Federal Reserve chair Jerome Powell. Picture: SUSAN WALSH/REUTERS
Federal Reserve chair Jerome Powell. Picture: SUSAN WALSH/REUTERS

Washington  — The US economic recovery remains “uneven and far from complete” and the path of America's economy continues to depend significantly vaccinations and the course of the virus, Fed chair Jerome Powell said on Tuesday.

While the health crisis in the country is improving and “ongoing vaccinations offer hope for a return to more normal conditions later this year,” Powell said, “the path of the economy continues to depend significantly on the course of the virus and the measures taken to control its spread.”

It will be “some time” before the Federal Reserve considers changing policies it adopted to help the country back to full employment,  Powell said  in remarks prepared for delivery to a Senate banking committee hearing on the state of the economy.

The US central bank's interest rate cuts and purchases of $120bn in monthly government bonds “have materially eased financial conditions and are providing substantial support to the economy"," Powell said.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” the hurdle the Fed has set for discussing when it might be appropriate to pare back support.

Powell's appearance in Congress comes at a significant juncture for the US economy, which is still reeling from the pandemic but could be poised to take off later in 2021 if the vaccination programme hits its stride.

The hearing before the Senate committee, one of the Fed chief's mandated twice-a-year appearances on Capitol Hill, is Powell's first since Democrats won the White House and control of both chambers of Congress.

After his opening remarks, Powell will field questions from senators, who are likely to focus on the tension between a pandemic that has claimed nearly half a million US lives and left millions unemployed, and an economy flush with savings and central bank support, and about to get a fresh gusher of federal spending.

Inflation debate

The growing likelihood that Congress will pass President Joe Biden's $1.9-trillion stimulus plan has raised concerns about a possible spike in inflation and overheating in asset markets, but Powell's message to legislators will likely be a familiar one: don't let off the pedal.

Even with Americans being vaccinated at a rate of more than 1.5-million a day and coronavirus caseloads dropping, Powell and his fellow Fed policymakers are focused instead on the nearly 10-million jobs missing from the economy compared with a year ago, and the potent risks still posed by the virus.

They've pledged to keep interest rates low and use other monetary policy tools to speed up a labour market recovery. Two weeks ago, Powell pushed for a “society-wide commitment” to that goal — a nudge to legislators debating Biden's stimulus plan.

The scale of the proposed stimulus, coming on the heels of about $4-trillion in federal aid and heavy bond purchases by the Fed in 2020, has flustered inflation hawks and stoked criticism that the US central bank has boosted prices of stocks and other assets to unsustainable levels.

Fed officials are united on that front. They don't think inflation is a risk, and regard much of the recent rise in stock prices, for example, as a sign of markets' confidence in a post-pandemic economic rebound, not an artificial run-up fuelled by cheap money.

The hearing on Tuesday, which will be followed by Powell's appearance before the House of Representatives financial services committee on Wednesday, may also provide a gauge of his prospects of remaining Fed chief when his current four-year term expires early in 2022.

Biden will have to decide in the coming months whether to reappoint Powell, who was chosen for the job by former president Donald Trump. The nomination is subject to Senate ratification.


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