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Chair Powell Addresses Fed Policy and High Inflation at Senate Banking Committee Hearing

In testimony before the Senate Banking Committee at a hearing on his nomination for a second term, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System ("FRB"), concluded that the economy no longer needs the highly accommodative policies in place to deal with the pandemic and the aftermath. He asserted: "we will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched."

Chair Powell noted the current mismatch between supply and demand, given the persistent supply-side constraints and the strong increase in demand. He acknowledged the "biggest wage increases in decades" and the rapid recovery of the labor market with a low unemployment rate. As part of normalizing policy over the course of this year, he told the Committee that he aims to achieve price stability by restraining demand, by increasing interest rates, and possibly by shrinking the Federal Reserve's asset portfolio. He said he anticipates that the global supply blockages will decrease, which will help bring supply and demand toward similar levels. Mr. Powell noted, however, that it would take time for the bank to return to interest rates at pre-pandemic levels, and that inflationary pressures will remain into the middle of this year, and also noted the dual statutory mandate of price stability and maximum employment.

He also addressed the work the FRB had done previously to ensure a strong and resilient financial system, noting (i) multi-decade highs of capital and liquidity levels at the largest, most systemically important banks, (ii) the FRB's work on instant payments, and (iii) the FRB's focused supervisory efforts on evolving threats, such as climate change and cybersecurity.

Mr. Powell was nominated for a second term by President Joseph R. Biden on November 22, 2021. He served as FRB Chair since being nominated by President Donald J. Trump in 2018. He has been an FRB Governor since being nominated by President Barack Obama in 2012, and previously served as Assistant Secretary and Undersecretary of the Treasury under President George H.W. Bush.

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