During Wednesday’s Senate Banking Committee, Sen. Elizabeth Warren (D-MA) questioned Federal Reserve Chair Jerome Powell about the Trump Administration's economic policies.
00:00Thank you, Mr. Chairman. Thank you, Mr. Chairman. Thank you. So, Chair Powell, the Fed released its updated economic projections last week, and I appreciate your summary, but I want to look at the trend lines here.
00:12But the Fed's outlook on inflation, the labor market, and GDP growth have all gotten worse. Compared to your economic projections in December, the latest numbers show that the Fed is now projecting higher inflation from 2.5 percent in December now to 3.1 percent.
00:29Higher unemployment from 4.3 percent to 4.5 percent. Lower economic growth from 2.1 percent projected just six months ago to 1.4 percent that you're now projecting.
00:44Chair Powell, what has changed in the last six months that has caused the Fed to forecast substantially higher inflation, somewhat higher unemployment, and lower economic growth than you did in December?
00:57So some of it is just taking signal from data reports that we've seen. Some of it is people working in the possible effects in the short term of tariffs.
01:09We have no view on the wisdom or the longer-term effects of trade policy. It's not our job. And by the way, I should add, our forecasts are generally, and in this case, are very, very similar to what outside forecasts are calling for.
01:20I understand that. I'm just using you as the gold standard here. I know it's consistent. But you mentioned tariffs as,
01:27one of the things that has changed over the last six months, you know,
01:32Donald Trump has become president and the economy has headed down.
01:36Not only does the Fed data now show slower growth and higher prices this year,
01:42it sees slower growth and higher prices over the next two years as well.
01:47And the Fed sees no longer-term boost to the economy or drop in inflation.
01:53In other words, no upside to Trump's chaotic tariff war or his other economic policies.
02:00So let's talk for just a minute about what's under the hood of the Fed's economic forecast.
02:06Chair Powell, I know a lot of different factors influence the trajectory of interest rates.
02:12Is one of those factors how quickly the federal debt grows relative to the growth in the economy?
02:19Not directly, no. We don't look at that as a factor that helps us set monetary policy.
02:25So you're not watching the ratio between the amount of the federal debt and the growth in the economy?
02:32No.
02:33How fast the debt is growing and how fast the economy is growing?
02:36I think I have quotes from you saying last year, quote,
02:40we don't need to pay the debt down, we don't need to balance the budget,
02:43we just need the economy to grow faster than the debt.
02:47Are you saying something different from that now?
02:49No. When asked and pressed, I pretty much always say the same thing as my predecessors,
02:54which is that we're on an unsustainable path.
02:56I would not say, though, that we do not look at federal financial policy and deficits
03:04as something that affects our month-to-month monetary policy decisions.
03:09I'm trying to get the overall projection of what happens in the economy.
03:15So, for example, I think you have made the point that if we spend on things like childcare
03:22that can boost labor participation and GDP, that may be a time when you offset the debt that you incur to do that.
03:32But if there aren't investments like that and we are simply running up the debt, what's the impact of increasing the national debt?
03:42So I understand that you don't comment on physical policy, but it does affect your job,
03:49which is keeping inflation under control and also maximizing employment.
03:54If certain policies would materially drive up the national debt and increase the debt-to-GDP ratio over time,
04:04could that make it more likely that we would see inflation all else being equal?
04:10I mean, theoretically, sure, fiscal policy can add to inflation.
04:14But that's, again, that's really not something we comment on.
04:17We try to stay away from fiscal policy.
04:19I understand you don't comment on it, but I do appreciate your acknowledgement of the math here.
04:23You know, the Joint Committee on Taxation projects the one big, beautiful bill would increase federal deficits by $4.2 trillion.
04:33According to analysis by the Congressional Budget Office and the Yale Budget Lab, the bill raises the debt-to-GDP by 24 percentage points.
04:46It slows economic growth, it increases inflation, and it reduces real wages.
04:52So two of Trump's signature policies, his tariffs and his tax bill, will increase costs for American families.
04:59When America borrows money, it should be for investments that Americans need, like investments in childcare or housing or healthcare,
05:07that would actually boost economic growth and lower costs.
05:11America should not take away healthcare from millions of people who need it and then borrow trillions of dollars just so that a handful of billionaires and giant corporations can get even richer.
