Federal Reserve Chairman Jerome Powell painted a bleak picture of the labor market Wednesday, saying that joblessness is probably worse than the official data indicate and that it could be difficult to get back to full employment in the foreseeable future.
In comments delivered to the Economic Club of New York, Powell said the economy is still “a long way” from where it needs to be to enable millions of people to return to work. “Fully realizing the benefits of a strong labor market will take continued support from both near-term policy and longer-run investments so that all those seeking jobs have the skills and opportunities that will enable them to contribute to, and share in, the benefits of prosperity,” he said, according to prepared remarks.
The Fed chief emphasized that monetary policy alone won’t be able to heal the job market. “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 sustaining maximum employment will require more than supportive monetary policy,” Powell said. “It will require a society-wide commitment, with contributions from across government and the private sector.”
10% unemployment? Reviewing the change in the labor market over the last year, Powell noted that there are problems with the way unemployment is measured. “After rising to 14.8 percent in April of last year, the published unemployment rate has fallen relatively swiftly, reaching 6.3 percent in January,” he said. “But published unemployment rates during COVID have dramatically understated the deterioration in the labor market. Most importantly, the pandemic has led to the largest 12-month decline in labor force participation since at least 1948.”
Additionally, errors seem to be distorting the picture. “[T]the Bureau of Labor Statistics reports that many unemployed individuals have been misclassified as employed. Correcting this misclassification and counting those who have left the labor force since last February as unemployed would boost the unemployment rate to close to 10 percent in January,” Powell said.
Interest rates will stay low for a while. The Fed will continue to keep interest rates low and engage in substantial asset purchases, Powell said, in keeping with its revised framework that puts more weight on labor market conditions. The central bank is unlikely to “even think about withdrawing policy support” anytime soon. “In particular, we expect that it will be appropriate to maintain the current accommodative target range of the federal funds rate until labor market conditions have reached levels consistent with maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time,” Powell said.