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Jerome Powell Sees Easy-Money Policies Staying in Place

02/23/2021 | 10:14am EST

By Paul Kiernan

WASHINGTON -- Federal Reserve Chairman Jerome Powell reaffirmed the central bank's commitment to maintaining easy-money policies until the economy has recovered further from the effects of the coronavirus pandemic.

"The economy is a long way from our employment and inflation goals," Mr. Powell said Tuesday in remarks prepared for delivery at a hearing of the Senate Banking Committee. The Fed will therefore continue to support the economy with near-zero interest rates and large-scale asset purchases until "substantial further progress has been made," a standard that Mr. Powell said is likely to take some time to achieve.

Mr. Powell is set to deliver the Fed's semiannual monetary-policy report to members of the committee and then answer questions Tuesday, followed by a similar hearing Wednesday before the House Financial Services Committee.

The hearings come as steady progress on vaccinations and multiple rounds of fiscal stimulus have improved the outlook for the economy, the Fed chief noted.

Daily coronavirus cases have fallen from their early-January peak, and recent economic data including retail sales, industrial production, hiring and service-sector activity have indicated economic growth picked up in the new year after slowing in late 2020. Still, nearly a year after the crisis erupted in the U.S., the nation has about 10 million fewer payroll jobs than in February 2020.

Inflation also remains stuck below the Fed's 2% goal, a source of long-running worry among policy makers.

Mr. Powell painted a brighter picture of the economy Tuesday than the last time he appeared before lawmakers, Dec. 1. Covid-19 cases and deaths at the time were surging, parts of the country were tightening lockdowns and public vaccination campaigns had not yet begun, prompting Mr. Powell to warn that the outlook for the economy was "extraordinarily uncertain."

The virtual appearances come as lawmakers are negotiating President Biden's proposed $1.9 trillion coronavirus relief package, which could prompt questions to Mr. Powell about his assessment.

In recent appearances, the Fed chairman has stressed the role of fiscal policy in fueling a recovery that has been faster than many economists expected. But he has declined to recommend any specific amount or type of government stimulus, and his prepared remarks didn't address the question of whether he thinks more will be needed.

With overnight interest rates near zero, the Fed has limited room to cut them further to provide more stimulus. Officials have often noted that Fed tools such as low rates and bond-buying are poorly suited to provide targeted relief to the parts of the workforce and economy hardest hit by the coronavirus pandemic. These include women and minorities, low-wage workers and hard-hit sectors including tourism, hospitality and leisure.

Mr. Powell could face questions about financial stability, in particular about the risks that very low interest rates could fuel asset bubbles and cause inflation to take off.

A quarterly financial-stability review by Fed staff economists in January characterized the "vulnerabilities of the U.S. financial system as notable," with asset valuations seen as elevated, particularly in corporate bonds, according to minutes of the Fed's policy meeting last month. That reflected more concern than expressed in the staff's previous assessment, in November, which characterized asset valuations as moderate.

But Mr. Powell played down such risks at a press conference after that meeting, saying that the Fed's main priority should be to address the economic distress caused by the pandemic. "I would say that financial stability vulnerabilities overall are moderate," he said then.

The Fed's semiannual report delivered Tuesday said business leverage "now stands near historical highs" and that insolvency risks at small and midsize firms remain considerable.

(END) Dow Jones Newswires

02-23-21 1014ET

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