America’s two top economic policymakers will warn lawmakers on Tuesday that the Delta variant of the coronavirus has slowed the economic recovery but will convey optimism about the economy’s overall trajectory, according to prepared remarks.
Treasury Secretary Janet L. Yellen and the Federal Reserve chair, Jerome H. Powell, will testify before the Senate Banking Committee as the U.S. economy is at a crossroads, with businesses facing labor shortages and consumers coping with rising prices amid a resurgent pandemic. Congress is also grappling with a thicket of legislative challenges in the coming days, all of which could have an impact on the economy.
They include extending federal funding to avoid a U.S. government shutdown, raising the debt limit to prevent defaulting on the nation’s financial obligations and passing President Biden’s infrastructure and social safety net packages.
“While our economy continues to expand and recapture a substantial share of the jobs lost during 2020, significant challenges from the Delta variant continue to suppress the speed of the recovery and present substantial barriers to a vibrant economy,” Ms. Yellen will say, according to her prepared remarks. “Still, I remain optimistic about the medium-term trajectory of our economy, and I expect we will return to full employment next year.”
The testimony will offer Ms. Yellen and Mr. Powell a chance to publicly press lawmakers to take action to raise or suspend the nation’s borrowing cap and to warn of the calamitous consequences if the United States defaulted on its obligations. Ms. Yellen has cautioned that debt-limit brinkmanship is eroding confidence in the United States and that a default, which could happen as soon as mid-October, would do irreparable harm to the economy.
In a letter to Congress ahead of the hearing, Ms. Yellen said that Treasury is likely to exhaust the “extraordinary measures” she has been employing to delay a default if Congress has not acted to raise or suspend the debt limit by Oct. 18.
“At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” she wrote. “It is uncertain whether we could continue to meet all the nation’s commitments after that date.”
For weeks, Ms. Yellen has been quietly pressing lawmakers to put politics aside and ensure that the United States can continue to meet its fiscal obligations. She has been in touch with Wall Street chief executives and former Treasury secretaries as she looks to keep markets calm and find allies who can help her make the case to recalcitrant Republicans, who believe Democrats must deal with the debt limit on their own.
“It is imperative that Congress swiftly addresses the debt limit,” Ms. Yellen will say. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”
Mr. Powell is slated to tell senators that the Fed will continue to support the economy with its monetary policies, which influence how expensive it is to borrow and spend. But he will also make it clear that Fed officials will act if a recent jump higher in prices persists.
“Inflation is elevated and will likely remain so in coming months before moderating,” Mr. Powell is prepared to say, based on remarks released Monday afternoon.
He will cite the lingering coronavirus pandemic as a risk to the economic outlook, according to his prepared statement.
Mr. Powell has also fretted about the debt limit in recent weeks, saying during a news conference last week that default is “just not something that we should contemplate,” and that “no one should assume that the Fed or anyone else can protect the markets or the economy in the event of a failure, fully protect in the event of a failure to make sure that we do pay those debts when they’re due.”
Ms. Yellen and Mr. Powell will testify again on Thursday before the House Financial Services Committee.