Jobs Market Has Long Recovery Ahead, Says Fed’s Powell

The U.S. is a long way from a strong job market, Federal Reserve Chairman

Jerome Powell

said Thursday, an indication that the central bank’s easy-money policies will remain in place for the foreseeable future.

Friday’s U.S. jobs report—which showed the U.S. lost 140,000 payroll positions in December—pushes the central bank farther from its goals, though officials and many private economists expect the economy to rebound this year as a Covid-19 vaccine is distributed through the population. A Wall Street Journal survey of forecasters this month projected the U.S. economy will grow 4.3{c25493dcd731343503a084f08c3848bd69f9f2f05db01633325a3fd40d9cc7a1} this year and the unemployment rate will drop from 6.7{c25493dcd731343503a084f08c3848bd69f9f2f05db01633325a3fd40d9cc7a1} in December to 5.3{c25493dcd731343503a084f08c3848bd69f9f2f05db01633325a3fd40d9cc7a1} by the end of this year.

“We are a long way from maximum employment,” Mr. Powell said in a webcast with Princeton University, his undergraduate alma mater.

The Fed has pushed short-term interest rates to near zero and signaled it intends to keep them there for a long time. It also has been buying $80 billion in Treasury securities and $40 billion in mortgages bonds, net of redemptions, every month since June and committed to continue doing that until it sees “substantial further progress” in the job market.

The Fed aims for 2{c25493dcd731343503a084f08c3848bd69f9f2f05db01633325a3fd40d9cc7a1} inflation over time and a strong job market. Its easy-money policies are aimed at promoting that. Mr. Powell said the appropriate moment for interest-rate increases to stave off higher inflation would be “no time soon.”

The Fed doesn’t have a formal target for unemployment. Mr. Powell noted that the jobless rate fell lower than expected before the Covid-19 pandemic without stoking inflation. In the future, he said, a strong job market would be one in which people on the fringes of the labor market—including low-skill and low-income workers—are drawn into jobs.

He added that under the Fed’s new framework for interest-rate policy launched last year, the central bank won’t raise interest rates to prevent unemployment from falling unless it sees a serious risk of excessive inflation.

After a burst of activity to support the economy in 2020, the Fed could take a back seat to the U.S. Treasury in 2021. The new Biden administration is expected to launch large spending programs to boost economic growth and the Fed has indicated its policies are likely to hold steady.

Mr. Powell said a strong fiscal policy response to the latest crisis could help the economy to recover sooner than it did after the 2007-2009 crisis, when he said fiscal policy was tightened too quickly.

The U.S. unemployment rate shot up faster than in any other developed country during the pandemic. WSJ explains how differences in government aid and labor-market structures can help predict how and where jobs might recover. Video/Illustration: Jaden Urbi/WSJ (Originally Published Sept. 4, 2020)

Write to Jon Hilsenrath at [email protected]

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