedential standpoint. “We start granting these, there will be a couple hundred of them pretty quickly and we have to think about the broader safety and soundness implications,” said Powell.
Powell also outlined his plan for climate change stress tests to “be a key tool going forward”. Powell told the committee that the Fed is looking at climate stress tests, and, is focused on “assuring that the large financial institutions understand all the risks that they are taking, including the risks that may be inherent in their business model regarding climate change over time.” Asked by Chairman Sherrod Brown (D-OH) Powell acknowledged that if he is confirmed, climate change would be a top priority over the coming years as it relates to the Fed’s existing mandate. “Our role on climate change is a limited one but it is an important one—and it is to assure that the banking institutions that we regulate understand their risks and can manage them,” said Powell. He added, however, that the broader policies addressing climate change must come from legislators and the private sector.