By Ann Saphir and David Lawder
(Reuters) - Treasury Secretary Janet Yellen said on Wednesday that U.S. banks look healthy enough to be allowed to pay dividends and repurchase stock, an updated view that reflects top economic officials' growing confidence in the recovery from the coronavirus pandemic.
Yellen made her comments in a second day of testimony in Congress alongside Federal Reserve Chair Jerome Powell. The hearings are part of a quarterly economic update they are required to make.
Asked by Senate Banking Committee Chairman Sherrod Brown if she opposed banks paying dividends and buying back stock, Yellen said she was previously opposed to bank stock buybacks, but financial institutions look healthier now and "should have some ability to, abiding by the rules, to make returns to shareholders."
Yellen and Powell, in prepared remarks that mirrored those delivered on Tuesday before the House of Representatives Financial Services Committee, offered an optimistic outlook for the economy, fueled by expectations for continued progress against the pandemic due to vaccine rollouts and another $1.9 trillion of federal relief spending just getting underway.
"It is going to be a very, very strong year in the most likely case," Powell said in response to a senator's question on the economic outlook.
The U.S. economic recovery is evolving faster than expected, but still faces risks from the pandemic on one side and potential inflation on the other as massive fiscal support rolls through the system.
The federal response to the crisis, including spending of about $5 trillion and considerable support from the U.S. central bank, set the stage for a rebound now taking hold as the COVID-19 vaccination program gains momentum and pandemic restrictions are lifted.
However, it remains unclear how quickly millions of still-unemployed workers will find their way back to jobs, whether the Fed can keep markets on an even keel amid rising prices and bond yields, and if initial progress against the pandemic can be sustained.