Fed's Powell Warns Congress on the Economy

Fed's Powell Warns Congress on the Economy

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Plus, what’s missing from GOP relief plan messaging
Tuesday, February 23, 2021

Fed’s Powell: Recovery Has a Long Way to Go, Inflation Unlikely

Although Federal Reserve Chair Jerome Powell is a Republican and was appointed by former President Donald Trump, he is proving to be an important ally for Democrats as they push ahead on another massive Covid relief and stimulus package.

Appearing before the Senate Banking Committee Tuesday, Powell told lawmakers that the economy is still suffering from the effects of the Covid-19 pandemic and continues to need support, which the Fed for its part will provide through low interest rates and extensive open market operations — but even as he pushed back on the notion, suggested by Republicans, that the economy runs the risk of running too hot, he would not explicitly endorse President Biden’s $1.9 trillion rescue plan.

"[T]he economic recovery remains uneven and far from complete, and the path ahead is highly uncertain," Powell said in his prepared remarks. "Although there has been much progress in the labor market since the spring, millions of Americans remain out of work."

Neutral stance on Biden stimulus: Powell told lawmakers that the Fed does not take a position on fiscal policy, including President Biden’s proposal to pump another $1.9 trillion into the economy. Pressed by Republican Sen. John Kennedy (LA) to declare whether he would be "cool" or "uncool" with the plan passing, Powell refused to change his stance, saying "I think by being either cool or uncool, I would have to be expressing an opinion."

Worry about deficits later: Kennedy asked Powell how the country "ought to pay all this money back," referring to the historic deficits the federal government has run as the country fights the pandemic. "I think that we will need to get back on a sustainable fiscal path," Powell replied. "The way that has worked when it is successful is you just get the economy growing faster than the debt. That’s going to need to happen, but it doesn’t have to happen now."

Inflation not a concern: The Fed chief said more normal conditions should start returning later in the year, but he expects to continue to provide support for the foreseeable future, even if inflation starts to rise. "The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved," he said.

Powell noted that inflation has run below 2% annually on average for the last 25 years. "Inflation dynamics do change over time, but they don't change on a dime, so we don't really see how a burst of fiscal support or spending that doesn't last for many years would actually change those inflation dynamics," he said.

Powell also said that the link that may have existed in the past between deficits and inflation hasn’t been seen lately. He suggested, too, that rising Treasury yields are a good sign, rather than a warning to policymakers to slow down. "In a way, it’s a statement of confidence on the part of the market that we will have a robust and ultimately complete recovery," he said.

Why it matters: By highlighting the need for further federal support for the economy and pushing back against largely Republican concerns about inflation and debt, Powell is providing significant cover for Democrats as they advance their $1.9 trillion plan through Congress.

Tweet of the Day: What’s Missing From GOP Relief Plan Messaging

Republicans have been slamming President Biden’s Covid rescue plan, arguing that it is more focused on advancing a longstanding liberal wishlist than on delivering real pandemic relief.

GOP criticisms have mostly centered on the package’s $350 billion in aid to state and local governments, which Republicans decry as a "blue state bailout" that will only encourage more lockdowns, and on the proposed increase in the federal minimum wage to $15, which Republicans blast as a job killer. The GOP has also been pointing out that an estimated $1 trillion of Covid relief funds previously approved has yet to be spent.

But Sahil Kapur of NBC News points out one line of attack that’s been relatively absent from the GOP’s steady drumbeat of criticism:

"A revealing thing about the messaging against the $1.9T Covid bill is how rarely the words ‘debt’ or ‘deficit’ are mentioned.

"It was very effective in the Obama era because Dems conceded the premise. This time the attitude is nah deficits don’t matter. Result: Voters don’t care."

Editorial of the Day: Defending Neera Tanden

Republican Sens. Susan Collins (ME), Rob Portman (OH) and Mitt Romney (UT) have joined Democratic Sen. Joe Manchin (WV) is saying that they’ll oppose President Biden’s pick to lead the White House Office of Management and Budget, Neera Tanden. Sen. Lisa Murkowski (R-AK), who may be Tanden’s best hope of securing the one GOP vote she’d need for confirmation, reportedly said she won’t decide until after a committee vote on Wednesday.

The Washington Post Editorial Board is defending Tanden, calling objections to Tanden’s "mean tweets" hollow, echoing charges from some Democrats that there’s an unfair double standard at play:

"Republican opposition to Ms. Tanden because of her sometimes-tough tweeting reflects some mind-boggling hypocrisy. Republicans spent four years playing down and forgiving President Donald Trump’s disgusting tweets. Not a single Republican voted against confirming Richard Grenell, Mr. Trump’s ambassador to Germany, despite his history of Twitter trolling… .

"Is it unacceptable for the OMB director to be strongly partisan? Republicans didn’t think so when they jammed through Mick Mulvaney, a co-founder of the hard-right House Freedom Caucus, to be Mr. Trump’s first OMB chair, despite Mr. Mulvaney’s destructive opposition to raising the national debt limit and avoiding government shutdowns during Barack Obama’s presidency. When Mr. Mulvaney became Mr. Trump’s chief of staff, Republicans approved conservative ideologue Russell Vought to direct the Trump administration’s budget office. …

"[T]he Senate should approve presidents’ picks to staff their administrations unless those picks are grossly unqualified. Ms. Tanden’s long service in Washington, as a top player in Democratic politics and policy and as the head of a major think tank, makes her more qualified than was either Mr. Mulvaney or Mr. Vought."

Read the full piece at The Washington Post.

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