The day after the semiannual congressional hearing on monetary policy, Federal Reserve Chairman Powell directly mentioned that tariffs might affect the Fed's decisions and commented on the latest CPI data, believing that the Fed still has more work to do in reducing inflation.

On Eastern Time, February 12, Wednesday, Powell stated at the House Financial Services Committee hearing that the Fed has been analyzing the impact of tariffs in various scenarios. It is not the Fed's job to comment on whether the policies set by Congress or the government are wise, however, new policies could prompt the Fed to change interest rates. He said:

"The underlying economy is very strong, but there are some uncertainties with the new policies. We can only wait and see how these policies perform before considering what we can do."

"It is possible that the Fed might have to adjust interest rates regarding tariff policies."

Powell also stated that the Fed makes decisions based on economic conditions.

Similar to the first day of the congressional hearing on Tuesday, Powell read a prepared statement before answering questions from representatives, reiterating that the Fed is not in a hurry to cut interest rates, stating that the economy remains strong, and inflation is still "somewhat above" the Fed's target, indicating there is no need for an urgent adjustment of interest rates. The statement also mentioned that the Fed is focused on the dual mandate of employment and inflation, facing two risks, with policies prepared to address risks and uncertainties.

Before Powell's speech, earlier on Wednesday, President Trump called for lowering interest rates on Social Media, stating that rates should be lowered and should go hand in hand with the new tariffs that are about to be implemented.

Trump's chief economic advisor and Director of the White House National Economic Council, Kevin Hassett, later stated that Trump's remarks are more inclined towards government policy actions rather than "persuading" the Federal Reserve, saying, "We are taking proactive actions to lower interest rates." Hassett noted that the yield on the 10-year U.S. Treasury bond has recently declined, and Trump's "macroeconomic policies have worked," while the yield on the 10-year U.S. Treasury bond rose after the CPI was released on Wednesday.

At Tuesday's hearing, Powell acknowledged to Senate members that raising inflation is "a possible result" of tariffs. He believes that it is too early to assess the economic impact of tariffs, stating that "what tariff policies to implement remains to be seen, and speculation is irresponsible."

Do not get excited about the good or bad of one or two data points, "hope to maintain a restrictive policy temporarily."

Powell stated at the hearing that the CPI data released on Wednesday was higher than "almost all expectations," indicating that the Federal Reserve has made substantial progress in curbing inflation, but there is still more work to do, as the Fed is close but has not yet achieved the 2% long-term inflation target. He hinted that interest rates will remain high for the foreseeable future.

"In terms of inflation, we are close to the target, but we have not yet achieved it." Compared to last year's inflation rate of 2.6%, we have made "great progress, but we have not yet reached this target."

"So, we hope to maintain a restrictive policy temporarily."

At the same time, Powell stated that he will be "vigilant" against overinterpreting the CPI report.

"We will not get excited about one or two good data points, nor will we be excited about one or two bad data points."

Powell then stated that, compared to CPI, the Federal Reserve will focus on the Personal Consumption Expenditures (PCE) price index released by the U.S. Department of Commerce, calling PCE a "better inflation indicator." There will be a wait for Thursday's PPI data to see its impact on PCE inflation data.

The CPI and core CPI for January released on Wednesday exceeded expectations across the board. January's CPI increased by 0.5% month-on-month, marking the highest growth rate since August 2023, while the market expected a slowdown in growth from December's 0.4% to 0.3%. January's CPI increased by 3.0% year-on-year, the highest growth rate in seven months, with Wall Street expecting growth to remain steady at December's 2.9%.

Core CPI in January grew by 0.4% month-on-month, with market expectations for growth accelerating from December's 0.2% to 0.3%. Year-on-year, core CPI increased by 3.3%, with market expectations for growth slowing from December's 3.2% to 3.1%.

The CPI data impacted market expectations for interest rate cuts. Following the data release, traders expected the Federal Reserve to implement only one rate cut of 25 basis points this year, pushing the anticipated cut from September to December, whereas they previously leaned toward two cuts before the CPI announcement.

"There is enough time to wait" for the restrictive monetary policy to take effect. "There are ways to continue to reduce the balance sheet."

Powell stated that on monetary policy issues, the Federal Reserve has time to patiently wait for the restrictive policies to take effect. From a hindsight perspective, the Federal Reserve may have should have ended Quantitative Easing (QE) earlier.

"The economy is strong, and the labor market is robust; we have sufficient time to wait for our restrictive policies to take effect and to lower inflation again."

"Last year, we did not make much progress on core PCE, and we hope to see a return to progress."

Regarding the reduction of the balance sheet (quantitative tightening), Powell stated, "We have ways to continue to shrink the balance sheet," and reiterated that the current reserves in the banking sector are "ample," asserting that all evidence indicates reserves remain "ample."

On Tuesday, Powell said the Fed intends to slow the pace of balance sheet reduction and will stop when bank reserves are "slightly above" what the Fed deems to be sufficient, adding that recent data shows reserves remain ample.

Even if Trump requests it, he will not resign.

Like the hearing on Tuesday, Powell also addressed whether Trump could influence the Federal Reserve decision-makers during his hearing on Wednesday. Powell stated that he would not resign even if Trump requested it.

On Tuesday, when asked what would happen if Trump attempted to remove the Fed's policymakers, Powell answered, "This is clearly not permitted by law."

The Federal Reserve has not been cut off from accessing the data it needs to work, and DOGE accesses the payment system very cautiously.

The government efficiency department (DOGE) led by Musk recently sparked controversy for having access to key systems for handling government payments at the Treasury. On Wednesday, Powell was again asked about DOGE's access to this payment system. Powell pointed out that access to these tools is "very cautious."

Powell stated that the Federal Reserve has not been cut off from access to any data necessary for its work and can still access the data it needs, and he is not aware that the Fed has lost anything needed, asserting that he would speak candidly if a problem were to arise.

Like on Tuesday, Powell was once again ordered by the Trump administration to stop the operations of the US Consumer Financial Protection Bureau (CFPB). He stated that it is uncertain what the outcome of the CFPB will be. If DOGE exits the historical stage, it will leave a regulatory gap in the American Financial sector.

On Tuesday, Powell said that no regulatory agency can replace the work of the CFPB, and the Federal Reserve continues to ensure that small banks comply with Consumer Financial laws as usual.

Setting up the position of Vice Chair for Financial Regulation at the Federal Reserve has led to greater volatility in regulatory policies.

Regarding banking regulation, Powell stated that his long-term view is that bank capital is "probably reasonable."

At the beginning of January this year, the Federal Reserve announced that the Vice Chair for Financial Regulation, Barr, would resign on February 28, and if a successor is confirmed, he would resign earlier, continuing to serve as a Federal Reserve Board member. Powell said in the hearing that the Federal Reserve would temporarily fulfill the duties before the new Vice Chair for Regulation takes office and would advance regulatory responsibilities in the absence of the Vice Chair.

Powell also mentioned that prior to the Dodd-Frank Act, regulatory policies in the USA were not so volatile. Establishing a Vice Chair position responsible for financial regulatory affairs at the Federal Reserve makes regulatory policies likely to change. "Admittedly, putting everything in the hands of one person, just to make recommendations to the Federal Reserve — could lead to some fluctuations in these matters."

Commentary suggests that Powell believes the Federal Reserve's role as "bank police" will lead to increased volatility, indicating that the Fed can perform its duties more effectively without the Vice Chair. The current Vice Chair, Barr, was appointed during the Biden era. Trump may have to choose someone from the existing Federal Reserve Board to fill the role of Vice Chair for Regulation.

The Federal Reserve has not prohibited the banking industry from participating in the Cryptos business.

In addition, Powell discussed Topics related to Banking regulation and Digital Currency. He mentioned that he does not want to hinder the Banking industry from providing services to legitimate clients. Many activities related to Digital Currency can be conducted within the Banking sector. The Federal Reserve did not tell the Banking industry that it cannot engage in Digital Currency business.

During the hearing on Tuesday, Powell stated that the Federal Reserve supports efforts to establish a regulatory framework for stablecoins to protect consumers and committed that as long as he is the Chairman of the Federal Reserve, the USA will not issue Central Bank Digital Currency (CBDC).

The 2020 policy framework did not limit the Federal Reserve's response to inflation.

The Federal Reserve has established a five-year "framework review" plan, the last of which was completed in the summer of 2020. The latest framework review started at the end of January this year, focusing on two major themes: "long-term goals and monetary policy strategy statement" and policy communication tools.

During the hearing on Wednesday, Powell mentioned the framework review, stating that he believes Federal Reserve officials will make appropriate and cautious adjustments to the Federal Reserve's long-term policy strategy and expects to complete the latest review by the end of this summer. When asked whether the 2020 framework limited the Federal Reserve's policy response to inflation, Powell replied: "No."

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