While, the Federal Reserve’s supervision and regulation committee is no longer active, the Board of Governors is still fulfilling its regulatory oversight role directly, acting Chairman Jerome Powell said Wednesday.
"We have an obligation to carry out under the law in supervision and regulation, and we're doing that, that's what we're doing,” Powell said.
Powell said during the Federal Open Market Committee press conference that essential tasks such as approving this year's stress tests and reviewing bank mergers for antitrust violations have gone directly before the board as a whole.
“Of course, we don't have a vice chair for supervision,” Powell said, “but we're making do with the situation we have and a good number of things have come straight to the board for approval."
It remains unclear if new regulatory objectives can be introduced before the supervision and regulation committee is reactivated or someone is appointed to lead that group. The Fed has been without a vice chair for supervision since last October when Gov. Randal Quarles stepped down from the board. The board has only four confirmed members: Powell and Govs. Lael Brainard, Michelle Bowman and Christopher Waller.
After Sarah Bloom Raskin, President Biden’s pick to serve as vice chair for supervision,
A former Fed governor and deputy Treasury secretary, Raskin had her hopes for overcoming a boycott by Senate Banking Republicans dashed Monday when Sen. Joe Manchin, D-W.Va., said
In previous testimony before the Senate Banking Committee, Powell said he would allow whoever steps into the vice chair for supervision role to set the Fed’s regulatory agenda, reiterating his support for the position’s “legislative grant” to introduce new policy. Yet the vacancy has also caused a delay to ongoing priorities, including a promised update to the supplementary leverage ratio.
Senate Banking Republicans refused to allow a vote on any of Biden's Fed nominees until Raskin was dropped from consideration. They argued that Raskin's previous endorsement of cutting off energy companies from the Fed's emergency lending facility during the height of the pandemic was disqualifying.
"What we've demonstrated here is that there is a bipartisan majority in the United States Senate that rejects the notion that financial regulators ought to be allocating credit," Sen. Pat Toomey, R-Pa., the ranking member on the Senate Banking Committee, said after Raskin withdrew.
In a letter to the White House on Tuesday, Raskin said she hoped her dropping out would enable the other four nominees who had been held “hostage” by Senate Banking Republicans to progress.
Other nominees included newcomers Lisa Cook, an economics professor at Michigan State University, and Philip Jefferson, a former Fed economist and current administrator at Davidson College. Sitting board members Powell and Brainard have been nominated for the roles of chair and vice chair, respectively. The Senate Banking Committee is poised to hold an executive session to vote on the nominees Wednesday night.
The FOMC raised its benchmark interest rate by 25 basis points at the meeting, its first hike since 2018, in an effort to cool down the economy and tamp down on inflation. Powell confirmed it would likely be the first of seven increases on the year, with a year-end target of 1.9%, a full percentage point higher than the FOMC projected during its December 2021 meeting.
Powell said the FOMC feels the economy is strong enough to withstand the rate hikes and “flourish.” It projects a 2.8% growth in gross domestic product this year and a growth rate of 2% or more in the following two years. The committee expects inflation to be above the target rate of 2% this year but lower than last year’s 7%. The board expects price growth to slow during the second half of 2022 and settle on a year-end inflation rate of 4.3%.
Powell also noted that because the Fed had been signaling that it would increase its funds rate for months, the change has already been underwritten by banks and investors.
"The moves are already priced into the market for some months now so the clock is running and we'll see some of that in the second half of the year as well," he said.
Bank stocks rose on the Fed’s announcement. The KBW Nasdaq Bank Index jumped 3.63% to 130.31, compared with a more modest increase of 2.24% in the S&P 500 index.
JPMorgan Chase’s stock soared 4.45% to $138.40, while Bank of America shares rose 3.11% to $42.80. Wells Fargo shares were up 2.97% to $51.60, and Citigroup’s stock price improved 3.07% to $56.80.
The Fed’s more aggressive rate hike plans “increase bullishness” for banks and should boost their net interest margins, Truist Securities bank analyst Michael Young wrote in a note to clients. Analysts
In addition to signaling several rate increases this year, the Fed’s projections indicated further tightening in 2023, with officials potentially raising their key interest rate to around 2.8%.
“We believe banks will outperform as a result of a more hawkish Federal Reserve policy,” Young wrote.
Polo Rocha contributed to this report.
