Federal Reserve Chairman Jerome Powell on Wednesday painted a boring picture of the state of US employment, stating that continued aggressive political support is required to resolve the myriad of problems workers face.
Solving the problem requires "patiently accommodative monetary policies that take into account the lessons of the past" of the benefits that low interest rates bring to the labor market, the central bank chief told the Economic Club of New York.
Although the economy has reclaimed more than 12 million jobs since the beginning of the Covid pandemic, the US is "far from where it needs to be in terms of employment," Powell said.
"To take full advantage of a strong labor market, both short-term political and longer-term investment will continue to provide support so that all job seekers have the skills and opportunities to enable them to contribute to and share in the benefits of prosperity," he said in prepared remarks.
The pace of job creation has slowed significantly.
Although the unemployment rate fell from its 2020 peak of 14.8% to 6.3%, the number of non-farm workers rose by just 49,000 in January and 227,000 in December. More than 10 million workers are still unemployed – 4.4 million more than before the pandemic a year ago.
Powell said the headline unemployment rate "dramatically underestimated" the real harm, including the largest drop in labor force participation since at least 1948 in 12 months.
Without misclassification errors that have plagued the Department of Labor since the pandemic began in March, the unemployment rate would be closer to 10%, Powell added. He also pointed out that the impact was particularly onerous for low-income earners, as lower-quartile employment fell 17% during the coronavirus crisis, while the top-tier only fell 4%.
"Despite the surprising pace of recovery at the outset, we are still very far from a strong labor market, the benefits of which are largely shared," said Powell.
To address the differences, the Fed adjusted its approach to full employment six months ago to make it a "broad and inclusive" target and said it would not start raising rates until that target is met. Central to the approach is the willingness to let inflation run a little hotter than the Fed's standard target of 2% for price stability.
Powell noted that in the last few years of the record expansion, which ended a year ago, wage and employment gains were more evenly distributed while the unemployment rate fell without the threat of high inflation. If the unemployment rate has fallen in the past, the Fed would raise rates to counter inflation, but will not do so now.
The Fed keeps its short-term benchmark interest rate close to zero and buys at least $ 120 billion worth of bonds every month.
While he said he was confident that the Fed's new approach will produce better results, he said that monetary policy alone cannot 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 maintaining maximum employment requires more than supportive monetary policy. It becomes a societal commitment require … with government and private sector contributions, "he said.
Powell added that mass vaccinations will be just as helpful as tax programs like the Paycheck Protection Program, which gives credit to companies that keep workers.