The United States economy will emerge from the COVID-19 crisis on better footing, Federal Reserve Chairman Jerome Powell wrote in an essay published on Friday, as he sought to again reassure financial markets that the US central bank will continue to do whatever it takes to support the recovery.
“I truly believe that we will emerge from this crisis stronger and better, as we have done so often before,” Powell wrote in a Wall Street Journal (WSJ) essay. “But the recovery is far from complete.”
The Fed chief’s essay comes in the wake of a far more upbeat assessment of the US economic recovery published by the Federal Reserve this week.
Fed policymakers boosted their forecast for gross domestic product (GDP) growth to 6.5 percent for 2021 – far more upbeat than the 4.2 percent projection it made back in December.
The central bank also updated its forecast for inflation this year to 2.4 percent from its previous estimate of 1.8 percent and sees the nation’s unemployment rate returning to 3.5 percent – it’s pre-pandemic level – in 2023.
Markets have been pressured in recent weeks by concerns that rising prices could prompt the Fed to raise interest rates sooner than expected or cut back on its bond-buying programme that helps keep down borrowing costs.
Fed officials signalled that they are moving closer to reining in the central bank’s uber-low-rate stance. Four of the 18 policymakers now expect a rate hike in 2022, up from just one in December. Seven predict a rate hike in 2023, up from five in December.
But Powell has repeatedly offered assurances that the Fed will not raise interest rates until the nation’s labour market is healed, and pledged in his essay to support the economy for “as long as it takes”.
The US jobs market is showing signs of recovery. The economy gained 379,000 jobs last month. But some 9.5 million jobs of the 22 million lost to last year’s initial round of coronavirus pandemic lockdowns have yet to be recovered.
The Fed has power to lend to shore up the economy, but only Congress has the authority to tax and spend. Stressing that economic recovery requires an all-hands-on-deck response, Powell commended Congress in his essay for providing the largest economic recovery package of the post-World War II era.
Even more fiscal firepower was released this month after President Joe Biden signed into law a massive $1.9 trillion coronavirus relief package. The stimulus is expected to inject life into the economy as millions of Americans receive $1,400 cheques, and people who have lost their jobs continue to receive a federal top-up to their state unemployment benefits.
The warmer spring and summer months and mass vaccination campaigns are also expected to help accelerate the recovery.