USA TODAY US Edition

Powell: Another surge puts boom at risk

Fed chairman says US is on the cusp of recovery

- Paul Davidson

The biggest risk to the Federal Reserve’s forecast for an economic boom this year is another surge in COVID-19 cases, Fed Chair Jerome Powell said Wednesday.

“The main risk is that we’ll have another spike in cases,” Powell said in an interview at the Economic Club of Washington, D.C. Powell has said that could happen if states reopen or loosen curbs too rapidly. Such a surge could force states to reinstate business restrictio­ns and discourage Americans from dining out, visiting stores and traveling in growing numbers.

Yet Powell generally appeared confident the nation will avoid that outcome and is on the verge of roaring growth, repeating his assertion, broadcast Sunday on CBS’s “60 Minutes,” that the economy is at “an inflection point.”

“I think we’re going into a period of faster growth and high job creation,” he said. Last month, Fed officials projected the economy will grow 6.5% this year, the most since 1984, and many economists are forecastin­g 7 million job gains.

New daily COVID-19 cases have crept higher recently, topping 75,000 this week, a rise that health officials have attributed to spring break-related gatherings and a dramatic relaxation of business constraint­s in some states. That’s below the peak of about 300,000 in January but above averages of about 60,000 a month ago and 40,000 in late summer.

The nation already has endured surges at the start of the crisis a year ago, as well as in the summer and late fall.

Most of the increase is coming from a few Midwestern states, including Michigan, Minnesota and Illinois, according to Ian Shepherdso­n, chief economist of Pantheon Macroecono­mics. Yet none of those states plans to roll back their reopenings, “relying instead on increasing vaccinatio­n rates and warmer weather to contain the spread” of a virus variant, Shepherdso­n wrote in a note to clients.

Thirty-five percent of the population has had at least one COVID-19 vaccine shot and 60% will have been vaccinated by late May, Shepherdso­n says, likely enough to provide the country “nearherd immunity.” That would make the significan­t person-to-person spread of COVID-19 highly unlikely.

“Pockets of infection will remain in communitie­s with low vaccinatio­n rates, but the national crisis will be over, and the economy will be fully open,” Shepherdso­n wrote.

Powell attributed the anticipate­d

economic burst to growing vaccinatio­ns, the Fed’s low-interest rates and unpreceden­ted aid from Congress, which has passed $2.8 trillion in COVID-19 relief packages since December and nearly $6 trillion since the pandemic began a year ago. The measures pushed the budget deficit to a record $1.7 trillion in the first half of fiscal 2021 and helped swell the national debt to $28 trillion.

Theoretica­lly, growing deficits could push up long-term interest rates and hurt the economy but borrowing costs remain historical­ly low despite a recent rise in mortgage rates.

“The current level (of debt) is very sustainabl­e,” Powell said, repeating that “this is not the time” to reduce fiscal spending and whittle the national debt.

Powell reiterated that the Fed plans to hold its key interest rate near zero and

vowed to keep it there until inflation rises moderately above the Fed’s 2% target “for some time.”

He said the central bank plans to keep buying $120 billion a month in Treasury bonds and mortgage-backed securities to hold down long-term rates until “substantia­l progress” has been made toward full employment.

Although the Fed expects the 6% unemployme­nt rate to fall to 4.5% by the end of the year, the crisis is expected to leave lingering damage.

Millions of Americans have been unemployed for more than six months, making it tougher for them to get hired, and millions more have dropped out of the labor force. Many jobs have been replaced by automation, Powell said.

“We need to be thinking about” how to help those workers “find their way back to the working lives they had.”

“I think we’re going into a period of faster growth and high job creation.” Fed Chairman Jerome Powell

 ?? PATRICK SEMANSKY/AP ?? Federal Reserve Chairman Jerome Powell is confident that the economy is at “an inflection point.”
PATRICK SEMANSKY/AP Federal Reserve Chairman Jerome Powell is confident that the economy is at “an inflection point.”

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