Investing.com - Federal Reserve Chair Jerome Powell said on Wednesday that the ability to pay interest on bank reserves is a key component of the Fed's toolkit for controlling interest rates, and giving that up would be difficult.
During his testimony before the Senate committee, Powell explained that a return to a system of deficit reserves would be challenging. "If you wanted to return to deficit reserves, it would be a long, uneven, and unstable path," said Powell. "I would not recommend us going down that road," and if it were to happen, "it would not save any money."
The head of the Federal Reserve also touched on several other key economic topics during his speech. In response to a question about the US dollar, Powell stated that the dollar "remains the world's reserve currency," but noted that he has "no opinion on whether the dollar is overvalued."
Powell indicated that the Fed plans to publish discussion materials regarding the supplemental leverage ratio (SLR) on Wednesday. He agreed that adjusting the SLR would free up capital for banks. Additionally, he expressed confidence that the Fed will move forward with implementing "Basel III" "in the near future."
Regarding the bond market, Powell stated that it "is fine right now, functioning well." He also stressed the importance of continuing to invest in gathering economic data.
Regarding considerations of monetary policy, Powell explained that the Fed does not take federal debt into account when making monetary policy decisions. Acknowledging that fiscal policy can contribute to inflation, he declined to further comment on this relationship.
Powell also commented on media reports about building amenities at the Fed, stating that such reports "are not accurate," and emphasized that the Fed "takes the management of public funds seriously."
In response to a question about tariffs, Powell noted that "it is very difficult to predict how tariffs will affect inflation." He added that changes in economic forecasts partly reflect the consequences of trade policy.