French Hill Asks Jerome Powell About Influence Of Tariffs On Interest Rates

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During a House Financial Services Committee hearing on Tuesday, Rep. French Hill (R-AR) asked Federal Reserve Chair Jerome Powell about the impact of tariffs and employment on inflation.

Transcript

00:00Questions? Over the past few weeks, our Democratic colleagues have suggested the following.

00:05After the initial release of the GDP report, the President is driving the economy into a recession.

00:12Chairman Powell, the latest FOMC statement described economic activity have continued

00:17to expand at a solid pace, and you just reiterated that in your testimony this morning.

00:23In your view, is the term recession and the economy growing at a solid pace?

00:28Are those synonymous with each other?

00:30I would say no.

00:31And you note that the labor market continues strong, the economy is at a standard pace,

00:37and you also referenced in your testimony that that first quarter GDP initial react was also

00:42from front-end loading, as you noted, imports to try to avoid tariff impacts.

00:47Also, I looked at the Atlanta Fed GDP Now model, which forecasts GDP growth for the second quarter

00:53of this year at nearly 4 percent, with core GDP forecast at 2 percent.

00:59Does that Atlanta model suggest a recession to you?

01:03No, I would say it doesn't.

01:05So, in looking at your remarks about tariffs today and then the ones that you made during

01:12March and April, I was looking back at a Fed study that noted that up until March, tariffs have

01:21already been partially passed through in consumer prices, leading to a contribution of merely

01:26one-tenth percentage point increase in core PCE prices.

01:30And a Harvard study last week showed that prices have only modestly adjusted since the announcement

01:35of tariffs.

01:36Finally, the longer-term inflation expectations remain consistent with the 2 percent goal.

01:43Governor Waller laid out a pathway that allows for rate cuts, provided that average effective

01:49tariff rates remain close to 10 percent, or I assume he means 10 percent or lower.

01:55The labor market remains solid.

01:56Prices continue to disinflate.

01:58So, given that data I've outlined, I'm sure data that you're very familiar with, for the

02:05economy to avoid persistent inflation, do you concur with Governor Waller that there is

02:09a pathway for good news as it relates to the regulatory policies, the tax policies that I've

02:16discussed in a world with lower tariff rates?

02:19So, first, I wouldn't comment on any other FOMC members' comments one way or the other, but

02:26I will say this.

02:28I think many paths are possible here, and certainly the one you mentioned is a possible one.

02:33We could see inflation come in not as strong as we expect, and if that were the case, that

02:39would tend to suggest cutting sooner.

02:43We could see the labor market weakening, and that would also, you know, suggest cutting sooner.

02:48On the other hand, if we see inflation coming in higher or if the labor market were to remain

02:54strong, then we would probably be moving later.

02:57So, I think a range of possible paths are possible, and certainly the one you mentioned

03:01is one of them.

03:04In February of 2021, you told us in this committee that you would stay in your lane and not comment

03:13on President Biden's proposal for the American Rescue Plan or sharply increasing federal spending.

03:21And, you know, you said it was an issue, but that you would stay in your lane and not comment

03:25on it.

03:25But here in this year, you have commented on this idea of tariffs being set by the executive

03:31branch.

03:32So, are tariffs in your lane, but a huge fiscal spending by the Biden administration not in

03:38your lane?

03:38Explain to the committee why you chose to be silent in February of 2021, but outspoken this

03:45spring.

03:45Sure.

03:46So, we haven't commented, and it would be inappropriate for us to comment on the policy

03:50of tariffs.

03:50We don't have a view.

03:51It's not our job.

03:52And we just wouldn't do that, just as we wouldn't comment on the reconciliation package

03:58that you're working on right now.

03:59We're not commenting on tariffs.

04:01What our job is, is inflation, keeping inflation under control, and also keeping maximum employment.

04:07And when policies have what appear to be short and medium-term implications, meaningful

04:13implications for that, then they kind of, not the policies themselves, but the inflation

04:17becomes our job.

04:18Yeah.

04:19You know, my views on price stability, I think it's a first among equals in your dual mandate.

04:25I've argued for that.

04:26I've introduced legislation to make the dual mandate the sole mandate, and we've talked

04:31about that before.

04:32But I was very curious about your thoughts on a former president of the Cleveland Bank,

04:36Cleveland Bank, Loretta Mester's quote that I read from last fall.

04:41She says, I think that maximum employment is the maximum level of employment consistent with

04:47price stability.

04:48In other words, she elegantly ties that together, that price stability is what you can have

04:53more control over, rather than, you know, all these other factors that enter the employment

04:58picture, like legislative and executive branch.

05:00What's your thought about her quote?

05:01I personally think that's a very reasonable way to think about it.

05:04Thank you very much.

05:05I yield back.

05:07The gentleman from New York is recognized for five minutes.

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