Federal Reserve Chairman Jerome Powell painted a bleak picture of the state of US employment on Wednesday, saying that continued aggressive policy support is needed to solve the myriad problems workers still face.
Addressing this problem requires a “patient accommodative monetary policy that embraces the lessons of the past” regarding the benefits that low interest rates bring to the labor market, the central bank chief told the Economic Club of New York .
Although the economy has reclaimed more than 12 million jobs since the early days of the Covid pandemic, Powell said the US is “a long way” from where it needs to be in terms of employment.
“ Fully realizing the benefits of a strong labor market will require continued support from both short-term policies and longer-term investment, so that all those seeking employment have the skills and opportunities that will enable them to contribute to and to share in the benefits. of prosperity, ”he said in prepared remarks.
The pace of job creation has slowed significantly.
While the unemployment rate has fallen from its 2020 high of 14.8% to 6.3%, nonfarm payrolls rose by just 49,000 in January and dropped by 227,000 in December. More than 10 million workers are still jobless – 4.4 million more than before the pandemic a year ago.
Powell went on to say that the overall unemployment rate “dramatically underestimates” the true harm, including the largest 12-month drop in the labor force participation rate since at least 1948.
Without misclassification errors that have plagued the labor department since the pandemic started in March, the unemployment rate would be closer to 10%, Powell added. He also noted that the impact was particularly stressful on lower incomes, with employment in the lower quartile declining 17% during the coronavirus crisis, while the top tier fell only 4%.
“Despite the surprising speed of recovery at the outset, we are still a long way from a strong job market whose benefits are widely shared,” Powell said.
To address inequalities, the Fed changed its approach to full employment six months ago to make it a “broad and inclusive” target and said it will not raise interest rates until that target is met. Central to the approach is a willingness to let inflation run slightly hotter than the Fed’s default 2% target for price stability.
Powell noted that in the closing years of the record expansion that ended a year ago, wage and employment gains were more evenly distributed while the unemployment rate declined, without the threat of high inflation. When the unemployment rate fell in the past, the Fed would raise interest rates to counter inflation, but will not now.
The Fed maintains its benchmark short-term loan rates anchored near zero and buys at least $ 120 billion in bonds every month.
Although he said he is confident that the Fed’s new approach will lead to better results, he said monetary policy alone cannot do everything.
“ Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and maintaining maximum employment requires more than just supportive monetary policy. with contributions from the entire government and the private sector, ”he said.
Powell added that mass vaccinations will help, as will tax programs like the Paycheck Protection Program, which provides loans to companies that keep employees.