Key points from Fed Chairman Powell's testimony on Capitol Hill

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Federal Reserve Chairman Jerome Powell arrives to testify at a House Financial Services Committee hearing on Capitol Hill in Washington, D.C., on March 6, 2024.

Washington, DC

Federal Reserve Chairman Jerome Powell testified before lawmakers in Congress on Wednesday that the Federal Reserve is in no rush to cut interest rates. That means more pain for Americans, who have already faced nearly two years of higher borrowing costs on everything from car loans to mortgages.

However, Powell said it was unlikely there would be any rate hikes this year.

“We believe our interest rate will likely peak in this tightening cycle,” Powell told lawmakers. “If the economy develops broadly as expected, it will likely be appropriate to begin unwinding policy restrictions sometime this year.”

This means that interest rate cuts remain on the table – if the economy cooperates.

Here are some key points from Powell's testimony before the House Financial Services Committee.

Powell gave lawmakers a positive assessment of the health and future of the American economy.

In response to a question from Representative Al Green of Texas, Powell said growth is expected to continue at a strong rate this year. That's the widespread expectation among economists and Fed officials, with the average forecast for growth this year at a healthy annual rate of 1.4%, according to their December forecast.

“I will say that there is no evidence or reason to believe that the U.S. economy is in, or in some type of, danger of falling into a recession in the short term,” he said. “However, there is always a real possibility that the economy will fall into recession. I do not think that probability is high at the moment.”

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Economic growth in the fourth quarter recorded a strong annual rate of 3.2%, with consumer spending continuing at a strong rate, a few steps away from 4.9% in the third quarter, but still strong by historical standards. Growth is likely to remain strong at the beginning of the year as well. The Federal Reserve Bank of Atlanta currently expects first-quarter GDP to reach a healthy annual rate of 2.1%.

Some believe an active economy could make the Fed's job of beating inflation difficult, but if the Atlanta Fed's forecasts hold true, they will show there has been a clear slowdown since the summer when Americans spent on concerts, movies and goods. Powell told lawmakers on Wednesday that the Fed wants to see more of the same: a slower economy and slower inflation.

Powell was also pressed on the macroeconomic risks posed by empty office buildings as property values ​​decline and employees continue to work remotely. This is a particular problem for banks that made loans to landlords who reduced rents or sold properties at a huge loss as vacancy rates in prime areas continued to rise.

“I think it's manageable. We've been working hard to manage it for some time,” Powell said in response to a question from Rep. Jim Himes of Connecticut.

Powell said the Fed is specifically monitoring banks with “large” commercial real estate concentrations, a point he has made several times in previous comments.

“We have reached out to them to make sure they have a plan to deal with this,” he said, adding that “there will be losses for some banks.”

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As Powell was testifying, shares of Community Bank of New York fell more than 40% Wednesday afternoon after the Wall Street Journal mentioned The beleaguered regional lender is seeking a major cash infusion. New York Commercial Bank is a regional bank that is highly exposed to commercial real estate losses, but its problems have not had a negative impact on other banks with a similar portfolio.

Valley National Bank (VLY), which has the highest exposure to commercial real estate among the 100 largest U.S. banks, fell less than 3% on Wednesday. The KBW Regional Banking Index also fell by less than 3%.

The Fed chief has received harsh criticism from Republicans over a package of new banking regulations known as Basel III, which is expected to be rolled out in the coming years. The new regulations require large and mid-sized banks to hold more capital, which critics say will mean less money to lend to businesses and consumers, and possibly higher interest rates on loans.

The proposed Basel regulations were first developed by an international committee of banking authorities in response to the Great Recession years ago. Last year, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation announced a proposal on capital requirements for banks aimed at putting the Basel framework into effect.

Before the hearing, all 29 Republicans on the committee wrote a letter to Powell and other heads of financial regulatory agencies urging them not to move forward with Basel III.

Powell said the Fed was still looking at the “hundreds” of comments submitted on the proposal and that the final version would likely look very different and hopefully gain broad stakeholder consensus.

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