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Powell to face pressure on rates from Democrats, bank rules from Republicans

Catarina Saraiva, Steven T. Dennis, Bloomberg News on

Published in Business News

Jerome Powell faces heightened pressure this week from Democrats who want interest-rate cuts to keep the economy humming in an election year and Republicans who want him to scrap a plan to boost bank capital.

The Fed chair heads to Capitol Hill on Wednesday and Thursday for his semiannual testimony before Congress, two years after the central bank began its aggressive battle against surging inflation. With the economy powering along and inflation inching toward the Fed’s sweet spot, Powell will make the case for why officials are in no rush to lower rates.

Meanwhile, some Democrats who’ve tried to avoid bullying the Fed are growing impatient.

“The pressure usually comes from one side or the other, and this time it’s probably going to be coming from the Democrats because the Fed has drifted more hawkish this year,” said Marc Sumerlin, founder of Evenflow Macro in Washington. “They don’t want the economy to roll over accidentally because when it happens, it happens quickly. To the Democratic Party, that’s a massive risk.”

The Fed raised rates rapidly in 2022 and 2023, and officials have held them at a two-decade high since July. The central bank’s preferred inflation gauge rose 2.4% in January from a year earlier, down from a peak of 7.1% in 2022 but still above the Fed’s 2% goal.

That inflation progress has prompted calls from some lawmakers to start dialing back borrowing costs.

 

Housing affordability

In a Jan. 30 letter, Senator Sherrod Brown urged Powell to cut rates “early this year,” arguing that high rates are hurting small businesses and putting homeownership out of reach for many Americans. That missive from the Senate Banking Committee chair, an Ohio Democrat who is running for reelection this year, could give cover to other committee Democrats who want to press Powell on rates.

Maryland Democrat Chris Van Hollen, in an interview last week, said the Fed needs to focus on housing costs “and taking actions necessary to make things more affordable for more Americans.”

“Right now those high interest rates are actually increasing costs for families because one of the big parts of costs for families is housing,” Senator Elizabeth Warren, a persistent Powell critic, said in a Bloomberg Television interview. “It’s time to get those interest rates down.”

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