“The economic dislocation has upended many lives and created great uncertainty about the future,” Powell said.
But lawmakers’ attention was on the stimulus bill that is expected to get a House vote in the coming days, leaving Powell to awkwardly duck questions about whether the federal minimum wage should be raised to $15 an hour or what the central bank thinks about affordable housing, broadband access, unemployment insurance or the total price tag of Biden’s package.
“Let me say, as I must, that this is a classic issue the Fed never takes a position on. And I’m not going to take a position on here today,” Powell said in response to a question from Sen. Tim Scott (R-S.C.) on raising the minimum wage.
Powell’s testimony comes as the Democratic-led House and Senate are working to pass Biden’s relief package, which includes $1,400 stimulus checks, an extension of enhanced unemployment benefits, funding for coronavirus testing and vaccinations, plus hundreds of billions of dollars for state and local governments. Senate Democrats have said they want to pass the bill by mid-March, when federal unemployment benefits expire for millions of Americans.
Powell has said for months that Congress should do more to help the economic recovery, which some have seen as an implicit endorsement of Biden’s bill. Powell has “talked to all of us about the risk of falling short of a complete recovery and the damage it will do to peoples’ lives,” said Sen. Sherrod Brown (D-Ohio), chair of the banking committee. “President Biden understands this moment.”
Republicans have called the $1.9 trillion price tag overkill that could overheat the economy, especially as more Americans become vaccinated and consumer spending surges later in the year.
“We are well past the point of needing to hastily respond to an economy that was quickly buckling and must be cautious of further distorting our economy and financial markets,” said Patrick J. Toomey (Pa.), the top Republican on the banking panel. “Both Congress and the Federal Reserve must be cautious not to contribute to such dynamics unnecessarily.”
Asked by Sen. Richard C. Shelby (R-Ala.) about the risks of inflation, Powell said that an uptick in consumer spending could push some prices up. But he doesn’t expect that dynamic to be widespread or permanent.
“I really do not expect we’ll be in a situation where inflation rises to troublesome levels,” Powell said. “This is not a problem for this time.”
Powell shied away from endorsing any particular approach Congress should take on providing more help to the economy. Instead, he emphasized that the economic recovery is uneven, far from complete and depends largely on controlling the pandemic. As he has for months, Powell pointed to the number of coronavirus cases, hospitalizations and the pandemic’s grip on daily life as major drags on economic activity and the job market.
There are still 10 million more unemployed people now than before the pandemic began, he said. While many parts of the economy have recovered, the unemployment rate for the lowest-paid quarter of the labor force is probably above 20 percent, Powell said.
“There’s a long way to go,” he said.
Economic activity rebounded in the summer after much of the economy reopened from spring shutdowns. But that momentum “slowed substantially,” Powell said, with sectors that rely on person-to-person contact, like hospitality and entertainment, enduring the worst blows. That burden has also largely fallen on low-wage workers, Black and Hispanic Americans and other minority groups, Powell said.
Earlier this month, Powell said the unemployment rate in January was “close to 10 percent,” significantly higher than the rate of 6.3 percent reported by the Labor Department.
Looking ahead, “ongoing vaccinations offer hope for a return to more normal conditions later this year,” Powell said on Tuesday.
Drug companies told lawmakers Tuesday that they expect a major increase in vaccine deliveries that will result in 140 million more doses over the next five weeks after solving manufacturing challenges that slowed earlier rollouts.
Tuesday’s hearing also showcased a divide among Republicans and Democrats over the Fed’s role in managing the economy. The Fed focuses on ensuring that as many people as possible are employed and that the price of goods doesn’t fall or increase too fast.
But the covid crisis, and its toll on the American economy, has put a new focus on the Fed’s powers. The central bank has already cut interest rates to record lows and purchased billions in government-backed bonds to help the economy. Powell and other Fed leaders have also talked more openly about systemic racism and economic inequality that have worsened throughout the crisis.
Some Democrats suggested the central bank should expand its role.
Sen. Elizabeth Warren (D-Mass.) pressed Powell on wealth inequality in the United States, saying a wealth tax would help address “the inequality you have been very worried about as chair of the Federal Reserve.” Brown conceded that the Fed’s tools — which largely work through managing financial markets — are blunt and broad-based but told Powell, “I think you give up a little too easily when you say that.”
Meanwhile, Toomey said the Fed should be careful not to stray too far from its mandate.
“As noble as the goals might be, issues such as climate change and racial inequality are simply not the purview of our central bank,” Toomey said, referring to two issues the Fed has increasingly taken on in recent years.