US pandemic aid was 'a lot' – but it fueled a world-beating recovery and inflation is being managed, Fed's Powell says

• Pandemic stimulus "was a lot," but it fueled a superlative recovery, Fed Chair Jerome Powell said on Wednesday.
• It's "too early" to tell whether the aid helped create the highest inflation in 40 years, he added.

The US government's pandemic-era aid helped drive inflation higher. But that might just be the cost of a world-class economic recovery, Federal Reserve Chair Jerome Powell said Wednesday.

Congress and the Fed used brand-new playbooks for saving the economy at the start of the coronavirus crisis. The central bank slashed its benchmark interest rate to zero, started buying up swaths of financial assets, and created several emergency lending programs to flood the economy with cheap cash and keep markets afloat. Lawmakers passed the $2.2 trillion CARES Act and, in the following months, approved huge follow-up stimulus plans. Both approaches were dramatic departures from the more modest support put in place during the Great Recession.

The dual approaches powered a recovery that's been an order of magnitudes faster than that seen after the financial crisis. Yet they've also been criticized for creating the sky-high inflation and labor shortages seen today.

The country's early aid was "a lot," and it's "too soon" to say whether the early pandemic aid is at fault for the recent headwinds, Powell said in a press conference. Still, the actions were taken while the economy faced a "shocking" drop in activity, and the recovery since has been superlative.

"What we did was a lot. And what we have now is, we have the strongest recovery of any country, and we have a recovery that looks completely unlike other recoveries that we've had because we've put so much support behind the recovery," Powell said. "And we're managing the relatively high-class problems that come with that, which are high inflation and a labor shortage."

The data backs Powell up. The US added 6.4 million jobs in 2021, more than any year in history. The hiring recovery is also running three times faster than the rebound from the Great Recession, despite the initial decline being more than twice as deep. It's the same story with the unemployment rate, which has fallen back to historic lows in a fraction of the time it took after previous recessions.

Gross domestic product is similarly surging. Data out Thursday showed the US economy growing 5.7% through 2021, marking the fastest one-year expansion since 1982. In so many ways, the US just experienced the V-shaped recovery it was hoping for.

That boom is now coming to an end. Powell gave his clearest hint yet on Wednesday that the central bank will start raising its benchmark interest rate in March, kicking off a lengthy process of reining in pandemic-era support and fighting harder against inflation. Tighter monetary conditions are needed for both a healthy labor-market recovery and lower inflation, Powell said.

It remains to be seen whether the Fed is moving too late on inflation or if everything will go according to plan. The government rolled out remarkably ambitious aid early in the pandemic, and the economy has since enjoyed a remarkably fast recovery. While obstacles remain, the impetus for such generous support certainly existed, Powell said.

"Was it too much? I'm going to leave that to the historians. But in 25 years we'll look back on this incident ... and we'll have a much better basis to make a judgment about the actions that people took," he added. "But it was all founded in a very strong reaction to a unique historical event."