WASHINGTON (AFP) - The US economy is a long way from a strong job market and the experience of past recessions shows it could take years to recover, Federal Reserve chairman Jerome Powell said on Wednesday (Feb 10).
In addition to mass vaccinations to halt the Covid-19 health crisis, it will take a full suite of government policies to repair the damage done by the pandemic to the US labour market, the central bank chief said in a speech.
“Despite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared,” Powell told the Economic Club of New York.
He again noted the true jobless rate is about 10 per cent, far above the official 6.3 per cent rate in January, after adding in people who have given up looking for a job and workers who were laid off but misclassified as employed.
The damage is not equally shared and has eroded progress during the decade-long recovery that preceded the pandemic and brought gains for minority groups, especially African Americans, he said.
That experience showed “it can take many years to reverse the damage” to the workforce.
While the central bank has said explicitly it will not raise interest rates as unemployment begins to fall, Powell said that responding to the crisis will require more than the Fed alone.
Repairing the damage “will require a society-wide commitment, with contributions from across government and the private sector,” he said.
He also highlighted the Fed’s pledge to continue to purchase large amounts of assets to ensure high levels of money flow through the economy.
But Powell cautioned, “Experience tells us that getting to and staying at full employment will not be easy,” and workers and households “are likely to need continued support.”
He also stressed that “policies that bring the pandemic to an end as soon as possible are paramount.”
President Joe Biden’s proposed US$1.9 trillion (S$2.5 trillion) rescue package includes funds to accelerate vaccinations and aid families and businesses suffering from the Covid-19 downturn, which caused widespread layoffs as businesses were forced to close or curtail operations.
Pledging to “stick to our knitting,” Powell declined to weigh in on the specifics of Biden’s plan, saying that was a question for Congress.
But he repeatedly downplayed concerns about the risks of a rise in inflation, which some economists, most prominently former Treasury secretary Larry Summers, have said could happen if stimulus is excessive or poorly targeted.
Even when unemployment fell to a 50-year low of 3.5 per cent in February 2020, inflation remained moderate and barely achieved the Fed’s 2 per cent goal, Powell noted.
“Year after year after year, inflation fell short of that” target, due to dynamics of the past three decades that severed the previous link between low joblessness and rising prices.
In the current environment, “we want to see actual inflation,” Powell said.