Gallego Questions Powell About Economic Impact of Tariffs

Senator Ruben Gallego (D-AZ) questioned Federal Reserve Chair Jerome Powell about the economic effects of tariffs on housing and interest rates during Tuesday's Senate Banking Committee hearing, emphasizing housing in Arizona.

Sen. Gallego began by explaining how rent in the Grand Canyon State increased 72% in 12 years from 2010 to 2022 while fixed mortgage rates have remained at 6%, if not 7%, according to Bankrate, for 2 1/2 years, then asking, "What do you think needs to happen to make housing more affordable in Arizona and the United States in general?"

Chairman Powell replied, "Housing policy and things to help housing supply are really in your wheelhouse, not ours." Still, he suggested that the issues influenced by the COVID-19 pandemic are going away, but long-term problems remain that the Fed cannot affect.

Sen. Gallego suggested that "while the Fed does not set the mortgage rate, one of the biggest drivers, obviously, of inflation, especially in places like Arizona, is housing costs. And then one of the biggest decisions, essentially, you make is on whether or not to move the rates is inflation, which is driven by housing costs. So we are in this kind of perpetual vicious circle in Arizona when it comes to interest rates."

Powell understood the Arizona Senator's point, saying, "That is exactly what is going on, but it is not obvious, though, that lower rates would lead to lower housing inflation because, of course, that would increase housing demand. It would unlock people's low mortgages, but that creates both a buyer and a seller. So it is not clear that would be something that would drive down housing inflation."

Gallego then shifted the conversation to the potential economic fallout of President Donald Trump's threat to impose tariffs on Mexican imports next month, asking what they might be.

As with the effect of housing prices, Powell answered, "We do not do tariff policy, and we do not do commentary on tariff policy."

However, he did suggest that "generally, somebody has got to pay the tariff, and that can be the exporter, it can be the importer, it can be a middleman. Somebody pays, somebody does. But in fact, in some cases, it does not reach the consumer much, and in some cases it does. It really depends on the facts that we have not seen."