June 22, 2023

Powell says inflation battle has ‘a long way to go’

Federal ReserveFederal Reserve Chairman Jerome Powell testified before the House Financial Services Committee yesterday, where he was questioned on the state of the economy and the Fed’s plan to strengthen the banking system.

On the state of the economy, Powell noted that even though it has moderated, inflation is still running high.

"The process of getting inflation back down to 2 percent has a long way to go," said Powell. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."

He pointed to positives in the job market, highlighting an increase in labor force participation, easing wage growth, and job vacancies lowering as signs the job market is balancing.

In response to some committee members expressing concerns that instituting higher capital requirements to respond to the bank failures earlier this year would restrict lending, unfairly punish smaller community financial institutions, and perhaps even slow the economy, Powell stated that small community banks will not be subject to capital requirements as part of the Fed’s plan.

Powell was also questioned about the development of a central bank digital currency (CBDC) and if it would be a direct threat to privacy. Powell responded that the Fed is not currently in support of a CBDC, and if the Fed were to change their stance, he believes it would not be distributed through the Fed alone.

Ahead of the hearing, NAFCU Vice President of Legislative Affairs Brad Thaler wrote to the committee to voice many of the association’s perspectives on the Fed’s Overnight Reverse Repo Facility (ON RRP), CBDC, and more.

Thaler reiterated these concerns ahead of today’s Senate Banking Committee hearing where Powell will appear again to testify on the Federal Reserve’s monetary policy. The association will monitor the hearing and update credit unions on relevant information. 

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.