Federal Reserve head sees ‘highly uncertain’ recovery for US economy

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Federal Reserve Chair Jerome Powell underscored the US economy’s ongoing weakness Tuesday in remarks that suggested that the Fed sees no need to alter its ultra-low interest rate policies anytime soon.

“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Powell said in written 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. But he stressed the personal hardships caused by the pandemic, especially for unemployed Americans.

“As with overall economic activity, the pace of improvement in the labor market has slowed,” Powell said. “Although there has been much progress in the labor market since the spring, millions of Americans remain out of work.”

Powell’s remarks to the Banking Committee are coming on the first of two days of semiannual testimony to Congress that is required by law. On Wednesday, he will testify to the House Financial Services Committee.

His testimony comes as the economy is showing gradual improvement in key areas, with manufacturing and retail sales rebounding despite a stagnant job market. Still, the steady rise in interest rates has unsettled the stock market.

Longer-term rates are rising on expectations that the Fed’s exceedingly low benchmark short-term rate, along with more robust economic growth, will accelerate inflation, which has remained stuck below the Fed’s 2-percent target for nearly a decade.

Rising rates typically reflect optimism that the economy is poised to expand more quickly. But they can also weaken growth, especially if the Fed were to respond to rising inflation by raising its benchmark rate faster than markets expect.


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