Thomson Reuters
- The US economic recovery has progressed faster than expected, Fed Chair Jerome Powell said.
- Still, a full recovery is far off and the Fed will keep support in place, he testified to Congress.
- Today's unemployment rate of 6.2% "underestimates the shortfall" in the labor market, Powell added.
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Despite lower COVID-19 case counts, encouraging economic data, and an improved rate of vaccination, the US economy has plenty of work to do to fully recover, Federal Reserve Chair Jerome Powell said.
The US is nearing the end of the tunnel. Widespread vaccination suggests the country could have a grasp on the coronavirus' spread by the summer – or sooner. Key indicators including nonfarm payrolls and manufacturing gauges also show sectors nearing or trending above their pre-pandemic levels. Democrats' $1.9 trillion relief package stands to further accelerate growth coming out of lockdowns.
Still, government and Fed support are necessary to get the US back on track, Powell said.
"The recovery has progressed more quickly than generally expected and looks to be strengthening," the central bank chief said in remarks prepared for testimony to the House Financial Services Committee on Tuesday. "But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes."
Powell reiterated that the path of the recovery hinges on the trajectory of the virus, a message uttered by Fed officials since the pandemic made landfall in the US last year. For now, that trajectory looks promising. The country reported 55,621 new cases on Monday, according to The New York Times, down 8% from two weeks ago. Hospitalizations are down 16% from two weeks ago.
The steady decline in cases has lifted household spending on goods, but the services industry is still mired in a downturn. Sectors hit hardest by the virus "remain weak," and the current unemployment rate of 6.2% "underestimates the shortfall," Powell said.
The central bank announced last week it would keep interest rates near zero and maintain its pace of asset purchases. It also published a new set of quarterly economic projections that reflected a considerably more optimistic outlook than the December set.
Fed policymakers now expect the unemployment rate to fall to 4.5% by the end of 2021 instead of the prior estimate of 5%, and see full-year economic growth of 6.5% this year, up from the previous forecast of a 4.2% expansion.
The new estimates reflect the strong economic gains made since December, but the Fed still has its eye on those left behind, Powell said.
"We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit," he added.
Powell is scheduled to testify alongside Treasury Secretary Janet Yellen at 12 p.m. ET on Tuesday. The two are then slated to appear before the Senate Banking Committee on Wednesday.