Jerome H. Powell, the chair of the Federal Reserve, will tell lawmakers that the economic rebound from the pandemic recession has further to go and reiterated that the central bank plans to keep up its growth-stoking policies, which include rock-bottom interest rates and large-scale bond buying.
“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Mr. Powell will say, according to testimony prepared for delivery to the Senate Banking Committee on Tuesday. “Although there has been much progress in the labor market since the spring, millions of Americans remain out of work.”
Unemployment has come down sharply after surging last year, but the official jobless rate remains at nearly double its February 2020 level and probably the understates the extent of weakness in the labor market. Likewise, consumer spending has bounced back but the service sector remains subdued.
The Fed slashed interest rates to near-zero last March and is buying about $120 billion in government-backed bonds each month, policies aimed at fueling lending and spending. Congress and the White House have also provided support in the form of enormous spending packages, and Democrats are now pushing for another $1.9 trillion in relief for workers and businesses.
Some economists have warned that inflation could take off as vaccines allow consumer activity to pick up and as the government pumps money into the economy, but Fed officials have generally played down those concerns.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Mr. Powell will say.
Mr. Powell will reiterate a pledge to keep up the current bond-buying pace until that “substantial further progress” has been made.
He will also review changes the Fed made last year to its policy approach, including a pledge to worry about “shortfalls” from maximum employment, rather than “deviations.” The shift means “we will not tighten monetary policy solely in response to a strong labor market,” Mr. Powell will say.
The Fed will aim for its 2 percent inflation target on average rather than as a hard-and-fast goal, allowing for periods of faster price gains.
Inflation has been muted for decades across many advanced economies, and Fed officials want to ensure that consumers and businesses do not begin to expect ever-weaker price gains, a trend that could be economically damaging.
After it rocketed higher last year, the United States’ official unemployment rate has fallen to 6.3 percent. But top economic officials are increasingly citing a different figure, one that puts the jobless rate at a far higher 10 percent.
The higher figure includes people who have stopped looking for work, and the disparity between the official rate and the expanded statistic underlines the unusual nature of the pandemic shock and reinforces the idea that the economy remains far from a full recovery.
The reality that labor market weakness lingers, a year into the pandemic, could come up again as Jerome H. Powell, the Federal Reserve chair, testifies before Congress starting on Tuesday. Mr. Powell is speaking before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
The Bureau of Labor Statistics tallies how many Americans are looking for work or are on temporary layoff midway through each month. That number, taken as a share of the civilian labor force, is reported as the official unemployment rate.
But economists have long worried that by relying on the headline rate, they ignore people they shouldn’t, including would-be employees who are not actively applying for jobs because they are discouraged or because they are waiting for the right opportunity.
Now, key policymakers are all but ditching the headline statistic, rather than just playing down its comprehensiveness. In an alternate unemployment figure, they’re adding back people who have left the job market since last February, along with those who are misclassified in the official report.
“We have an unemployment rate that, if properly measured in some sense, is really close to 10 percent,” Treasury Secretary Janet L. Yellen said on CNBC last week. And a week earlier, Mr. Powell cited a similar figure in a speech about lingering labor market damage.
“Published unemployment rates during Covid have dramatically understated the deterioration in the labor market,” Mr. Powell said recently. People dropped out of jobs rapidly when the economy closed, and with many restaurants, bars and hotels shut, there is nowhere for many workers who are trained in service work to apply.
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