Powell’s Senate confirmation hearing, broken down - Nomura

Analysts at Nomura explained the detail around Powell’s Senate confirmation hearing overnight.

Key Quotes:

"Governor Jerome Powell testified in the Senate Banking Committee meeting for his nomination to be the next Chair of the Federal Reserve. Without major surprises, the hearing went smoothly and confirmed our view that Governor Powell will represent continuity in near-term monetary policy. He indicated that the FOMC is likely to hike in December and more hikes are likely.

However, he stated that he remains mindful of low inflation and the possibility of further tightening in the labor market without meaningful acceleration of inflation. He also maintained the FOMC’s current trajectory of the Federal Reserve’s balance sheet normalization.

He noted several times that he expects the balance sheet to shrink gradually to somewhere between $2.5-3.0tn, which falls in the low to mid-range of the New York Fed’s estimate revised in the summer of 2017. On banking regulation and supervision, Governor Powell maintained his stance on postcrisis changes.

He stated that he believes current regulations are “tough enough,” while acknowledging that the FOMC needs to reconsider the areas of regulation where the Committee may have gone too far, suggesting his preference for easing the regulatory burden for banks that are not considered systemically important.

When asked if there are US banks that are too big to fail, Governor Powell stated that he would say no. His statement might have been a reflection of the fact that the financial system has become much safer than before, as he said today that “the financial system is quite strong.” At the same time, we think that, as a regulator, Governor Powell also needed to affirm his confidence in the measures implemented under the Dodd-Frank Act, in particular, the series of regulations associated with the Ordinary Liquidation Authority."