Fed Chair Powell Faces Re-Nomination, Addresses State of Economy, Inflation, Digital Currencies

US House Select Subcommittee on the Coronavirus Crisis hearing on "Lessons Learned: The Federal Reserve's Response To The Coronavirus Pandemic", Washington, District of Columbia, USA - 22 Jun 2021

Federal Reserve Chairman Jerome Powell appeared before the House Financial Services Committee today to testify on monetary policy and the state of the economy. He also spoke on the Fed will release a whitepaper on digital currencies in September.

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Powell, who began his term in 2018, is also facing a re-nomination in 2022 and according to a CNBC Fed Survey in April, 76% of respondents believe President Joe Biden will choose Powell again. Presidents have typically unveiled their choices in the summer or fall before the chair’s term expires, according to CNBC. Several members of the Financial Services Committee expressed support for a second term during the hearing, including Rep. Andy Barr (Ky.) and Rep. Patrick McHenry (N.C.), who said Powell has proven to be “a steady hand during the pandemic.”

Powell said the Fed will release a whitepaper on digital currencies in September, to begin a major public conversation and layout the potential benefits and also the potential risks of a central bank digital currency.

Asked by Rep. Stephen Lynch (Mass.) whether the process was too slow as “86 separate central banks are already engaged in this,” Powell replied that the process is the beginning to accelerate that decision to whether or not adopt a digital dollar for the U.S.

“I’m more concerned about getting it right,” he said.

Rep. Lynch also asked whether this would be a “more viable alternative than the thousands of different cryptocurrencies emerging.”

Powell replied that that may be one of the strongest arguments in favor of the adoption.

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In prepared remarks, Powell said that over the first half of 2021, ongoing vaccinations have led to a reopening of the economy and strong economic growth, supported by accommodative monetary and fiscal policy.

He added that real gross domestic product this year appears to be on track to post its fastest rate of increase in decades; household spending is rising at an especially rapid pace, boosted by strong fiscal support, accommodative financial conditions, and the reopening of the economy; and housing demand remains very strong and overall business investment is increasing at a solid pace.

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In terms of the conditions in the labor market, Powell said that while they have continued to improve, “there is still a long way to go.”

“The unemployment rate remained elevated in June at 5.9 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish,” he said.

Talking about inflation, Powell reiterated what he said last month, namely that it has increased notably and will likely remain elevated in the coming months before moderating. “Strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind. Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy,” he said.

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“Powell’s comments today acknowledged that inflation may not be as “transitory” as expected, with this week’s inflation numbers indicating that consumers may continue to face elevated prices,” David Keller, Chief Market Strategist at StockCharts.com, tells GOBankingRates. “Investors may want to consider gold as a way to hedge against inflationary pressures.”

Keller added that the Fed faces a significant challenge through the remainder of 2021 and into 2022, “trying to lighten up its post-pandemic bond buying policy in a way that does not negatively impact the equity markets.”

“I would expect the markets to negatively react to any indication of a change in their dovish stance, but at this point Powell is not indicating a change will happen anytime soon.  Growth stocks like technology are reacting well so far to Powell’s testimony given the tailwind of low interest rates.”

Powell said that it won’t “take us forever to see if inflation is moving up or on path well above our goals and we will use our tools to guide it below 2%. People need to have faith in the central bank.”

He added it would be “a mistake to do it when all forecasters believe these things will come down on their own accord as the economy reopens. It would be a mistake  to act prematurely.”

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According to Bryan Slusarchuk, President of Turmalina Metals Corp., “Inflation is here and while the central bankers around the world are in messaging mode, nothing will change the fact that we are in a rapidly escalating price environment. Inflation is taxation without representation and the Fed seems content to put more fuel on the fire.

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“This won’t end well and in times such as these, gold looks better and better as it’s the only currency in the world that has withstood the test of time and can’t be printed. It’s therefore, inherently, becoming more valuable every day versus its peer group of paper imposters,” he tells GOBankingRates.

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