US Economy Healing But Not Fully Recovered: Federal Reserve Chief | Business and economic news
Jerome Powell says the “high” unemployment rate of 6.2% “underestimates the deficit”, pointing to stimulus policies.
The US economy “has improved a lot,” Federal Reserve Chairman Jerome Powell said, acknowledging Congress and the central bank for their “unprecedented” support, while warning that the recovery is still ” far from over ”.
“The recovery has progressed faster than expected and appears to be strengthening,” Powell said in remarks prepared for a hearing before Congress on Tuesday morning. Household spending has increased, he said, and the housing sector has more than fully recovered.
“However, the sectors of the economy most affected by the resurgence of the virus and greater social distancing remain weak, and the unemployment rate – still high at 6.2% – underestimates the deficit, all the more so more that labor market participation remains significantly lower pre-pandemic levels, ”he said. “The recovery is far from over, so at the Fed we will continue to provide the economy with the support it needs for as long as it takes.
Powell’s prepared remarks reflected the tone of cautious optimism he has struck in recent weeks amid indications that a recovery is strengthening.
Federal Reserve policymakers and many private forecasters expect spending and economic growth to increase in the coming months, as more Americans get vaccinated and venture out. But last week the US central bank kept interest rates close to zero where they had been for a year and the majority of its policymakers continued to see them stay there until 2023.
In its forecast released last week, the Federal Reserve forecast the economy to grow 6.5% in 2021. That would be the fastest pace since 1983, based on the fourth quarter growth rate compared to the same three months one year earlier. follow a 2.4% contraction in 2020 due to the pandemic.
Policymakers in Congress are sure to raise questions about the potential risks – mainly of rising inflation – of the Federal Reserve’s super-stimulating policies to Powell.
This policy includes buying bonds at a rate of $ 120 billion per month until the central bank sees “further substantial progress” towards its goals of full employment and inflation. Powell noted that low-wage workers, African Americans, Hispanics and other minority groups are among those still suffering.
Powell said last week that it was not yet time to start talking about cutting back on the Federal Reserve’s bond buying program. Although Federal Reserve policymakers expect robust growth to help heal the job market, there is still a great void to be filled, with the U.S. economy still falling millions of jobs below what ‘she was before the crisis.
And while policymakers see inflation soar to 2.4% this year as people rush to spend their pent-up savings, these price hikes are not expected to last long. This will allow the Federal Reserve to keep its foot on the monetary policy accelerator for longer.
Tuesday’s hearing will mark Powell’s first joint appearance with Treasury Secretary Janet Yellen, his predecessor as Federal Reserve chairman, since it was confirmed earlier this year. The two will appear before the Senate Banking Committee on Wednesday.
Powell’s previous three rounds of Congressional updates on the Federal Reserve and Treasury pandemic relief efforts were with Steven Mnuchin, who led the Treasury in the Trump administration. Indeed, Yellen could gain much of the attention of policymakers, especially following President Joe Biden’s $ 1.9 trillion economic relief plan that was passed earlier this month on a strictly partisan vote in both houses of Congress.
In this week’s testimony, Powell reiterated the Fed’s commitment to use “our full suite of tools to support the economy and help ensure that the recovery from these difficult times will be as robust as possible.”