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Investing.com -- Federal Reserve Chairman Jerome Powell stated Wednesday that the central bank’s ability to pay interest on bank reserves is a crucial component of its interest rate control toolkit and would be challenging to discontinue.
During testimony before a Senate committee, Powell explained that returning to a scarce reserves system would be difficult. "If you were to want to go back to a scarce reserves, it would be a long and bumpy and volatile road," Powell said. "I wouldn’t recommend that we undertake that road" and if it were done it "would not save any money."
The Fed Chair also addressed several other key economic topics during his appearance. When asked about the U.S. dollar, Powell stated that the dollar "remains the world’s reserve currency" but noted he doesn’t "have a view on whether the dollar is overvalued."
Powell indicated that the Fed plans to release something for comment regarding the Supplementary Leverage Ratio (SLR) on Wednesday. He agreed that adjusting the SLR would free up capital for banks. Additionally, he expressed confidence that the Fed would move forward on Basel 3 implementation "in the near future."
Regarding the bond market, Powell stated it is "fine now, functioning well." He also emphasized the importance of continued investment in economic data collection.
On monetary policy considerations, Powell clarified that the Fed doesn’t factor federal debt into its monetary policy decisions. While acknowledging that fiscal policy can contribute to inflation, he declined to comment further on this relationship.
Powell also addressed media reports about building amenities at the Fed, stating that such reports "are not accurate," and emphasized that the Fed takes "seriously our stewardship of public money."
When asked about tariffs, Powell noted it is "very hard to predict how tariffs will show up in inflation." He added that changes to economic forecasts partly reflect the effects of trade policy.