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Federal Reserve Chairman Jerome Powell warned on Tuesday that the United States has a “long way” to go to regain full employment, even as he expressed cautious optimism about the economic recovery of the pandemic this year.
At the same time, Powell has avoided commenting on the level of federal support needed for the economy as Congress prepares to vote on President Biden’s $ 1.9 trillion bailout for battered families and businesses. by the slowing down of the coronavirus.
In testimony before the Senate Banking Committee, Powell also rebuffed fears that inflation could become a threat, as Republicans – and even some Democrats – warn Biden’s plan is excessive and could overheat the U.S. economy. .
“While we should not underestimate the challenges we currently face, the developments indicate an improving outlook for later this year,” said Powell.
“Once we get this pandemic under control, we could overcome it much faster than we feared, and that would be great,” he added, referring to a sharp drop in new infections in recent weeks. and the deployment of vaccinations.
Powell warned, however, that millions of people are still unemployed, especially in hard-hit service industries like restaurants and hotels.
“The economy is far from our targets for jobs and inflation, and it will likely take time for further substantial progress to be made,” said Powell.
During Powell’s appearance, Republicans on the committee wondered what additional government assistance the economy needs.
“We are well beyond the point where our economy is collapsing,” said Senator Pat Toomey, R-Pa. “The last thing we need is a massive, multi-trillion dollar universal spending bill.”
Powell reiterated his belief that the price hikes are unlikely to pose a significant threat, without getting into Biden’s plan.
“The dynamics of inflation change over time, but they don’t change all at once,” Powell said.
Inflation has consistently been below the central bank’s 2% annual target, and prices fell sharply in the early months of the pandemic.
“You could see the spending increase 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 does not seem likely that this would lead to very large increases or that they will be persistent.”
While the Fed does not anticipate a lasting rise in inflation, Powell stressed that he and his colleagues have the tools to deal with any surprises.
“Forecasters have to be humble and have a lot of reason to be humble, frankly,” he said. “If it turns out that unwanted inflationary pressures do arise and persist, then we have the tools to address them, 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 increase the federal minimum wage to $ 15 an hour.
Senator Tim Scott, RS.C., asked Powell about a Congressional Budget Office report that predicted the minimum wage would raise the wages of about 27 million Americans, but also cost $ 1.4 million. jobs.
Powell said that while economists generally assume minimum wage policy involves a trade-off between wage increases and job losses, the relationship is nuanced and he refused to be drawn into the political debate.
“This is a classic issue the Fed never takes a position on,” Powell said.