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Fed Chairman Vows to Keep Supporting Economic Recovery

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What You Need to Know

  • The Fed will continue $120 billion in monthly bond purchases and communicate any change.
  • Powell doesn't expect any large and persistent increases in inflation; some pickup will be temporary.
  • Powell says getting the pandemic under control is needed for the economy to reopen.

Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on Tuesday that the economic recovery “remains uneven and far from complete,” and the job of the Fed to support it will not be finished until the pandemic is under control.

“Once we get this pandemic under control, we could be getting through this much more quickly than we had feared. … It’s not done yet. The job is not done. … That’s the thing I keep coming back to. We’ve got to get the pandemic under control so the U.S. economy can reopen,” Powell said.

In the meantime, the Federal Reserve will continue to purchase $120 billion in Treasurys and mortgage-backed securities every month and maintain near-zero short-term interest rates, according to Powell. He said the Fed will “clearly communicate” any changes in its assessment of the economic progress “well in advance of any change in the pace of purchases.”

Powell noted that 10 million more Americans are unemployed today than were before the pandemic hit, just over a year ago, and job creation has increased at an average monthly rate of “only 29,000” over the three months ending in January. The national unemployment rate was 6.3% in January — less than half the record 14.7% reached in April — but it tops 20% among the bottom quartile of income earners, Powell said. “There’s a long way to go.”

When asked by senators about the Fed’s outlook for inflation, Powell said inflation will pick up because of the “base effects” of comparing current rates with those of a year ago, but that will be temporary. Even a substantial pickup in spending in the second half of the year, which many expect, is not likely to result in large or persistent increases in inflation, Powell said.

He noted that U.S. inflation has remained below the Fed’s 2% target over the last 24 years and that inflation doesn’t “change on a dime.” If inflation does rise higher than expected, the Fed has the tools to deal with it, Powell said.

The Fed chairman declined to offer his opinion of the pending $1.9 trillion economic relief bill that Congress could vote on as early as this week, including a provision to raise the minimum wage, which may not make it into the final bill.

“I have consistently not taken a position on this bill,” said Powell, noting that the Fed also didn’t comment on the 2017 tax cut legislation. “That’s not our role.”

Asked about the Fed’s plans to extend an exemption to certain bank capital requirements, known as the supplementary leverage ratio (SLR), which were loosened when the pandemic hit but are set to expire March 31, Powell said the Fed is making that decision and will announce it “pretty soon.”

He said the Fed, like other central banks around the world, is “looking very carefully” at whether to issue a digital currency, which raises “significant technical and policy questions,” especially since the U.S. dollar is the world’s reserve currency.

“We need to get it right. We don’t need to be first,” said Powell, noting that the study of a digital dollar is a “high-priority project.”

Pictured: Federal Reserve Chairman Jerome Powell. (Photo: Bloomberg)