Powell Stresses Importance of Federal Oversight for Stablecoins, Affirms Crypto's Lasting Influence

Powell Stresses Importance of Federal Oversight for Stablecoins, Affirms Crypto’s Lasting Influence

Updated: 22 June 2023

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Federal Reserve Chair Jerome Powell has emphasized the importance of strong federal oversight for stablecoins and recognized the enduring presence of cryptocurrencies in the U.S. economy.

Strong Federal Oversight of Stablecoins Needed

Speaking during a congressional hearing held by the House Financial Services Committee, Powell expressed the view that stablecoins, which are pegged to sovereign currencies and issued by private companies, should be subject to robust regulation by the central bank.

Powell’s remarks came in response to a question from Maxine Waters, a representative from California, who raised concerns about the potential for stablecoin issuers to register directly with states, bypassing federal oversight.

Powell stressed the need for a strong federal role in overseeing stablecoins and cautioned against allowing excessive private money creation at the state level.

The Federal Reserve chair’s statements echo his previous views on stablecoins. In 2021, Powell had expressed support for stablecoins being considered as part of the payments system and suggested that they should be regulated similar to money market funds and bank deposits.

However, progress on stablecoin regulation has been slow, with proposed bills on the topic facing delays.

Nevertheless, House Financial Services Committee Chairman Patrick McHenry indicated that the stablecoin bill under consideration would be advanced to the Senate if a positive consensus is reached after further discussions.

Federal Reserve to Implement Gradual Rate Increases, Powell Testifies

In addition to stablecoins, Powell also acknowledged the staying power of cryptocurrencies as an asset class when questioned by Congressman Warren Davidson.

While recognizing their volatility and the need for legal clarity, Davidson highlighted the forthcoming bills, including one focused on stablecoins, aimed at providing clarity for the crypto industry and the U.S. Securities and Exchange Commission (SEC).

During the hearing, Powell also touched on the development of central bank digital currencies (CBDCs), mentioning that the Fed has staff members participating in discussions on digital asset regulation.

However, he emphasized that the implementation of a CBDC is still a long way off, despite the recent introduction of the FedNow system

More Interest Rate Rises To Come

During the hearing on Wednesday, Powell stated that the central bank plans to continue raising interest rates but at a more moderate pace. He emphasized the progress made so far, asserting that it would be sensible to increase rates, albeit in a slower manner.

The Federal Open Market Committee (FOMC) recently paused its aggressive campaign against inflation, opting to provide policymakers with additional time to assess the state of the US economy.

Powell indicated that the majority of FOMC participants anticipate further interest rate hikes by the end of the year.

Since March 2022, the Fed has already raised its benchmark lending rate by 5 percentage points, moving it from near zero to a range between 5 percent and 5.25 percent. However, despite these efforts, inflation continues to exceed the Fed’s long-run target of 2 percent.

“Inflation has consistently surprised us – and essentially all other forecasters – by being more persistent than expected,” Powell admitted.

In its latest interest rate decision on June 14, the Fed published updated economic forecasts, suggesting that an additional half percentage point of rate increases may be necessary in 2023.