Yellen and Powell say more needed to limit US economic damage

Two officials remain hopeful but say America is far from economic recovery

Treasury Secretary Janet Yellen says more must be done to limit the economic damage from the Covid-19 pandemic. AP

Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell told Congress on Tuesday that more must be done to limit economic damage from the coronavirus pandemic.

Mr Powell also repeated that he did not think programmes aimed at reviving the economy would cause unwanted inflation.

Both officials struck upbeat notes about the US economy’s outlook in their appearances on Tuesday before the House financial services committee.

They said that, while there are encouraging signs of a rebound, it is important that government support continues, to ensure the millions of people who have lost jobs can return to the labour market.

Several Republicans expressed worries that inflation could be sparked by more than $4 trillion in support provided by Congress last year, the Biden administration’s recently approved $1.9tn support package, and the Fed’s ultra-low interest rates.

The Fed will "not lose sight of the millions of Americans who are still hurting, including lower wage workers in the services sector, African Americans, Hispanics and other minority groups that have been especially hard hit."

But Mr Powell said the Fed remained strongly committed to its two policy goals of achieving maximum employment and stable prices, under which price increases average 2 per cent a year.

As progress is made against the virus and the economy opens, the Fed expects inflation will rise over the course of this year, he said.

“Our best view is that the effect on inflation will be neither particularly large nor persistent,” Mr Powell said.

He said that if inflation did start to increase in worrisome ways, the Fed could control it through interest rates.

Republican politicians pressed Ms Yellen about reports that the administration was preparing a $3tn “Build Back Better” spending plan for infrastructure projects and improving education and job training.

The measure would be partly financed by increasing taxes on the wealthy and corporations.

Ms Yellen said the administration was considering boosting the corporate tax rate from 21 per cent to 28 per cent.

It was cut during the Trump administration from 35 per cent as part of the 2017 tax bill.

“We have had a global race to the bottom in corporate taxation and we hope to put an end to that,” Ms Yellen said.

Barry Loudermilk, a Republican from Georgia, asked about comments from critics that the administration’s relief package was more than six times larger than it needed to be.

Ms Yellen said the country had lost 9.5 million jobs and if discouraged workers were counted, the jobless rate now would be over 9 per cent.

“We have a huge problem of joblessness,” she said.

The Tuesday hearing was the first joint congressional appearance for Mr Powell and Ms Yellen in their current jobs, and her first since taking over as Treasury Secretary.

She said the $1.9tn American Rescue Plan brought the prospect of returning the country to full employment next year.

“With the passage of the rescue plan, I am confident that people will reach the other side of this pandemic with the foundations of their lives intact,” Ms Yellen said.

The economy fell into a deep recession a year ago with an initial loss of 22 million jobs, many in service industries such as restaurants and retail stores.

Mr Powell acknowledged that a recovery was far from complete.

The Fed will “not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics and other minority groups that have been especially hard hit", he said.

The Fed kept its benchmark interest rate at a record low of 0 to 0.25 per cent at its meeting last week.

And even though it significantly boosted its economic forecast, it continued to indicate that the benchmark rate would remain unchanged through 2023.

Under the March 2020 Covid-19 relief law, the Treasury Secretary and Fed leader are required to appear before Congress on a quarterly basis to provide updates.

Mr Powell and Ms Yellen will appear on Wednesday before the Senate banking committee.

Ms Yellen on Tuesday pledged a introduction by the Treasury of the new relief plan.

She said that within the first week after the legislation was signed into law, the Treasury and Internal Revenue Service have distributed more than 90 million direct payments, which provide $1,400 to qualifying people.

Ms Yellen said that since she took office two months ago, she had focused on making sure that relief arrived quickly to the areas of greatest need, such as the “smallest small businesses, which are disproportionately owned by women and people of colour".

She said the Paycheck Protection Programme created by last year’s legislation often did not reach the smallest businesses.

She said the Treasury Department was working with the Small Business Administration to “tweak” the programme so that the loans, which the government forgives if businesses keep their workers, can reach millions more microbusinesses, especially in rural and low-income areas.

The new relief package will also provide more than $30 billion to help renters and homeowners at risk of being evicted, Ms Yellen said.

She said the Biden administration was reducing the large amount of documentation required from renters and landowners for  assistance.

“We’re cutting through the red tape for them while still taking reasonable steps to prevent fraud and abuse,” Ms Yellen said.