Powell Told Democrats Fed Won’t Bend to Pressure, Sources Say
Democrats Raise Concerns on Fed Independence Before Powell Talk
(Bloomberg) -- Federal Reserve Chairman Jerome Powell asserted the central bank’s independence in remarks to Democratic lawmakers, telling them the Fed doesn’t consider political pressure in any way, according to two people in the room for the closed-door event.
Powell’s appearance Thursday night at a Democratic retreat in Leesburg, Virginia, came as many of the lawmakers gathered there have raised alarms about the Fed’s independence in light of President Donald Trump’s frequent criticisms of the central bank.
Powell declined to discuss the president, according to the people, a comment that was greeted by applause. The chairman told the lawmakers that interest rates are at about the right level given current economic conditions and that the benefits of U.S. economic growth haven’t been as widely spread as the Fed would like.
He was interviewed on stage by Ohio Representative Joyce Beatty for a discussion on the economy with no news media in the room. The people in the session provided descriptions of Powell’s remarks on the condition of anonymity.
When asked about the potential nominations of businessman Herman Cain and conservative activist Stephen Moore to the Federal Reserve Board, Powell said he doesn’t discuss Fed nominations. Cain’s chances of actually being nominated have narrowed this week as senators warned that he wouldn’t have enough Republican support to win confirmation.
While Powell declined to comment on several aspects of fiscal policy, he did endorse the Earned Income Tax Credit as a way to distribute wealth more widely.
He also discussed the danger of a growing budget deficit by saying the U.S. does not have unlimited resources. He said that increasing deficits are an unsustainable path, but the worldwide hunger for Treasuries means no short-term market implications.
Asked by House Majority Leader Steny Hoyer of Maryland about the danger of a debt ceiling default, Powell urged that the ceiling be increased and called a default “unthinkable,” Hoyer said Friday.
The debt ceiling came back into effect in March, and Treasury has been using what it terms extraordinary measures to avoid a default since then. Those measures could last into late summer or early fall.
Asked by a reporter when the House would vote to increase the debt ceiling, Hoyer said, "I don’t know when." Lawmakers have said the increase could be wrapped into a deal increasing budget caps for the next two fiscal years, and top House and Senate leaders are expected to begin negotiations on that later this month.
Powell also discussed Fed forecasting, saying the slowdown in Europe had caught it by surprise.
Michelle Smith, a Federal Reserve spokeswoman, declined to comment on Powell’s session with the lawmakers.
‘General Concern’
Earlier in the day, Representative Hakeem Jeffries of New York, a member of the Democratic House leadership, said that there’s “general concern” in the party about whether Trump understands the need for Fed independence, and whether he is trying to pressure the central bank for lower interest rates before the 2020 election.
Concerns about its independence have been exacerbated by Trump’s announcement that he planned to nominate political loyalists Moore and Cain, said House Speaker Nancy Pelosi.
“These two appointments to the Fed are the worst, ill-suited appointments that the president could come up with,” Pelosi told reporters, pointing out that Vice President Mike Pence said earlier Thursday that Cain and Moore share Trump’s views on the economy.
“If the vice president is saying that they share his view, does that mean meddling with the Fed? The Fed is an independent agency,” she said. “We as House Democrats have always said the Fed should be determining the rates, not politicians. That is a dangerous thing for the economy.”
The president has said privately he knows Cain will have trouble getting confirmed to the Federal Reserve Board, people familiar with the matter said Thursday.
Trump, who picked Powell as Fed chairman, has criticized the Federal Reserve’s rate increases as it tried to gradually move them to a level that neither brakes nor stimulates growth.
The hikes have slowed some segments of the economy, such as housing, but overall the expansion continues along with low unemployment and prices near the Fed’s 2 percent target. The Federal Reserve raised rates four times in 2018, but paused at its first two meetings in 2019 saying it will be “patient” as it assesses the need for any additional changes in the policy rate, now in a range of 2.25 percent to 2.5 percent.
Lately, Trump has urged the Fed to cut rates to turn the economy into a “rocket ship.’’
Challenging the Fed
Moore signaled in a Thursday Bloomberg Television interview that he wants to challenge some tenets of central banking if he’s confirmed by the Senate to be a Fed governor.
“I’m going to come with the idea -- challenge one fundamental idea that I think is endemic at the Fed, which I think is completely wrong, which is that growth causes inflation. Growth does not cause inflation,” he said.
Cain, a former pizza company executive, has lost support this week from four Republican senators, enough to sink a nomination. One of the four, Mitt Romney, said “the president would be wise to nominate someone who is less partisan and more experienced in the world of economics.’’
Neither Moore nor Cain have been formally nominated by Trump. Cain said in a video posted on Facebook that he faced a “cumbersome” vetting process for the Fed seat, suggesting he may be considering withdrawing.
Jeffries, chairman of the House Democratic Caucus and a possible eventual successor to Pelosi, derided Trump’s choice of Moore and Cain.
“I am unclear whether it is reality or a ‘Saturday Night Live’ skit,” he said. “The likelihood is that they will be withdrawn. Even Republicans are aghast that you could nominate singularly unqualified individuals such as Herman Cain.”
Pelosi said politics played no role in Powell discussing his views on the economy at the Democratic retreat. “He’s not a political person in any way,” she said.
Powell spoke to a gathering of House Republicans in recent weeks at the invitation of Minority Whip Steve Scalise of Louisiana, according to Scalise’s office.
--With assistance from Craig Torres.
To contact the reporters on this story: Erik Wasson in Leesburg, Virginia at ewasson@bloomberg.net;Billy House in Washington at bhouse5@bloomberg.net
To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Anna Edgerton, Laurie Asséo
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