Powell Stays With Message of Uncertain Path on Economic Recovery

Federal Reserve Chairman Jerome Powell offered another restrained assessment of positive economic news, choosing again to emphasize the U.S. economy has a long way to go before it reverses the substantial damage done by the coronavirus pandemic.

“Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity,” Powell said Tuesday in the prepared text of testimony he delivered via video-conference before the Senate Banking Committee.

“That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” he added.

The Fed has since mid-March lowered interest rates to near zero, purchased trillions in bonds to settle panicked credit markets and unveiled nine emergency lending programs to help households, companies, states and local governments battle through hardships created by the pandemic.

Powell reviewed the steps the central bank has taken and repeated that policy makers are “committed to using our full range of tools to support the economy in this challenging time.”

The chair’s remarks came on the heels of surprisingly good data on consumer demand released earlier Tuesday. The Commerce Departments said U.S.retail sales rose in May by a better-than-expected 17.7%, the biggest jump in data going back to 1992. That follows a 14.7% slump in April.

The May payrolls report, out June 5, also came in unexpectedly strong. But just as he did after that report, Powell nodded to the good news and then reminded Americans that much remains unclear about the fledgling recovery.

“Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it,” he said. “Until the public is confident that the disease is contained, a full recovery is unlikely.”

He repeated that the weeks of economic disruption as a result of the pandemic risk causing long-term scars — by leaving millions out of work for an extended period and by destroying small businesses.

Heart of Economy

“If a small or medium-sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business,” he said. “These businesses are the heart of our economy and often embody the work of generations.”

Projectionsreleased last week showed Fed officials expect the U.S. economy to contract by 6.5% this year, followed by 5% growth next year.

Those forecasts fit well with Powell’s remarks, anticipating a long, steady struggle for the U.S. economy, as opposed to a rigorous rebound. For example, policy makers’ median projections pointed to unemployment ending this year at 9.3%, and declining slowly to 6.5% by the end of 2021.

Worsen Inequality

Powell made two points related to race and inequality, first by noting the disproportionate impact of job losses on low-income Americans and minorities.

“If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing,” he said.

Unusual for a Fed chair, he also came back to subject of race at the end of his remarks, making reference to the recent national debate over police brutality and racial inequality.

“I speak for my colleagues throughout the Federal Reserve System when I say, there is no place at the Federal Reserve for racism and there should be no place for it in our society,” he said. “Everyone deserves the opportunity to participate fully in our society and in our economy.”

— With assistance by Craig Torres, Rich Miller, and Catarina Saraiva

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