WASHINGTON- A full US economic recovery will not occur until the American people are sure that the novel coronavirus epidemic has been brought under control, Federal Reserve Chair Jerome Powell said as he began the first of two days of hearings before US lawmakers.
While recent signs of improvement including a surprise gain in employment and a record rise in retail sales last month are encouraging, the damage inflicted by forced economic shutdowns to curb the spread of the virus has left a very deep hole to fill, especially on the employment front, Powell said.
“Something like close to 25 million people have been displaced in the workforce, either partially or through unemployment and so we have a long road ahead of us to get those people back to work,” Powell told the Senate Banking Committee.
Fed Vice Chair Richard Clarida made clear that it’s not just the labor market the Fed is worried about.
Inflation expectations, already low at the start of the recession, are “at risk of falling below” the Fed’s 2 percent inflation goal, Clarida said in remarks prepared for delivery to the Foreign Policy Association in New York. “I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations.”
Falling inflation can drag on economic growth and make it harder for the central bank to stimulate the borrowing and spending that could pave the way for more hiring.
Both men largely echoed the cautionary tone Powell struck last week at the conclusion of the Fed’s latest two-day policy meeting, mapping out how the United States faces an uncertain, uneven and prolonged economic recovery from the health crisis.
The Fed kept interest rates unchanged near zero and made clear it plans years of extraordinary stimulus as the nation grapples with reopening its economy amid state and local surges in cases, and with no vaccine in sight.
The central bank currently forecasts the economy shrinking 6.5 percent in 2020, and Powell admitted on Tuesday that his colleagues “largely” did not assume a significant second wave of infections in making that assessment.
Millions of people have become unemployed as a result of the pandemic, which has killed more than 116,000 people in the United States, with minority communities among those hardest hit on both fronts. Powell was repeatedly asked how the Fed could mitigate the impacts of such racial inequality.
