Federal Reserve Chair Jerome Powell is set to face a gauntlet of scrutiny during his upcoming semiannual testimony before Congress on Feb. 11. These hearings are poised to be particularly “hyper-charged,” as Powell navigates the complex interplay between monetary policy, bank regulation, and the resurgence of President Trump’s influence.

The hearings, occurring before both the Senate Banking Committee and the House Financial Services Committee, will likely focus on several key areas. Lawmakers from both sides of the aisle are expected to press Powell on the Fed’s ongoing struggle to meet its 2% inflation target, a concern amplified by Trump’s proposed policies on trade, taxation, and immigration, which introduce uncertainty into the economic outlook.

Trump’s administration is already impacting the Fed, seen in Michael Barr’s departure as Vice Chair of Supervision, paving the way for a Trump appointee. Furthermore, the Fed’s compliance with Trump’s executive order to halt DEI initiatives raises questions about the central bank’s independence, especially considering its diversity obligations under the Dodd-Frank Act.

Republicans are likely to probe Powell on bank regulation, particularly the burden of compliance costs on smaller banks. The Fed’s approach to an unfinished bank-capital proposal and concerns about “debanking” practices are also expected to be focal points. Powell may defer on new regulatory initiatives, citing the vacancy of the Vice Chair of Supervision position.

The hearings are a high-stakes test of Powell’s ability to maintain bipartisan support, crucial for the Fed’s effectiveness in both monetary and supervisory policy. While Trump has recently softened his criticism of the Fed, the potential for political clashes remains significant, making Powell’s testimony a closely watched event.

What are the key points Powell is likely to focus on during the hearings?

• Monetary Policy and Interest Rates: Powell is expected to discuss the Fed’s monetary policy, particularly in relation to controlling inflation and potential interest rate cuts. He will likely emphasize that the Fed wants to assess the economy before making further moves after recent rate adjustments.
• Inflation: A central theme will be the Fed’s progress in bringing inflation back down to its 2% target. While acknowledging progress, he’s likely to stress the need for “more good data” to gain confidence that inflation is moving sustainably toward that goal.
• Job Market: Powell is likely to address the state of the job market, acknowledging a cooling trend while also pointing out that hiring remains solid. He may indicate that the labor market is currently “not a source of broad inflationary pressures”.
• Bank Regulation: Questions surrounding bank regulation are anticipated, including the Basel Endgame proposal and potential revisions to the supplementary leverage ratio. He may be asked about the objectivity and focus on financial risk within the bank supervisory system.
• Treasury Market: Powell may face questions regarding the Treasury market’s stability and the role of large banks.
• Fed Independence: Democrats may probe Powell on the Fed’s independence, particularly concerning DEI initiatives and regulatory actions.
• Political Implications: The political implications of the Fed’s decisions, especially in an election year, will likely be a point of discussion. Powell will likely emphasize the Fed’s commitment to avoiding actions that could be perceived as politically motivated.