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Washington – Federal Reserve Chairman Jerome Powell told lawmakers on Tuesday that the coronavirus-The shattered economy remains hampered, suggesting the central bank will keep interest rates low.

“The economic recovery remains uneven and far from complete, and the way forward is very uncertain,” Powell said in written testimony to the Senate Banking Committee.

Powell’s comments contrast with the growing optimism of many analysts about the rapid growth of the economy later this year. The outlook has also raised concerns about a possible surge in inflation and fueled a sharp rise in long-term interest rates this year.

Many economists believe that the Fed’s still-low rates, additional government financial assistance, and progress in tackling the viral pandemic could create a mini economic boom as early as this summer.

“Mr Powell is likely to try to persuade the markets that a stronger economy does not necessarily mean rates need to rise,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note. “Good luck with that when the surge in post-Covid activity becomes clear.”

Financial markets fell slightly in morning trading, with the S&P 500 and Dow stock indexes both falling less than 1% and the high-tech Nasdaq dropping 242 points, or 1.8%.

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Powell recognized the potential for a healthier economy. But he highlighted the challenges caused by the pandemic, especially for unemployed Americans.

“The resurgence of COVID-19 cases, hospitalizations and deaths in recent months is causing great hardship for millions of Americans and weighing on economic activity and job creation,” he said. “After a strong rebound in economic activity last summer, momentum has slowed considerably, with weakness concentrating in the sectors most affected by the resurgence of the virus.”

Powell testifies before the Senate Banking Committee in the first of two days of semi-annual testimony to Congress, required by law. On Wednesday, he will testify before the House financial services committee.

Rising interest rates generally reflect optimism that the economy is about to grow faster, which may accelerate inflation. But they can also weaken growth, especially if the Fed were to respond to rising inflation by raising its benchmark rate faster than the markets expect.

Powell did not mention the sharp rise in long-term rates this year or the rise of the stock market to sparkling levels in his written testimony.


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