Fed closely tracks crypto, Powell tells Senate Banking Committee

During a Senate Banking Committee hearing today, Federal Reserve Chair Jerome Powell said his agency is tracking the “volatility” of the cryptocurrency market. He said that while Fed is not directly involved in regulating cryptocurrency, it its bank supervisory and regulatory role, it has input on what banks do with crypto assets on their balance sheets. “We’re tracking those events carefully,” Powell responded to Sen. Kyrsten Sinema (D-Ariz.) regarding the crypto market’s recent crash, adding that the central bank really isn’t seeing “significant macroeconomic implications” thus far.

Powell called crypto an “innovative new space,” but said it needs a better regulatory framework. He said Congress needs to establish which agencies have authority over crypto and stablecoins.

“The same activity should have the same regulation no matter where it appears, and that isn’t the case right now because a lot of the digital finance products, in some ways, are quite similar to products that have existed in the banking system or the capital markets, but they’re just not regulated the same way,” he said. “So, we need to do that.”

Powell doesn’t see recession in near term

Turning to the economy, Powell stayed on message during his testimony. Responding to lawmaker questions that mostly focused on inflation and the rising price of gas and food, Powell didn’t veer far from the central bank’s mandate of promoting maximum employment and keeping high inflation in check.

The Fed last week made its largest interest rate hike in 28 years in an attempt to curtail inflation. When asked if rapid rate hikes could trigger a recession, Powell said “it’s certainly a possibility,” but that it’s obviously not the agency’s “intended outcome.” He added that he does not foresee one in the near term, emphasizing that the economy remains strong and businesses are “in good shape.” But despite being asked a number of times over the about what the Fed can do to help with rising prices at the grocery and the gas pump, Powell reiterated that food and gas prices would not be lowered by increasing rates.

Powell said the Fed’s goal is to reduce inflation and slow growth without triggering a recession or high unemployment. “It’s absolutely essential that we restore price stability … for the benefit of the labor market as much as anything else,” he said. “There’s really not anything that we can do about oil prices,” Powell said. “Food prices—that a bit more mixed. But for oil prices, they’re set at the global level.” He said higher interest rates would help to “moderate” supply and demand.”

Powell also noted that the housing market is beginning to slow following its recent pandemic surge. “You’re actually seeing demand move down significantly,” he said, and that housing prices and demand will begin to flatten out. “You’re going to see a moderation in housing demand, you’re going to see declining, slower increases, at least in housing prices.”