US Fed likely to continue low interest policy amid uneven economic recovery: Powell

Federal Reserve Chair Jerome Powell underscored the US economy’s ongoing weakness Tuesday in remarks that suggested that the Fed sees no need to alter its ultra-low interest rate policies anytime soon.

“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Powell said in written testimony to the Senate Banking Committee.

Powell’s comments are in contrast to the increasing optimism among many analysts that the economy will grow rapidly later this year. That outlook has also raised concerns about a potential surge in inflation and fueled a sharp increase in longer-term interest rates this year. Most economists say they think the Fed’s continued low rates, further government financial aid and progress in combating the viral pandemic could create a mini-economic boom as soon as this summer.

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Powell acknowledged the potential for a healthier economy. But he stressed the personal hardships caused by the coronavirus pandemic, especially for unemployed Americans.

“As with overall economic activity, the pace of improvement in the labor market has slowed,” Powell said. “Although there has been much progress in the labor market since the spring, millions of Americans remain out of work.”

The financial markets are more focused for the moment on the potential for rapid growth. On Monday, the tech-heavy Nasdaq index tumbled a steep 2.5 percent as the yield on the 10-year Treasury note surged to nearly 1.37 percent. At the start of the year, the 10-year yield was below 1 percent.

Rising interest rates typically reflect optimism that the economy is poised to expand more quickly, which can accelerate inflation.

But they can also weaken growth, especially if the Fed were to respond to rising inflation by raising its benchmark rate more quickly than markets expect.

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Powell did not mention the sharp increase in longer-term rates this year or the stock market’s run-up to frothy levels in his written testimony.

Powell is testifying before the Senate Banking Committee in the first of two days of semiannual testimony to Congress that is required by law. On Wednesday, he will testify to the House Financial Services Committee.