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The head of the Federal Reserve usually faces more genteel questioning by Senate lawmakers than when he or she appears before their House counterparts.
Tuesday’s hearing in front of the Senate Banking Committee was no exception. Even the two Democrats with presidential aspirations, Sherrod Brown and Elizabeth Warren, were by their own standards reasonably restrained, with Brown muttering about bank profits and Warren asking about when the public gets to comment on big bank mergers.
But a few questions on Tuesday set up a more contentious hearing for Powell on Wednesday, when he heads to the House Financial Services Committee, now led by California Democrat Maxine Waters, with new liberal members including Reps. Alexandria Ocasio-Cortez — the co-author of the Green New Deal — and fellow freshmen Rashida Tlaib and Katie Porter.
Sen. David Perdue, the Georgia Republican, asked Powell about what’s known as modern monetary theory, or what he dubbed a “spend now, spend later, spend often,” policy.
“I haven’t really seen a carefully worked out description of what is meant by MMT,” Powell replied.
“I have heard pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not. The idea that deficits don’t matter for countries that can borrow in their own currency is just wrong. I think U.S. debt is fairly high at a level of GDP, and much more importantly than not, it’s growing faster than GDP.”
And then more bluntly: “We’re going to have either spend less or raise more revenue.”
Ocasio-Cortez in interviews has said that she intends to finance her ambitious spending plans through deficit increases. To the extent she supports tax increases — and her proposed 70% top rate for those with incomes above $10 million is popular — it’s only as a means of redistribution.
Also read: Ivanka Trump says Ocasio-Cortez doesn’t understand the American people like I do
Sen. Brian Schatz, the Hawaiian Democrat, asked Powell about climate-change risks, and the central banker mostly downplayed the impact. Powell did point out that the Fed requires banks sensitive to natural disasters, such as those on the coasts, to have risk-management policies.
Powell added, “We are clear-eyed about the nature of coastal risks and natural-disaster risks, but it’s a fair question. And we’ll go back and look at it again.”
Also read: Powell isn’t wrong — U.S. health spending is almost off the charts
