US economic recovery looks to be strengthening: Fed chief

WASHINGTON • The US economy is "much improved", Federal Reserve chairman Jerome Powell said on Monday, crediting Congress and the central bank for providing "unprecedented" support, but at the same time warning that the recovery is still "far from complete".

"The recovery has progressed more quickly than generally expected and looks to be strengthening," Mr Powell said in remarks prepared for delivery to a congressional hearing yesterday morning.

Household spending has risen, he said, and the housing sector has more than fully recovered.

"However, the sectors of the economy most adversely affected by the resurgence of the virus, and by greater social distancing, remain weak, and the unemployment rate - still elevated at 6.2 per cent - underestimates the shortfall, particularly as labour market participation remains notably below pre-pandemic levels," he said.

"The recovery is far from complete so, at the Fed, we will continue to provide the economy with the support that it needs for as long as it takes."

Mr Powell's prepared remarks hewed to the tone of cautious optimism he has struck in recent weeks amid indications that a recovery is gaining strength.

Fed policymakers and many private forecasters are expecting a surge in spending and economic growth in coming months as more Americans get vaccinated and venture out.

But the Fed last week kept interest rates near zero, where they have been for the past year, and the majority of its policymakers continue to see them staying there till 2023.

Lawmakers are sure to pepper Mr Powell with questions about the potential risks from the Fed's super-easy policy.

That includes buying bonds at a pace of US$120 billion (S$161 billion) a month until the Fed sees "substantial further progress" towards its goal of full employment and inflation target of 2 per cent.

Mr Powell noted that lower-wage workers, African Americans, Hispanics and other minority groups are among those still hurting.

He said last week it is not time yet even to begin talking about paring the Fed's bond-buying. Though Fed policymakers expect robust growth to help heal the labour market, there is a big hole yet to fill, with the US economy still millions of jobs short of where it was before the crisis.

And while policymakers see inflation rising to 2.4 per cent this year as people rush to spend their pent-up savings, those price rises are not expected to continue for long. This will allow the Fed to keep its foot on the monetary policy gas pedal longer.

Yesterday's hearing would mark Mr Powell's first joint appearance with Treasury Secretary Janet Yellen, his predecessor as Fed chairman, since she was confirmed earlier this year. The two will appear before the Senate Banking Committee today.

Mr Powell's three previous rounds of congressional updates on the Fed's and Treasury's pandemic relief efforts were alongside Mr Steven Mnuchin, who ran the Treasury in the Trump administration.

Indeed, Dr Yellen could grab much of the attention of lawmakers, especially in the wake of President Joe Biden's US$1.9 trillion economic relief package that passed earlier this month on a strictly party line vote in both chambers of Congress.

In this week's testimony, Mr Powell reiterated the Fed's commitment to use its "full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible".

REUTERS