“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Powell said in testimony to the Senate Banking Committee.
Powell’s comments are in contrast to the increasing optimism among many analysts that the economy will grow rapidly later this year. That outlook has also raised concerns, though, about a potential surge in inflation and has fueled a sharp increase in longer-term interest rates this year.
Most economists say they think the Fed’s continued low rates, further government financial aid and progress in combating the viral pandemic could create a mini-economic boom as soon as this summer. Powell acknowledged the potential for a healthier economy.
Powell’s focus on the economy’s challenges reflects his reluctance to send any signal that the Fed is considering pulling back on its efforts to boost economic growth and hiring. The Fed cut its benchmark short-term interest rate to nearly zero last March in response to the pandemic recession. It is also purchasing $120 billion a month in bonds in an effort to hold down longer-term rates.
Powell reiterated that those purchases will continue until “substantial progress”’ has been made toward the Fed’s goals of low unemployment and stable inflation at about 2% annually. He also downplayed concerns about rising longer-term interest rates and potentially higher inflation, which some analysts worry will result from a burst of spending and growth if the pandemic is brought under control later this year.