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It was the screech heard ‘round the world. Fed Chair Jerome Powell, in a decidedly hawkish shift, said the central bank may need to withdraw its support for the economy quicker than initially planned in the face of elevated inflation.

“The economy is very strong and inflationary pressures are high,” Powell said at a Senate Banking Committee hearing Tuesday. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner.”

The remarks were unusually direct. Fed chairs tend to avoid making big headlines during congressional testimony, and they often couch guidance with caveats.

While many analysts predicted a policy adjustment could come at the Fed’s next meeting on Dec. 14-15, few expected Powell to signal it so strongly yesterday, especially in light of new warnings over the Omicron variant in South Africa, which has clouded the economic outlook.

A hard pivot — “I was expecting maybe more tempered guidance in saying, ‘Look, we have to be cautious, we don’t know the impact this will have on aggregate demand,’” said Kathy Bostjancic, chief U.S. financial economist for Oxford Economics. In fact, Powell emphasized inflation worries much more than the new variant — and barely focused on the labor market, she added.

“We’ve seen, one by one, Fed officials lean a bit more hawkish” since the last consumer price index report, she said. “This was a hard pivot though. Again, given the news that we just learned Friday, I was a little bit surprised.”

The comments also underscore how much, and how fast, Fed officials’ inflation concerns have grown in recent weeks amid signs of higher, more broad-based price pressures..

Take Powell’s blunt assessment of the tradeoffs around reaching the Fed’s maximum employment goal and risking higher, more persistent inflation.

On Nov. 3, Powell said he thought officials could be patient as they waited to see further gains in employment and labor-force participation. Yesterday, he said it may take longer than initially expected for labor-force participation to rebound.

“That means to get back to the kind of great labor market we had before the pandemic, we’re going to need a long expansion,” he said. “To get that, we’re going to need price stability. And in a sense, the risk of persistently high inflation is also a major risk to getting back to such a labor market.”

So what comes next? Powell suggested the Fed’s asset-purchase program should end “perhaps a few months sooner” than planned.

The Fed said last month it would reduce its $120 billion in monthly asset purchases by $15 billion in each of November and December, putting it on track to end the program by June. To wrap up asset purchases in March, officials would have to taper purchases by $30 billion a month starting in January.

The move could set the Fed up for interest-rate increases in the first half of next year, though Powell offered few hints Tuesday.

P.S. Transitory is dead: Meanwhile, Powell said the Fed will try to be more clear in its analysis of inflation risks, and avoid using the much-maligned “transitory.”

“To many it carries a sense of short-lived,” he said. “We tend to use it to mean it won’t leave a permanent mark in the form of higher inflation. I think it’s time to retire that word and explain more clearly what we mean.”

Under pressure: Senate Banking Chair Sherrod Brown (D-Ohio) made clear that progressives are going to lean on Powell to uphold the Fed’s commitment to ensuring maximum employment is broad-based and inclusive. “The Fed can’t pump the brakes on the economic recovery too soon before workers get a chance to rebound — and I mean all workers,” he said.

IT’S WEDNESDAY — Powell and Treasury Secretary Janet Yellen are back on the Hill today before the House Financial Services Committee to testify about pandemic relief programs — and literally anything else lawmakers want to talk about.

What would you ask? Thanks to Groundwork Collaborative’s Rakeen Mabud for this suggestion:

"How does Chair Powell plan to ensure full employment for Black workers as the Fed makes decisions about tapering and rate hikes? Black and brown workers continue to face the worst of the pandemic’s economic fallout. As of October, the Black unemployment rate was 7.9 percent — nearly double that of the white unemployment rate. What will Chair Powell do to make sure that Black workers aren't left behind in this recovery period?"

Send us your suggestions, feedback or tips: [email protected] or on Twitter @katedavidson.

SEC Chair Gary Gensler speaks at the Digital Asset Compliance and Market Integrity Summit at 9 a.m. … Manufacturing and construction spending data released at 10 a.m. … Fed Beige Book released at 2 p.m. … Aspen Institute hosts virtual discussion at 1:30 p.m. on rebuilding the post-pandemic economy, featuring Deputy Treasury Secretary Wally Adeyemo.

WHITE HOUSE WEIGHS CORDRAY TO BE TOP FED BANKING REGULATOR — From your MM host: “President Joe Biden is considering tapping former consumer regulator Richard Cordray to be the Federal Reserve’s point person on Wall Street oversight and regulation, according to people familiar with the matter.”

MM sidebar: We heard from some of you with two schools of thought on Cordray.

—The first: He’s a lightning rod for Republicans, and the White House can get largely the same outcome with fewer sparks from someone like former Fed Governor Sarah Bloom Raskin (a one-time state banking regulator) or Atlanta Fed President Raphael Bostic.

—The second: He’s a solid administrator who knows how the agencies work and, more importantly, how the financial agencies need to work together. He also knows the Wall Street banks well, having been their consumer regulator for several years, and was an FDIC board member who knows how to work as part of a policy-making body.

—Those views are not necessarily mutually exclusive! After Saule Omarova’s confirmation hearing to be comptroller of the currency, we heard from several MM readers who identified as left-leaning (and even liked Omarova) bemoaning the fact that the White House hadn’t picked someone with better odds of getting confirmed. Cordray would likely need every single Democrat to support his confirmation.

—Sen. Pat Toomey, the ranking Republican on the Banking Committee, told MM that Cordray’s tenure at the CFPB raises serious questions about what his appointment would mean for the Fed's reputation as a nonpartisan, independent institution.

“This is the individual who helped Elizabeth Warren stand up an agency so unaccountable the Supreme Court took away its independent status. I’d hope the White House considers less divisive figures for this role.”

BANKERS, REALTORS CALL ON SENATE TO PASS WEED BANKING BILL — Our Natalie Fertig: “A coalition of trade groups, businesses and even a labor union — all of which frequently work with the cannabis industry — wrote to Senate leadership on Tuesday asking for passage of the SAFE Banking Act.

“The American Bankers Association, United Food and Commercial Workers Union, the Electronic Transaction Association and the Council of Insurance Agents & Brokers were among the 14 groups that signed on to the letter calling for cannabis banking language to be included in the National Defense Authorization Act.”

HOUSE DEMOCRATS GROW ANTSY TO PASS SHUTDOWN FIX BEFORE FRIDAY CLIFF — Our Heather Caygle, Sarah Ferris and Jennifer Scholtes: “Congressional leaders on Tuesday evening continued to bandy over the terms of the next stopgap spending bill, with just over three days left before federal funding expires. … [T]he two parties are still at odds over main conditions of the measure, which would keep government funding levels largely the same: how long the patch will last and which spending areas will be exceptions and receive a boost.”

CBO: TREASURY COULD RUN OUT OF MONEY BY MONTH-END — Another big item on Congress’s year-end to-do list: raising the debt ceiling. But when do they need to act?

The Congressional Budget Office said Tuesday the Treasury could run out of cash to keep paying the government’s bills on time by the end of December, our colleague Caitlin Emma reported. Treasury Secretary Janet Yellen was a bit more circumspect, saying she has a high degree of confidence that her agency can keep making on-time payments through Dec. 15.

At that point, two things happen: Treasury has said it plans to make a large transfer to the Highway Trust Fund required under the bipartisan infrastructure bill, which would deplete much of its cash. On the same day, the government expects to get an influx of quarterly corporate tax payments, which would increase its cash buffer.

Where does that leave us? Some private forecasters say the Treasury, if it collects enough in tax receipts, could make it until January without facing an imminent risk of default. Yellen, like most Treasury secretaries before her, is erring on the side of caution.

“Right now there's uncertainty about where we will be on Dec. 15. And there are scenarios in which we can see it would not be possible to finance the government,” Yellen told the Senate Banking Committee. “That doesn't mean there are not also scenarios in which we can.”

EU DIGITAL LEVY WILL HAVE TO WAIT — Our colleague Bjarke Smith-Meyer in Brussels: “Plans for an EU digital levy will remain on ice until countries introduce a global accord to overhaul corporate tax rules, Economy Commissioner Paolo Gentiloni said Tuesday. … The Commission scrapped its plans to propose the initiative earlier this year, under pressure from Washington.”

Timothy Taylor has rejoined Holland & Knight as a litigation partner, our Playbook colleagues report. He most recently was senior counsel for employment and investigations for the Treasury Department’s Office of the Special IG for Pandemic Recovery, and is a Labor Department alum.

THE YEAR OF CRYPTO — 2021 was the year of cryptocurrency, fintech companies and digital payments. That’s according to Morning Consult, which is out with a new report this morning on the fastest growing brands of 2021. Of the top 20, five companies are in the digital financial services space — Coinbase, Afterpay, Cash App, Chime and Bitcoin, with Coinbase seeing the biggest uptick in brand growth.

Other big brands of the year? Maybe not so surprising: Pfizer and Moderna made the list, along with TikTok and Paramount+.

CREATOR OF FACEBOOK’S EMBATTLED DIGITAL ASSET PROJECT TO LEAVE — Bloomberg’s Kurt Wagner: “David Marcus, one of the top executives at Meta Platforms Inc. and the co-creator of the yet-to-be-launched Diem digital currency, is leaving the company after seven years to pursue other projects. Marcus, who joined the Facebook parent company in 2014 from PayPal Holdings Inc., ran the Messenger service for years before moving over to form the company’s blockchain division in 2018.”