Written by: Li Dan, Wall Street Insights
The day after the congressional hearing on the Federal Reserve's monetary policy, Fed Chair Powell again mentioned the prospect of rate cuts, reiterating that he is not in a hurry to cut rates. He emphasized the significant uncertainty brought by high tariffs, pointed out that the US economy is strong, and there is reason to move slowly under uncertain conditions, while also mentioning some factors that might drive rate cuts. At the Senate Banking, Housing, and Urban Affairs Committee hearing on Wednesday, June 25th, Powell told lawmakers that future trade agreements might allow the Federal Reserve to consider rate cuts. Regarding the Trump administration's policies, Powell said that the economic outlook (SEP) updated after last week's meeting reflects the impact of trade policies to some extent. However, tariffs are high, and this level of tariffs is unprecedented, making it difficult to predict how they will affect inflation. During a period of uncertainty, it is reasonable to proceed with monetary policy more slowly. Regarding inflation, Powell said that stagflation is not a basic assumption of the US economy, but the Federal Reserve is monitoring US prices. Over time, regulation can also slow down inflation. Powell stated that due to a lack of historical experience, Fed officials find it difficult to assess the potential impact of the Trump administration's trade policies. "There is a lack of modern experience in this area. The tariff scale during Trump's first term was only one-sixth of what it is now." Powell believes that the Trump administration's tariff measures may push up inflation in the coming months. He said that a reasonable expectation is that tariffs will cause some inflation, and most Fed officials support rate cuts this year, while the Fed wants to observe inflation changes in the coming months. On Wednesday, Powell again stated that the Fed is still working to determine the impact of tariffs on consumer prices. He believes that consumers may need to bear part of the cost of import tariffs, pointing out that tariffs could cause hundreds of billions of dollars in losses annually, with consumers bearing part of the cost. Some Republican senators criticized Powell for characterizing tariffs as a potential driver of inflation. Powell reiterated that most Fed officials support rate cuts this year and that tariffs may not significantly push up inflation. In a rare departure from avoiding fiscal policy comments, Powell said that student loan debt "seems to be an issue Congress needs to consider." Such debt can negatively impact borrowers' ability to fully participate in the economic activity, thereby dragging down the overall economy. Regarding the US bond market, Powell said that the bond market is performing well, functioning normally, with appropriate liquidity. He believes that the US dollar remains the global reserve currency. Powell stated that even if the mechanism of paying interest on banks' reserves deposited with the Federal Reserve is abolished, it will not save banks money, and returning to a scarce reserve system will be challenging and may cause market volatility. Regarding the report about the $2.5 billion renovation of the Federal Reserve's headquarters, Powell faced external criticism. Elon Musk, who previously led Doge, specifically mentioned this project, saying, "We absolutely should look at whether the Fed spent $2.5 billion hiring interior designers. This is truly surprising."At the hearing this Wednesday, some lawmakers questioned the renovation plan, and Powell said that the Federal Reserve "takes seriously its responsibility as a steward of public funds, and no one wants to renovate a historic building." He also said that the headquarters building is neither safe nor waterproof, needs renovation, and this matter can be left to his successors.
According to media reports, the early planning for the Marriner S. Eccles building included a rooftop garden, water features, and an upgraded executive dining room. Powell stated at Wednesday's hearing that these reports are not accurate and are sensationalist.
Powell said: "All the sensationalist content reported by the media is not in the current plan. There is no VIP dining room, no new marble, no dedicated elevators. No new water features, no beehives, and no rooftop terrace garden."
