WASHINGTON -- A year into the coronavirus pandemic, after the loss of millions of jobs and the closure of thousands of small businesses, the Federal Reserve and Treasury Department have a message for Congress: It could have been worse, and there's still a long way to go.
Testifying before the House Financial Services Committee on Tuesday, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen told lawmakers that the economy is set for booming growth this year. But their sunny forecast was paired with reminders that at least 9.5 million jobs are still missing from the labor force and that fully healing the economy depends on getting the pandemic under control.
"We welcome this progress but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics and other minority groups that have been especially hard hit," Powell said Tuesday.
The economic outlook has significantly improved over the past few months and been buoyed by the recent passage of President Joe Biden's $1.9 trillion coronavirus relief package and more-widespread vaccinations. Millions of Americans have started to see $1,400 stimulus payments hit their bank accounts. The Fed projects the U.S. economy will grow at its fastest pace in four decades this year, with the unemployment rate falling to 4.5%.
Still, there are plenty of challenges to getting the elements of the sprawling stimulus law out the door, along with many unresolved questions about how hundreds of billions of dollars allocated by the American Rescue Plan will actually be dispersed. On Tuesday, a number of lawmakers pushed for more regular oversight of the $1.9 trillion bill, noting mechanisms put in place after Congress passed the Cares Act last spring.
"Now that we have an addition $1.9 trillion to track, I would ask for your commitment along those same lines," Rep. Patrick McHenry of North Carolina, the top Republican on the House Financial Services Committee, told Yellen.
Yellen agreed to work with the committee and other oversight groups, and laid out some of the challenges to implementing Biden's bill. Yellen said earlier rounds of the Paycheck Protection Program often didn't reach the country's smallest businesses, especially those in rural and low-income areas. Rental assistance was frequently tied up in red tape. Many Americans still haven't received their stimulus checks.
"And all this is just a fraction of Treasury's work," Yellen told the committee. "There are so many more relief programs, including one that will provide $350 billion in aid to state and local governments. Implementing all of it is more complicated than it sounds."
Meanwhile, many Republican lawmakers, Wall Street investors and prominent economists are worried that the economy won't be able to absorb a large stimulus package and post-pandemic consumer spending, pushing prices rapidly upward. Their worry is that dangerous cycles of inflation will force the Fed to raise interest rates, triggering a new recession.
"Economic projections are increasingly positive," McHenry said. But "with the addition of $1.9 trillion, there's been a great deal of debate about what will happen with this amount of liquidity in financial markets."
But the Fed and White House argue that inflation is not a pressing concern. Powell says that there would have to be substantial progress in the labor market before the Fed considers raising rates.
"Our best view is that the effect on inflation will be neither particularly large nor persistent," Powell said Tuesday. "We've been living in a world of strong disinflationary pressures around the world really for a quarter of a century. We don't think a one-time surge in spending leading to temporary price increase would disrupt that."
Republicans lawmakers pressed Yellen about reports the administration is preparing a new $3 trillion "Build Back Better" spending plan for infrastructure projects and improving education and job training. The measure would be partly financed by increasing taxes on the wealthy and corporations.
Yellen said that the administration is considering boosting the corporate tax rate from the current 21% to 28%. It was cut in the Trump administration from 35% as part of the 2017 tax bill.
"We have had a global race to the bottom in corporate taxation and we hope to put an end to that," Yellen said.
Rep. Barry Loudermilk, R-Ga., cited comments from critics that the administration's relief package was more than six times larger than it needed to be. Yellen said that the country has lost 9.5 million jobs and if discouraged workers are counted, the jobless rate now would be over 9%.
"We have a huge problem of joblessness" that needs to be addressed, Yellen said.
Information for this article was contributed by Rachel Siegel of The Washington Post and by Martin Crutsinger of The Associated Press.