Americans should be back to work by next year, though Biden administration leaders said more needs to be done to get the economy on track. Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell told lawmakers Tuesday the country has avoided the worst of the economic fallout from the coronavirus pandemic, expressing cautious optimism for the nation’s economic outlook.
“With the passage of the Rescue Plan, I am confident that people will reach the other side of this pandemic with the foundations of their lives intact, and I believe they will be met there by a growing economy,” Yellen said during her opening statement Tuesday before the House Financial Services Committee.
She and Powell testified virtually as part of the committee’s oversight of the federal response to the pandemic, their first joint appearance as part of the administration. The Treasury Department is implementing multiple provisions of the $1.9 trillion stimulus package.
Republicans raised concerns about the costs amid reports of a $3 trillion proposal to put more money toward job creation, as well as reports the Biden administration could look to increase taxes on corporations to 28%, among other tax changes, to pay for the proposal. But Yellen said studies do not show that changing the corporate tax rate would pass costs down to consumers.
“We’ll address infrastructure, risks from climate change, education, training,” said Yellen. “I think a package that consists of investments in people, investments in infrastructure will help to create good jobs in the American economy and changes to the tax structure will help to pay for those programs.”
Powell said the worst of the economic fallout from the coronavirus pandemic was avoided thanks to the swift actions of Congress and the Federal Reserve. And Yellen said she expects the United States could see a return to full employment next year.
“The Biden administration is not going to propose policies that hurt small businesses or Americans,” Yellen said in an intense exchange over taxes. “The Biden administration is going to propose investments this economy long needed to be competitive and productive.”
Republican lawmakers also sounded alarms on how the current spending in the American Rescue Plan and other efforts moving forward would drive up prices. Powell downplayed concerns about inflation and rising prices.
“Our best view is that the effect on inflation will be neither particularly large nor persistent,” Powell said. He also said the Federal Reserve has the tools to address it should the need arise.
While the hearing was predominantly focused on economic recovery, lawmakers did ask about other fiscal matters – including concerns by Republicans that regulators will move to tackle climate change through financial supervision. Powell said it is not Federal Reserve policy to tell banks what legal businesses they can or should lend to.
“We’re at the very early stage of understanding the risk to financial institutions from climate change,” said Powell. “It is a risk that we think the public has every right to expect that we will assure that that banks do manage over time.”
Since being confirmed as Treasury secretary, Yellen has put a priority on addressing climate change, an effort shared throughout the Biden administration, but she dismissed it being used by financial regulators to govern businesses.
“We agree that financial regulators should be assessing the risks to financial institutions through stress testing and other techniques and that investors need disclosure of risks,” Yellen said, “but have no plan to regulate what lending or investments can be done.”