The Fed chair said there was still "reluctance" among many workers to head back to work during the pandemic, particularly those who held jobs in the service sector where close contact with customers is the norm.
Powell said that possibility "probably" mandates an extension of boosted unemployment benefits.
"I would just say ... it probably is going to be important that it be continued in some form ... but you wouldn't want to go all the way to zero on that," Powell told lawmakers on Wednesday.
Republicans largely oppose extending the $600 weekly federal boost to unemployment payments, while Democrats are pushing to extend it through the end of the year.
The increases are set to expire on July 31 without any further replacement, but many economists say that it won't be possible for millions of unemployed people to re-enter the workforce anytime soon since jobs will be scarce.
A bipartisan group of top economists unveiled on Tuesday a plan to implement beefed-up payments of up to $400 a week tethered to unemployment rates in individual states.
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