Federal Reserve chairman Jerome H. Powell stressed Thursday that despite the better economic outlook in the US, vaccinating the world and tackling the coronavirus pandemic remain critical to the global outlook.
“Viruses don’t respect borders,” Powell said when speaking on a panel at the International Monetary Fund. “Until the world is really vaccinated, we are all at risk of new mutations and we will not be able to resume activities around the world with confidence.”
While some advanced economies, including the United States, are rapidly moving towards widespread vaccination, many emerging economies are lagging far behind: some have only given one dose per 1,000 people.
Mr. Powell joined a chorus of global politicians, stressing the importance of ensuring that all nations – not just the richest – are able to fully protect themselves against the coronavirus. Kristalina Georgieva, executive director of the International Monetary Fund, said policy makers need to continue to focus on public health as a key policy priority.
“This year, next year, vaccination policy is economic policy,” said Ms. Georgieva on the same panel as Mr. Powell. “It has an even higher priority than the traditional instruments of fiscal and monetary policy. Why? Without them, we cannot reverse the fate of the world economy. “
Still, she also warned against withdrawing monetary support prematurely, saying that clear communication from the United States was helpful and important. The Fed is arguably the world’s most critical central bank thanks to the dollar’s widespread use, and unexpected policy changes in the United States can disrupt global markets and make it difficult for less developed economies to recover.
“Withdrawal of support prematurely can shorten recovery,” she warned.
The Fed has kept interest rates close to zero since March 2020 and buys around $ 120 billion worth of government bonds every month. This policy is designed to boost spending by keeping borrowing cheap. Officials knew they would continue to support the economy until it gets closer to its goals of maximum employment and stable inflation – and that while the situation is improving, it is not there.
“There are a number of factors that come together to improve the outlook for the US economy,” Powell said, noting that tens of millions of Americans are now fully vaccinated so that the economy can soon be fully reopened. “However, the recovery here remains uneven and incomplete.”
Employers hired more than 900,000 workers last month, but the country is still lacking millions of jobs compared to February 2020, and new data shows that state unemployment claims have increased over the past week. Mr Powell noted that the burden is least on those who can least bear it: lower-income service workers, who are largely minority and women, are hard hit by the job losses.
When asked what keeps him up at night, Mr. Powell said “There’s a pretty big tent city” he passes by on his way home from work in Washington. “We have to keep reminding ourselves that there is a very large group of people who aren’t, even though some parts of the economy are just doing fine.”
Given the pandemic’s role in exacerbating inequality, both Mr Powell and Ms Georgieva said it was important to support workers and make sure they find their way into new and decent jobs.
The Fed chairman said the policy is too focused on short-term, palliative measures and not enough on longer-term solutions that will help expand economic opportunities.
“I think we really need, as a country, to invest – and I’m not talking about a specific bill – in things that increase the inclusiveness of the economy and the longer-term potential of the economy,” said Powell. “In particular, invest in people so that they can participate, contribute to, and benefit from the prosperity of our economy.”
These comments come from the Biden government’s push for an ambitious $ 2 trillion infrastructure package that includes provisions for labor market training, technological research and widespread broadband. The administration has proposed paying for the package by increasing corporate taxes.
“We have been advocating more investment in infrastructure for some time. This helps to increase productivity here in the US, ”said Ms. Georgieva, describing the provisions on climate-focused and“ social infrastructure ”as positive. She said they didn’t have a chance to fully evaluate the plan, but “by and large, yes, we support it.”
But the White House plan has already met opposition from Republicans and some moderate Democrats who are cautious about raising taxes or other large spending package after several large stimulus packages.
Some commentators have warned that in addition to expanding the country’s debt burden, the government’s virus spending – particularly the recent $ 1.9 trillion stimulus package – could overheat the economy. Fed officials were less concerned.
“There is a difference between a one-time price spike and persistent inflation,” Powell said Thursday. “The nature of a bottleneck is that it gets fixed.”
If price gains and inflation expectations rose “substantially”, the Fed would react.
“We don’t think that’s the most likely outcome,” he said.
