Federal Reserve Chairman Jerome Powell on Wednesday gave an unpleasant picture of the state of employment in the United States, saying continued aggressive political support is needed to address the countless problems workers still face.
Addressing the issue will require a “patient monetary policy of accommodation that embraces the lessons of the past” on the benefits of low interest rates on the labor market, the head of the central bank told the New York Economic Club.
Even though the economy has recovered more than 12 million jobs since the early days of the Covid pandemic, Powell said the United States is “a long way off” from where it needs to be in terms of employment. the work.
“Fully reaping the benefits of a strong labor market will require continued support from both short-term and long-term investment, so that all jobseekers have the skills and opportunities that will enable them. to contribute to the benefits and share the benefits of prosperity, “he said in prepared remarks.
The pace of job creation has slowed considerably.
Although the unemployment rate fell from a high in 2020 of 14.8% to 6.3%, non-agricultural wages rose by only 49,000 in January and fell by 227,000 in December. More than 10 million workers are still out of work – 4.4 million more than before the pandemic a year ago.
Powell also said that the main unemployment rate “dramatically underestimated” the real damage, including the largest 12-month decline in labor force participation since at least 1948.
Without misclassifications that have affected the Department of Labor since the beginning of the pandemic in March, the unemployment rate would be closer to 10%, Powell added. He also noted that the impact was particularly burdensome for lower-income people, with employment in the lower quartile falling by 17% during the coronavirus crisis, while the upper level declined by only 4%. .
“Despite the surprising speed of recovery from the beginning, we are still a long way from a strong labor market whose benefits are generally shared,” Powell said.
To address the differences, the Fed, six months ago, adapted its approach to full employment to a “broad and inclusive” goal and said it would not start raising interest rates until achieving that goal. The central approach is the willingness to allow inflation to run slightly higher than the Fed’s standard 2% price stability target.
Powell noted that in the last years of record expansion that ended a year ago, earnings and employment began to be more evenly distributed, while the unemployment rate fell without the threat of high inflation. When the unemployment rate fell in the past, the Fed would raise rates as a way to remove inflation, but it will not do so now.
The Fed keeps its benchmark short-term lending rate close to zero and buys at least $ 120 billion worth of bonds each month.
Although he said he was confident the Fed’s new approach would lead to better results, he said monetary policy alone could not 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 sustaining maximum employment will require more than one policy. monetary support. It will require a commitment from society as a whole, with contributions from the government and the private sector, “he said.
Powell added that mass vaccinations will help, as well as tax programs, such as the Wage Protection Program, which provides loans to companies that retain workers.