Fed chair Powell focuses on need at delicate time in markets, politics
The American economy remains far from healed and the Federal Reserve is in no hurry to dial back its support, Jerome Powell, the central bank’s chair, told lawmakers during a closely watched hearing Tuesday.
It’s a pledge Powell has made many times in the last 11 months, but Tuesday it came against a tense backdrop: As Democrats try to move a $1.9 trillion relief package through Congress, Republicans argue that it's too big and could lead to inflation that would hurt consumers and businesses. Markets have also begun to quiver, as investors worry that an overheating economy will prompt the Fed to pull back on its efforts to bolster growth.
Speaking before the Senate Banking Committee, Powell declined to weigh in on the Biden administration’s spending plans but pushed back on the idea raised by multiple Republican senators that the economy is on the cusp of running too hot. The economy is down nearly 10 million jobs since last February, inflation has been too low rather than too high in recent decades, and prospects for a rapid recovery — while brighter — remain far from assured, he said.
“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Powell said. “There is a long way to go.”
The Fed plans to hold interest rates near zero, where they have been since March, while continuing to buy government-backed bonds at a pace of $120 billion a month as it waits for the economy to heal. Investors have grown concerned that the Fed might slow those bond purchases sooner rather than later if inflation begins to rise.
Fed officials have been clear that they do not expect inflation to pick up in a lasting way and that they plan to look past temporary increases when thinking about their policies. Price pressures have been stubbornly tepid, rather than too high, for decades and across many advanced economies.
Powell said Tuesday that longer-running inflation trends do not “change on a dime” and that if prices start to rise in an alarming way, the Fed has the tools to fight that.
“I really do not expect that we’ll be in a situation where inflation rises to troubling levels,” Powell said. “This is not a problem for this time, as near as I can figure.”