Federal Reserve Chairman Jerome Powell signaled that the central bank was nowhere close to pulling back on its support for the pandemic-damaged U.S. economy even as he voiced expectations for a return to more normal, improved activity later this year.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said in the text of testimony to be delivered Tuesday to the Senate Banking Committee.
The Fed is currently buying $120 billion of assets per month — $80 billion of Treasury securities and $40 billion of mortgage-backed debt — and has pledged to keep up that pace “until substantial further progress” has been made toward its goals of maximum employment and 2% inflation.
Powell’s testimony occurred against the backdrop of growing optimism about the economic outlook as vaccines against the coronavirus are more widely disseminated and expectations of further fiscal stimulus from President Joe Biden and Congress mount. That’s pushed up bond yields worldwide, prompting a pull-back in equity prices, especially for high-flying technology companies.
“While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year,” Powell said. “In particular, ongoing progress in vaccinations should help speed the return to normal activities.”
The Fed chair said the path forward is highly uncertain and that the recovery remains uneven and far from complete.
“The high level of joblessness has been especially severe for lower-wage workers and for African Americans, Hispanics, and other minority groups,” Powell said. “The economic dislocation has upended many lives and created great uncertainty about the future.”
