During the second day of his testimony, Federal Reserve Chair Jerome Powell emphasized a cautious, data-driven approach to monetary policy, stating that the Fed is waiting for further developments in core inflation. He acknowledged that the recent weakening of the U.S. dollar reflects broader market uncertainty and noted that the impact of tariffs on inflation could be either higher or lower than expected. Powell warned that misjudging this factor could have long-term consequences, but clarified that stagflation is not the Fed's base case, though it remains a risk worth monitoring.
Powell also addressed financial markets and regulatory matters, stating that the bond market is functioning smoothly and that actions related to Basel III and the SLR rule are likely to be taken soon. He admitted that fiscal policy can influence inflation but reiterated that the Fed does not consider federal debt levels when making monetary policy decisions. The Senate committee's questions were strongly oriented toward rate cuts, with participants repeatedly suggesting Powell is the only one capable of reducing the high interest payments on U.S. public debt. Powell remained firm in his responses.
