The American economy remains far from healed and the Federal Reserve is in no hurry to dial back its support, Jerome H. Powell, the central bank\u2019s chair, told lawmakers during a closely watched hearing on Tuesday.<\/p>\n
It\u2019s a pledge Mr. Powell has made many times in the last 11 months, but on Tuesday it came against a tense backdrop: As Democrats try to move a $1.9 trillion relief package through Congress, Republicans argue that it's too big and could lead to inflation that would hurt consumers and businesses. Markets have also begun to quiver, as investors worry that an overheating economy will prompt the Fed to pull back on its efforts to bolster growth.<\/p>\n
Speaking before the Senate Banking Committee, Mr. Powell declined to weigh in on the Biden administration\u2019s spending plans but pushed back on the idea raised by multiple Republican senators that the economy is on the cusp of running too hot. The economy is down nearly 10 million jobs since last February, inflation has been too low rather than too high in recent decades, and prospects for a rapid recovery \u2014 while brighter \u2014 remain far from assured, he said.<\/p>\n
\u201cThe economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,\u201d Mr. Powell said. \u201cThere is a long way to go.\u201d<\/p>\n
The Fed plans to hold interest rates near zero, where they have been since March, while continuing to buy government-backed bonds at a pace of $120 billion a month as it waits for the economy to heal. Investors have grown concerned that the Fed might slow those bond purchases sooner rather than later if inflation begins to rise.<\/p>\n
That worry is helping to push up interest rates on longer-term government debt; they rose to their highest point in a year this week. Those rates are the basis for corporate borrowings and mortgages, and their rise has set stock markets on edge as well.<\/p>\n
But on Tuesday, Mr. Powell reiterated that the Fed plans to keep buying bonds until it sees \u201csubstantial further progress\u201d toward its twin goals of full employment and stable inflation. America can \u201cexpect us to move carefully, and patiently, and with a lot of advance warning\u201d when it comes to slowing that support, Mr. Powell said.<\/p>\n
The reassurance seemed to help. The S&P 500 closed higher on Tuesday, snapping back from a loss of nearly 2 percent earlier in the day and breaking a weeklong losing streak.<\/p>\n
\u201cWe\u2019re in one of these market mania moments, in which there\u2019s an intense focus on inflation\u201d and \u201che was very sanguine, very calm,\u201d said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist. \u201cHe kept turning attention back to the labor market.\u201d<\/p>\n
Unemployment has come down sharply after surging last year, but the official unemployment rate remains nearly double its February 2020 level. And job losses have been more acute for members of minority groups and those with less education. Though spending has bounced back, activity in the service industry is still subdued.<\/p>\n
Vaccines are feeding hopes for a stronger and more complete 2021 rebound. Prices are expected to rise temporarily in the coming months, both compared with the weak readings from last year and, potentially, as consumers spend down savings amassed during the lockdown on restaurant dinners and vacations.<\/p>\n
But Fed officials have been clear that they do not expect inflation to pick up in a lasting way and that they plan to look past temporary increases when thinking about their policies. Price pressures have been stubbornly tepid, rather than too high, for decades and across many advanced economies.<\/p>\n
Mr. Powell said on Tuesday that longer-running inflation trends do not \u201cchange on a dime\u201d and that if prices start to rise in an alarming way, the Fed has the tools to fight that.<\/p>\n
\u201cI really do not expect that we\u2019ll be in a situation where inflation rises to troubling levels,\u201d Mr. Powell said. \u201cThis is not a problem for this time, as near as I can figure.\u201d<\/p>\n
He also pushed back on the idea that government spending is poised to send prices rocketing out of control.<\/p>\n
\u201cThere perhaps once was a strong connection between budget deficits and inflation \u2014 there really hasn\u2019t been lately,\u201d Mr. Powell said. He noted that while he does expect inflation to jump around in coming months, there is a distinction between a temporary pop in prices and a sustained increase.<\/p>\n
Still, he declined to weigh in on how much more government support is appropriate.<\/p>\n
\u201cI, today, will really stay away from fiscal policy,\u201d he said near the very start of the hearing. He went on to tiptoe around or simply decline to answer questions about the minimum wage and the size and various components of the White House\u2019s spending proposal. At one point, he was asked whether he would be \u201ccool\u201d with passing the spending bill or not.<\/p>\n
\u201cI think by being either cool or uncool, I would have to be expressing an opinion,\u201d Mr. Powell said.<\/p>\n
The Fed is politically independent and steers away from partisan issues, but it has been providing advice to policymakers in Congress and weighing in on socioeconomic disparities and financial risks tied to climate change over the last year. Some of that outspokenness has drawn Republican attention.<\/p>\n
Senator Patrick J. Toomey, Republican of Pennsylvania, warned on Tuesday that the central bank should avoid moving beyond its core duties.<\/p>\n
\u201cAs noble as the goals might be, issues such as climate change and racial inequality are simply not the purview of our central bank,\u201d Mr. Toomey said.<\/p>\n
Mr. Powell did talk about how strong labor markets help people on the margins \u2014 those who aren\u2019t trained or those with criminal records \u2014 to succeed. He made it clear that the central bank is hoping to return to a strong labor market, like the one that preceded the pandemic.<\/p>\n
The Fed\u2019s bond purchases can help to bolster the economy by lowering longer-term interest rates and by prodding investors out of safer assets, like government bonds, and into stocks and other more active uses of their cash.<\/p>\n
Mr. Powell said the economy over the last three months hasn\u2019t \u201creally been making\u201d the substantial progress the Fed is looking for as a precondition for slowing its purchases, as job gains have slowed. But he said there\u2019s an expectation that progress should \u201cpick up as the pandemic subsides.\u201d<\/p>\n
When it comes to the Fed\u2019s main interest rate, federal funds rate, which helps to guide borrowing costs across the economy, Mr. Powell also struck a cautious tone. The Fed wants to achieve full employment, hit 2 percent on inflation, and believe that the economy is on track for even faster price gains before raising that rate.<\/p>\n
\u201cRight now, our focus is on providing the economy the support it needs,\u201d Mr. Powell said at one point, summing up his message.<\/p>\n
Matt Phillips contributed reporting.<\/p>\n