Federal Reserve Chair Jerome Powell returned to Capitol Hill on Thursday for his second day of testimony before the Senate Banking Committee.

Powell’s remarks underscored the Fed’s positive outlook on the economic trajectory, highlighting “continued strong growth, a strong labor market, and continuing progress in bringing inflation down.”

He emphasized that, should the economy follow this anticipated path, the Federal Reserve is prepared to begin the process of easing its currently restrictive policy stance this year.

Concerns Over Basel 3 Endgame And Housing Market Impact

The Senate Banking Committee’s inquiries primarily revolved around the Basel 3 Endgame rules and their implications for bank lending, particularly in the housing sector. Lawmakers expressed apprehension regarding the potential for these capital rules, if implemented without modifications, to disproportionately affect disadvantaged borrowers’ ability to achieve homeownership.

In response to these concerns, Powell acknowledged the risk of adverse effects on mortgage lending and home affordability. “There is a risk like that, and we’re very focused on it,” Powell said.

The Housing Market’s Ongoing Challenges

Addressing the broader challenges in the housing market, Powell described the situation as “very, very difficult.” He pointed out that even with the normalization of rates, the underlying shortage of housing supply is expected to continue exerting upward pressure on prices.

Additionally, Powell raised concerns about housing affordability and the role of insurance costs in coastal areas as significant contributors to inflation.

“The quantity of homes available for sale is incredibly low,” Powell said, suggesting a bleak outlook for those hoping to enter the housing market. However, he also offered a glimmer of hope, suggesting that as rates and inflation decrease, “we should see the housing market start to heal.”

Yet, Powell cautioned that this recovery would not address the long-term structural problems plaguing the housing market.

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Image created using a photo Shutterstock and the Fed.