Fed Chief Powell Draws Congressional Support

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Federal Reserve Board Chairman Jerome Powell testifies before a Senate committee in March.

Federal Reserve Board Chairman Jerome Powell testifies before a Senate committee in March.


Photo:

yuri gripas/Reuters

President Trump’s attacks against Federal Reserve Chairman Jerome Powell have failed so far to gain traction with an important constituency: Congress.

Republican lawmakers, notably, haven’t joined Mr. Trump in criticizing the central bank’s interest-rate increases. For years, they argued the Fed was too slow to lift borrowing costs to more-normal levels from postcrisis lows.

Fed officials have raised their benchmark federal-funds rate three times this year to a range between 2% and 2.25% and are expected to lift it again at their meeting in two weeks.

Mr. Trump has said the Fed is “out of control” and “crazy” for raising rates. Mr. Powell says the Fed is lifting them to try to sustain the economic expansion: It is seeking to balance the risk of doing too little, which would fuel a boom-and-bust growth cycle, with the risk of doing too much, which could trigger a recession.

The Fed’s relationship with Congress matters because Congress created the central bank and has the power to change its legal mandate, which currently directs the Fed to maintain stable prices and maximum employment.

Markets soared last week after Mr. Powell signaled flexibility in setting rates. Treasury Secretary Steven Mnuchinsaid Monday that Mr. Trump liked the speech.

But Mr. Powell’s comment last week, which some observers took to indicate a slower pace of rate increases, concerned Rep. Andy Barr (R., Ky.), who heads a House subcommittee on monetary policy. He urged the central bank to continue with its gradual rate rises.

“There are risks associated with keeping rates too low for too long,” Mr. Barr said in an interview last week.

GOP opposition to the Fed’s emergency-stimulus policies boiled over in 2010 when a group of Republican-leaning economists, coordinating with Republican lawmakers, warned in an open letter that the Fed’s bond-buying campaign would risk higher inflation and a depressed dollar.

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President Trump has put the Federal Reserve at the middle of the latest drop in the markets, saying the “Fed has gone crazy.” WSJ global economics editor Jon Hilsenrath explores three reasons why the Fed is raising interest rates. Photo: Getty Images.

Those fears didn’t materialize, and the Fed began shrinking its bond portfolio last year. Still, the criticism has made it harder for conservatives to embrace Mr. Trump’s critique that Mr. Powell is overdoing rate increases during a period of stronger economic growth.

“We can quibble on what the rate of increase in the fed-funds rate should be and for unwinding the Fed’s balance sheet, but the much more important point is (Mr. Powell) seems to be determined to stay on this very important track,” said Sen. Pat Toomey (R., Pa.) in an interview last month. “I commend him for that.”

The reluctance of Republicans or Democrats to echo the president’s criticism also highlights one benefit from the charm offensive Mr. Powell launched after becoming chairman in February.

Mr. Powell met with lawmakers 57 times—33 times with Republicans and 24 with Democrats—in his first eight months. During her first eight months as Fed chairwoman, Janet Yellen had 13 meetings.

Lawmakers say Mr. Powell is at ease in those meetings. “Sometimes, Fed chairmen are guarded, like they’re worried about saying too much,” said Sen. Bob Corker (R., Tenn.), who dined with Mr. Powell in October. “I just find it really easy to talk to him.”

Rep. Sean Duffy (R., Wis.), who had met with Ms. Yellen at the Fed, said he appreciated that Mr. Powell came to his office.

“If he thought there was some political problem, I think he would reach out,” Mr. Duffy said. “It’s helpful to call people up and say, ‘Where are we at? Do I have a real problem here?’”

Members of both parties who met with Mr. Powell this year said they assured him they take seriously the central bank’s monetary independence from politics. “It’s important they’re left alone on the monetary-policy side,” said Mr. Duffy. “They have better data, and more economists, than the White House.”

As a real-estate developer, “I liked for rates to be low, of course,” said Mr. Corker. But he worries Mr. Trump’s attacks on the Fed could undermine institutions that make for a stable democracy, he said. “I prefer the model of, let’s put really good people in place, and let them do their jobs,” Mr. Corker said.

Mr. Powell has made his outreach bipartisan. In May, the Fed added a key hire to its legislative-relations team in Kirk Schwarzbach, who had been a top adviser to Rep. Maxine Waters (D., Calif.). Ms. Waters will become chairwoman of the House Financial Services Committee in January.

After a congressional hearing this summer, Mr. Powell reached out to set up a meeting with Sen. Elizabeth Warren (D., Mass.), one of the handful of senators who voted against his nomination. Ms. Warren has raised concerns about potential changes to the Fed’s capital rules for big banks.

Mr. Powell sought to reassure her the changes likely wouldn’t have much effect on current capital levels. The two went back and forth over technical details of the proposals, but the tone of the meeting was friendly, said people familiar with the discussion.

Mr. Powell impressed Rep. David Scott (D., Ga.) at June meeting when the Fed chairman remembered the name of a 1967 John Kenneth Galbraith book, “The New Industrial State,” that Mr. Scott referred to.

“It’s sort of like kindred spirits,” he said of meeting Mr. Powell. “You run across people throughout your life and every once in a while you run into somebody and you’re sort of on the same wavelength.”

Other Fed officials also have stepped up outreach on Capitol Hill. Minneapolis Fed President Neel Kashkari tries to meet every year with all of the lawmakers from his district, which includes Minnesota, Montana, North Dakota, South Dakota and portions of Wisconsin and Michigan.

The visits are designed “just to let them know what we’re working on,” he said in an interview last week.

Atlanta Fed President Raphael Bostic said he set a goal of meeting every lawmaker in his district—which includes Alabama, Florida, Georgia and portions of Louisiana, Mississippi, and Tennessee—within 2½ years.

“A lot of people have no idea what we actually do,” said Mr. Bostic in an interview this past spring.

Write to Nick Timiraos at nick.timiraos@wsj.com and Kate Davidson at kate.davidson@wsj.com