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By Dan Burns e Howard Schneider
(Reuters) – The US economy has shown “marked improvement” since the coronavirus pandemic led the country into a recession starting in March, but the road ahead remains uncertain and the US central bank is ready to do more. if necessary, Jerome Powell, chairman of the Federal Reserve, told a Congressional panel on Tuesday.
Highlighting the recovery in household jobs and spending since the economic crisis, Powell said the United States still remains far from where it was and that “the road ahead remains highly uncertain”.
“(…) A full recovery is likely to occur only when people are confident that it is safe to re-engage in a wide range of activities” with the coronavirus under control, he added.
Until then, Fed officials “remain committed to using our tools to do what we can, for as long as necessary, to ensure that the recovery is as strong as possible, and to limiting lasting damage to the economy,” Powell said in a statement. comments prepared for the Financial Services Committee of the US House of Representatives.
The hearing, which will include testimony from US Treasury Secretary Steven Mnuchin, is the first of three this week when the Fed chair will face questions about the central bank’s response to the pandemic and its implementation of the Cares law, a package 2.3 trillion dollars to combat the effects of the pandemic.
Mnuchin, in comments prepared for the committee, said he felt the economy “will see tremendous growth in the third quarter, fueled by strong retail sales, home construction and used home sales, manufacturing growth and increased commercial activity”. Still, another “targeted package” of tax relief was needed, said the Treasury secretary.
Congress approved the $ 2.3 trillion aid in late March as the basis for the United States federal government’s economic response to the pandemic. The text authorized the Treasury to finance a number of Fed loan and credit programs.
Powell is likely to receive criticism from Democratic-controlled committee MPs concerned about the limited use of programs designed to help small businesses, even with other Fed actions triggering a stock market recovery that has helped investors recover from previous losses.
Meanwhile, unemployment remains high and about 29 million Americans are receiving some form of unemployment insurance week after week.
The state of the economy and the course of the pandemic are central issues in the November 3 presidential elections.
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The pandemic has dealt a death blow to the longest economic expansion in US history, with widespread business closures and social isolation orders triggering the biggest drop in activity since at least World War II.
The Fed responded by cutting interest rates to almost zero, increasing bond purchases and launching nearly a dozen emergency credit lines, several of them with Treasury support.
In all, Powell said, the Fed “helped unlock” $ 1 trillion in funding to prevent companies from closing so that they can reheat workers more easily when the economy recovers. But the money lent to companies has been far from that amount.
The Fed’s $ 600 billion Main Street program has so far financed or is in the process of financing $ 2 billion for companies that cannot obtain credit otherwise, Powell said. Critics say the Fed and the Treasury should facilitate borrowing.
Congress is at a standstill in negotiations over additional support for unemployed Americans after a $ 600 federal weekly unemployment benefit expired over the summer in the U.S.
Powell said additional federal stimulus is likely to be needed, although White House chief economic adviser Larry Kudlow said the recovery was “self-sustaining” without them.
Tuesday’s hearing is chaired by California Democratic Representative Maxine Waters.
Powell will appear on Wednesday at a hearing by the House Subcommittee on the Coronavirus Crisis, chaired by Democratic Congressman James Clyburn of South Carolina. And on Thursday, the Fed chair will speak before the Senate Banking Committee, chaired by the Republican Senator Mike Crapo of Idaho.
Mnuchin will also testify in the Senate on Thursday.
(Reporting by Dan Burns in Connecticut; Ann Saphir in Berkeley, California; and Andrea Shalal and Howard Schneider in Washington)