Powell Downplays Inflation Concerns – SEC/CFPB Hearings Upcoming

Fed Chair Jerome Powell adopted a more muted tone on urging additional fiscal support from Congress during his testimony Tuesday, which we view as tacit support for the current direction of the fiscal relief package.

Powell maintained the Fed’s generally dovish tone and downplayed the possibility of concerning levels of inflation, emphasizing commitment to the current direction of the Fed’s monetary policy and voicing continued concern for the bottom quartile of unemployed Americans and highly-impacted sectors of the economy. Powell expects a decision on the Fed’s current exemption of treasuries and deposits from the supplementary leverage ratio (SLR) calculation to come soon.

We anticipate the Fed will extend the current exemption given the additional injection of funds around the implementation of the next relief bill. Finally, the Senate Banking Committee has announced a confirmation hearing for SEC nominee Gary Gensler and CFPB nominee Rohit Chopra for next Tuesday, March 2.

Powell Walks Tight Rope on Fiscal Debate.

We view Powell’s reluctance to wade into fiscal discussions as an implied acknowledgement that Powell sees the current fiscal relief package progressing through Congress as appropriate for current economic conditions. Powell’s tone notably changed from previous appearances, during which he placed significant emphasis on continued fiscal measures to aid the recovery. Faster payments and digital currencies are also rising on the list of items getting more attention from lawmakers in the context of the current economic uncertainty.

Bank Regulatory Matters Returning to the Spotlight.

Powell was repeatedly questioned on the upcoming March 31 expiration of the Fed’s relaxation of the SLR requirements, allowing exemptions of treasuries and deposits. Powell signaled a decision would be announced by the Fed soon, and we expect the Fed to extend the current policy. An interesting omission from the hearing was any mention of bank M&A given the recently announced deals in the regional banking space.

More on Biden’s Regulatory Agenda Ahead with SEC and CFPB Hearings.

The Senate Banking Committee will hold a joint confirmation hearing for Biden’s SEC and CFPB nominees on March 2, during which we expect recent market volatility, student loan forgiveness, discrimination in lending, and climate risk to be leading themes.

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