(Bloomberg) -- Jerome Powell faces a tricky test at his confirmation hearing this week, with Republican and Democratic senators likely demanding conflicting pledges over how President Donald Trump’s pick to lead the Federal Reserve will conduct monetary policy and police Wall Street.
Powell’s confirmation is not in doubt, given that he’s a Republican nominee before a Republican-controlled Senate. Harder to pin down is where exactly his views land on the political spectrum, so expect him to do a lot of bobbing and weaving during the Senate Banking Committee hearing scheduled to start at 9:45 a.m. on Tuesday.
“Powell’s going to stay at 30,000 feet for all his answers,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading in Washington. “He’ll provide support for the Fed’s normalization policy and its ongoing regulatory relief considerations without firmly committing to either.”
That won’t stop lawmakers from trying to draw him out. In five years as a Fed governor, Powell has publicly supported the policies of chairs Ben Bernanke and Janet Yellen, leaving many observers to wonder whether his comments reflected his own views or his loyalty to the leadership -- regardless of party affiliation.
New Management?
When pushed about how he’ll run things, Powell will likely try to offer a balanced message: convincing Republicans that he’ll take a fresh approach, while assuring Democrats that he won’t dismantle bank regulations or dramatically depart from Yellen’s cautious stance on raising rates.
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Powell has spent the past two weeks meeting with lawmakers and their staffs. Every senator on the panel had a chance to meet with him prior to the hearing.
Sherrod Brown of Ohio, the senior Democrat on the committee, may take the first run at Powell over concerns that a move toward bank deregulation will increase the odds of another financial crisis.
Brown said he’s especially worried about Randal Quarles, Trump’s pick to implement the Fed’s policies on financial regulation. Quarles is a former Treasury official under President George W. Bush who, like Powell, worked at private equity firm Carlyle Group (NASDAQ:CG). Brown wants assurances from Powell that Quarles will not be allowed to aggressively roll back post-crisis rules for banks.
“I want to hear that he’s not going to do what the Bush regulators did,” Brown said in a Nov. 14 interview following his meeting with Powell.
Deregulation Concern
“I like Powell. I think he’s smart,” Brown said. “I worry about Trump’s nominees to the Fed overall, because it’s just more deregulation, more Wall Street, more people that made a lot of money in financial services.”
Powell has said he wants to preserve the core reforms of Dodd-Frank, while simplifying some rules, relieving the burden on community banks and relaxing the ban on proprietary trading for banks under the Volcker Rule. That leaves some in both parties unsure which side Powell is on in the regulatory debate.
Mike Crapo, the Idaho Republican who chairs the committee, is likely to be less confrontational, but has expectations for Powell that point in the opposite direction from Brown.
“I’d like to hear that he has an understanding of the need to properly tailor the regulatory burdens,” he said, using a term frequently used to describe lighter regulation for some institutions, especially for smaller banks.
Crapo is among four GOP lawmakers on the banking panel who voted against Powell’s past nominations to serve as a Fed governor. Powell was confirmed in 2012 to fill a seat that expired in 2014, when he was re-nominated and confirmed for a full 14-year term.
Crapo has said his prior rejection was a “protest vote” against Obama-era nominees and the unprecedented actions taken by the central bank in the wake of the financial crisis. Crapo objected repeatedly to the Fed’s large-scale bond buying -- known as quantitative easing -- aimed at keeping long-term borrowing rates down during the recession. He said he plans to support Powell, but he wants reassurances the Fed won’t reconsider that policy.
“I’ve been a strong critic of quantitative easing and of a lot of what I consider to be the more liberal monetary policy we’ve had in the past few years,” Crapo said in a Nov. 14 interview. “So I’d certainly like to hear that there’s a focus on a more conservative approach.”
Other Republicans on the committee who have voted at least once against Powell include Pennsylvania’s Pat Toomey and Tim Scott of South Carolina.
“He was, in my opinion, bullish on Dodd-Frank and implementing every aspect of it, as well as the easy-money policies that have maintained the artificially low interest rate environment,” Scott said in an interview earlier this month.
Such views will clash with Democratic desires to hear Powell say he’ll go slow in raising interest rates and protect Dodd-Frank, highlighting the challenge he faces to appease both sides.
But after the hearing, don’t expect a big fight when his nomination moves to the Senate floor. Senate Majority Leader Mitch McConnell has also met with Powell and said he plans to support his confirmation.
