During a House Financial Services Committee hearing on Tuesday, Rep. French Hill (R-AR) asked Federal Reserve Chair Jerome Powell about the impact of tariffs and employment on inflation.
00:00Questions? Over the past few weeks, our Democratic colleagues have suggested the following.
00:05After the initial release of the GDP report, the President is driving the economy into a recession.
00:12Chairman Powell, the latest FOMC statement described economic activity have continued
00:17to expand at a solid pace, and you just reiterated that in your testimony this morning.
00:23In your view, is the term recession and the economy growing at a solid pace?
00:28Are those synonymous with each other?
00:30I would say no.
00:31And you note that the labor market continues strong, the economy is at a standard pace,
00:37and you also referenced in your testimony that that first quarter GDP initial react was also
00:42from front-end loading, as you noted, imports to try to avoid tariff impacts.
00:47Also, I looked at the Atlanta Fed GDP Now model, which forecasts GDP growth for the second quarter
00:53of this year at nearly 4 percent, with core GDP forecast at 2 percent.
00:59Does that Atlanta model suggest a recession to you?
01:03No, I would say it doesn't.
01:05So, in looking at your remarks about tariffs today and then the ones that you made during
01:12March and April, I was looking back at a Fed study that noted that up until March, tariffs have already been
01:21partially passed through in consumer prices, leading to a contribution of merely one-tenth percentage
01:27point increase in core PCE prices.
01:30And a Harvard study last week showed that prices have only modestly adjusted since the announcement of tariffs.
01:36Finally, the longer-term inflation expectations remain consistent with the 2 percent goal.
01:42Governor Waller laid out a pathway that allows for rate cuts, provided that average effective tariff rates remain close to 10 percent,
01:52or I assume he means 10 percent or lower.
01:54The labor market remains solid.
01:56Prices continue to disinflate.
01:58So, given that data I've outlined, I'm sure data that you're very familiar with, for the economy to avoid persistent inflation,
02:07do you concur with Governor Waller that there is a pathway for good news as it relates to the regulatory policies,
02:14the tax policies that I've discussed in a world with lower tariff rates?
02:19So, first, I wouldn't comment on any other FOMC members' comments one way or the other, but I will say this.
02:27I think many paths are possible here, and certainly the one you mentioned is a possible one.
02:33We could see inflation come in not as strong as we expect, and if that were the case, that would tend to suggest cutting sooner.
02:43We could see the labor market weakening, and that would also, you know, suggest cutting sooner.
02:48On the other hand, if we see inflation coming in higher or if the labor market were to remain strong, then we would probably be moving later.
02:57So, I think a range of possible paths are possible, and certainly the one you mentioned is one of them.
03:03In February of 2021, you told us in this committee that you would stay in your lane and not comment on President Biden's proposal for the American Rescue Plan or sharply increasing federal spending.
03:20And, you know, you said it was an issue, but that you would stay in your lane and not comment on it.
03:25But here in this year, you have commented on this idea of tariffs being set by the executive branch.
03:31So, are tariffs in your lane, but a huge fiscal spending by the Biden administration not in your lane?
03:38Explain to the committee why you chose to be silent in February of 21, but outspoken this spring.
03:45Sure.
03:46So, we haven't commented and it would be inappropriate for us to comment on the policy of tariffs.
03:50We don't have a view.
03:51It's not our job.
03:52And we just wouldn't do that.
03:54Just as we wouldn't comment on the reconciliation package that you're working on right now.
03:59We're not commenting on tariffs.
04:00What our job is, is inflation, keeping inflation under control, and also keeping maximum employment.
04:07And when policies have what appear to be short, you know, short and medium term implications, meaningful implications for that, then they kind of, not the policies themselves, but the inflation becomes our job.
04:18Yeah.
04:19You know, my views on price stability, I think it's a first among equals in your dual mandate.
04:24I've argued for that.
04:25I've introduced legislation to make the dual mandate the sole mandate, and we've talked about that before.
04:31But I was very curious about your thoughts on a former president of the Cleveland Bank, Loretta Mester's quote that I read from last fall.
04:40She says, I think that maximum employment is the maximum level of employment consistent with price stability.
04:47In other words, she elegantly ties that together, that price stability is what you can have more control over rather than, you know, all these other factors that enter the employment picture like legislative and executive branch.
04:59What's your thought about her quote?
05:00I personally think that's a very reasonable way to think about it.
05:03Thank you very much.
05:04I yield back.
05:07The gentleman from New York is recognized for five minutes.
