Treasury Secretary Janet Yellen, the first woman to lead the treasury department, and Federal Reserve Chairman Jerome Powell, who succeeded Yellen as head of the central bank, made their first joint appearance on Capitol Hill on Tuesday to discuss the nation's economic response to the pandemic.
Their testimony on the oversight of the Treasury Department's and Federal Reserve's pandemic response, required as part of the CARES Act, focused on how the nation's economic recovery is far from complete — but that "swift and vigorous action" from Congress and the Fed avoided the worst.
"We are meeting at a hopeful moment for the economy — but still a daunting one," Yellen said in her opening remarks to the House Committee on Financial Services. "While we're seeing signs of recovery, we should be clear-eyed about the hole we're digging out of."
Powell described the CARES Act, the sweeping emergency pandemic aid package implemented in March 2020, as "historically important legislation" that provided "critical support in our nation's hour of need."
"Congress provided by far the fastest and largest response to any postwar economic downturn, offering fiscal support for households, businesses, health care providers, and state and local governments," Powell said.
Since then, the housing market "has more than fully recovered from the downturn," the central bank head noted. "Business investment and manufacturing production have picked up," but spending on services remains low, Powell said.
Yellen painted a similarly optimistic picture of the economy in her responses to the committee, saying that while 10 million people still remain jobless, "we may see a return to full employment next year."
“With the passage of the American Rescue Plan, I am confident people will reach the other side of this pandemic with the foundations of their lives intact and will be met there by a growing economy,” Yellen said of President Joe Biden's $1.9 trillion Covid-19 fiscal aid package.
However, she noted that there are still "some deep pockets of pain" and that the pain for people suffering through sustained unemployment and the ensuing financial difficulties can "weigh on them for years."
"I worry about this happening on a mass scale," Yellen said, adding that she is working to get financial relief as swiftly as possible to "the smallest small businesses" — many of which are minority-owned — and to others with the greatest need.
Wall Street has been parsing every word from central bank officials in recent weeks, seeking assurance that the Fed will not deviate from its current course of low interest rates and easy lending even as the economy starts to reopen.
When questioned about the possibility of inflationary pressures, Powell said on Tuesday: "We’ve been living in a world of strong disinflationary pressures for the past quarter century. We don't think a one-time surge in spending leading to temporary price increases would disrupt that."
While he acknowledged that "bottlenecks" in the global supply chain could lead to some "upward pressure on prices," he said any inflation would be not be sustained and that the Fed would not make any adjustments — such as hiking interest rates — until there is “data-driven” evidence.
Powell and Yellen are both set to testify again, on Wednesday, this time before the Senate Banking Committee.