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Saturday, July 13, 2024

Powell warns COVID-19 remains a risk for America’s economy

The Fed Chief says trying to restore businesses too quickly could be a disaster
Federal Reserve Chair Jerome Powell (Al Drago/The New York Times via AP, Pool)

The U.S. economy is poised for an extended period of strong growth and hiring, the chair of the Federal Reserve said in an interview broadcast Sunday, though the coronavirus still poses some risk.

Chair Jerome Powell, speaking to CBS’ “60 Minutes,” also said that he doesn’t expect to raise the Fed’s benchmark interest rate, currently pegged at nearly zero, this year. And he downplayed the risk of higher inflation stemming from sharp increases in government spending and expanding budget deficits.

“We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming in much more quickly,” Powell said. “This growth that we’re expecting in the second half of this year is going to be very strong. And job creation, I would expect to be very strong.”

In the wide-ranging interview, Powell said that the Fed is closely studying the development of a digital dollar, but hasn’t yet made a decision on whether to proceed. Powell said last month that the central bank wouldn’t issue a digital currency without approval from Congress.

Powell noted that roughly a million jobs were added in March, when revisions to jobs data in January and February are included. The unemployment rate fell to 6% from 6.2%.

“We would like to see a string of months like that,” he said. “That is certainly in the range of possibility.”

Still, there are about 8.4 million fewer jobs than before the pandemic, and Powell acknowledged that he regularly sees a homeless encampment near the Fed’s headquarters in Washington.

“There’s a lot of suffering out there still,” he said. “And I think it’s important that, just as a country, we stay and help those people. The economy that we’re going back to is going to be different from the one that we had.”

Powell also said the primary risk to the economy remains the pandemic and a breakdown in precautions that Americans have largely taken for the past year.

The risk ”is that we will reopen too quickly, people will too quickly return to their old practices, and we’ll see another spike in cases,” he said. “The economy should move ahead. But it can move ahead more quickly to the extent we keep the spread of COVID under control.”

Separately, House Speaker Nancy Pelosi was asked Sunday whether Powell’s bullish comments about the economy meant that additional government support for the economy, such as President Joe Biden’s $2.3 trillion infrastructure proposal, was no longer needed.

“No,” Pelosi said. “In fact, if you listen very closely to what he said, we’re at a place where we will ‘begin to see.’ … And then he also cautions against a surge in the virus. If we’re going to grow the economy with confidence, we’ve got to crush the virus.”

Powell, on “60 Minutes,” also underscored that the recovery remains highly uneven in the U.S., with the unemployment rate among the lowest-paid one-quarter of Americans still roughly 20%, with the disparity falling especially heavily on African Americans and Hispanics.

The Fed chair also reiterated the central bank’s threshold for raising its short-term rate: a fully healed labor market where nearly everyone who wants a job can find one, inflation at 2% and on track to remain “moderately above 2% for some time.”

Achieving those goals and raising rates this year is “highly unlikely,” Powell said, though he otherwise refused to discuss the timing of a liftoff. Instead, he emphasized that a hike will only come when the employment and inflation conditions are met.

With the Biden administration’s infrastructure plan following the $1.9 trillion rescue package approved by Congress last month, worries about a potential pickup in inflation have grown among some economists. Powell, however, noted that there were large government deficits after the 2008-2009 financial crisis, “and inflation didn’t really react to that.”

Powell did say the budget deficit would eventually have to be reduced, but not until the economy has fully rebounded.

“The time to do that is when the economy is strong and we’re fully recovered and people are working and taxes are rolling in,” he said. “The time to do that is not now.”

The Fed chair also said his job is “the same” under Biden as it was under the previous president, Donald Trump. Trump, however, repeatedly criticized and attacked Powell on Twitter, while Biden rarely mentions Powell and said last week that he has not yet spoken to Powell in person. Powell’s term as chair ends next year.

“I’m reluctant to comment — even indirectly — on elected politicians,” Powell said. “That’s a practice I’ve kept to and I’ve never regretted it.”


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