The way Federal Reserve Chair Jerome Powell sees it, the U.S. labor market has a long way to go to meet the central bank’s maximum employment goal and a lot of boxes to tick along the way.
In his most extensive effort to explain how the Fed will measure progress toward a goal prioritized last month under the Fed’s new framework, Powell was clear on Wednesday that he and other policymakers were not focused on any single number, such as the unemployment rate.
“Maximum employment is not something that can be reduced to a number the way inflation can,” Powell told a news conference after the Fed announced its commitment to keep interest rates low until they are convinced of the job market’s strength and that inflation is on track to run above the Fed’s 2% goal for some time.
“It’s a range of factors,” he said. “We’re not looking at a rule. We’re looking at a judgmental assessment.”
Powell laid out a menu of factors – including wage growth, workforce participation and disparities in minority joblessness relative to whites – that must be satisfied before the Fed would view the economy at maximum employment, and thus even consider raising interest rates.
But the Fed chief also said the central bank was limited in how much it could do to help close some of those gaps, suggesting it may be up to Congress to roll out policies that can help disadvantaged workers land jobs or help to address income inequality.
“We would like to get back to a strong labor market where wages are moving up, where people can find work, where labor force participation is holding up nicely,” Powell said. “That’s what we’d really love to get back to.”
Nonetheless, the labor market is starting to improve, as seen by the drop in the unemployment rate to 8.4% from a coronavirus pandemic high of 14.7%, Powell said. The number of Americans filing initial claims for unemployment benefits also dropped from very high levels at the height of the crisis, he pointed out.
Yet the number of people seeking jobless benefits for the first time each week is still about five times as high as it was before the pandemic, Powell said.
“The overall picture is clear,” Powell said
“And that’s that the labor market has been recovering but that it’s a long way, a long way from maximum employment,” he said.
