Federal Reserve Chairman Jerome Powell told a Senate panel on Tuesday that the Trump administration’s trade policies could benefit the U.S. economy if they topple trade barriers around the world.
In the first of two days of testimony on Capitol Hill, Powell fielded a number of questions about the effect of trade policy on the U.S. economy. Powell defended open trade while stalwartly refusing invitations to criticize President Donald Trump’s tariffs.
“In principle, open trading is good,” Powell said. “We don’t want countries to have barriers to trade, in both directions. That system has served us very well. But we don’t know how this goes. The administration has said it is going for broadly lower tariffs, if that happens, that’s good. On the other hand, if we end up with higher tariffs, that’s not so good.”
The Trump administration has insisted that its goal in erecting tariffs is not to build a protectionist wall around the U.S. economy but to convince other countries, ranging from Canada to China to those in the European Union, to drop trade policies that the White House says treat the U.S. unfairly.
“In principle, countries who remain open to trade have grown faster with higher incomes,” Powell said.
Powell repeated a point he made in a press conference in June, saying trade uncertainty could be detrimental to economic growth but that there were no signs of it in the data.
“We haven’t seen in the numbers yet but we have heard a rising chorus of concern,” he said.
Powell also faced a number of questions from Democrats about the slow pace of wage growth. He responded by insisting that a strong economy and low unemployment would likely lift wages. He also stressed the need for capital investment and increased productivity as the key to sustainable wage gains.
In response to a Republican senator’s question, Powell said that anticipation of tax cuts likely contributed to economic growth even before the law was passed. Pressed by Democrats on whether the tax cuts would lead to higher wages, Powell said it was too early to tell.
Senator Bob Corker, the Tennessee Republican who is not running for reelection, told Powell he was “very concerned” about stagnant wages. “The economy is growing, but for the last 30 years Americans haven’t really seen their wages increase,” he said.
Powell said that one of the root causes of wage stagnation was a slowdown in advances in educational attainment in recent decades.
Pressed further on wage stagnation and inequality, Powell said that addressing the root causes of both were beyond the Fed’s capabilities. It is the job of Congress to address these problems, Powell said.
Powell also said that the federal government should seek a way out of its huge role in supporting the federal urged the housing market.
“It’s really important for the longer run that we get the housing finance system off the government’s balance sheet,” he said.
Toward the end of the hearing, Powell clashed with Senator Elizabeth Warren. The Massachusetts Democrat said the Federal Reserve should have flunked Morgan Stanley and Goldman Sachs on the recent bank stress tests instead of giving them what the Fed called a “conditional nonobjection”–something like a yellow card for banks.
“The Fed let these banks off with a conditional non-objection. It looks like, to me, the Fed is heading in the wrong direction here,” Warren said.
Powell denied that the Fed was going easy on banks, pointing out that this year’s stress tests were the most stringent since the Fed began the examinations in the wake of the financial crisis.