Federal Reserve Chairman Jerome Powell says the outlook for the U.S. economy is “extraordinarily uncertain” and the success of the recovery effort will depend in large part on the country’s ability to contain the spread of the coronavirus.
“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” Powell says in testimony he is scheduled to deliver Tuesday in an appearance with Treasury Secretary Steven Mnuchin before the House Financial Services Committee.
In the testimony released Monday by the Fed, Powell repeats a pledge that the central bank will keep interest rates at their current ultra-low levels until it is sure the economy has weathered the pandemic crisis.
His comments come as parts of the country are experiencing a surge in coronavirus cases that have prompted governors to backtrack some of their steps to reopen their states’ economies.
Powell said the reopening occurred sooner than expected, with hiring and consumer spending both picking up in May.
“While this bounceback in economic activity is welcome, it also presents new challenges, notably, the need to keep the virus in check,” Powell said.
Both Powell and Mnuchin were due to testify before the U.S. House of Representatives Financial Services Committee at 12:30 p.m. Eastern Daylight Time (4:30 GMT) to discuss how funds were disbursed to households and businesses as part of aid programs and how much more support Congress will need to provide to bolster the economy.
The U.S. central bank, with Treasury's backing, has launched programs to improve the flow of credit as economic activity cratered and millions of jobs were lost, including its new Main Street Lending Program for mostly medium-sized businesses.
The Treasury has been at the forefront of the $660 billion forgivable-loan Paycheck Protection Program (PPP) aimed at keeping small businesses afloat and their employees on payrolls.
Lawmakers on the Democratic-controlled panel are likely to question whether those most in need have received support.
“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Powell says in the prepared remarks, stressing that a successful outcome will depend on policy actions taken by all levels of government.
Several government programs designed to cushion the blow from the pandemic, including enhanced unemployment benefits, are expected to expire this summer. But concerns the virus has not been contained have added to the uncertainty as many parts of the country reopened their economies after lockdowns were put in place in March and April.
Fifteen U.S. states reported last week a record surge in cases of COVID-19, the respiratory illness caused by the coronavirus that has killed more than 125,000 people in the United States.
Numerous Fed policymakers, including Powell, have said that more fiscal and monetary help will likely be required to keep what is expected to be a slow and uneven economic recovery on track.
The Fed has come under fire for a perception that it has prioritized Wall Street over Main Street, helping fuel economic inequality by boosting the price of assets like stocks.
The central bank has bought trillions of dollars of bonds and rolled out nearly a dozen programs to backstop and extend corporate credit and promote bank lending, arguing that bracing the economy as a whole is helped when companies maintain access to the financing critical to their operations.
Data on Sunday showed the Fed bought $428 million in bonds of individual companies through mid-June, making investments in household names like Walmart Inc. and AT&T Inc as well as in major oil firms, tobacco giant Philip Morris International Inc., and a utility subsidiary of billionaire Warren Buffett's Berkshire Hathaway holding company.
At the same time, its Main Street Lending Program has yet to make a loan and has taken three months to come to fruition, though Powell said in his prepared testimony he expected it to be a "valuable resource" in the months ahead. The central bank's programs overall have so far seen modest use.
Mnuchin will also likely be grilled about PPP. After an initial round of funding was exhausted quickly, there remains about $140 billion of aid untapped by small businesses.
Mnuchin agreed last week to give Congress full access to loan-level data for the program after coming under bipartisan fire for saying that revealing the identities of businesses that took funds could be "confidential" and "proprietary."
