Federal Reserve Chairman Jerome Powell warned on Tuesday the United States has a "long way" to go to return to full employment, even as he expressed cautious optimism that the economy will recover from the pandemic this year.
At the same time, Powell avoided commenting on the level of federal support needed for the economy as Congress prepares to vote on President Biden's $1.9 trillion dollar rescue package for families and businesses battered by the coronavirus downturn.
In testimony before the Senate Banking Committee, Powell also pushed back against concerns that inflation will become a threat, as Republicans – and even some Democrats - warn that Biden's plan is excessive and could overheat the U.S. economy.
"While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year," Powell said.
"Once we get this pandemic under control, we could be getting through this much more quickly than we had feared, and that would be terrific," he added, referring to a sharp decline in new infections in recent weeks and the rollout of vaccinations.
Powell cautioned, however, that millions of people are still out of work, especially in hard-hit service industries like restaurants and hotels.
"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," Powell said.
During Powell's appearance, committee Republicans questioned how much additional government help the economy needs.
"We are well past the point where our economy is collapsing," said Sen. Pat Toomey, R-Pa. "The last thing we need is a massive, multi-trillion dollar universal spending bill."
Powell reiterated his belief that price hikes are unlikely to be a significant threat, without wading into Biden's plan.
"Inflation dynamics do change over time but they don't change on a dime," Powell said.
Inflation has consistently fallen short of the central bank's 2% annual target, and prices fell sharply in the early months of the pandemic.
"You could see spending pick up pretty substantially in the second half of the year and that would be a good thing of course, but it could also put upward pressure on prices," Powell said. "It doesn't seem likely that that would result in very large increases or that they would be persistent."
While the Fed does not anticipate a lasting spike in inflation, Powell stressed that he and his colleagues have the tools to address any surprises.
"Forecasters need to be humble and have a great deal to be humble about, frankly," he said. "If it does turn out that unwanted inflation pressures arise and they're persistent, then we have the tools to address that, and we will."
Biden's rescue package includes direct payments of $1,400 to most Americans, expanded unemployment benefits and federal aid to cities and states. It would also gradually raise the federal minimum wage to $15 an hour.
Sen. Tim Scott, R-S.C., questioned Powell about a report from the Congressional Budget Office which forecast the minimum wage provision would boost pay for an estimated 27 million Americans, but would also cost 1.4 million jobs.
Powell said while economists typically assume that minimum wage policy involves some trade-off between pay increases and job losses, the relationship is nuanced, and he declined to be dragged into the policy debate.
"This is a classic issue that the Fed never takes a position on," Powell said.
MARY LOUISE KELLY, HOST:
If authorities are successful in getting control of the pandemic - that was the guardedly optimistic forecast today from Federal Reserve Chairman Jerome Powell. The central bank leader cautioned the outlook is still uncertain. He cautioned it's going to take time for the millions of people out of work because of the pandemic to get back to work. Powell spoke to lawmakers as they are considering President Biden's proposal to prop up the economy with another 1.9 trillion in federal spending. NPR's Scott Horsley joins us now.
Hey there, Scott.
SCOTT HORSLEY, BYLINE: Hi, Mary Louise.
KELLY: So a lot of ifs there, but it sounds on the whole the federal chairman was pretty upbeat, considering everything the country, everything the economy has been through this last year.
HORSLEY: He was. There were lots of qualifiers - full employment still a long way off. There are about 10 million fewer people on company payrolls now than there were before the pandemic. And there's still the threat that those new variations of the virus could create new problems. But Powell talked about the sharp drop in new infections in recent weeks, the rollout of vaccines that's starting to accelerate. And he says all that offers hope of a much more normal level of economic activity later this year.
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JEROME POWELL: Once we get this pandemic under control, we could be getting through this much more quickly than we had feared, and that would be terrific. But it's not done yet. The job is not done.
HORSLEY: Now, Powell did note again that the financial fallout of this pandemic has been worst for those who can least afford it. You know, it's disproportionately affected low-income workers, Black and Latino workers and women, especially those who work in in-person services like restaurants and travel.
KELLY: An important point to keep remembering. Do we know, Scott, how Powell's forecast might affect the debate over the rescue package that the president wants?
HORSLEY: Well, Democrats on the Senate banking committee he was testifying before underscored the lingering weaknesses that he talked about as a reason to support the president's bill. Republicans on the committee seized on the rebound in the economy to say additional spending is unnecessary. Here, for example, is Republican Senator Pat Toomey of Pennsylvania.
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PAT TOOMEY: We are well past the point where our economy is collapsing. And in fact, our economy is growing very powerfully. The last thing we need is a massive multitrillion-dollar universal spending bill.
HORSLEY: Now, Powell himself took pains to stay out of that debate. He said repeatedly that it's up to Congress and not the Federal Reserve to make decisions about federal spending. And he stuck to that line no matter how much lawmakers tried to rope him in. Take a listen to this exchange with Louisiana Senator John Kennedy.
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JOHN KENNEDY: So your opinion is if we don't pass the bill, you're cool with that.
POWELL: Well, that is - that would be expressing an opinion.
KENNEDY: Well, would you be uncool with that?
POWELL: (Laughter) I think by being either cool or uncool, I would have to be expressing an opinion.
HORSLEY: And throughout the hearing, Powell studiously avoided doing that.
KELLY: We certainly could hear that. Well, would he be cool with this - this question of whether the Biden bill is just too big? That's something we've heard from Republicans. We've heard it from some Democrats. They say it could lead to inflation. It could put too much pressure on the economy. What does Powell say?
HORSLEY: Yeah, he says runaway prices are just not a big concern for the Federal Reserve right now. For years, the Fed's been worried about prices that are too low rather than too high. The Fed's goal is to have inflation around about 2% per year. It's been well short of that for a long time.
Now, Powell does say it's possible we could see temporary price hikes later this year, especially if people do start feeling safer and going out and traveling and spending money more freely. But he's not really worried about that. And he also tried to reassure lawmakers that if inflation should pop up by surprise, that the Fed has the tools it needs to deal with it.
KELLY: Thank you, Scott.
HORSLEY: You're welcome.
KELLY: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.