Powell: Fed has ‘high standard’ for defining full employment

“There’s good reason to expect job creation to pick up in coming months. We need that.”

– FEDERAL RESERVE CHAIRMAN JEROME POWELL

Federal Reserve Chairman Jerome Powell said he and his colleagues have a “high standard” for what full employment means, underscoring that the central bank is likely to be very patient in removing monetary support for the economy.

“Four percent would be a nice unemployment rate to get to, but it will take more than that to get to maximum employment,” Powell said, adding that it is unlikely that the job market will return to full speed this year.

In an online questionand-answer session hosted by The Wall Street Journal, Powell laid out the high hurdles the economy needed to meet before the Fed would pull back its cheap money policies, which include rock-bottom interest rates and large-scale bond purchases.

“It’s going to take some time,” he said.

Powell was speaking at a time when investors have begun to pencil in higher inflation and the prospect that interest rate moves will come sooner than expected. The Fed is trying to guide the economy toward both full employment and stable inflation that averages 2% over time. Longer-term bond yields have moved up since the start of the year as investors grow optimistic about an economic rebound and antsy about how that will change the Fed’s stance.

Powell acknowledged Thursday that the Fed is watching the fluctuation in markets, saying that he “would be concerned” by disorderly conditions in bond markets or a substantial rise that makes credit expensive and threatens the Fed’s goals. But he pushed back on the idea that the central bank was going to remove help rapidly.

“That’s going to depend entirely upon the path of the economy,” Powell said of rate increases. He said the country had to get to maximum employment, inflation must sustainably reach 2%, and those price gains must be on track to exceed 2% for a period before the Fed would contemplate lifting interest rates.

Powell also drew a distinction between a short-term increase in price gains — which is expected to happen for technical reasons this year — and a sustained acceleration in inflation.

“If we do see what we believe is likely a transitory increase in inflation” then “I expect that we will be patient,” Powell said.

When it comes to the job market, Powell pointed out that there are 10 million fewer jobs than before the pandemic, leaving a lot of room for a rebound.

“There’s good reason to expect job creation to pick up in coming months,” Powell said. “We need that.”