Tag Archives: Federal Reserve Chair Jerome Powell

Fed’s Powell orders sweeping ethics review after officials’ trading prompts outcry

By Howard Schneider

WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell has ordered a sweeping review of the ethics rules governing financial holdings and dealings by senior officials at the U.S. central bank, a Fed spokesperson said on Thursday.

Powell ordered the review late last week, the spokesperson said in an emailed statement, following recent reports that two of the Fed system’s 12 regional reserve bank presidents had been active investors during 2020, a notably volatile year for asset prices as the country battled the COVID-19 pandemic. Those revelations, originally reported by the Wall Street Journal, prompted senior U.S. lawmakers – including Senator Elizabeth Warren of Massachusetts – to demand more stringent restrictions on such activities.

“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” the statement said.

The rules that guide personal financial practices for Fed officials are the same as those for other government agencies, the spokesperson said. Moreover, the Fed has supplemental rules that are stricter than those for Congress and other agencies that are specific to its work.

“This review will assist in identifying ways to further tighten those rules and standards. The Board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct,” the statement said.

Warren, in a Tweet, called the review “long overdue” but encouraged the Fed’s regional bank presidents to impose strict rules on their own.

Following news reports on their trading last week, Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren both said they would divest any holdings of individual stocks by Sept. 30 and put the proceeds into index funds or cash.

Their investments were judged by in-house ethics officers to have complied with Fed ethics rules. Kaplan, a former vice-chair of Goldman Sachs, has been an active trader since taking over the Dallas Fed in 2015, with multiple, million-dollar transactions in individual stocks each year, according to financial disclosures dating to 2016.

Still, their activity drew a sharp reaction given the context of a pandemic year in which tens of millions faced joblessness and the economy was on the precipice of a threatened depression.

The Fed, beginning in March of 2020, rolled out a response that was record-breaking for its speed and scope, with interest rates slashed to zero and open-ended promises to use bond buying and other tools to keep the economy afloat.

The effort stabilized financial markets, underwrote credit to small businesses and helped set the stage for a fast rebound of jobs and economic growth.

It also triggered a record surge of asset prices following a crash early in the pandemic. Between the Fed’s efforts and trillions of dollars in government spending approved by Congress, the S&P 500 Index has more than doubled from its pandemic low on March 23, 2020 and is about 30% above the high hit in the previous month.

It is not unusual for Fed officials to hold extensive portfolios. Powell, a private equity lawyer with a stint at the Washington-based Carlyle Group, has net worth in excess of $17 million and perhaps much higher, according to his latest ethics filings.

But they are not as a rule active traders, and many join the Fed from academic backgrounds or government posts. St. Louis Fed President James Bullard’s holdings are modest enough that he hand writes his ethics form. Former Fed Chair Janet Yellen’s disclosure was notable largely for its stamp collection.

Fed rules explicitly prohibit trading around the time of Fed policy meetings – when market-sensitive information is distributed – requires securities to be held for at least 30 days and forbids officials from holding bank stocks or funds with holdings concentrated in the financial sector that the Fed oversees.

But broader language in the Fed’s internal rules requires officials to avoid even the appearance of conflict or of using their position for personal gain.

For Powell, promoted to Fed chair in 2018 by former President Donald Trump and subsequently a target of Trump’s ire for his management of Fed interest rate policy, the revelations come at a particularly awkward time.

His current term as chair ends in February, and President Joe Biden is in the midst of deciding whether to appoint him to a second four-year term.

Among those advocating for a change in Fed leadership, one of the chief arguments has been that Powell, a private equity lawyer, has not been strict enough in his approach to Wall Street.

He has also worked to build strong relationships among U.S. lawmakers and has preached the need for the unelected central bankers to be transparent in their actions and accept oversight by the country’s elected officials.

(Reporting by Howard Schneider; Additional reporting by Ann Saphir; Writing by Dan Burns; Editing by Chizu Nomiyama and Dan Grebler)

Fed’s Powell keeps to script on jobs recovery, feels heat on inflation front

By Howard Schneider

WASHINGTON (Reuters) – Federal Reserve Chair Jerome Powell on Wednesday pledged “powerful support” to complete the U.S. economic recovery from the coronavirus pandemic, but faced sharp questions from Republican lawmakers concerned about recent spikes in inflation.

In testimony to the U.S. House of Representatives Financial Services Committee, Powell said he is confident recent price hikes are associated with the country’s post-pandemic reopening and will fade, and that the Fed should stay focused on getting as many people back to work as possible.

Any move to reduce support for the economy, by first slowing the U.S. central bank’s $120 billion in monthly bond purchases, is “still a ways off,” Powell said, with millions of people who were working before the crisis still to be pulled back into the labor force.

“The high inflation readings are for a small group of goods and services directly tied to the reopening,” Powell testified, language that indicated he saw no need to rush the shift towards post-pandemic policy.

Representative Ann Wagner, a Republican from Missouri, challenged that conclusion, relaying what’s likely to be a refrain from lawmakers as long as inflation continues to rise: their constituents are getting worried.

At a prior hearing in February “you reiterated that price spikes were temporary. I can tell you that the families and businesses I represent are not feeling that these price spikes are temporary,” Wagner said.

“The incoming data have been higher than expected and hoped for but are still consistent” with a temporary bout of higher prices, Powell responded.

“It is housing, appliances, food prices, gas,” Wagner retorted, a sign of what could become growing political pressure on the Fed to get tougher on inflation if the spikes in prices continue.

Representative Anthony Gonzalez, a Republican from Ohio, took aim at a new Fed framework that aims to encourage higher employment by letting inflation run “moderately” above the central bank’s 2% target “for some time”

“How long is ‘some time’?” Gonzalez asked, arguing that the Fed’s current policies may be doing little to encourage employment at a time when employers are already posting record numbers of jobs.

“It depends,” Powell said, demonstrating the dilemma he faces if prices continue rising. “Right now inflation is well above 2%. … The question for the (Federal Open Market) Committee will be where does this leave us in six months.”

U.S. Treasury yields fell after the release of Powell’s prepared testimony earlier on Wednesday and remained lower even though prices of factory inputs rose at a higher-than-expected pace in June, an indication markets construed his comments as a sign the monetary taps will stay open.

Powell’s remarks were notable as well for excluding any mention of risks to the recovery from the coronavirus Delta variant, with the Fed chief saying the central bank expects strong upcoming job gains “as public health conditions continue to improve.”

The Fed’s June meeting saw officials begin a move towards post-pandemic policy, with some of them poised to tighten financial conditions sooner to ensure inflation remains contained. Renewed coronavirus-related risks, if they materialize, could push the Fed in the other direction of keeping support for the recovery in place longer in case household and business spending wane amid a rise in new infections.

Falling Treasury bond yields have indicated concern among investors about slowing U.S. economic growth, even as new data on prices this week showed consumers paying appreciably more for an array of goods and services, including appliances, fabric, beef and rent.

In a report to Congress last week, the Fed said that as the “extraordinary circumstances” of the reopening subside, “supply and demand should become better aligned, and inflation is widely expected to move down.”

RISING DELTA

While each month of high inflation makes it harder to stick to that conviction, Powell for now is keeping to the Fed’s core narrative of a job market that still needs massive help from the central bank to restore it to its pre-pandemic health and minimize the long-term damage from a historic, virus-driven calamity.

The Fed has said it will not reduce its bond-buying program absent “substantial further progress” in regaining the roughly 7.5 million jobs still missing since the onset of the pandemic in March 2020, a threshold policymakers feel will likely be met later this year.

That hinges, however, on continued reopening of the economy, recovery in the travel, leisure and other “social” industries devastated by the health crisis, and the willingness of currently unemployed or homebound individuals to fill the record number of jobs on offer.

When Powell last spoke about the economy at a news briefing after the end of the June 15-16 policy meeting, new daily coronavirus infections were falling toward recent lows, and the Fed dropped language from its policy statement that the pandemic “continues to weigh on the economy.”

Since then the Delta variant has pushed the seven-day moving average of cases from 11,000 to above 21,000, and health officials are concerned about the spread of the variant in parts of the country where vaccination rates are low. The numbers are more ominous globally.

Powell is scheduled to appear before the U.S. Senate Banking Committee at 9:30 a.m. (1330 GMT) on Thursday.

(Reporting by Howard Schneider; Editing by Dan Burns, Andrea Ricci and Paul Simao)

U.S. labor costs accelerate in the first quarter

WASHINGTON (Reuters) – U.S. labor costs increased more than expected in the first quarter as wage growth picked up, further evidence that inflation will push higher this year as the economy reopens.

The Employment Cost Index, the broadest measure of labor costs, jumped 0.9% last quarter after gaining 0.7% in the October-December quarter. That lifted the year-on-year rate of increase to 2.6% from 2.5% in the fourth quarter.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation as it adjusts for composition and job quality changes. Economists polled by Reuters had forecast the ECI rising 0.7% in the first quarter.

Wages and salaries shot up 1.0% after advancing 0.8% in the fourth quarter. They were up 2.7% year-on-year. Economists expect wages will increase further in the second quarter as companies compete for scarce workers.

Despite employment being 8.4 million jobs below its peak in February 2020, businesses are struggling to find suitable workers as they rush to meet robust domestic demand.

Federal Reserve Chair Jerome Powell on Wednesday acknowledged the worker shortage saying “one big factor would be schools aren’t open yet, so there’s still people who are at home taking care of their children, and would like to be back in the workforce, but can’t be yet.”

Higher wages, if the worker scarcity persists, could contribute to boosting inflation this year, though many economists and Powell believe the anticipated surge in price pressures as the broader economy reopens will be transitory.

(Reporting By Lucia Mutikani)

Fed’s Powell tells lawmakers inflation risk remains low

WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell told U.S. lawmakers on Tuesday that a coming round of post-pandemic price hikes won’t get out of hand and fuel a destructive breakout of persistent inflation.

“We do expect inflation will move up over the course of the year,” but it will be “neither particularly large nor persistent,” Powell said in testimony before the House of Representatives Financial Services Committee after some members said they were concerned about rising prices.

“We have the tools to deal with that” if it becomes a problem, Powell said.

Powell was testifying alongside Treasury Secretary Janet Yellen as part of a hearing to ostensibly review the progress of the U.S. economic recovery from the coronavirus pandemic, and the effectiveness of the fiscal and monetary policies used to combat the crisis.

But it was marked by an early skirmish over possible infrastructure and tax increase plans being considered by the Biden administration.

Yellen, questioned about whether corporate or other tax increases could do more harm than good, said an infrastructure plan would target “spending that this economy needs to be competitive and productive,” but would require “some revenue raisers” to offset the cost.

“The Biden administration is not going to propose policies that hurt small businesses or Americans,” Yellen said.

The U.S. economic recovery is evolving faster than expected, but still faces risks from the coronavirus pandemic on one side and potential inflation on the other as massive fiscal support rolls through the system.

The federal response to the crisis, including spending of about $5 trillion and massive support from the central bank, set the stage for a rebound now taking hold as the COVID-19 vaccination program gains momentum and pandemic restrictions are lifted.

However, it remains unclear how quickly millions of still-unemployed workers will find their way back to jobs, whether the Fed can keep markets on an even keel amid rising prices and bond yields, and if initial progress against the pandemic can be sustained.

ECONOMIC OPTIMISM

In testimony released ahead of the hearing, Yellen repeated an optimistic view that the U.S. response, including the Biden administration’s $1.9 trillion relief package that was passed this month, could get the country back to full employment by next year.

“I am confident that people will reach the other side of this pandemic with the foundations of their lives intact. And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year,” Yellen said.

The current U.S. unemployment rate of 6.2% is far above the multi-decade lows of around 3.5% reached before the pandemic, and statistical surveys during the crisis may understate the true level. The economy is about 9.5 million jobs short of where it was in February 2020.

Still, Fed officials including Powell expect job growth to accelerate in coming months as life returns to normal and a wide variety of businesses, from restaurants to amusement parks, begin to reopen and re-staff their workforces.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” Powell said in his opening statement.

Yellen and Powell are scheduled to appear before the Senate Banking Committee on Wednesday.

(Reporting by Howard SchneiderEditing by Paul Simao)

Fed’s Powell calls for broad national drive to full employment

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – Invoking post-World War II efforts to reach full employment and pledging continued loose monetary policy to help the process, Federal Reserve Chair Jerome Powell made a broad call Wednesday for a “society-wide commitment” to get Americans back to work, particularly minorities and those ousted from lower-paying jobs during the pandemic.

“Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy,” Powell said in remarks to the Economic Club of New York. “It will require a society-wide commitment, with contributions from across government and the private sector.”

While the Fed has already promised that borrowing costs for companies and households will be kept low as the economy recovers, Powell’s remarks spoke to the need for a more comprehensive approach to end the jobs crisis that followed the onset of the coronavirus last spring. In scope and approach, including a call for long-term investment, the remarks aligned closely with the sort of proposals being discussed by President Joe Biden and his Treasury Secretary and former Fed chair Janet Yellen.

The United States remains about 9 million jobs short of where it was a year ago.

“Fully realizing the benefits of a strong labor market will take continued support from both near-term policy and longer-run investments so that all those seeking jobs have the skills and opportunities that will enable them to contribute to, and share in, the benefits of prosperity,” Powell said.

His remarks come as the Biden administration pushes a $1.9 trillion emergency spending bill through Congress, while also laying plans for a longer-term infrastructure effort that some analysts expect will also be in the trillions of dollars.

Though the Fed has no direct say over how the federal government spends money or how much it raises, central bank policy does influence the interest rate the government pays and thus the cost particularly of longer-term investments.

During the pandemic, Fed policymakers have generally set concerns about the level of federal debt to the side and focused more on the economy’s immediate needs.

Powell on Wednesday cemented that stance, noting that after World War II, as the economy transitioned from wartime and needed to absorb millions of returning soldiers in the labor force, the Employment Act of 1946 committed the government “to use all practicable means” to see that anyone willing and able to work can find “useful employment.”

“At present, we are a long way from such a labor market,” he said.

(Reporting by Howard Schneider and Ann Saphir; Editing by Andrea Ricci)

Mnuchin, Powell hone in on need to aid U.S. small businesses

By Howard Schneider

WASHINGTON (Reuters) – Top U.S. economic officials on Tuesday urged Congress to provide more help for small businesses amid a surging coronavirus pandemic and concern that relief from a vaccine may not arrive in time to keep them from failing.

“These businesses cannot wait two or three months,” Treasury Secretary Steven Mnuchin said during a hearing before the Senate Banking Committee, urging lawmakers to repurpose funds he is clawing back from other Federal Reserve loan programs to put perhaps $300 billion into grants for struggling businesses.

Mnuchin’s decision to shut those emergency programs at the end of this month was the focus of partisan bickering at the hearing, with Republicans agreeing that other forms of help are more appropriate now that a vaccine is in view, and Democrats arguing the Fed programs should be left in place until the economic recovery is more complete.

But there was broader agreement that the next few weeks could be critical in determining whether the country’s better-than-expected recovery can be coaxed along until the impact of the vaccine is felt – or will weaken in the meantime as the virus spreads, and some families begin to run out of cash.

Fed Chair Jerome Powell, speaking at the same hearing, said he agreed that grants would be more appropriate at this point to help at-risk businesses and families survive the winter.

“People that are in public-facing jobs, in public-facing industries – they may see the light at the end of the tunnel the middle of next year … They may need more help to get there,” Powell said, referring to restaurants, hotels and entertainment venues that have been the hardest hit by the pandemic.

Job losses in those industries have fallen most heavily on women and minorities.

“Some of these businesses – what they need is fiscal policy, a grant, to get through this last bit of the pandemic, rather than borrowing more,” Powell said.

The Fed chief’s comments shifted attention from the looming Dec. 31 end of Fed emergency programs established early in the pandemic to keep credit flowing to small businesses and local governments, and toward ways to fill the cracks beginning to show in the U.S. recovery.

In the medium term, with a vaccine on the horizon, there is “upside risk,” Powell said, but substantial uncertainty in the meantime about how much longer some families can hold out.

After weeks of deadlock over further government spending for pandemic relief, there may be renewed momentum towards some sort of deal.

(Reporting by Howard Schneider; Editing by Tom Brown, Chizu Nomiyama and Paul Simao)

Fed says Powell has been working from home, observing mask and distance protocols

WASHINGTON (Reuters) – Federal Reserve Chair Jerome Powell has been working from home while also following masking and social distancing protocols when in public, and has not felt it necessary to take a coronavirus test, the Fed said Friday in response to inquiries following the news that President Donald Trump has contracted COVID-19.

A Fed spokesperson said in addition that Powell had not been in contact with anyone known to have tested positive for the virus.

Fed officials have been working remotely since the start of the coronavirus pandemic, but Powell has traveled occasionally to Capitol Hill, most recently last week, for hearings on Fed policy and the response to the health crisis.

He typically has worn a mask during those appearances, and Fed officials in general have urged people to do the same as a way to tamp the spread of the disease and allow economic activity to safely resume.

News that Trump, first lady Melania Trump, and others had been infected with the coronavirus touched off a wave of announcements from other officials about their health status.

Powell has met infrequently with Trump during his time as Fed chair, though he has been holding frequent talks during the crisis with Treasury Secretary Steven Mnuchin. A Treasury spokesperson said Friday Mnuchin had tested negative.

(Reporting by Howard Schneider; Editing by Andrea Ricci)

Fed’s Powell, Mnuchin see promise in reallocating unused aid

By Ann Saphir and Howard Schneider

(Reuters) – Hundreds of billions of dollars in unused funds from a $2.3 trillion coronavirus aid package could be reallocated to help U.S. households and businesses, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said on Thursday.

About $200 billion in money allocated to the Treasury to backstop U.S. central bank loans remains uncommitted, Powell and Mnuchin said in a hearing before the Senate Banking Committee.

Mnuchin also pointed to the $130 billion left in the now-expired Paycheck Protection Program to help small businesses, funds he said would his first priority to get approval from Congress to tap and send to needy firms.

In addition, Powell, in response to a question, said most of the $75 billion allocated to the Fed’s largely untapped Main Street Lending Program remains unused.

The focus on reallocating those sums has emerged as Congress has remained deadlocked over providing new fiscal relief that Powell said could make the difference between continued recovery and a much slower economic slog.

While households are spending what’s left of their stimulus checks and unemployment benefits, “the risk is they will go through that money, ultimately, and have to cut back on spending and maybe lose their home or their lease,” Powell said.

“That is the downside risk of no further action. We don’t see much of that yet, but it could well be out there in the not-too-distant future,” Powell said in the last of three hearings in which he testified before Congress this week.

Asked by Republican Senator Mike Crapo, the committee chair, what the best use of the unused funds might be, Powell said it could be spent to help small businesses and households.

Prospects for new fiscal aid are dim less than six weeks before the Nov. 3 presidential election.

(Reporting by Howard Schneider, Ann Saphir; Editing by Paul Simao)