Federal Reserve Chairman Jerome Powell prepares for a House Financial Services Committee hearing on “Oversight of the Federal Reserve and Treasury Department Pandemic Response” at the Rayburn House office building in Washington , DC on December 2, 2020.
Jim Lo Scalzo | Reuters
Powerful fiscal aid from Congress combined with accelerated vaccine distribution has allowed the US economy to recover faster than expected, Federal Reserve Chairman Jerome Powell said Thursday.
At some point, that will allow the central bank to reduce the aid it has provided, although it said now is not that time.
“As we make substantial progress toward our goals, we will gradually reduce the amount of Treasuries and mortgage-backed securities that we have purchased,” Powell told NPR’s “Morning Edition” in a live interview. “We will do it very gradually over time and with great transparency, when the economy has almost fully recovered, we will withdraw the support that we provide during times of emergency.”
US stock market futures were down a bit after Powell spoke.
In the wake of the Covid-19 pandemic just over a year ago, the Federal Reserve cut short-term loan interest rates to almost zero and has been buying at least $ 120 billion in bonds every month.
Powell and other Fed officials have pledged to maintain that accommodation until the economy reaches full employment and inflation averages around 2%. He said the United States has come a long way toward achieving those goals.
“Simply put, it’s a combination of better developments at Covid, particularly vaccines, and also economic support from Congress. That’s really what drives it,” he said. “That will allow us to reopen the economy earlier than expected.”
The United States has been vaccinating about 2.5 million people a day, and overall hospitalization and death rates have declined even though the number of cases has stagnated or is gradually increasing in some states.
Congress approved more than $ 4 trillion in stimulus last year and is considering possibly another $ 3 trillion in future spending.
Powell called the current fiscal practices “unsustainable”, although necessary in the face of the crisis. Low interest rates are allowing the United States to shoulder the debt burden without causing too much hardship, although Congress will eventually have to address the debt issue, he said.
“We will have to do that, but that time is not now,” Powell said.
Looking back to last year, he said he has no regrets about the extraordinary measures the Fed took, even as some critics fear the amount of fiscal and monetary stimulus could prove problematic later if the economy overheats.
“Ultimately, in a crisis, I think what we did served to avoid what could have been much worse results,” Powell said.