The US is recovering faster than expected but economic rebound is far from complete, Fed’s Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The US economic recovery has progressed faster than expected, Fed Chair Jerome Powell said.
  • Still, a full recovery is far off and the Fed will keep support in place, he testified to Congress.
  • Today’s unemployment rate of 6.2% “underestimates the shortfall” in the labor market, Powell added.
  • See more stories on Insider’s business page.

Despite lower COVID-19 case counts, encouraging economic data, and an improved rate of vaccination, the US economy has plenty of work to do to fully recover, Federal Reserve Chair Jerome Powell said.

The US is nearing the end of the tunnel. Widespread vaccination suggests the country could have a grasp on the coronavirus’ spread by the summer – or sooner. Key indicators including nonfarm payrolls and manufacturing gauges also show sectors nearing or trending above their pre-pandemic levels. Democrats’ $1.9 trillion relief package stands to further accelerate growth coming out of lockdowns.

Still, government and Fed support are necessary to get the US back on track, Powell said.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” the central bank chief said in remarks prepared for testimony to the House Financial Services Committee on Tuesday. “But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”

Powell reiterated that the path of the recovery hinges on the trajectory of the virus, a message uttered by Fed officials since the pandemic made landfall in the US last year. For now, that trajectory looks promising. The country reported 55,621 new cases on Monday, according to The New York Times, down 8% from two weeks ago. Hospitalizations are down 16% from two weeks ago.

The steady decline in cases has lifted household spending on goods, but the services industry is still mired in a downturn. Sectors hit hardest by the virus “remain weak,” and the current unemployment rate of 6.2% “underestimates the shortfall,” Powell said.

The central bank announced last week it would keep interest rates near zero and maintain its pace of asset purchases. It also published a new set of quarterly economic projections that reflected a considerably more optimistic outlook than the December set.

Fed policymakers now expect the unemployment rate to fall to 4.5% by the end of 2021 instead of the prior estimate of 5%, and see full-year economic growth of 6.5% this year, up from the previous forecast of a 4.2% expansion.

The new estimates reflect the strong economic gains made since December, but the Fed still has its eye on those left behind, Powell said.

“We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit,” he added.

Powell is scheduled to testify alongside Treasury Secretary Janet Yellen at 12 p.m. ET on Tuesday. The two are then slated to appear before the Senate Banking Committee on Wednesday.

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Fed’s Powell says state and local governments are rebounding faster right now than during the financial crisis

Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
  • State and local government tax revenues have performed “better than expected,” Fed Chair Jerome Powell said.
  • Employment is still down by 1.3 million jobs, but school reopenings should bring back some payrolls, he added.
  • Expenses related to the pandemic are still murky and could present risks, the Fed chief said.
  • Visit the Business section of Insider for more stories.

One of the biggest laggards of the previous economic recovery is recovering better this time around, Federal Reserve Chair Jerome Powell said Wednesday.

The direct payments and expansion to unemployment benefits included in President Joe Biden’s $1.9 trillion relief plan are already among its most popular elements. But the inclusion of state and local government funding also addresses what many deem the biggest mistake of the 2009 stimulus package.

A lack of sufficient funding for governments allowed for budget shortfalls that forced job cuts and gutted social programs for years. Economists at JPMorgan estimated the absence of adequate aid slowed economic growth by an average of 0.26 points in the four years after the financial crisis.

The Fed feared a similar dynamic would emerge at the start of the COVID-19 recession, but data so far has been encouraging, Powell told the House Financial Services Committee on Wednesday.

“What we see is that revenues have performed better than expected. They’re about flat overall. Some states are down a lot, other states they’re actually up,” the central bank chief said.

Employment in state and local government is still down about 1.3 million payrolls. Yet many of those jobs are in education and school reopenings should lift that labor market, Powell said.

To be sure, the Fed chair avoided commenting on Democrats’ stimulus plan, noting central bank officials should stick to deliberating monetary policy and leave fiscal matters to lawmakers.

Certain areas remain murky. Fed policymakers “don’t have a great picture” of state and local governments’ expenses, Powell said, particularly those linked to the COVID-19 crisis like testing and vaccine distribution. Fiscal support passed in 2020 addressed some costs, but discrepancies across states make for a “complicated picture,” he added.

The Fed’s overall outlook, however, is fairly optimistic. Powell on Tuesday told the Senate Banking Committee that falling COVID-19 case counts and vaccine rollouts “offer hope for a return to more normal conditions later this year. He reiterated his positive view during the House hearing, saying the US is well on its way to reversing the pandemic’s impact.

“What I see is an economy where there is still a great deal of slack. I see the prospect of really significant progress as we put the pandemic behind us,” Powell said.

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