Federal Reserve Chair Jerome Powell emphasized the damage the economy has suffered due to the pandemic and stressed that there was still a long way to go to a full recovery.
“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Powell said in testimony to the Senate Banking Committee.
Powell said that Fed will continue to support the economy with ultralow interest rates and large-scale bond purchases until “substantial further progress has been made.” He added that a full recovery “is likely to take some time.”
Several times in his testimony, Powell mentioned that the labor market was still 10 million jobs smaller than it was prepandemic. And he dismissed inflation risk, saying a sustained rise in prices above the Fed’s target is unlikely.
Stocks rallied on Powell’s testimony. By emphasizing the weakness of the economy and saying inflation remains soft, Powell out to rest fears of a policy shift toward raising rates following this month’s rise in bond yields.
Some prominent economists have warned that the Biden administration’s spending plans risk overheating the economy. Powell declined to state whether he is in favor of the Biden administration’s $1.9 trillion spending bill but did say some fiscal expansion would help the recovery.
“I have consistently not taken a position on this bill,” Powell said.
“So your opinion is that if we don’t pass the bill, you’re cool with that?” asked Senator John Kennedy (R-La.).
“That would be taking a position which is what I said I am not doing,” Powell said.
Powell’s focus on the weakness of the economy is at odds with the increasing optimism among many analysts that the economy will grow rapidly later this year. Most economists say they think the Fed’s continued low rates, further government financial aid, and progress in combating the viral pandemic could create a mini-economic boom as soon as this summer. Goldman Sachs thinks the economy will grow at an 11 percent rate in the second quarter and 6.8 percent for the full year.
Powell acknowledged the potential for a healthier economy. But he stressed the personal hardships caused by the pandemic, especially for unemployed Americans.
“As with overall economic activity, the pace of improvement in the labor market has slowed,” Powell said. “Although there has been much progress in the labor market since the spring, millions of Americans remain out of work.”
Powell’s focus on the economy’s challenges reflects his reluctance to send any signal that the Fed is considering pulling back on its efforts to boost economic growth and hiring. The Fed cut its benchmark short-term interest rate to nearly zero last March in response to the pandemic recession. It is also purchasing $120 billion a month in bonds in an effort to hold down longer-term rates.
—The Associated Press contributed to this report.