The Blubber

Powell Reaffirms Fed Independence

Federal Reserve Chair Jerome Powell emphasized the Fed’s independence during remarks in Chicago, receiving applause from the audience. He noted:

• The Fed’s independence is protected under the law
• It enjoys strong bipartisan support
• The institution will not be influenced by political pressure

He also addressed the Supreme Court case concerning former President Trump’s dismissal of two Democrats from federal labor boards, suggesting the outcome likely won’t apply to the Fed, though the situation is being closely monitored.

Powell on Artificial Intelligence

Powell said AI is poised to significantly transform the economy, calling it more than just an improved search engine—comparing it to an enhanced version of a human. He sees AI as one of a few major forces that could dramatically reshape the economic landscape, though he acknowledged the full impact remains uncertain.

Comments on Cryptocurrency

Powell stated that crypto is becoming more integrated into the financial system. He supports a legal framework for stablecoins, noting their potential broad appeal and the need for consumer protections. While allowing room for innovation, Powell stressed that any regulatory easing must not compromise the safety and soundness of the banking sector.

On U.S. Debt

Powell said the U.S. federal debt is on an unsustainable trajectory, though not yet at a crisis point. He highlighted that running large deficits during a period of full employment is a concern that needs to be addressed. He pointed out that discretionary domestic spending is both small and declining as a share of the federal budget, and is not the core issue—despite political focus on it.

Dollar Liquidity and Balance Sheet

Powell confirmed the Fed is prepared to provide dollar liquidity through its central bank swap lines as needed:

• The Fed aims to ensure global dollar availability
• This supports U.S. consumers and reflects the dollar’s reserve currency role
• Bank reserves remain abundant
• The Fed is not nearing a halt to balance sheet runoff
• A slower pace allows for further reduction without market disruption

Market Conditions and Uncertainty

Powell said markets remain functional and orderly despite volatility:

• Markets are adapting to policy changes and managing uncertainty
• Volatility is expected to persist in such an uncertain environment
• Despite the challenges, markets are behaving as expected

Outlook and Potential Difficult Decisions

Powell warned that prolonged uncertainty could suppress household and business decisions and weigh on investment. If structural risks increase, the U.S. could become less attractive to investors. He noted the Fed might face difficult decisions ahead if its dual mandate—to maintain price stability and maximum employment—comes into conflict. Currently, the two goals are not in opposition, but he acknowledged the risk of rising inflation and unemployment putting the Fed in a challenging position.