Federal Reserve Chairman Jerome Powell on Tuesday was again asked about his relationship with the White House in setting interest rate policy – only this time, it was during testimony before the Senate Banking committee.
But once again, he punted, diplomatically skirting a question from Democratic Sen. Brian Schatz of Hawaii by suggesting it wouldn’t be a good idea for him to air in public his confidential discussions with anyone.
“It’s probably not appropriate to discuss my private conversations with any other government officials,” Powell responded after momentarily considering whether he had “directly or indirectly” spoken to anyone at the White House on the matter, telling Schatz, “That’s kind of a broad question.”
Schatz’s question was the second time during the hearing – a routine semi-annual review of US monetary policy – that Democratic senators tried to bait Powell into criticizing President Donald Trump, who has publicly chastised Powell for a series of interest rate hikes last year.
They pointed to comments by Powell’s predecessor Janet Yellen, who flatly told Marketplace host Kai Ryssdal on Monday that recent statements by the President show “a lack of understanding of the impact of the Fed on the economy.”
When asked by Sen. Sherrod Brown of Ohio, a potential 2020 contender, if he agreed with Yellen’s assessment of Trump’s economic prowess, Powell punted, saying, “I wouldn’t have any comment on that, senator.”
Yellen, who is the first woman to serve as Fed chair and was passed over by Trump for a second term, told Ryssdal she doesn’t believe the President understands monetary policy or what the Fed does. Asked if she thought Trump has a grasp of macroeconomic policy, she replied, “No, I do not.”
“I doubt that he would even be able to say that the Fed’s goals are maximum employment and price stability, which is the goals that Congress have assigned to the Fed,” Yellen said in the interview with Ryssdal. “He’s made comments about the Fed having an exchange rate objective in order to support his trade plans, or possibly targeting the US balance of trade. And, you know, I think comments like that shows a lack of understanding of the impact of the Fed on the economy and appropriate policy goals.”
A White House spokesman did not respond to a request for comment from CNN.
Since his appointment, Trump has repeatedly blamed Powell for last year’s market rout on Wall Street and for undermining his efforts to stimulate the economy by raising interest rates. He’s also described the Fed as going “loco” and insisting his “gut” knows more about economics than Powell’s brain.
The Fed has raised rates seven times since Trump took office, a standard policy maneuver designed to prevent inflation from taking off. Four of those increases have been under Powell.
Earlier this month, Powell joined Trump for a rare informal dinner at the White House residence to discuss the health of the economy. The two men were joined by Treasury Secretary Steven Mnuchin, who meets regularly with the Fed chair, maintaining a long-historic tradition of a weekly breakfast, along with Powell’s deputy, Fed Vice Chairman Richard Clarida.
The dinner came weeks after White House aides floated the idea of inviting the former investment banker to sit with Trump in person to allay his concerns.
The Fed’s statement following the dinner said Powell conveyed to the President the same message he offered to the public following the central bank’s first meeting in 2019, and that he did not discuss what he expects the Fed to do next in setting future interest rates.
Since the end of last year, Powell has signaled the Fed plans to slow down future rate hikes amid mounting economic uncertainties, and has categorically denied he is caving to any political pressure from the Trump administration – a point he restated on Tuesday, saying those decisions are “non-political.”
“I’m very comfortable and very confident that is exactly what the Fed is going to do,” Powell said.
In a final word at the hearing, the chairman stood by the Fed’s current strategy of being “patient” as it watches how the impact of ongoing trade negotiations, a slowdown of growth in China and the United Kingdom’s exit from the European Union will have on the broader economy.
“When I say, ‘We’re going to be patient’,” Powell said, “what that really means is we’re in no rush to make a judgment about changes in policy. We’re going to allow the situation to evolve, and also the balance of risks, and allow the data to come in. And I think we’re in a very good place to do that.”
In January, central bankers unanimously agreed at their first meeting to keep the federal funds rate, which influences the cost of mortgages, credit cards and other borrowing, at a range of 2.25% to 2.5%. Some policymakers went so far as to suggest pausing future hikes altogether.
While the Fed chairman offered a rosy picture of the health of the US economy, he did warn of the dangers of a ballooning federal debt that notched its highest level ever, standing at $22 trillion earlier this month.
“It is widely agreed that federal government debt is on an unsustainable path,” he said. “The idea that deficits don’t matter for countries that can borrow in their own currencies is just wrong.”
When asked about the necessity to raise the debt ceiling ahead of a Friday deadline, Powell said it would be unfathomable for the US government to cross that “bright line” and not pay its IOUs.
“It would be a very big deal not to pay all of our bills when it’s due,” Powell said.
The bipartisan Congressional Budget Office said Tuesday that if the Congress fails to raise the debt ceiling by Friday, the Treasury Department may only be able to keep the government running through September. Until then, Mnuchin would have to exert so-called “extraordinary measures” to keep paying America’s bills.
Powell said a default is “beyond even consideration.”
“We’ve never passed that point – that’s a bright line,” said Powell. “And I hope we never do pass it.”