Federal Reserve chair Jerome Powell listens during a Senate banking committee hearing in Washington, DC, the US, December 1 2020. Picture: SUSAN WALSH/AP/BLOOMBERG
Federal Reserve chair Jerome Powell listens during a Senate banking committee hearing in Washington, DC, the US, December 1 2020. Picture: SUSAN WALSH/AP/BLOOMBERG

Washington — Federal Reserve chair Jerome Powell cautioned legislators that the US economy remains in a damaged and “extraordinarily uncertain” state despite progress made in the development of Covid-19 vaccines.

“Recent news on the vaccine front is very positive for the medium term,” Powell said during a hearing Tuesday before the Senate banking committee. “For now, significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.”

Powell also pointed with concern to the resurgence of the virus across the US and about the world.

“The rise in new Covid-19 cases, both here and abroad, is concerning and could prove challenging in the next few months,” he said.

Powell gave no immediate indication how the central bank may respond to those worries when it conducts its next policy meeting scheduled for December 15-16, though he reiterated that it would use all of its tools to help the economy recover.

Fiscal support

Responding to a question from Democratic Senator Sherrod Brown of Ohio, Powell said the Fed remained committed to using its tools for as long as necessary. In addition, he said more fiscal stimulus may be necessary, after the Cares Act proved key to supporting the economy through the pandemic.

In his testimony, Powell acknowledged that growth and the labour market had significantly rebounded since the second quarter of 2020, but that many Americans continued to suffer.

“Though we welcome this progress, we will not lose sight of the millions of Americans who remain out of work,” he said. He also said in response to questions that many small businesses are at risk of going out of business over the winter.

Fed, Treasury friction

The hearing was the first appearance of the Fed chair and Treasury secretary Steven Mnuchin together after they disagreed over the expiration of several emergency loan programmes set up after the pandemic hit in March.

Fed officials including Powell had pushed for the extension of all the central bank’s lending facilities, saying they served as critical backstops and restored market confidence. Most of the funds are scheduled to expire on December 31.

But some of the programmes have been sparsely used. These include the Main Street facility, which supports bank lending to mid-sized companies, as well as facilities to aid the corporate bond market and the debt of cash-strapped municipalities.

Mnuchin had announced that those Fed programmes must  sunset at the end of December, and asked the central bank to return unused funding authorised for the programmes by Congress.

The Fed responded — in a rare public fracture between the two institutions — that it “would prefer that the full suite of emergency facilities” remain as a backstop “for our still-strained and vulnerable economy”.

Even with the disagreement, Mnuchin praised Powell during the hearing and said the two had been speaking “constantly”.

Bloomberg 

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