The US economic recovery “remains uneven and far from complete”, Federal Reserve chair Jerome Powell told a committee of US senators Tuesday.
In his semi-annual update on monetary policy, his first delivered under Joe Biden’s presidency, Powell indicated the Fed would not be changing monetary policy any time soon, given the slow recovery in the labor market.
Powell told the Senate banking committee of his concern that millions of Americans are out of work, particularly those who are already members of vulnerable communities.
“The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit,” Powell said.
“The job losses were heavily concentrated on public-facing, service-sector jobs. Those tend to be more skewed towards lower-paid, and in many cases, minorities and women.”
He noted that job losses seem to be “somehow precisely aimed at those people, and we’re well aware of that”.
The chairman echoed concerns raised by the treasury secretary, Janet Yellen, that labor participation rates are lower than pre-pandemic levels.
Both economists have said that the official 6.3% unemployment rate is deceivingly low given that so many Americans are not actively looking for work and are thus not counted in the official unemployment rate.
“Published unemployment rates during Covid have dramatically understated the deterioration in the labor market,” Powell said in remarks made earlier this month, noting that the unemployment rate that counts those who are not looking for work would be closer to 10%.
Speaking at an event on Monday, Yellen said that 10 million Americans are officially counted as unemployed while another 4 million have dropped out of the labor force. Working mothers of young children have seen a particularly sharp drop in labor participation over the course of the pandemic, according to a recent report from the Minneapolis federal reserve.
During Powell’s testimony, Republicans pushed the chairman to address their concerns that Biden’s $1.9tn economic stimulus plan, which Democrats are trying to push through Congress this week, will lead to high inflation. Powell, as he has done in recent weeks, downplayed their concerns over aid sparking inflation.
“This is not a problem for this time, as near as I can figure,” Powell said, noting that the Federal Reserve has tools to challenge rising inflation rates should they be seen.
Powell emphasized the top priority for reviving the economy should be to continue vaccination efforts, which “offer hope for a return to more normal conditions later this year”.
The chairman is expected to testify again tomorrow before the House financial services committee.