Federal Reserve Chair Jerome Powell on Tuesday credited economic packages passed by the Trump and Biden administrations with saving the economy from the most damaging long-term effects of the coronavirus pandemic which hit the U.S. one year ago.
Powell said the economic recovery has been faster than anticipated, which can be attributed in part to the “strength of the fiscal response.”
“Fiscal policy, overall, will have really helped us to avoid much of the scarring that we were very, very concerned about at the beginning,” Powell said during a press conference following a two-day FOMC policy meeting in which policymakers pledged to keep interest rates low until 2023.
“I think that’s just the size and the speed with which Congress has delivered, you know, with the CARES Act and since then, is going to wind up very much accelerating the return to full employment, it’s going to make a huge difference in people’s lives and it has already.”
The Coronavirus Aid, Relief, and Economic Security (CARES) Act were among the rescue efforts spearheaded by former U.S. Treasury Secretary Steven Mnuchin and White House Economic Advisor Larry Kudlow, who is now a FOX Business host, working with the Fed to ensure the financial system and markets remained stable.
While the Fed chair said that the U.S. likely had not avoided all of the economic scarrings, it has probably avoided the “worst cases,” thanks to legislation that has helped replace lost income.
Powell noted that the difference between fiscal policy and monetary policy is that the former is able to invest in the future productive capacity of the economy, which is a tool that only Congress has.
Powell declined to answer a question on whether he thought the government should be willing to spend additional money to rev up the U.S. economic recovery following the passage of the $1.9 trillion American Rescue Plan last week.
In terms of the Fed’s response, Powell announced on Wednesday that the central bank intended to hold the benchmark federal funds rate near 0% and maintain its asset purchase programs to support the ongoing economic recovery.
Powell noted that the economy appears to be on a positive path forward, but qualified that it was conditional upon the trajectory of the virus.
Employment remains 9.5 million below its pre-pandemic level.
Powell said the Fed will not make any changes to its accommodative policies until conditions in the economy measurably improve – it will not base decisions on forecasts.