America’s two business leaders told senators on Wednesday that the economy, while healthy, is still in a deep hole and that continued government support is a vital lifeline for families and businesses.
Jerome H. Powell, chairman of the Federal Reserve, and Janet L. Yellen, Treasury Secretary and immediate predecessor of Mr. Powell at the Fed, testify before the Senate Banking Committee. Her prepared comments confirmed her testimony before House lawmakers Tuesday.
Mr Powell said in his remarks that the government’s aggressive spending reaction and extremely low Fed interest rates had averted the worst outcomes in the pandemic economic recession.
“But the recovery is far from over, so we at the Fed will continue to provide the economy with the support it needs while it lasts,” he said.
Ms. Yellen, who campaigned heavily on the recently passed US $ 1.9 trillion bailout package, said it was “appropriate” to respond to a crisis with a necessary increase in temporary spending without paying for it.
“In the longer term, we need to increase revenue to support the sustained spending we want to make,” she said.
She said the expanded unemployment insurance, which is part of the recent relief package, does not seem to discourage work and is needed at a time when the labor market is not at full strength.
“While unemployment remains high, it is important to provide additional help,” said Ms. Yellen, noting that the help will last until the fall. She said that aid should “run out” when the economy recovers.
The Biden government is also planning a $ 3 trillion infrastructure package. The fact that the government is spending so much and is thinking about spending more at a time when the economy is recovering has raised concerns about inflation among some economists and lawmakers.
Some viewers fear that the Fed, whose rates are rock bottom and is buying the bonds in bulk to help the economy, may be too slow to respond to higher prices.
“I worry that the Fed could be behind the curve if inflation inevitably picks up,” said Senator Patrick J. Toomey, Republican from Pennsylvania, during his opening speech.
But Mr Powell has consistently pushed back concerns about runaway inflation and did so again on Wednesday.
“We believe that the inflationary momentum we’ve seen around the world for a quarter of a century is essentially intact. We have a world where demand is low and inflation is very low,” Powell said. “We think this dynamic didn’t go away overnight and it won’t either.”
When asked about possible mismatches between supply and demand – particularly in connection with a ship that got stuck in the Suez Canal, but also in general when the economy reopened – he adopted a similarly uninvolved tone.
“A bottleneck is temporary by definition,” he said.
He also countered concerns about a recent hike in market-based interest rates. The yield on 10-year Treasury bills, a closely watched government bond, has risen since the beginning of the year.
“The rates have responded to news of vaccination and, ultimately, growth,” Powell said. “That was a neat process. I would be concerned if it wasn’t an orderly process or if conditions tightened to the point that they could jeopardize our recovery. “
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