Jerome H. Powell, Chairman of the Federal Reserve, stressed Thursday that while the economic outlook looked brighter in the United States, getting the world vaccinated and controlling the coronavirus pandemic remained critical to the global outlook.
Viruses do not respect borders, Powell said during a speech to an International Monetary Fund panel. Until the world is truly vaccinated, everyone will risk new mutations and we will not be able to truly resume activity with confidence everywhere in the world.
While some advanced economies, including the United States, are moving rapidly towards widespread vaccination, many emerging countries are far behind: some have administered as little as one dose per 1,000 population.
Mr Powell joined a chorus of global policy makers to emphasize how important it is that all nations, not just the wealthiest, are able to largely protect themselves against the coronavirus. Kristalina Georgieva, managing director of the International Monetary Fund, said policymakers must remain focused on public health as a key policy priority.
This year, next year, vaccine policy is economic policy, said Georgieva, speaking on the same panel as Powell. It is even more a priority than the traditional tools of fiscal and monetary policy. Why? Without it, we cannot reverse the fate of the global economy.
Nonetheless, she also cautioned against withdrawing monetary policy support prematurely, saying clear communication from the United States is useful and important. The Fed is arguably the most critical central bank in the world thanks to the widely used dollar, and unexpected policy changes in the United States can rattle global markets and make it harder for less developed economies to recover.
Removing support prematurely can shorten recovery, she warned.
The Fed has kept interest rates close to zero since March 2020 and buys about $ 120 billion in government guaranteed bonds per month, policies meant to stimulate spending by keeping borrowing low. Officials have made it clear that they will continue to support the economy until it gets closer to their targets for maximum employment and stable inflation and if the situation improves, it is not yet. the.
A number of factors combine to support a better outlook for the U.S. economy, Powell said, noting that tens of millions of Americans are now fully immunized, so the economy should be able to reopen. completely soon enough. However, the recovery here remains uneven and incomplete.
Employers added more than 900,000 workers to the payroll last month, but the country is still short of millions of jobs compared to February 2020 and new data showed states’ jobless claims increased last week. Mr Powell pointed out that the burden falls heavily on those least able to bear it: low-income service workers, who are in the large minority and women, have been hit hard by the job losses.
When asked what keeps him awake at night, Mr Powell said there was a fairly large tent city that he passed through on his way home from work in Washington. We just have to remember that while some parts of the economy are doing just fine, there is a very large group of people who are not.
Given the role of pandemics in deepening inequalities, Mr Powell and Ms Georgieva said it was essential to support workers and ensure they can find their way to new and suitable jobs.
The Fed chairman said politics tended to focus too much on short-term stopgap measures and not enough on longer-term solutions that help expand economic opportunities.
I think we really need, as a country, and I’m not talking about any particular bill, to invest in things that will increase the inclusiveness of the economy and the long-term potential of the economy, to Mr Powell said. Invest especially in people, so that they can participate, contribute and benefit from the prosperity of our economy.
The comments come as the Biden administration is pushing for an ambitious $ 2 trillion infrastructure package that would include provisions for labor market training, technology research and broadband. The administration offered to pay for the package by raising corporate taxes.
For some time now, we have been in favor of increased investment in infrastructure. It helps boost productivity here in the United States, said Georgieva, calling the social and climate-focused infrastructure provisions positive. She said they haven’t had a chance to fully assess the plan, but overall, yes, we support it.
But the White House plan has already met resistance from Republicans and some moderate Democrats, who are reluctant to raise taxes or embark on another big spending program after several big stimulus bills.
Some commentators have warned that in addition to increasing countries’ debt, viral government spending, especially the recent $ 1.9 trillion stimulus package, could cause the economy to overheat. Fed officials were less worried.
There is a difference between essentially a one-time price increase and persistent inflation, Powell said Thursday. The nature of a bottleneck is that it will be resolved.
If price gains and inflation expectations increased significantly, he said, the Fed would respond.
We don’t think that’s the most likely outcome, he said.
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