Fed chair: These are ‘extraordinary times’ for economy

WASHINGTON — Federal Reserve Chair Jerome Powell said Tuesday that the U.S. economy appears to be in the midst of a “remarkably positive” period that is unprecedented in modern history.

The Fed is predicting unemployment will remain below 4 percent through 2020 and that inflation will remain low — around 2 percent — during that time. This has never happened before in modern U.S. history. The last time unemployment was that low for several years, in the 1960s, it triggered high inflation, but the central bank and many forecasters don’t believe that will occur this time.

“This historically rare pairing of steady, low inflation and very low unemployment is a testament to the fact we remain in extraordinary times,” Powell said at the annual meeting of the National Association for Business Economics. “I was asked at last week’s news conference whether these forecasts are too good to be true — a reasonable question.”

There is uneasiness at the Fed about predicting such an unprecedentedly rosy period, and Powell said he and his colleagues have a contingency plan in place if the economy veers off the path they are predicting.

“Our ongoing policy of gradual interest rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary times,” he said.

President Donald Trump has taken credit for the strong U.S. economy and also criticized the Fed for raising interest rates too quickly, which Trump fears could cause growth to falter.

When unemployment is this low, businesses typically struggle to find workers and companies are often forced to raise pay to try to lure workers to their firms. That, in turn, causes businesses to hike prices that consumers pay at the store or elsewhere. This relationship between unemployment and inflation is known as the Phillips Curve among economists, but some have questioned lately whether the curve isdead.

Powell said he doesn’t think the Phillips Curve is dead, but he also doesn’t think inflation is going to jump anytime soon even though the labor market is much tighter now. He argues the Fed is aware of the risks and doing a much more active job of managing inflation expectations than in the 1960s.