Key Takeaways from Fed Chair Powell's Testimony on Capitol Hill

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Federal Reserve Board Chairman Jerome Powell arrives to testify before a House Financial Services Committee hearing on Capitol Hill in Washington, DC on March 6, 2024.

Washington DC

The Federal Reserve is in no rush to cut interest rates, Federal Reserve Chairman Jerome Powell testified before congressional lawmakers on Wednesday. That means more pain for Americans who have already faced nearly two years of rising borrowing costs on everything from car loans to mortgages.

However, Powell said there will be no rate hikes this year.

“We believe our policy rate will be at its peak for this tightening cycle,” Powell told lawmakers. “If the economy evolves broadly as expected, it would be appropriate to begin easing policy restraint at some point this year.”

That means rate cuts are on the table β€” if the economy cooperates.

Here are some key takeaways from Powell's testimony before the House Financial Services Committee.

Powell gave lawmakers a positive assessment of the health of the U.S. economy and its future.

Responding to a question from Rep. Al Green of Texas, Powell said growth is expected to continue at a solid clip this year. That's a broad expectation among economists and central bank officials, whose December projections had the median forecast for growth at a healthy 1.4% annual rate this year.

“I would say that there is no evidence or no reason to think that the US economy is going to fall into a recession or is in some kind of short-term danger,” he said. “Having said that, there is always a meaningful chance that an economy will fall into recession. I don't think that chance is high at the moment.

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Economic growth registered a robust 3.2% annualized rate in the fourth quarter, with consumer spending running at a solid clip, down a few steps from the 4.9% in the third quarter, but still strong by historical standards. Growth was solid at the beginning of the year as well. The Atlanta Fed currently sees first-quarter GDP coming in at a healthy 2.1% annualized rate.

Some think a red-hot economy could make the Fed's job of curbing inflation difficult, but if the Atlanta Fed forecast is anything to go by, Americans will be spending more on concerts, movies and groceries than ever before, showing a clear slowdown from the summer. Powell told lawmakers Wednesday that the Fed wants to see more of the same: a slower economy and slower inflation.

Powell was also pressed about the macroeconomic risk of empty office buildings lowering property values ​​and employees working remotely. That's a problem for banks that have lent to landlords who have cut rents or sold properties at steep losses, with vacancy rates still elevated in large areas.

“I think it's manageable. We've been working hard to manage it for some time now,” Powell said in response to a question from Representative Jim Himes of Connecticut.

Powell said the Fed is specifically monitoring banks with “significant” commercial real estate concentrations, something he has said several times in previous comments.

“We've been in touch with them to make sure they have a plan to deal with that,” he said, adding, “Some banks will take a loss.”

As Powell testified, New York Community Bank's role Down more than 40% Wednesday afternoon after The Wall Street Journal reported A troubled regional lender seeks a major cash infusion. NYCB is a regional lender that is highly exposed to commercial real estate losses, but its woes have not had a knock-on effect on other banks with similar portfolios.

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Valley National Bank (d), the 100 largest banks in the U.S. have the most exposure to commercial real estate, which was less than 3% on Wednesday. The KBW Regional Bank Index was down less than 3%.

The central bank chief is getting an earful from Republicans on a new set of banking regulations, known as Basel Endgame III, expected to be released in the coming years. Opponents argue that the new regulations will require large and medium-sized banks to hold more capital, which could mean fewer funds to lend to businesses and consumers and higher interest rates on loans.

The proposed Basel norms were originally developed by an international group of bank officials in response to the Great Recession several years ago. Last year, the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation announced proposals on capital requirements for banks.

Ahead of the hearing, all 29 Republicans on the committee wrote to Powell and the heads of other financial regulatory agencies urging them not to move forward with Basel III.

Powell said the central bank is still considering the “hundreds” of comments submitted on the proposal, and the final version will likely be very different and attract a broad consensus of stakeholders.

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