America’s top two economic officials told senators on Wednesday that the economy is healing but still in a deep hole and that continued government support is providing a critical lifeline to families and businesses.
The remarks by Jerome H. Powell, the Federal Reserve chair, and Janet L. Yellen, the Treasury Secretary and Mr. Powell’s immediate predecessor at the Fed, before the Senate Banking Committee echoed their testimony before House lawmakers on Tuesday.
Mr. Powell said in his remarks that the government averted the worst possible outcomes in the pandemic economic recession with its aggressive spending response and super-low Fed interest rates.
“But the recovery is far from complete. So at the Fed, we will continue to provide the economy the support that it needs for as long as it takes,” he said.
Ms. Yellen, who pushed hard for the recently passed $1.9 trillion relief package, said responding to a crisis with a needed surge of temporary spending without paying for it was “appropriate.”
“Longer-run, we do have to raise revenue to support permanent spending that we want to do,” she said.
She said expanded unemployment insurance, part of the recent relief package, does not seem to be discouraging work and is needed at a time when the labor market is not at full strength.
“While unemployment remains high, it’s important to provide the supplementary relief,” Ms. Yellen said, noting that the aid lasts until the fall. She said the aid should be phased out as the economy recovers.
The Biden administration is also making plans for a $3 trillion infrastructure package, and Republicans on the committee expressed concern about the mounting deficits facing United States.
They also confronted Ms. Yellen over her expected support for a new allocation of $650 billion of the International Monetary Fund’s Special Drawing Rights, an expansion of its reserves intended to help poor countries combat the pandemic.
Critics, such as Senator John Kennedy, Republican of Louisiana, argued that the United States would be effectively spending money to help adversaries such as China and Russia. He argued, without explanation, that the decision would cost the United States $180 billion.
“There is no money to be paid back — it doesn’t matter,” Ms. Yellen told Mr. Kennedy. “I don’t know where you got a number like that from.”
Firing back, Mr. Kennedy said, “No disrespect, but I think you’re wrong.”
The fact that the government is spending so much, and contemplating spending more, at a time when the economy is recovering has also stoked concerns about inflation among some economists and lawmakers. A few have voiced concern that the Fed, which has interest rates at rock-bottom and is buying bonds in big quantities to help the economy, might be too slow to react if higher prices materialize.
The stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.
Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more
This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.
There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.
The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.
“I do worry that the Fed may be behind the curve when inflation inevitably picks up,” Senator Patrick J. Toomey, Republican of Pennsylvania, said during his opening remarks.
But Mr. Powell has consistently pushed back on warnings about runaway inflation and did so again on Wednesday.
“We think the inflation dynamics that we’ve seen around the world for a quarter-century are essentially intact — we’ve got a world that’s short of demand, with very low inflation,” Mr. Powell said. “We think those dynamics haven’t gone away overnight, and won’t.”
Asked specifically about potential supply and demand mismatches — particularly in the context of a ship that had gotten stuck in the Suez Canal, but also in general as the economy reopens — he struck a similarly unconcerned tone.
“A bottleneck, by definition, is temporary,” he said.
He also batted back concerns about a recent increase in market-based interest rates. The yield on 10-year Treasury notes, a closely watched government bond, has moved up since the start of the year.
“Rates have responded to news about vaccination, and ultimately, about growth,” Mr. Powell said. “That has been an orderly process. I would be concerned if it were not an orderly process, or if conditions were to tighten to a point where they might threaten our recovery.”