What Secretary Yellen and Chairman Powell’s Congressional Testimony Mean
There’s a great parable relayed in the movie Charlie Wilson’s War between Rep. Charles Wilson and CIA agent Gust Avrakotos, played by Tom Hanks and Phillip Seymour Hoffman. It’s about a Zen master and a boy. The Zen master repeats the phrase, “we’ll see,” while others in the fable quickly declare something is wonderful or terrible.
Newly appointed U.S. Treasury Secretary Janet Yellen and U.S. Federal Reserve Chairman Jerome Powell channeled their inner Zen master and told members of Congress that “we’ll see” about the American recovery from the COVID-19 pandemic.
Yellen and Powell answered questions from the House Financial Services Committee last Tuesday and the Senate Banking, Housing, and Urban Affairs Committee last Wednesday. Both spoke at length about the tremendous financial tools being used to combat the coronavirus.
Yellen and Powell credit the CARES Act and the just-signed American Rescue Plan for keeping the stock market in good shape and stopping additional economic damage.
Yellen was more positive, saying that the American economy could return to full employment by next year. Powell was more cautious, saying, “[the] recovery is far from complete and we will provide the support that it needs for as long as it takes.”
This week’s hearings make clear that the economy is in the “we’ll see” phase.
Congressional hearings are largely boring, but they offer a “reverse narrative” for those watching, where more can be learned about what is asked to those testifying than the actual answers provided.
Powell was pushed on the FED’s indefinite “dovish monetary policy” by Senator Pat Toomey, asking whether we could see inflation when the economy gets going. Sen. Toomey is referencing the tremendous growth in the Federal Reserve balance sheet since March 2020, climbing from four to seven trillion dollars in a few months and calls into question how the FED will “balance” unwinding its books, or assets it has, and rolling back on quantitative easing without driving the economy haywire.
Many are connecting the dots between the Biden administration’s recent announcement to split a $3 trillion spending and infrastructure plan into two bills funded by corporate and wealth taxes with Secretary Yellen’s answer that, “Longer run, we do have to raise revenue to support permanent spending that we want to do,” according to the Wall Street Journal.
For those trying to read the economic tea leaves, there are other tools available apart from Yellen and Powell’s comments. The Federal Reserve “Beige Book” is an indicator of how each of the twelve Federal Reserve districts “feel” about key sectors and industries in their district.
The Beige Book is a qualitative – think descriptive data, not measurable like quantitative – snapshots for assessing the American economy. Summaries are provided by each of the twelve Federal Reserve regions, so you may learn about the agriculture market from the St. Louis branch or real-estate trends in from New York.
It is published eight times a year, so observers can get a good snapshot in time of where the economy is headed.
The opening summary from the April 15, 2020 Beige Book notes that, “economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic.” It also noted that, “employment declined in all Districts, steeply in many cases, as the COVID-19 pandemic affected firms in many sectors . . . (with job cuts) most severe in the retail and leisure and hospitality sectors…”
The latest Beige Book (published March 3) offers a more positive economic outlook, noting that “economic activity expanded modestly from January to mid-February for most Federal Reserve Districts (and) most businesses remain optimistic regarding the next 6-12 months as COVID-19 vaccines become more widely distributed.”
If there is one takeaway from this week’s financial hearings and the latest Beige Book is a sense of optimism. Hopefully this optimism will translate to a sustained economic re-opening, and a return to a robust American economy in the months ahead.
Evan Harris is the media relations and outreach manager for Pacific Research Institute.