***VIDEO: Sen. Reed questions Fed Chair Powell***

WASHINGTON, DC – Today, the Senate Committee on Banking, Housing, and Urban Affairs held a semiannual hearing with Federal Reserve Chair Jerome Powell about the economy and monetary policy.  During the hearing, Chairman Powell noted the economy has made further progress when it comes to inflation and stated “more good data would strengthen” the case for central bank interest rate cuts.

U.S. Senator Jack Reed (D-RI), a senior member of the Banking Committee, asked Powell about the impact of potential tariffs on consumer prices in light of former President Donald Trump’s campaign plan to institute a universal 10 percent tariff on imported goods to the U.S., which would create a de facto ‘national sales tax’ that would increase inflation and cost Americans $2,600 per year, according to the National Taxpayers Union.

While the Fed Chairman declined to comment on the campaign proposal, Senator Reed panned it, noting the heavy burden Trump’s trade war would impose on Main Street Americans and how new Trump Tariffs on Americans could increase prices for working families:

“Ten percent increases in tariffs is going to have an effect on prices at the shop aisle – it’ll be passed on, likely. Sixty percent tariff increases are significant and, in fact, I have been told that to replace the income tax, we would have to raise tariffs across the board seventy percent to make up for the loss of the income tax.  Which would, I think, create huge economic problems. I respect your impartiality and your neutrality, but the numbers don’t seem to add up to anything that would help the country,” stated Reed.

During the hearing both Powell and Reed acknowledged that the labor market, which has seen record job growth over the last several years, has returned to balance and the Federal Reserve treads a fine line as it weighs when to cut its benchmark interest rate, which it raised eleven times from March 2022 to its current level of 5.3 percent.

Reed expressed concerns that the Fed may not be moving quickly enough to lower interest rates, stating: “You said in your opening statement that the labor markets appear to be in a better balance. And that is one of the key factors to judge whether interest rates can be raised.  I must say that I'm concerned a bit that we are not on a very faster track to decreasing interest rates from the Fed and because of the better balance you cite.  Can you comment on that, Mr. Chairman?”

Powell responded: “The most recent labor market data, to your point, they do send a pretty clear signal that labor market conditions have cooled considerably compared to where they were two years ago. This is no longer an overheated economy, this is an economy, as I mentioned in my opening remarks, that is more or less back by most measures to where it was before the pandemic. And that was a strong labor market but it was not an overheated labor market. So, I think that the upshot of that really is that we are, we are well aware that we now face two- sided risks and have for some time. But now, the labor market appears to be fully back in balance. We know that if we move too quickly, we risk, you know, unnecessarily hampering economic activity and possibly interfering with the ongoing expansion. We know that if we move too slowly that we may undo the good we have done. Well, actually, it’s the other way. If we loosen policy too late or too little, we could hurt economic activity.  If we loosen policy too much or too soon, then we can undermine the progress on inflation.  So we are very much balancing those two risks. That’s the essence of what we are thinking about these days.”

Reed followed up: “But the direction seems to be going towards lowering interest rates at some point, we would hope. That might be a wish rather than a direction.”

Powell replied: “I think if you look at the last summer of economic projections -- I guess I would say it this way: It doesn't seem likely that the next policy move would be a rate increase. We don’t take things like that off the table, but that does not seem to be the likely direction.  The likely direction does seem to be, again, as we make more progress on inflation and as the labor market remains strong, we can begin to loosen policy at the right moment.”