Federal Reserve Chair Jerome Powell said already decades-high inflation readings could increase even more following Russia’s invasion of Ukraine.
During his March 3 testimony before the Senate Banking Committee, Powell noted that Russia’s key role in key global commodities such as oil will likely send gas prices higher, though he didn’t know for how long. This could be a setback to the Fed, which already plans to combat high inflation by raising interest rates by 0.25 percent later this month. In January, U.S. inflation was measured at 7.5 percent, the highest reading in 40 years.
Despite the invasion, Powell still expects inflation will fall throughout this year.
Senate Banking Committee members said the war also makes it more important to establish regulations on cryptocurrencies. They say the Russian government uses decentralized finance to avoid punishing Western sanctions imposed on them in response to the invasion.
Much of the hearing centered on differing views the two parties hold on the Federal Reserve, who’s to blame for inflation, and the stalled confirmation of President Joe Biden’s recent Federal Reserve nominee, Sarah Bloom Raskin.
To Senate Banking Committee Chair Sherrod Brown (D-Ohio) higher prices many Americans are paying come as corporations make record profits and opt to raise prices rather than reduce executive bonuses. To Banking Committee Minority Leader Pat Toomey, R-Pa., however, Democrats are to blame for high inflation for their role in enacting “blowout spending” bills and are instead shifting responsibility to “global supply chains” and “greedy corporations.”
Raskin’s nomination as the Fed’s top banking regulator, along with five others made by Biden, was stalled by Republicans last month due to concerns over her comments supporting transitioning away from the oil and gas industry. As reported by Reuters, Raskin was critical of broad-based emergency-lending backstops enacted by the Fed and the Treasury Department to assist businesses during the pandemic because she believed they should have taken steps to prevent lending to oil-and-gas concerns.
Though Mark Warner, a Virginia Democrat on the Banking Committee, said Raskin’s comments were within the Fed’s purview because of the economic impact of climate change, Sen. Tim Scott (R-S.C.) said her views do not fall under the Fed’s authority.
Republican committee members said the 12 Federal Reserve Banks are going beyond their statutory authority by advocating action be taken on environmental social governance, racism and education. Toomey reiterated his support for discussing whether Federal Reserve Banks should be required to comply with the Freedom of Information Act and if appointments should be made by the president and face Senate confirmation.
Though not directly endorsing the idea, he suggested the 12 banks could be reduced by more than half and made permanent members of the Federal Open Markets Committee, or the Federal Reserve Banks could be completely eliminated, with complete authority being shifted to the Federal Open Markets Committee.
“We need to think seriously about reforming the structure of the Fed,” he said.