U.S. lawmakers likely to press Powell on Fed's 'hawkish' turn
WASHINGTON (Jun 22) - Federal Reserve Chair Jerome Powell on Tuesday will testify in a congressional hearing likely to focus on how the U.S. central bank is balancing rising inflation risks with its promise to ensure the economy recovers all the jobs lost after the onset of the coronavirus pandemic.
Until recently there was little perceived conflict between the Fed's twin goals of restoring the labor market to maximum employment while making sure that prices rise at only a modest pace.
But since Powell last appeared before the U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis, the central bank's outlook for inflation has doubled. Projections released by the Fed last week showed prices in 2021 are expected to increase at a 3.4% rate, compared to the 1.7% projected as of last September.
Recent job growth, meanwhile, has been slower than hoped, with some of Powell's colleagues now openly suggesting the pandemic prompted so many people to retire it may be unrealistic to think the economy can return to the pre-crisis level of employment before the Fed needs to tighten monetary policy.
That's a stance counter to Powell's own focus on returning the economy to the conditions of early 2020, and to that of the subcommittee's influential Democratic chairman, Representative James Clyburn of South Carolina.
In testimony prepared for delivery at the hearing, Powell restated his concern that high ongoing joblessness is falling hardest on lower-paid workers, Blacks, and Hispanics. Recent high inflation was expected to prove temporary, he said, and the Fed "will do everything we can to support the economy for as long as it takes to complete the recovery."
Clyburn, who has close ties to President Joe Biden, pushed Powell in a similar hearing nine months ago to ensure a "fair and equitable" jobs recovery, and at that point said he felt the Fed's programs had "prioritized big business over the small ones that are most at risk ... and it has failed to protect American workers."
The economic landscape has shifted dramatically since then, and at a policy meeting last week Fed officials responded. They projected they may raise interest rates as soon as 2023, perhaps a year earlier than anticipated, and Powell said during a news conference that the central bank was beginning talks about when to pare down its $120 billion in monthly purchases of government bonds and securities used to support the recovery.
Reuters
