Jerome Powell Sees Easy-Money Policies Staying in Place--Update
February 23 2021 - 9:43AM
Dow Jones News
By Paul Kiernan
WASHINGTON -- Federal Reserve Chairman Jerome Powell reaffirmed
the central bank's commitment to maintaining easy-money policies
until the economy has recovered further from the effects of the
coronavirus pandemic.
"The economy is a long way from our employment and inflation
goals," Mr. Powell said in testimony to the Senate Banking
Committee, a statement he has repeated in recent weeks. The Fed
will therefore continue to support the economy with near-zero
interest rates and large-scale asset purchases until "substantial
further progress has been made," a standard that Mr. Powell said
"is likely to take some time" to achieve.
Mr. Powell delivered the Fed's semiannual monetary-policy report
to members of the committee Tuesday and is set to do the same
Wednesday at a hearing of the House Financial Services
Committee.
The hearings come as steady progress on vaccinations and
multiple rounds of fiscal stimulus have improved the outlook for
the economy, the Fed chief noted.
Daily coronavirus cases have fallen from their early-January
peak, and recent economic data including retail sales, industrial
production, hiring and service-sector activity have indicated
economic growth picked up in the new year after slowing in late
2020. Still, nearly a year after the crisis erupted in the U.S.,
the nation has about 10 million fewer payroll jobs than in February
2020.
Inflation also remains stuck below the Fed's 2% goal, a source
of long-running worry among policy makers.
Mr. Powell painted a brighter picture of the economy Tuesday
than the last time he appeared before lawmakers, Dec. 1. Covid-19
cases and deaths at the time were surging, parts of the country
were tightening lockdowns and public vaccination campaigns had not
yet begun, prompting Mr. Powell to warn that the outlook for the
economy was "extraordinarily uncertain."
The virtual appearances come as lawmakers are negotiating
President Biden's proposed $1.9 trillion coronavirus relief
package, which could prompt questions to Mr. Powell about his
assessment.
In recent appearances, the Fed chairman has stressed the role of
fiscal policy in fueling a recovery that has been faster than many
economists expected. But he has declined to recommend any specific
amount or type of government stimulus, and his prepared remarks
didn't address the question of whether he thinks more will be
needed.
With overnight interest rates near zero, the Fed has limited
room to cut them further to provide more stimulus. Officials have
often noted that Fed tools such as low rates and bond-buying are
poorly suited to provide targeted relief to the parts of the
workforce and economy hardest hit by the coronavirus pandemic.
These include women and minorities, low-wage workers and hard-hit
sectors including tourism, hospitality and leisure.
Mr. Powell could face questions about financial stability, in
particular about the risks that very low interest rates could fuel
asset bubbles and cause inflation to take off.
A quarterly financial-stability review by Fed staff economists
in January characterized the "vulnerabilities of the U.S. financial
system as notable," with asset valuations seen as elevated,
particularly in corporate bonds, according to minutes of the Fed's
policy meeting last month. That reflected more concern than
expressed in the staff's previous assessment, in November, which
characterized asset valuations as moderate.
But Mr. Powell played down such risks at a press conference
after that meeting, saying that the Fed's main priority should be
to address the economic distress caused by the pandemic. "I would
say that financial stability vulnerabilities overall are moderate,"
he said then.
The Fed's semiannual report delivered Tuesday said business
leverage "now stands near historical highs" and that insolvency
risks at small and midsize firms remain considerable.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
February 23, 2021 10:28 ET (15:28 GMT)
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