Update (1150ET): Powell has made some more eye-catching comments, the first concerning keeping the public focused on "risk management".
*POWELL: NEED TO KEEP PEOPLE FOCUSED ON RISK MANAGEMENT— zerohedge (@zerohedge) July 15, 2021
First, the Fed blows the biggest bubble in history, then it tells traders to manage their risk
Also, which Fed mandate is this?
Speaking once again on cryptocurrencies, Powell insisted that they have "failed" as a payment system, a factor of their volatile prices and heft transaction fees.
As his testimony comes to an end, Powell denied that prices are moving up broadly across the economy. Should inflation expectations get out of control, the Fed will "react", Powell promised (without offering much in the way of detail).
*POWELL: IF INF. EXPECTATIONS MOVING TOO FAR UP, WE'LL REACT— zerohedge (@zerohedge) July 15, 2021
... by excluding all the prices that go up from PCE
Earlier, Powell said he's not concerned about the rising cost of living in the US as the most intense price pressures have been confined to only a handful of areas (like used cars, for example). He added that he would only become concerned about inflation once large price increases have grown more widespread. But as Peter Schiff pointed out in a tweet, by then, it's already too late.
Powell said that he's not concerned about the rising cost of living as it's only a handful of items related to the economy reopening where prices are surging. He said he'll only become concerned about #inflation once large price increases become widespread. By then it's too late.— Peter Schiff (@PeterSchiff) July 15, 2021
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Update (1050ET): The first hour or so of Thursday's Senate Banking Hearing has been more or less what we might have expected. Sen. Pat Toomey, the ranking minority member, started by accusing the Fed of being incorrect about its assumptions regarding inflation and its "transitory" state.
Questioned again about a central bank digital currency, Powell replied that he was "undecided" on the matter.
Finally, Sen. Elizabeth Warren laid into Powell for the Fed's decision to roll back requirements for megabank stress tests, specifically regarding the "living will", a plan for unwinding the bank in a way that would avoid systemic shocks like what the world witnessed in 2008. "I see one move after another to weaken regulation for Wall Street banks," Warren said. Powell tried to explain that he has "actively resisted" attempts to weaken capital requirements for the largest banks, which he believes are a more important feature of banking regulation, but was quickly silenced by Warren (remember, politicians prefer answers to aggressive questions like these to fit into the 'yes or no' format).
Later, Powell again insisted that the Fed would react if inflation expectations continue to rise aggressively. He also noted that the American economy (as measured by GDP) has increased beyond its size from before the pandemic.
As for how the central bank's asset purchases impact inflation, Powell said he believes the Fed's purchases of MbS have "about the same" impact on inflationary pressures as Treasurys.
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In what's likely to be a re-run of yesterday's hours-long testimony before the House, Fed Chairman Jerome Powell will join members of the Senate Banking Committee for another remote hearing where J-Pow will once again be forced to defend the Fed's policy stance amid a torrent of criticism from Republicans and Democrats.
In his prepared remarks and answers to lawmakers questions from yesterday, Powell insisted that the US economy isn't far enough along in its recovery for the Fed to even consider tapering its asset purchases or lowering interest rates, therefore he's in no hurry to roll back the Fed's monthly purchases of $120 billion in Treasury of mortgage securities. Pressed about the latest CPI data and the question about whether inflationary pressures might prove more resilient than the Fed expects, Powell says that while the Fed can't say with certainty that inflation will indeed be short-lived, it has plenty of tools to react should inflation prove more persistent.
Powell acknowledged that inflation has "increased notably" (contrary to the Fed's expectations) in recent months, and that it would likely "remain elevated in the coming months before moderating."
Lawmakers were also curious about crypto, specifically the Fed's plans for its own stablecoin (nicknamed "Fedcoin"). Powell said that he believes public comment should be solicited before the central bank develops its own digital dollar. He also said that "you won't need stablecoins, you wouldn't need cryptocurrencies" if the US had a digital currency. At least, that's Powell's view.
The Fed has committed to continuing bond purchases at this pace until it achieves "substantial further progress" toward its inflation goal.
Readers can watch Thursday's testimony below. It's set to begin at 0930ET.
Powell's full prepared remarks are below (pdf link)