WASHINGTON – Federal Reserve Chairman Jerome Powell reaffirmed the central bank’s commitment to maintaining light money policies until the economy recovers from the effects of the coronavirus pandemic.
“The economy is far from our employment and inflation targets,” Powell told the Senate Banking Committee, a statement he reiterated in recent weeks. Therefore, the Fed will continue to support the economy with near-zero interest rates and large-scale asset acquisitions until “substantial further progress” is made, a standard that Mr. Powell said would “take some time” to he touches it.
Mr Powell forwarded the Fed’s six-monthly monetary policy report to committee members on Tuesday and is due to do the same on Wednesday at a hearing of the House Financial Services Committee.
The hearings took place as steady progress in vaccinations and multiple rounds of fiscal incentives improved the outlook for the economy, the Fed chief said.
Daily coronavirus cases have declined from their peak in early January, and recent economic data, including retail sales, industrial production, employment and service activity, have shown increased economic growth in the new year, following a slowdown in late 2020. Consumer confidence in the U.S. rose in February for the second month in a row as Americans grew more optimistic about current business and labor market conditions, the Conference Board reported Tuesday. However, almost a year after the crisis broke out in the US, the nation has 10 million fewer paid jobs than in February 2020.
Inflation also remains below the Fed’s 2% target, a source of long-term concern among policy makers.
Mister. Powell painted a brighter picture of the economy on Tuesday than the last time he appeared before lawmakers on Dec. 1. Covid-19 cases and deaths at the time were on the rise, with parts of the country stifling blockages and public vaccination campaigns had not yet begun, prompting Mr Powell to warn that the outlook for the economy was “extremely uncertain”.
The virtual appearances take place as lawmakers negotiate President Biden’s $ 1.9 trillion package to save the coronavirus, which could raise questions for Mr Powell about his assessment.
In recent appearances, the Fed chairman stressed the role of fiscal policy in fueling a recovery that was faster than many economists expected. But he declined to recommend any specific amount or type of government stimulus, and his prepared remarks did not address the issue of whether he thought more would be needed.
Senator John Kennedy (R., La.) Asked Mr. Powell if it would be “great with” Congress not to pass Mr. Biden’s stimulus package.
“I think, whether it’s cool or bad, I should express my opinion,” Mr. Powell said. “As I said, it is not appropriate for the Fed to play a role in these fiscal talks.”
While reiterating his view that reducing the federal budget deficit would be necessary at some point in the future, he added that achieving a full economic recovery should be the top priority right now.
With overnight interest rates close to zero, the Fed has limited space to cut them further to provide more stimulus. Officials have often noted that Fed instruments, such as low rates and bond purchases, are ill-suited to provide specific relief to the parts of the workforce and economy most affected by the coronavirus pandemic. These include women and minorities, low-wage workers and affected sectors, including tourism, hospitality and leisure.
Mr Powell also faced a number of questions about financial stability, in particular the risks of very low interest rates fueling asset bubbles and causing inflation to decline.
A quarterly review of financial stability by Fed staff economists in January characterized “US financial system vulnerabilities as notable,” with asset valuations considered high, especially in corporate bonds, according to the minutes of last month’s Fed policy meeting. This reflected more concern than that expressed in the previous staff valuation in November, which characterized asset valuations as moderate.
But Mr Powell downplayed such risks at a news conference after that meeting, saying the Fed’s top priority should be to address the economic suffering caused by the pandemic. “I would say that vulnerabilities to financial stability in general are moderate,” he said at the time.
The Fed’s half-yearly report was released on Tuesday, according to which the business leverage “now rises to historic highs” and that the risks of insolvency for small and medium-sized companies remain considerable.
Noting that asset bubbles triggered recessions in 2001 and 2007-09, Sen. Pat Toomey (R., Pa.), The group’s top Republican, asked Mr. Powell if he saw a connection between high asset prices and Fed facilities. monetary policies.
“There’s definitely a connection,” Mr. Powell said. “I would say, however, that if you look at the markets, it’s an economy that is reopening with vaccination, it’s a fiscal stimulus, it’s an extremely accommodative monetary policy, it’s savings accumulated in people’s balance sheets, it’s expectations of corporate profits much … So there are many contributing factors. ”
Write to Paul Kiernan at [email protected]
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