Economy Is Showing Sustained Progress, Powell Says

WASHINGTON – Federal Reserve Chairman Jerome Powell said Monday that employment growth should pick up in the coming months and temporary inflationary pressures should ease as the economy continues to recover from the effects of the pandemic.

“The economy has improved sustainably,” Powell said in a testimony prepared for Tuesday on Capitol Hill, pointing to advances in vaccinations and extensive stimulus measures by Congress and the Fed.

Mr Powell is expected to appear before the House of Representatives Subcommittee on Coronavirus Crisis to discuss the Fed’s efforts to prop up the economy since the pandemic began.

The hearing is meant to focus on the lessons of the Fed, which launched a spate of exceptional loan programs at the beginning of the health crisis. This included efforts calm market turbulence, suppress Loan fees and borrow money directly to some companies and local governments. The programs were discontinued at the end of 2020.

Mr. Powell said the loan programs “helped unlock more than $ 2 trillion in funding” that reduced job losses at corporations, nonprofits and local governments.

He is also likely to ask questions about the Fed’s monetary policy, which is aimed at supporting the economic recovery.

The Fed has kept its key interest rate near zero since March 2020 and has been buying government bonds and mortgage bonds worth $ 120 billion since June 2020.

Mr Powell’s remarks on Monday largely mirrored his comments at a press conference last week following a political meeting at which Fed officials signaled they did expect interest rates to rise earlier than previously expected amid a strengthening recovery and higher inflation.

They said they expect the Fed to raise the overnight rate by half a percentage point by the end of 2023. They also started with preliminary considerations to eventually slow the pace of bond purchases.

The bond purchases are aimed at keeping longer-term interest rates down in order to encourage American consumers and businesses to borrow and spend.

While economic output will grow as fast as it has in decades this year, Powell said in his remarks for Tuesday, the labor market is improving at an uneven pace.

“Employment gains should accelerate in the coming months as vaccinations increase and mitigate some of the pandemic-related factors that are currently burdening them,” Powell said. He added that a recent spike in inflation should similarly ease as pandemic-induced supply shortages disappear.

Mr Powell warned that the pandemic continues to pose a risk to the economy as vaccination rates have slowed and new strains of the virus emerge.

“Continuous advances in vaccinations will help a return to more normal economic conditions,” he said.

Federal Reserve Chairman Jerome Powell described the inflation outlook for the US economy, saying there are signs that prices, which have been rising rapidly, should stop rising and retreating. Photo credit: Al Drago / Associated Press

Write to Paul Kiernan

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