This week, Federal Reserve Chairman Powell will face a series of difficult hearings on Capitol Hill, where both Democrats and Republicans may question him about Trump's policies, including bank regulation and the efforts that have swept the Federal Reserve related to diversity, equity, and inclusion.

At 23:00 Beijing time on Tuesday, Powell will attend a Senate Committee on Banking, Housing, and Urban Affairs hearing and deliver his semiannual monetary policy testimony.

At 23:00 Beijing time on Wednesday, Powell will deliver his semiannual monetary policy testimony before the House Financial Services Committee.

As Powell delivers his semiannual testimony, Trump's proposals on trade, taxation, immigration, and regulation bring uncertainty to the U.S. economic outlook, complicating the Federal Reserve's efforts to lower inflation and maintain a healthy labor market.

Pressure from Republicans has already led to changes at the Federal Reserve. Federal Reserve Vice Chairman for Supervision Michael Barr indicated last month that he would resign from his position as the highest official in the banking sector at the Fed, paving the way for Trump to appoint his own regulators from the other six board members.

The Federal Reserve has also attempted to comply with Trump's executive order to eliminate federal DEI policies (Diversity, Equity, and Inclusion), shutting down pages on its website.

The Federal Reserve has failed to achieve a 2% inflation target since 2021, and lawmakers may raise this target. Inflation continues to make it difficult for many Americans to afford daily living, which is a decisive issue in the 2024 presidential election and a concern for both parties.

The new chairman of the House Financial Services Committee, French Hill, stated in an interview, "Many of our members are concerned about the Federal Reserve's policies after the pandemic."

Senior fellow Sarah Binder of the Brookings Institution in Washington said the hearing would be "highly charged." She noted that although the Federal Reserve tends to avoid partisan debates, "it cannot shut itself off," as it needs public support for both monetary policy and regulatory policy.

Powell has long sought to establish good relationships on Capitol Hill, and now that Trump is back in the White House, he especially hopes to maintain good relations with many Republican lawmakers.

Regarding Trump, he criticized the Federal Reserve after its recent decision to hold steady, but later indicated that he might not intervene. On February 2, he stated that keeping interest rates steady was "the right move." Treasury Secretary Scott Wartent mentioned in an interview last week regarding Powell, "I believe he will do the right thing, so there will be no criticism."

Here are some key issues Powell may face at the hearing.

Monetary Policy

After cutting the benchmark interest rate by a total of one percentage point last year, Federal Reserve officials indicated they would like to take a breather to assess the economy. Powell has no reason to deviate from this message.

The employment report for January showed strong performance, with the unemployment rate dropping to 4%, while inflation remains above the Federal Reserve's target rate, increasing by 2.6% last year.

However, some Democrats may ask Powell about Trump's threats of tariffs against Canada and Mexico and their potential impacts on economic growth and inflation. Powell has been reserved in discussing Trump's policies but may face pressure to articulate these policies more clearly.

Derek Tang, an economist from the Washington policy analysis firm LH Meyer, said: "As we now have real policies to evaluate, the silence strategy is becoming increasingly fragile."

If Powell does comment on tariffs, it may trigger questions from Republicans asking why he hasn't commented on the inflation risks brought by pandemic relief spending during former President Biden's administration.

The new chairman of the House Financial Services Committee, Hill, said that many members of the House committee believe Powell "should have openly opposed substantial increases in spending."

This Republican from Arkansas also stated that the Federal Reserve is set to review the monetary policy framework put in place in 2020, which is a matter of concern for him.

Hill stated: "The Federal Reserve's assessment of its inflation targets, as well as its inflation analysis and planning, is a key concern for people, whether at the Federal Reserve on Constitution Avenue or here on Capitol Hill. Therefore, I believe this will be a critical point."

Diversity, Equality, and Inclusion

Democrats may pressure Powell regarding the apparent measures taken by the Federal Reserve to comply with Trump's executive order aimed at abolishing the federal government's DEI policies.

According to the Dodd-Frank Act, the Federal Reserve and several other Financial Institutions have an obligation to promote diversity and inclusion. Powell stated that the Federal Reserve is working to align its practices with the DEI executive order that is 'appropriate and in accordance with applicable law.'

Maxine Waters, the top Democrat on the House Financial Services Committee, played a key role in supporting the diversity-related requirements of the Dodd-Frank Act.

Last month, she wrote to the Department of Justice and other Institutions, stating that Trump's executive order 'cannot take precedence over the requirements of the Dodd-Frank Act, federal anti-discrimination laws, or the constitutional rights of employees.'

According to aides on Capitol Hill, Democrats might question Powell about his views on the independence of the Federal Reserve, given the actions related to DEI, Barr's resignation, and the Federal Reserve's withdrawal from a climate research organization.

Bank regulation.

Trump unleashed a wave of deregulation across federal Institutions, including those that regulate Banks.

Travis Hill, the acting head of the Federal Deposit Insurance Corporation appointed by Trump, issued a statement in January that included a 'comprehensive review of regulations, guidance, and manuals' to ensure they facilitate economic growth.

Republicans in the House and Senate may probe Powell to see if he agrees with certain aspects. The spokesperson for Tim Scott, the Republican chair of the Senate Banking Committee from South Carolina, stated that Scott would emphasize the burden of compliance costs on small Banks.

According to a spokesperson, the Other Topics that Scott is interested in also include the unfinished Banks capital proposal and the so-called "de-banking," which refers to the practice of depriving some individuals and businesses of banking services.

Powell may temporarily avoid discussing new regulatory measures, stating that he is waiting for the White House to appoint a new regulatory vice chairman. The Federal Reserve stated that no significant rules will be established until Barr's successor is confirmed. However, lawmakers are expected to ask Powell for his opinions.

The acting head of the Federal Deposit Insurance Corporation, Hill, said: "The responsibility for Banks regulatory decisions rests with the entire board, and he is the chairman of the board."

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