America’s two top economic leaders warned lawmakers on Tuesday that the delta variant of the coronavirus has slowed economic recovery but is conveying optimism about the overall development of the economy.
Treasury Secretary Janet L. Yellen and Federal Reserve Chairman Jerome H. Powell testify to the Senate Banking Committee at a critical moment. Businesses face labor shortages and consumers struggle with soaring prices amid a resurgent pandemic. Congress is also grappling with a thicket of legislative challenges in the coming days, all of which could affect the economy.
These include the need to increase federal funding to avoid closing the U.S. government, raise the debt ceiling to prevent the country from defaulting, and pass President Biden’s infrastructure and social security packages.
In a letter to Congress before the hearing and in her opening speech, Ms. Yellen said the Treasury Department is likely to exhaust the “extraordinary measures” she has taken to delay a default if Congress has not acted to meet the debt ceiling to increase or suspend until October 18th.
“At this point we assume that the Treasury Department is left with very limited resources that will run out quickly,” she said. “It is uncertain whether we will be able to continue fulfilling all of the nation’s commitments after that date.”
For weeks, Ms. Yellen has been quietly urging lawmakers to put politics aside and ensure that the United States can continue to meet its fiscal obligations. She has reached out to Wall Street chiefs and ex-Treasury officials to keep markets calm and find allies who can help represent the recalcitrant Republicans who believe the Democrats will have to tackle the debt ceiling on their own.
“It is imperative that Congress quickly address the debt ceiling,” said Ms. Yellen. “The full confidence and creditworthiness of the United States would be compromised and our country would likely face a financial crisis and economic recession.”
Ms. Yellen also warned that although the economy is recovering, it is still in a “fragile” state.
“As our economy continues to expand and reclaim a significant portion of the jobs lost in 2020, significant challenges of the Delta variant continue to hold back the pace of recovery and pose significant barriers to a dynamic economy,” Yellen said in her opening remarks. “Nevertheless, I remain optimistic about the medium-term development of our economy and assume that we will return to full employment next year.”
Mr Powell told Senators that the Fed will continue to support the economy with monetary policies that affect how expensive it is to borrow and spend. But he also made it clear that if the recent price hike continues, Fed officials will act.
“Inflation is up and is likely to remain so for the months ahead before it eases,” Powell said in his prepared remarks.
According to his prepared statement, he cited the ongoing coronavirus pandemic as a risk to economic prospects.
Mr Powell has also been concerned about the debt limit for the past few weeks, saying during a press conference last week that default is “just not something we should consider” and that “no one should assume the Fed or anyone else Fully protect the markets or the economy in the event of failure if we fail to ensure that we pay these debts when they become due. “
Ms. Yellen and Mr. Powell will testify again before the House Financial Services Committee Thursday.