As US outlook improves, Fed’s Powell sees risk in global vaccination pace

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Jerome H. Powell, Chairman of the Federal Reserve, stressed Thursday that while the economic outlook looked brighter in the United States, getting the world vaccinated and controlling the coronavirus pandemic remained critical to the global outlook.

“Viruses do not respect borders,” Powell said during a speech to a panel of the International Monetary Fund. “Until the world is truly vaccinated, we will all be at risk for further mutations and we will not be able to truly resume activity with confidence everywhere in the world.”

While some advanced economies, including the United States, are moving rapidly towards generalized vaccination, many emerging countries are far behind: some have administered as little as one dose per 1,000 population.

Mr Powell joined a chorus of global policy makers in emphasizing how important it is that all nations – not just the wealthiest – are able to largely protect themselves against the coronavirus. Kristalina Georgieva, managing director of the International Monetary Fund, said policymakers must remain focused on public health as a key policy priority.

“This year, next year, vaccine policy is economic policy,” said Georgieva, speaking on the same panel as Powell. “This is an even higher priority than traditional fiscal and monetary policy tools. Why? Without it, we cannot reverse the fate of the global economy. “

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Nonetheless, she also cautioned against withdrawing monetary policy support prematurely, saying clear communication from the United States is useful and important. The Fed is arguably the most critical central bank in the world as steward of the widely used dollar, and unexpected policy changes in the United States can rattle global markets and make it harder for less developed economies to recover.

“Withdrawal of support prematurely may shorten the recovery,” she warned.

The Fed has kept interest rates close to zero since March 2020 and buys about $ 120 billion in government guaranteed bonds per month, policies meant to stimulate spending by keeping borrowing low. Officials have made it clear that they will continue to support the economy until it gets closer to their targets for maximum employment and stable inflation – and if the situation improves, it is not. not there yet.

“There are a number of factors that combine to support a better outlook for the US economy,” Mr. Powell said, noting that tens of millions of Americans are now fully immunized, so the economy is expected to be in. able to fully reopen soon enough. . “The recovery here remains uneven and incomplete.”

Employers added more than 900,000 workers to the payroll last month, but the country is still short of millions of jobs as of February 2020 and new data showed states’ jobless claims increased last week. Mr Powell stressed that the burden falls heavily on those least able to bear it: low-income service workers, who are in the large minority and women, have been hit hard by the job losses.

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When asked what keeps him awake at night, Mr Powell said “there’s a pretty big tent city” that he walks through on his way home from work in Washington. “We just have to keep reminding ourselves that while some parts of the economy are doing just fine, there is a very large group of people who are not.”

Given the pandemic’s role in deepening inequalities, Mr Powell and Ms Georgieva said it was essential to support workers and ensure they can find their way to suitable new jobs.

The Fed chairman said politics tended to focus too much on short-term stopgap measures and not enough on longer-term solutions that help expand economic opportunities.

“I think we really need to as a country – and I’m not talking about a specific bill – invest in things that will increase the inclusiveness of the economy and the long-term potential of it.” Mr. Powell said. “Invest especially in people, so that they can participate, contribute and benefit from the prosperity of our economy.”

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The comments come as the Biden administration is pushing for an ambitious $ 2 trillion infrastructure package that would include provisions for labor market training, technology research and broadband. The administration has offered to pay for the package by increasing corporate tax.

“For some time we have been in favor of more investment in infrastructure. It helps boost productivity here in the US, ”said Georgieva, calling the climate-focused arrangements and“ social infrastructure ”positive. She said they haven’t had a chance to fully assess the plan, but “overall, yes, we support it.”

But the White House plan has already met resistance from Republicans and some moderate Democrats, who are reluctant to raise taxes or embark on another big spending program after several big stimulus bills.

Some commentators have warned that in addition to increasing the country’s debt, government spending on viruses – especially the recent $ 1.9 trillion stimulus package – could cause the economy to overheat. Fed officials were less worried.

“There is a difference between essentially a one-time price increase and persistent inflation,” Powell said Thursday. “The nature of a bottleneck is that it will be resolved.”

If price gains and inflation expectations increased “significantly”, he said, the Fed would respond.

“We don’t think this is the most likely outcome,” he said.