Powell heads for hot-seat hearings with ongoing pressure from Trump policies

Federal Reserve Chair Jerome Powell faces a tough set of hearings this week on Capitol Hill with both Democrats and Republicans likely to prod him on President Donald Trump’s policies ranging from banking regulations to a rollback of diversity, equity and inclusion efforts that has already engulfed the central bank.

Powell’s appearances for his semiannual testimony also come as Trump’s proposals on trade, taxation, immigration and regulation cast uncertainty over the US economic outlook, complicating the Fed’s efforts to lower inflation and sustain a healthy labor market.

Pressure from Republicans is already resulting in changes at the Fed. Vice Chair of Supervision Michael Barr said last month he would step down from his position as the Fed’s top banking cop, paving the way for Trump to appoint his own regulator from among the six other governors. 

The central bank has also sought to comply with Trump’s executive order to halt DEI policies, taking down pages on its website.

The Fed’s miss of its 2% inflation target, ongoing since 2021, could be raised by lawmakers. Inflation continues to make it difficult for many Americans to afford daily life, a decisive theme in the 2024 presidential election and a concern within both parties.

“A lot of our members have concerns over the Fed’s policy, post pandemic,” French Hill, the new Chairman of the House Financial Services Committee, said in an interview. 

The hearings promise to be “hyper-charged,” said Sarah Binder, a senior fellow at the Brookings Institution in Washington. Despite the Fed’s preference for not engaging in partisan debates, “it can’t hermetically seal itself off,” she said, because it needs public support on both monetary and supervisory policy.

The Fed chair has long sought to foster good contacts on Capitol Hill and he’ll be especially keen to preserve his positive standing with many Republican lawmakers now that Trump is back in the White House.

For his part, Trump blasted the Fed after its recent decision to keep rates on hold, but has since signaled he may be backing off. On Feb. 2 he said holding rates steady was “the right thing to do.” And in an interview with Bloomberg News last week, Treasury Secretary Scott Bessent said of Powell: “I’m sure he’s going to do the right thing, so there’ll be no criticism.”

Powell will appear before the Senate Banking Committee Tuesday at 10 a.m., and before the House Financial Services Committee at the same time on Wednesday. Here’s a look at some of the top themes likely to emerge.

Monetary Policy

After cutting the benchmark rate a percentage point since September, Fed officials say they want to take a breather and assess the economy. Powell has no reason to deviate from that message. The January jobs report was solid, unemployment ticked down to 4% and inflation is still above the central bank’s target rate, rising 2.6% last year.

Some Democrats, however, will likely question Powell about Trump’s tariff threats against Canada and Mexico and their potential impact on growth and inflation. Powell has been reserved when talking about Trump’s policies, but could be pressured to address them with more clarity.

“The strategy of silence becomes more and more tenuous when we now have real policies to assess,” said Derek Tang, an economist at LH Meyer, a policy analysis firm in Washington.

If Powell does comment on tariffs, it could provoke questions from Republicans on why he didn’t speak out about the inflation risks posed by Covid-relief spending under former President Joe Biden. Hill said “many” House committee members believe Powell “should have spoken out against the significant increase.”

The Arkansas Republican also said the Fed’s upcoming review of the monetary policy framework introduced in 2020 is an issue of concern for him.

“The Fed’s assessment of its inflation target, and its inflation analysis and planning, is top of mind, both down on Constitution Avenue at the Fed, as well as here on Capitol Hill,” Hill said. “So, I think that will be a key point.”

Diversity, Equity and Inclusion

Democrats may press Powell on the Fed’s apparent steps to comply with Trump’s executive order that aims to dismantle DEI efforts across the federal government.

The Fed, and several other financial agencies, have diversity and inclusion obligations under the Dodd-Frank Act. Powell has said the central bank is working to align its practices with the DEI executive order “as appropriate and consistent with applicable law.”

Maxine Waters, the top Democrat on the House Financial Services Committee, played a key role in championing the diversity-related requirements in the Dodd-Frank law. She wrote to the Justice Department and other agencies last month saying Trump’s executive order “cannot override the requirements of the Dodd-Frank Act, Federal anti-discrimination laws or the constitutional rights of employees.”

Democrats may probe Powell about his views on Fed independence given the moves related to DEI, Barr’s resignation and the Fed’s withdrawal from a climate research group, according to aides on Capitol Hill.

Bank Regulation

Trump has unleashed a deregulatory force across federal agencies, including those that monitor banks.

Travis Hill, Trump’s acting head of the Federal Deposit Insurance Corp., issued a 15-point statement in January that includes “a wholesale review of regulations, guidance and manuals” to assure they promote economic growth. 

Republicans in the House and Senate will likely test Powell to see if he’s on board in some way. Topics range from an unfinished bank-capital proposal and plans to overhaul bank stress testing to so-called “debanking,” or the practice of depriving some individuals and businesses of banking services.

Powell could punt on new regulatory initiatives, saying he is waiting for the White House to appoint a new vice chair of supervision. The Fed said it wouldn’t take up major rulemakings until a successor is confirmed. Lawmakers are expected to press him for his opinions, though.

“The responsibility for decisions around bank supervision reside with the Board of Governors, as a whole, and he’s the chairman of the Board of Governors,” Representative Hill said.