Federal Reserve Chair Jerome Powell on Wednesday underscored the Fed’s commitment to reducing unemployment to multi-decade lows, where it stood before the pandemic, while signaling little concern about the risk of potentially high inflation or financial market instability.
Powell stressed in prepared remarks for a webcast to the Economic Club of New York that the job market was far from fully recovered and that the Fed isn’t considering any increase in its benchmark short-term interest rate from its current level near zero. He did not refer to the surging stock market or to recent signs of market froth, like the explosive volatility in the prices of GameStop and other stocks targeted by ordinary day traders.
“Despite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared,” Powell said.
The Fed last year refined its definition of maximum employment as a “broad and inclusive” goal that includes consideration of the unemployment rate of Black and Hispanic Americans as well as overall joblessness.
President Joe Biden is pushing a $1.9 trillion economic rescue package that has raised concern among some economists about potential inflation, in part because millions of Americans who have been fortunate enough to keep jobs have accumulated significant savings. Once vaccines are more widely distributed, those savings could fuel a burst of spending beyond what still-decimated businesses could handle, spurring higher prices.
Powell last month said any inflation that resulted would likely be temporary. On Wednesday, he highlighted the fact that inflation remained low even when unemployment fell to 3.5% just before the virus intensified.
“There was every reason to expect that the labor market could have strengthened even further without causing a worrisome increase in inflation were it not for the onset of the pandemic,” he said.
