By Howard Schneider and Jason Lange
WASHINGTON (Reuters) - The U.S. Federal Reserve should "respond decisively" to any new economic crisis, Fed chair nominee Jerome Powell told the Senate Banking Committee on Tuesday, positioning himself as an heir to the central bank policies of current chair Janet Yellen and her predecessor Ben Bernanke.
At his confirmation hearing before the banking panel, President Trump's nominee to take over as Fed chair endorsed the core ideas that have defined U.S. central banking since the financial crisis of 2007 to 2009 - a willingness to move aggressively against a downturn, and an insistence on flexibility and independence from political influence in setting policy.
"We must retain the flexibility to adjust our policies in response to economic developments," said Powell, who has served as a Fed governor since 2012, a term spanning the end of Bernanke's chairmanship and Yellen's four years as Fed chief.
"We must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation’s financial stability and economic prosperity."
During Powell's time as a governor the Fed has regularly come under the criticism of Republican lawmakers worried that the central bank's bondbuying and other crisis response programs created risks to the financial system, and that central bankers had accumulated too much discretionary power.
But in his opening statement Powell made clear he feels the Bernanke-Yellen approach should be maintained, with the Fed open to congressional oversight, but in unquestioned control of its policy choices.
"I will do everything in my power to achieve those goals while preserving the Federal Reserve’s independent and nonpartisan status that is so vital to their pursuit," Powell said, referring to the Fed's congressionally mandated goals of promoting both maximum employment and low and stable inflation.
Senators will question him about those issues throughout the hearing. In opening remarks both Committee Chairman Mike Crapo, Republican of Idaho, and senior Democrat Sherrod Brown of Ohio indicated relatively smooth sailing for the nomination.
Crapo said he regarded Powell as "qualified to lead the Fed," while Brown said his chief concern was the Trump administration's direction on issues like financial regulation rather than Powell.
"You have supported tough rules," Brown said. "We have had a good working relationship...I hope that will continue."
Trump nominated Powell, aged 64, from among five finalists, including Yellen as well as others who have argued for more fundamental changes at the Fed. Some of the arguments for reform, including the use of rules governing interest rate policy and rooted in skepticism about the Fed's approach to crisis-fighting, have support among the lawmakers who must confirm Powell as Fed chair.
Early in his time as a governor Powell, a lawyer who has spent the bulk of his career in the private sector as an investment banker and private equity executive, shared some of those concerns. But he gradually came to emphasize in his public statements that the benefits of current Fed policy, with years of loose money allowing time for displaced workers to trickle back to the job market, outweighed the risks.
The chief exception involves financial regulation. While Powell said he agrees that the new requirements on banks have made the financial system safer, he wants to look for ways to ease the cost of regulation if it can be done safely.
"We will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms," Powell said.
On current monetary policy, he said, "We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink."
(Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Andrea Ricci)