Fed Comes Under Heightened Political Pressure
As we expected, today’s Senate Banking session with Chairman Powell is a preview of broader national debate ahead of the midterm election. Democrats generally sought to emphasize their understanding of inflation’s costs without lambasting the Fed and, indirectly, the Biden Administration. Still, Sens. Ossoff (D-GA) and Warnock (D-GA) pressed Mr. Powell on the Fed’s failure to begin to tighten last summer. Republicans were strongly united in lambasting the central bank and White House, forcing Mr. Powell to stress the Fed’s commitment to fighting inflation without conceding prior mistakes or the prospect of an imminent recession. With Mr. Powell now confirmed and macroeconomic stress so acute, it seems likely that the Fed will face increasing political challenges to its credibility from both sides of the aisle, with Sen. Rounds (R-SD) suggesting it would come to be the White House “fall guy.” This report addresses other matters before the committee, which include Chairman Brown’s (D-OH) call ahead of stress-test results that the Fed stay tough on the biggest banks to ensure resilience and GOP criticism of the central bank’s stand on master accounts and, more generally, Congressional accountability.