America’s economy has shown “marked improvement” since the coronavirus pandemic drove it into recession, but the path ahead remains “highly uncertain”, the Federal Reserve chair, Jerome Powell, told a congressional panel on Tuesday.
Noting the rebound in jobs and household spending since the economy cratered in the spring and early summer, Powell said it still remains far from where it was “and the path ahead continues to be highly uncertain … A full recovery is likely to come only when people are confident it is safe to re-engage in a broad range of activities” with the coronavirus under control.
Until then, Fed officials “remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy”, Powell said in prepared testimony to the House financial services committee.
The hearing, which will include testimony from the treasury secretary, Steven Mnuchin, is the first of three this week at which the Fed chief will field questions on the central bank’s response to the pandemic and its implementation of the Coronavirus Aid, Relief and Economic Security Act.
That $2.3tn aid package, approved by Congress in late March, was the foundation of the federal government’s economic response to the pandemic, and in particular authorized the treasury to fund an array of Fed lending and credit programs.
The pandemic dealt a death blow to the longest-ever US economic expansion when widespread business shutdowns and stay-at-home orders triggered the largest drop in activity since at least the second world war. The Fed responded by cutting interest rates to near zero, ramping up bond purchases and launching nearly a dozen emergency credit facilities, several with treasury’s backing.
In all, Powell said, the Fed has “helped unlock” $1tn of funding to keep businesses from shutting so that they can more easily rehire workers when the economy picks up. But not that much has actually been lent to firms. Far from it.
The Fed’s $600bn Main Street Lending Program has so far lent or is in the process of lending $2bn to businesses that cannot otherwise obtain credit, Powell said. Critics say the Fed and treasury should make it easier to borrow.
Congress is at an impasse on negotiations over additional support for out-of-work Americans after a $600-a-week federal supplement to jobless aid expired over the summer.
Powell has said that additional federal stimulus is likely to be needed, though top White House economic adviser Larry Kudlow says the recovery is “self-sustaining” without it.