Both Republicans and Democrats hammered Powell at his confirmation hearing over his plans for regulating Wall Street. Trump and many Republicans campaigned on rolling back regulations on banks, rules that they say are too onerous and are preventing small businesses from getting loans. But Democrats worry that watering down the rules put in place after the 2008-09 financial crisis would trigger another massive meltdown and taxpayer bailout of the financial sector.
“Honestly, senator, I think they are tough enough,” Powell said when Sen. Elizabeth Warren (D-Mass.) pressed him on whether he would like to see any regulations on banks strengthened.
“This worries me,” Warren responded.
Powell, a Republican with a reputation in Washington as a bipartisan consensus builder, has tried to walk a careful line of supporting many of the regulations put in place on banks after the Great Recession, while also signaling his willingness to make the paperwork “more efficient,” especially for smaller banks.
“The banking system is healthy,” Powell said, adding that he thinks the United States no longer has any “too big to fail” banks because of the regulations currently in place, including stress tests. But later in the hearing he acknowledged that “there's certainly a lot of regulatory burden” and that he would support lessening regulations on smaller banks and “rewriting” the Volcker Rule, which applies to large Wall Street firms that want to engage in more risky trading behavior.
“I’m not going to characterize what we are doing as deregulation,” Powell told the Senate Banking Committee. “I’d rather characterize it as looking back over eight years of what [has been] very innovative regulation … and making sure what we did makes sense.”
Trump made one of his boldest moves yet on deregulation on Friday when he appointed White House budget director Mick Mulvaney as acting director of the Consumer Financial Protection Bureau, an action that is being challenged in court. When asked whether the situation troubled him, Powell said that it was "not something that's in my bailiwick" to comment on. He punted on almost all the political questions thrown his way, especially regarding whether Congress should pass the GOP tax plan, saying only that he is "very concerned" about the growing U.S. debt.
Many Democrats softened their tone by the end of the hearing, but some are likely to vote against Powell's nomination because of regulatory concerns and their preference that Trump retain current Fed Chair Janet L. Yellen. Powell has close ties to Wall Street, having been a former partner at the Carlyle Group, a major private equity firm. As a Fed governor, he has met frequently -- 50 times in 2017 alone — with top Wall Street executives, as several senators pointed out in the hearing. He has not met one on one nearly as often with community bankers or consumer advocates.
Still, Powell is widely expected to be confirmed by the Senate. He was originally nominated to the Fed board by President Barack Obama in 2012 and has been approved by the Senate several times before. During the hearing, he reiterated his strong support for an independent Fed that is not influenced by the White House, Congress or anyone else, and he agreed with Yellen that growing inequality and the rising U.S. debt are both alarming problems for the nation.
“Like all of us, I’m concerned about the sustainability of our fiscal path in the long run,” he said. America's debt “needs to be on a sustainable path.”
The Republican tax plan is projected to add about $1.5 trillion to the nation's debt over the next decade. Republicans have argued that the debt won't rise that high because the tax cuts will spur much faster growth. Democrats say the debt impact is likely to be worse. Powell repeatedly said it is "not our role" to predict what tax proposals in Congress will do to the economy.
The stock market rallied as Powell was speaking. He is expected to keep the central bank on a slow and steady path to raising interest rates. He strongly hinted that the Fed is likely to raise rates at its December meeting to a range of 1.25 percent to 1.5 percent (up from 1 percent to 1.25 percent now), saying that "help is on the way" for savers who are tired of getting almost no interest on the money in their savings accounts. He also said he plans to continue the Fed's plan to shrink its balance sheet gradually over time from $4.5 trillion today to about $2.5 trillion to $3 trillion over the next three to five years.
Overall, Powell sounded upbeat about the economy, predicting that growth would be 2.5 percent this year, about the same as last year, and that it would continue expanding at a slightly better pace than it has in recent years.
“It feels like we’re going to see continued strength,” he said.