By Ann Saphir and Jonnelle Marte
(Reuters) - The U.S. economy is "much improved," Federal Reserve Chair Jerome Powell said on Monday, crediting Congress and the central bank both for providing "unprecedented" support, but at the same time warning that the recovery is still "far from complete."
"The recovery has progressed more quickly than generally expected and looks to be strengthening," Powell said in remarks prepared for delivery to a congressional hearing on Tuesday morning. Household spending has risen, he said, and the housing sector has more than fully recovered.
"However, the sectors of the economy most adversely affected by the resurgence of the virus, and by greater social distancing, remain weak, and the unemployment rate — still elevated at 6.2% — underestimates the shortfall, particularly as labor market participation remains notably below pre-pandemic levels," he said. "The recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes."
Powell's prepared remarks hewed to the tone of cautious optimism he has struck in recent weeks amid indications that a recovery is gaining strength.
Fed policymakers and many private forecasters are expecting a surge in spending and economic growth in coming months as more Americans get vaccinated and venture out. But the Fed last week kept interest rates near zero, where they have been for the past year, and the majority of Fed policymakers continued to see them staying there through 2023.
Lawmakers are sure to pepper Powell with questions about the potential risks from the Fed's super-easy policy. That includes buying bonds at a pace of $120 billion a month until the Fed sees "substantial further progress" toward its goals of full employment and inflation. Powell noted that lower-wage workers, African Americans, Hispanics and other minority groups are among those still hurting.
Powell last week said it is not time yet even to begin talking about paring the Fed's bond-buying. Though Fed policymakers expect robust growth to help heal the labor market, there's a big hole yet to fill, with the U.S. economy still millions of jobs short of where it was before the crisis.
And while policymakers see inflation rising to 2.4% this year as people rush to spend their pent-up savings, those price rises are not expected to continue for long. This will allow the Fed to keep its foot on the monetary policy gas pedal longer.
Tuesday's hearing will mark Powell's first joint appearance with Treasury Secretary Janet Yellen, his predecessor as Fed chair, since she was confirmed earlier this year. The two will appear before the Senate Banking Committee on Wednesday.
Powell's three previous rounds of congressional updates on the Fed's and Treasury's pandemic-relief efforts were alongside Steven Mnuchin, who ran Treasury in the Trump administration. Indeed, Yellen could grab much of the attention of lawmakers, especially in the wake of President Joe Biden's $1.9 trillion economic relief package that passed earlier this month on a strictly party line vote in both chambers of Congress.
In this week's testimony, Powell reiterated the Fed's commitment to use "our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible."