In his first semi-annual monetary policy testimony before Congress since taking the helm of the Federal Reserve, Chair Jerome Powell stated he would "do my job" if faced with pressure from President Trump, asserting he would act based on data even in the face of criticism from the President. This marks Powell's most direct commentary to date on Trump's challenges to the central bank's authority.

Testifying before the House Financial Services Committee on Tuesday, Powell was asked how he would respond if Trump continued to target the Fed, for instance by attempting to dismiss Governor Cook. Powell noted that the U.S. Supreme Court had recently reaffirmed the Fed's independence in setting monetary policy.

He told lawmakers that if he became a target, "I would continue to do my job." Responding to a series of questions about whether he would still set policy based on data even if Trump pressured for lower borrowing costs, Powell stated, "The Fed's independence is sacrosanct." He added, "If we remain independent and are seen as independent, our credibility is enhanced... That is the best way for us to do our jobs."

Analysts suggest Powell's relationship with Trump may be tested in coming months if high inflation persists and calls from other Fed officials to raise interest rates become too loud to ignore. For now, however, Powell appears to believe what Trump told him upon his appointment: to be "completely independent... and not take my cues."

Noted Fed-watcher Nick Timiraos highlighted that Powell told lawmakers the Fed has "zero tolerance" for high inflation, warning against reading too much worry or comfort into any single data release. Powell was quoted as saying, "Someone looking at this morning's (CPI) data might say, 'Alright, mission accomplished, everything is perfect.' I don't see it that way."

Timiraos further noted that Powell reiterated the Fed's inflation-fighting goal but gave no hints on the path for interest rates, consistent with his longstanding view that the Fed should not pre-announce its next moves. He also did not clearly define the criteria for judging when high inflation becomes entrenched.

Observers noted that in this testimony, Powell expressed a firm stance on achieving the inflation target and a clear line against Trump's interference, aiming to firmly establish his authority as Fed leader. For markets, a future Fed that "speaks less and does more," the introduction of new inflation metrics, and impending internal debates over balance sheet reduction and policy tools all signal a fundamental reshaping of the policy path of recent years.

Fed Has Tools for Price Stability, Won't Shirk Inflation Responsibility

In his prepared remarks, Powell emphasized the Fed's zero tolerance for persistently high inflation. Opening comments from Committee Chairman French Hill also highlighted that high inflation is a key focus for lawmakers, who expect the Fed to remain focused on its price stability mandate and persist until the goal is met.

Hill not only condemned the sharp spike in inflation but also criticized what he termed the Fed's recent "mission creep." He stated, "The Fed needs to avoid past mistakes, reform itself to preserve long-term monetary policy independence, and rebuild its reputation as a non-political institution executing Congress's statutory directives."

Hill told Powell the Fed controls how it responds to inflation. He asked, given existing policy tools, how the Fed plans to achieve price stability. He remarked, "The Fed might choose to 'look through' these inflationary pressures, but it has held that view before and been wrong. High inflation affects Americans' lives today, not some hypothetical future based on long-term forecasts or inflation expectations."

In response, Powell acknowledged, "The current situation is complex and fluid." But he reiterated that inflation is a "choice" for policymakers.

Powell stated, "It's no secret I am very critical of the 2020 version of the Fed's framework. That framework was a mistake, and it was not discussed. We want inflation to be more contained. The Fed has the tools to maintain price stability."

He added, "Now is not the time for us to shirk responsibility or point fingers. The Fed can and will achieve price stability. We have the tools you mentioned—whether interest rate policy or balance sheet policy—to help us achieve that goal. We have the means to accomplish it."

Powell later also stated he did not believe there was a harsh trade-off between stabilizing prices and achieving full employment.

He said that as long as the Fed ensures price stability, the economy can prosper and businesses can hire. Therefore, there is no so-called "harsh choice" between the two mandates Congress has given the Fed; it is not an either-or proposition. He noted his view differs slightly from some of his peers in the economics profession on this point.

Pledging to Break 'Sticky Prices', Warns Against Simple Analogies to 90s Productivity Boom

Regarding the broadly cooler U.S. June CPI inflation data released earlier Tuesday, Powell reiterated he would not declare the Fed's inflation "mission accomplished."

He declined to say whether rate hikes were over, stating that predicting the Fed's policy committee decisions "is not my concern," and warned markets against complacency from the first month-on-month CPI decline in six years.

Powell said, "While I reviewed this morning's CPI data, and it came in better than expected, I do not endorse cherry-picking data. I will not stand up and say 'mission accomplished.' On the contrary, I believe there is a lot of work to do."

He pledged to break "sticky prices," stating the Fed's duty is to ensure short-term fluctuations in specific prices "do not spread." Unfortunately, the opposite happened in recent years. He pointed out that, according to "economic principles," once inflation runs above target for a period, it often becomes harder to bring down—this is "sticky prices."

Powell said, "Those days must be in the past. Our duty—and my promise to you—is to break this stickiness in prices."

Observers noted a telling remark from Powell during the hearing: "Having seen one productivity boom is just having seen one productivity boom." Minutes later, he added, "Having seen one financial crisis is just having seen one financial crisis."

Ultimately, Powell's point was: "I will be very careful about drawing analogies."

His comments on productivity booms were seen as significant, especially considering some see parallels between the current AI investment surge and the IT investment boom of the 1990s.

Treasury Secretary Yellen, former NEC Director Hassett, and even Powell himself have noted that in the mid-1990s, then-Fed Chair Greenspan astutely recognized a productivity boom and maintained low rates, a move viewed as wise. Powell's Tuesday remark suggests one should not simply apply that example to the current situation.

In his prepared remarks, Powell acknowledged AI is driving a significant increase in business investment but noted it's unclear to what extent the economy will benefit from AI build-out.

During the hearing, he said that in the long term, AI means substantial productivity improvements. The AI boom "might be the biggest transformation I've seen in my adult life," changing not just how innovation happens but its speed. He speculated the technology would "augment" existing jobs and, while potentially disruptive in the short term, "it will also create many other jobs."

Focus on Fed's Dual Mandate of Employment and Inflation

During the hearing, Republican lawmakers repeatedly emphasized a point: the Fed has ventured into matters beyond its "dual mandate," such as diversity and climate change.

Powell was clear that the Fed's responsibilities are well-defined; under his leadership, in setting monetary policy, the Fed will focus on its dual mandate.

He said, "You (Congress) gave us (the Fed) the task of achieving maximum employment and price stability, along with many other difficult jobs. We will pursue a series of reforms outside of monetary policy. Our agenda is already full, and I assure you we will not venture into other areas."

Will Give Ample Warning Before Adjusting Balance Sheet Runoff

Powell emphasized the balance sheet is part of monetary policy, calling it "more than just plumbing." This view implies Powell believes the Fed can tolerate higher volatility in short-term funding markets. The Fed has a standing repo facility to address market stress, but many are reluctant to use it, so Powell may see this backstop as sufficient for any future repo market turmoil.

Powell said he is not seeking to return the Fed's balance sheet to its 2006, pre-QE levels. But he believes there is a "sustainable equilibrium" where the balance sheet size would be smaller than the current $6.74 trillion. Any change will not happen overnight, will be carefully considered, and will take "a considerable amount of time" from decision to implementation.

He noted his reservations about Fed balance sheet policy are not new. But he would not prejudge the conclusions of the Fed's working group on this area, stating any changes would be well-communicated.

Powell stated, "No adjustments to balance sheet policy will be made without providing ample warning to the (Fed's policy) Committee and broader financial markets."

He said he understands the Fed's need to intervene in markets during crises to establish fair prices; but in relatively calm times, if the Fed holds more of an asset than the market itself, that, in the words of former Chair Volcker, pushes the Fed to the "edge of its authority."

Powell added he believes the Fed should avoid straying into fiscal policy when handling balance sheet matters. "We want to stay out of fiscal policy," Powell said.

Five Fed Working Groups in 'Fact-Finding Phase', Will Discuss Reducing Statement Frequency

In his remarks, Powell outlined the responsibilities of five newly established Fed working groups. During the hearing, he said he would be happy to provide lawmakers with "regular" updates on their progress from now until year-end, adding, "By then, I hope we will have some substantive conclusions."

Powell said the five groups are in a "fact-finding phase" and will share views "with policymakers first." He promised these groups would not operate "in secret."

He noted there would be some "overlap" in the groups' functions, such as between the balance sheet group and the communications group.

Powell had previously stated the communications group would assess the Fed's press conferences, economic projections, policy statements, and public remarks.

During Tuesday's hearing, he said he would not commit to a fixed standard of automatically holding a press conference for Fed policy committee decisions and procedural changes; instead, it would be decided case-by-case.

Powell said the Fed would explore ways to have deeper discussions and reduce the frequency of issuing statements. He noted the goal of this communications review and any related adjustments is to ensure monetary policy is correct.

He stated, "I don't think any adjustment to communication is about obscuring or withholding information. Adjusting communication aims for one core goal: ensuring monetary policy is correct." In other words, communication reform is not about reducing transparency.

When asked why the Fed should abandon the so-called "dot plot" showing officials' rate expectations, Powell said he looks forward to the conclusions from the working groups he established and is impressed by his colleagues' willingness to re-examine Fed strategies with an "open mind."

Powell also noted that, in his view, a "more measured" approach in external communication is preferable.

Should Not Intervene in Markets Casually, Using Balance Sheet in Crises is Exception

Powell reiterated he would not prejudge the balance sheet working group's conclusions. But he pointed out the Fed should be a "price taker" not a "price setter." From this perspective, Powell should support not targeting the 10-year Treasury yield.

Powell said, "We should not intervene in markets casually." However, he mentioned an exception—during emergencies: "As for crisis times, I don't want to give the impression we can stand aside. I certainly wish we could, but that's not guaranteed."

He expressed willingness to use the balance sheet tool aggressively during crises, adding that once a crisis ends, monetary policy "should be driven almost entirely by interest rate policy." Interest rate policy does not favor one class over another. He believes rates should be the dominant policy tool.

Declines Comment on Trump and Other Administration Officials

The Committee's Democratic leader, Maxine Waters, argued Trump was using his office to "rake in huge profits" while undermining the independence of federal regulators. Powell responded the Fed would "stick to its job" and stay out of politics. He declined to comment on Trump's personal financial disclosure reports.

When asked whether Trump and other administration officials should be allowed to hold companies they regulate, including those involving crypto assets, Powell declined to state a position. He said the Fed will focus on its own duties and will not comment on officials outside the Fed.

Waters shifted to discussing prediction markets, her remarks seemingly touching on insider trading related to government decisions. Powell mentioned he had written to Fed staff in his first week, emphasizing the importance of maintaining the institution's integrity.