Bill Hagerty Accuses Fed Chair Powell Of Having A ‘Bias’ Of Viewing Tariffs As Inflationary

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During Wednesday’s Senate Banking Committee hearing, Sen. Bill Hagerty (R-TN) questioned Fed Chair Jerome Powell about tariffs.

Transcript

00:00Amen. Okay. Senator Hagerty. Thank you, Chairman Scott and Ranking Member Warren for holding this

00:07meeting. And Chairman Powell, it's good to see you here again. Chairman Powell, I want to talk

00:14with you about inflationary and deflationary trends in our economy and how they impact your

00:19thinking. I understand based on your testimony and recent statements that you're acutely sensitive

00:23to the inflationary risks of our administration's trade policy. And though I note that it's not

00:29the Fed's responsibility to attempt to steer or to directly offset that policy in any way,

00:35I look at that. I look at your perspective, but I also look at many of the other developments in

00:40our country that I think present the opposite risk, which is a disinflation risk. And let me dig into

00:47this a bit. We're witnessing artificial intelligence adoption at breakneck speed. That's going to bring

00:54about productivity gains in nearly every aspect of our economy. We're about to pass a tax bill.

01:00That tax bill is going to encourage capital expenditures and long overdue upgrades to our

01:05manufacturing capacity. Again, increasing productivity. And if you think about the concerted effort that's

01:12being undertaken by our federal government right now to reduce waste and bloated, unproductive

01:18government payrolls, all of these point to disinflationary productivity gains. So given the competing

01:26sources of uncertainty that we're talking about, it feels to me like the Fed's far more focused

01:32on tariffs and the inflationary impact of tariffs than on the deflationary impact of the points I just

01:39mentioned. So if uncertainty around tariffs is the primary reason that impacts your thoughts,

01:49I mean, how do you counter, how do you bring into account these disinflationary trends that I've just

01:54mentioned? We do look at the overall picture. And that's actually what's been happening is

01:58services inflation has been coming down. And that's been covering what we see so far, small increases in

02:05goods inflation. I would also mention a factor that you that you didn't mention on your list,

02:09which is regulation, which is an area which could could also be over time disinflationary.

02:15So we we get regulation there. You know, we we I always I try to say that it's the broad sweep of

02:21policies and the broader economy that matters for inflation. I get asked about tariffs a lot. And

02:27that's the one where we all forecasters are expects expecting, you know, a significant increase

02:33between now and the end of this year. We don't know how big it's going to be. We don't know when

02:37it's going to come. But it's just something that we're we're waiting to see more information on so

02:42we can make a better decision on interest rates. That's all it is. I hear the discussion about not

02:47knowing the magnitude and the timing of the trade talks and the resulting tariffs that will ensue.

02:53It does seem to me that there's a bias toward viewing this as more inflationary than deflationary.

02:58And I would like to ask you this. If Ambassador Greer is successful at bringing the trade deals

03:04together soon and alleviating that uncertainty, what would that do to your perspective on rates?

03:10Would that put you in a position to think more aggressively about lowering rates?

03:13Yes, potentially it would. I mean, really, it's reducing uncertainty would help and also just what's

03:18going to be the final tariff rate and getting that settled. And it would and I think that's the that's

03:24the path we're on. I think that's welcome news. I think the markets will welcome that as well.

03:28Because I do believe that we're on the path, as you're about to say, of having some significant

03:33resolution and trade uncertainty. We've lived in an unbalanced world for years with the United

03:37States has had the lowest tariff barriers in the world. And, you know, other nations have taken

03:41advantage of that. Jameson Greer and this team, Scott Besson and his team, the president, everyone

03:45is making a concerted effort to fix this. So I'm looking forward to that. One other area I wanted to

03:50touch on, because it's touching close to home, and that is legislation that this committee has just

03:56passed out and that we've just passed in the Senate has to do with the Genius Act. We just passed it

04:02last week. And it provides an urgently needed regulatory framework for payment stable coins.

04:07And it requires that they're backed one to one by cash or short dated U.S. Treasuries.

04:12Over the last five years, the total value of outstanding stable coins has increased

04:17from approximately $4 billion to over $2 billion today. One market participant has predicted that if a

04:23framework like the Genius Act is adopted, total issuance of dollar pay stable coins could reach

04:29nearly $4 trillion by the end of the decade. So I wanted to get your perspective again,

04:35Mr. Chairman, of what impact would this new source of demand for bills have on the yield curve?

04:40And in particular, what impact would it have on short term rates?

04:44You know, so more demand is going to have a tendency to drive down rates. I don't really have a

04:50sense of how big that effect would be, of course. And let me just say that it's a great thing that

04:54we're making progress toward a free stable coin framework. Thank you, Mr. Chairman. I couldn't

04:59agree with you more. The direction clearly is that it's going to drive rates down. I think it's very

05:03positive for the economy, positive for our cost of borrowing as a nation. And I appreciate your response

05:08there, Mr. Chairman. Thank you very much. Yes, sir. Senator Cortez Bestow.

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