Today, Jerome Powell will appear before the Banking Committee of the Senate. While the fact that he will be approved for the post of the next head of the Fed, after the expiry of the term of Janet Yellen, there is no doubt that Powell will have two important tasks in his new position, which will be discussed at today’s hearing.
Jerome Powell will have to answer questions, including the following:
1. Does he plan to continue raising rates in December and next year, despite sluggish inflation?
It is expected that he will take a centrist position in the committee, which began with Ben Bernanke, who tried to reorient himself from the personality cult of Alan Greenspan.
The Fed raised rates 4 times from December 2015, and they reached 1-1.25%. In addition, a reduction in the $ 4.5 trillion FRS balance was started, which grew rapidly after the 2008-09 Great Recession.
The new head of the Fed will have to take control of the banks and other key institutions of the financial sector. This will be quite a challenge, since the Fed is at a crossroads.
On the one hand, the central bank should fulfill Tramp’s promised easing of regulatory measures, while on the other hand, it needs to develop a post-crisis regulatory structure.
So, Powell will have to answer one more question about what the post-crisis financial rules should be, and how ready is he to give them up? In particular, we will talk about capital requirements for banks.
In the opinion of investors, a weakening of the norms may push banks to unnecessary serious risks.
Powell welcomes the idea of ​​giving financial institutions greater freedom, however within certain limits.
Another task of the Fed is the regulation of shadow banking, which extends from hedge funds to the money market industry. We are talking about companies that perform the functions of banks, not being such.
Prior to the financial crisis, investment banks were part of the shadow banking world, while insufficient supervision of their activities became one of the causes of the financial crisis.