By Steven K. Beckner
(MaceNews) – Federal Reserve Chairman Jerome Powell hailed recent strong economic indicators Thursday, but said the recovery is uneven and incomplete and vowed continued monetary support “until the job is done.”
Powell, addressing an International Monetary Fund Debate on the Global Economy, repeated that he and his fellow policy-makers on the Fed’s Federal Open Market Committee want to see “actual progress” toward their goals of “maximum employment” and 2% average inflation – not merely forecasts.
The Fed chief once again said he expects any increase in inflation to be “temporary,” although he said the Fed would respond if above-target inflation were to prove “material” and “persistent.”
Powell was speaking as the spring meetings of the International Monetary Fund and World Bank were getting under way.
Powell, part of a panel that included IMF Managing Director Kristalina Georgieva and Eurogroup President Paschal Donohoe, was upbeat in wake of a larger than expected March employment report.
“There are a number of factors are coming together to support a brighter outlook for the U.S. economy, which looks like a faster recovery in economic activity and job creation,” he said on the live-streamed event. He pointed to “substantial fiscal support,” monetary accommodation and “vaccination now moving quickly and on track to allow full reopening of economy fairly soon.”
“Over 100 million Americans have had at least one vaccine; over 60 million are fully vaccinated,
and we’re doing something like three million per day-to-day,” he noted. So that’s moving right along .…”
Powell said, “We got a taste of what faster progress will look like with the March employment report – close to a million jobs, particularly when you add in revisions to January and February.”
“We want to see a string of months like that so we can really begin to show progress toward our goals,” he added.
However, Powell then moderated his enthusiasm. “The recovery here though remains uneven and incomplete,” he said. The burden is still falling on lower income workers. The unemployment rate of the bottom quartile is still 20%, and there’s still 8 ½ million people out of work. And this unevenness that we’re talking about is a very serious issue.”
Powell observed that viruses “are no respecters of borders, and until the world really is vaccinated all of us are still going to be at risk of new mutations, and we won’t’ really be able to resume activities with confidence all around the world ….”
He reemphasized that lower income people, including minorities and women “bore just a very large share of the burden” of the pandemic.
“The unemployment rate among the bottom quartile of earners is now still 20% …,” he noted. “At the higher end, the labor market has virtually recovered, but not for people in the bottom 20%. “
Powell estimated that 9 to 10 million people who were working in February 2020 are now unemployed.
“They were in the labor force, they clearly want to be working but they’re not.”
Powell vowed, “we will not forget those people, and we will provide the economy the support it needs until that job is done.”
With companies retooling and using less workers, he said it will be hard for some people to return to work, and he said “it would be apppropriate for us to continue to support those people.”
People’s lives “can be damaged, even permanently,” he said. “We want to avoid that, and we have avoided a great deal lot of it …. The really bad outcomes we were concerned about a year ago have not materialized. Nevertheless 9-10 million people remain unemployed.”
“We need to keep supporting them and supporting the economy, and we will,” he pledged again.
Asked about tapering the Fed’s $120 billion monthly asset purchases, Powell gave no indication he is near wanting to do that as he echoed the FOMC’s March 17 policy statement.
“What we’ve said about asset our purchases is that they would continue at the current pace until we see substantial further progress toward our goals,” he said. “And that will really mean actual progress; we’re not looking at forecasts for this purpose.”
“We’re looking at actual progress toward our goals,” he continued. “So we will be able to measure that. That’s inflation. It’s also indicators of maximum employment.”
Powell said he views progress, or lack of progress, in global vaccination as “a risk really.”
“And by the way there’s a risk here in the United States as well,” he said. “Cases are moving back up here. We don’t want to get another outbreak .… That would slow down the recovery.”
As he has before, Powell downplayed inflation risks.
He said it’s important to differentiate between “one-time” price increases due to supply bottlenecks and “underlying dynamics.” He predicted supply chain disruptions “won’t be repeated next year… We think supply chains will adapt and become more efficient.”
Observing that “we’ve had roughly 25 years of inflation dynamics where inflation has been low,” Powell said “now we have a situation where economies are reopening; there will be a surge in demand perhaps, bottlenecks perhaps, (but) that’s unlikely to change inflation psychology.”
Powell acknowledged “ there will be upward pressure on prices” and those price increases “may be passed along,” but “we think it will be temporary.”
If that proves wrong, Powell said the Fed is ready to counter excessive inflation. “If inflation, particularly inflation expectations were to move up materially” and if inflation expectations were to become “de-anchored …we would react of course.”
“If we see a move persistently, materially above (2% average target) we would react to that,” he said.
But Powell hastened to add, “We don’t think that’s the most likely outcome, but we have the tools to deal with that outcome.” More likely, is that price increases will not be persistent.