March 09, 2023

Fed’s Beige Book, Powell timid on economic outlook

Govt building columnsFederal Reserve Chairman Jerome Powell testified before the House Financial Services Committee Wednesday to provide members with insights into current economic conditions and the Fed’s efforts on various issues, including its FedNow service, a central bank digital currency (CBDC), and more. In addition, the Fed released its latest version of the Beige Book, which showed increased economic activity to start 2023.

The Beige Book, which includes data from contacts in the 12 Fed districts collected on or before Feb. 27, showed:

  • consumer spending was generally steady, with a few districts reporting moderate to strong growth in retail sales during what is typically a slow period;
  • auto levels were relatively unchanged, but inventory levels continued to improve;
  • loan demand declined, credit standards tightened, and delinquencies rose slightly;
  • labor markets remained tight, with lack of childcare options impeding labor force participation;
  • wages increased at a moderate pace and wage pressures eased slightly;
  • inflationary pressures remained widespread, with some relief in freight and shipping costs, and some firms found it difficult to pass cost increases onto consumers; and
  • housing affordability remained a concern.

“Amid heightened uncertainty, contacts did not expect economic conditions to improve much in the months ahead,” the report revealed.

Powell’s remarks to the House Financial Services Committee reflected many of these sentiments.

  • On monetary policy, Powell reiterated the Fed’s commitment to returning inflation to its 2 percent goal, while promoting maximum employment and stable prices. If upcoming economic data supported faster tightening, Powell indicated the Federal Open Market Committee (FOMC) “would be prepared to increase the pace of rate hikes.” He also said Congress would need to act to raise the debt ceiling, adding that the Fed doesn’t have the tools to protect the economy.
  • On FedNow, Powell touted the benefits of providing financial institutions the ability to offer instant, real-time payments. The service is expected to be rolled out later this summer; NAFCU is offering a free webinar March 28 on FedNow service features and details on its 24/7/365 operations. Another free webinar on FedNow preparation and resources is also available on demand.
  • On digital assets, Powell offered support for a broad regulatory framework, for which NAFCU has advocated. Powell didn’t give specific details on the Fed’s development of a CBDC; NAFCU is opposed to the development of a CBDC, noting credit unions represent a superior and safer alternative for advancing financial inclusion goals and promoting affordable access to payments.
  • On higher capital requirements, Powell said there would be appropriate tailoring and small and community-based financial institutions would not face the same rules as big banks.

NAFCU will continue to engage Congress, the Fed, and other regulatory agencies to ensure credit unions have a regulatory environment that fosters growth while maintaining the safety and soundness of the financial system.