During a House Financial Services Committee hearing last week, Rep. Ritchie Torres (D-NY) asked Federal Reserve Chair Jerome Powell about the impact of tariffs.
00:00With that, the gentleman from New York, Mr. Torres, is recognized for five minutes.
00:04Thank you. Chair Power, you spoke about elevated uncertainty and declining sentiment in the U.S.
00:10economy. Do you believe, as I do, that the economy would be in a better position,
00:15but for the elevated uncertainty and declining sentiment created by the Trump tariffs?
00:22I don't want to be criticizing policies. I will say, uncertainty has...
00:28Is it fair to say that the policy created uncertainty?
00:31It's fair to say uncertainty was very elevated, but it's also fair to say that uncertainty has actually come down since the peak, if you will, in April.
00:41I think there's a different feeling out there now than there was two months ago,
00:46and it's a more constructive feeling on the part of businesses, which you must be feeling, too.
00:51But it's higher than it otherwise would be in the absence of the Liberation Day tariffs.
00:56To what extent was the elevated uncertainty a factor in keeping the Fed from cutting interest rates?
01:02I think that's part of it.
01:05The truth is, you know, we were cutting rates, and we paused in January and haven't cut rates since.
01:14And really, the reason is that we, like other forecasters, do expect a fairly substantial wave of price increases
01:21to come through to the consumer and to measured inflation.
01:25We've always said the timing, amount, and persistence of all that is highly uncertain.
01:30I think we hadn't expected to see it until now.
01:32We now begin to think it is time for us to be seeing that.
01:35And if we don't see it, that will matter.
01:37If we do see it, that will matter.
01:38So we've just taken a cautious approach to not moving our policy rate
01:43until we have a little more confidence about the size and likely effects of that.
01:47Chair Powell, following the so-called Liberation Day tariffs in early April,
01:51we saw something the U.S. economy had not seen in decades.
01:55A flight not to the U.S. dollar as a safe haven, but away from it.
01:59And since President Trump's inauguration, the U.S. dollar index has fallen by nearly 10%,
02:05marking the worst first-half performance for the dollar since 1986.
02:11At the same time, Japan, America's largest sovereign creditor,
02:14just saw the worst 20-year Japanese government bond auction since the 1980s,
02:19raising fears that it could reduce its holdings of U.S. treasuries.
02:24Given these developments, do you believe, as I do,
02:26that the U.S. may be transitioning from a period of dollar dominance
02:30to a period of dollar decline?
02:33Well, let me say, the Fed does not have responsibility for the dollar.
02:38That's really the Treasury.
02:39But I'm asking for your analysis.
02:40I wouldn't make that statement.
02:44No, I think things have been volatile.
02:46The markets are digesting things.
02:48And I think the Treasury market's been fined by many measures.
02:52The dollar is still highly valued.
02:53You feel the safe haven status of the dollars is as strong as it's ever been?
02:57I think the dollar is still the number one safe haven currency.
03:01And I don't think it's – you know, I would say these narratives of decline are premature and a bit overdone.
03:08I want to ask about the debt.
03:10The big, beautiful bill would have ugly consequences for our nation's finances,
03:14adding more than $2 trillion to the debt if the provisions are temporary and far more if made permanent.
03:22We've accumulated World War II levels of debt, not during a World War, but during peacetime.
03:30Interest payments on the debt have become the largest item in the federal budget after Social Security,
03:34surpassing Medicaid, Medicare, and military defense.
03:39To what extent is the U.S. at risk of entering a debt spiral in which rising interest costs lead to ever-larger deficits,
03:46which in turn lead to ever-larger interest costs?
03:49Yeah, I think that the U.S. federal budget is on an unsustainable path.
03:55The debt is not at an unsustainable level right now, but the path is not sustainable.
03:59And I think the sooner we deal with that, and by we I mean you, the better.
04:05The Trump administration has championed the unitary executive theory,
04:13the notion that the president has absolute power over all entities that wield executive power.
04:18That theory, if taken to an extreme, would all but abolish the independence of the Federal Reserve.
04:24If monetary policy became nothing more than an expression of presidential will and whims,
04:31what havoc would that wreak on the U.S. economy?
04:33I think that independent central banks have proven over time to be a valuable and critical institutional practice.
04:46And I think that is because basically advanced economy democracies around the world
04:51have given their central banks a degree of operational independence.
04:55They assign them goals.
04:57You go do this and you stick to those things.
04:59But we'll let you, you know, you may choose the means of achieving those goals.
05:03It's called instrument independence, but not goal independence.
