Americans can look forward to a ‘very strong’ labor market in 2022, Fed’s Powell says

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Markets want more clarity from Jerome Powell and the Fed

  • The labor market is on track for a healthy rebound in the coming months, Fed Chair Jerome Powell said.
  • One can expect “strong job creation” in the summer and heading into fall, he added.
  • The labor shortage is temporary, and there’s reason to believe worker supply can exceed expectations, Powell said.
  • See more stories on Insider’s business page.

The labor market is far from a complete recovery, but the country should see encouraging progress over the next several months, Federal Reserve Chair Jerome Powell said Wednesday.

Data tracking Americans’ return to work has been somewhat mixed throughout spring. On one hand, the economy is creating jobs at a steady pace. April and May both saw hundreds of thousands of payroll additions, although April was dismal in light of expectations of much bigger gains. Jobless claims are far lower than they were just months ago. And stronger wage growth suggests businesses are paying up to counter the labor shortage.

On the other, recent reports have fallen short of economists’ forecasts. Jobless claims unexpectedly ticked higher last week. And even at May’s more accelerated rate of payroll growth, it would take until July 2022 to fully recover all the jobs lost during the pandemic.

Despite the downside risks, Powell holds an unquestionably positive outlook for the labor market’s rebound. In a Wednesday press conference, the Fed chair said payroll growth should accelerate in the coming months as the pandemic fades further and more Americans rejoin the workforce.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” Powell said. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

Projections from the Federal Open Market Committee support Powell’s sentiment. Policymakers expect the unemployment rate to slide to 4.5% by the end of 2021 from the May reading of 5.8%. The median forecast for 2022 unemployment was revised slightly lower to 3.8% from the March estimate of 3.9%. Officials then expect the rate to match its pre-pandemic low of 3.5% by the end of 2023.

Powell also downplayed concerns that a shortage of workers would permanently drag on the recovery. The previous economic expansion showed that labor supply can exceed expectations as the unemployment rate sits at historic lows, the Fed chair said. There’s no reason to think that dynamic won’t repeat itself, he added.

In the near term, Powell sees a handful of trends keeping Americans from returning to work. Childcare costs, COVID-19 fears, and enhanced unemployment benefits are likely dragging on labor-force participation, the central banker said, echoing comments from other Fed officials and lawmakers.

Another major hurdle could come from a simple skills mismatch, he added. Americans who could return to their previous jobs have largely done so already, Powell said. With those easy gains out of the way, a significant portion of payroll growth will have to come from Americans finding new work.

“This is a question of people finding a new job, and that’s just a process that takes longer. There may be something of a speed limit on it,” Powell said. “There’s just a lot that goes into the function of finding a job.”

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The US is recovering faster than expected but economic rebound is far from complete, Fed’s Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The US economic recovery has progressed faster than expected, Fed Chair Jerome Powell said.
  • Still, a full recovery is far off and the Fed will keep support in place, he testified to Congress.
  • Today’s unemployment rate of 6.2% “underestimates the shortfall” in the labor market, Powell added.
  • See more stories on Insider’s business page.

Despite lower COVID-19 case counts, encouraging economic data, and an improved rate of vaccination, the US economy has plenty of work to do to fully recover, Federal Reserve Chair Jerome Powell said.

The US is nearing the end of the tunnel. Widespread vaccination suggests the country could have a grasp on the coronavirus’ spread by the summer – or sooner. Key indicators including nonfarm payrolls and manufacturing gauges also show sectors nearing or trending above their pre-pandemic levels. Democrats’ $1.9 trillion relief package stands to further accelerate growth coming out of lockdowns.

Still, government and Fed support are necessary to get the US back on track, Powell said.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” the central bank chief said in remarks prepared for testimony to the House Financial Services Committee on Tuesday. “But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”

Powell reiterated that the path of the recovery hinges on the trajectory of the virus, a message uttered by Fed officials since the pandemic made landfall in the US last year. For now, that trajectory looks promising. The country reported 55,621 new cases on Monday, according to The New York Times, down 8% from two weeks ago. Hospitalizations are down 16% from two weeks ago.

The steady decline in cases has lifted household spending on goods, but the services industry is still mired in a downturn. Sectors hit hardest by the virus “remain weak,” and the current unemployment rate of 6.2% “underestimates the shortfall,” Powell said.

The central bank announced last week it would keep interest rates near zero and maintain its pace of asset purchases. It also published a new set of quarterly economic projections that reflected a considerably more optimistic outlook than the December set.

Fed policymakers now expect the unemployment rate to fall to 4.5% by the end of 2021 instead of the prior estimate of 5%, and see full-year economic growth of 6.5% this year, up from the previous forecast of a 4.2% expansion.

The new estimates reflect the strong economic gains made since December, but the Fed still has its eye on those left behind, Powell said.

“We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit,” he added.

Powell is scheduled to testify alongside Treasury Secretary Janet Yellen at 12 p.m. ET on Tuesday. The two are then slated to appear before the Senate Banking Committee on Wednesday.

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Fed’s Powell hopeful US economy can return to ‘more normal conditions’ later in 2021

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell speaks to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world's largest economy from the impact of the coronavirus, during a news conference in Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque
Jerome Powell.

  • Vaccinations and falling case counts “offer hope for a return to more normal conditions later this year,” Jerome Powell said.
  • The statement is among the most bullish to come from the Fed chair since the pandemic began.
  • Still, Powell warned the path forward is “highly uncertain” and the recovery “remains uneven.”
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Encouraging trends are lifting hopes that the US can make strides toward pre-pandemic normalcy later this year, Federal Reserve Chair Jerome Powell said Tuesday.

Data suggests the US is clearing the deadliest wave of the pandemic yet. Daily case counts are the lowest since October and hospitalizations have more than halved from their early January highs. The country’s rate of vaccination, while down from its peak, remains well above the Biden administration’s 1-million-doses-per-day target.

The falling cases and vaccine distribution “offer hope for a return to more normal conditions later this year,” Powell said while testifying to the Senate Banking Committee on Tuesday.

The bullish statement is among the Fed chair’s most positive since the pandemic rocked the economy in spring 2020. Separately, central bank officials said during a January meeting that their medium-term outlook toward economic recovery had improved due to the $900 billion stimulus package passed by Donald Trump in December, the potential for additional aid, and the “prospect of an effective vaccine program,” according to meeting minutes published February 17.

Powell passively urged more stimulus throughout 2020 but pulled back on such comments after Trump’s $900 billion plan passed. Democrats are now set to approve another plan currently worth $1.9 trillion as early as mid-March. While the Fed chief has avoided directly commenting on Biden’s aid proposal, he noted during the Tuesday hearing that additional aid isn’t likely to spur an immediate concerning jump in inflation.

Powell wards off taper, inflation talk with ‘highly uncertain’ path ahead

The recent uptick in bond yields suggests investors are also betting on a “robust and ultimately complete recovery,” Powell told senators. Treasury yields gained over the past few sessions as investors positioned for economic growth and the stronger inflation set to come with it. The move signals investors are pulling forward their expectations of when the Fed will lift interest rates for the first time since March 2020.

The change in market expectations has prompted some discussion around when the central bank will taper its asset purchases. The Fed continues to buy $120 billion of assets each month, split between $80 billion in Treasurys and $40 billion in mortgage-backed securities.

Pulling back from the purchase schedule risks jolting financial markets with a so-called taper tantrum, named for when the Fed “tapers” its bond purchases. A surprise reversal of the Fed’s support could spark a sell-off in Treasurys and hinder bond-market functioning.

Powell reiterated Tuesday that the Fed will clearly communicate the assessment of progress toward its inflation and employment goals before taking such action. For now, “substantial further progress” toward above-2% inflation and maximum employment is necessary to warrant a policy shift, he said.

The path forward is “highly uncertain,” and the recovery “remains uneven and far from complete,” Powell added. While the manufacturing and housing sectors fared well in recent months, spending in some service industries remains low and the labor market’s recovery has stagnated.

Fiscal stimulus has helped pad against some of the pandemic’s fallout, but the path of the virus is the single biggest factor in bringing about a swift recovery, Powell said.

“While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year,” the Fed chair said. “In the meantime, we should continue to follow the advice of health experts to observe social-distancing measures and wear masks.” 

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Monetary stimulus will remain in place well into economic recovery, Fed Chair Powell says

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  • Federal Reserve Chairman Jerome Powell reiterated Thursday that the central bank is far from tapering its asset purchases or raising interest rates.
  • “Now is not the time to be talking about an exit” from easy monetary policy, the central bank chief said in a virtual discussion.
  • The comments come after various Fed officials suggested that inflation could pick up faster than expected and, in turn, prompt an early rate hike.
  • Powell rebuffed fears of an unexpected policy shift, noting the central bank will notify the public “well in advance” if it is considering changes to its policy stance.
  • Visit Business Insider’s homepage for more stories.

Those worrying the Federal Reserve will prematurely rein in monetary stimulus have little to fear, Fed Chairman Jerome Powell said Thursday.

As COVID-19 vaccines roll out across the country, investors and economists have looked to Fed officials for any hints as to when its extremely accommodative policy stance could reach its conclusion. The central bank is currently buying $120 billion worth of Treasurys and mortgage-backed securities each month to ease market functioning, and its benchmark interest rate remains near zero to encourage borrowing.

An unexpected reversal from such easy monetary conditions risks spooking financial markets and cutting into the country’s bounce-back. Powell emphasized on Thursday that the central bank remains far from adjusting monetary conditions and that markets need not worry about a surprise policy shift.

“Now is not the time to be talking about an exit,” the central bank chief said in a virtual discussion hosted by Princeton University. “I think that is another lesson of the global financial crisis, is be careful not to exit too early. And by the way, try not to talk about exit all the time if you’re not sending that signal.”

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The messaging mirrors past statements from Fed policymakers. Early in the pandemic, Powell told reporters the central bank wasn’t “thinking about thinking about” lifting interest rates. The Federal Open Market Committee noted last month that changes to its policy stance won’t arrive until “substantial forward progress” toward its inflation and employment objectives is made.

Still, recent commentary from some officials has stoked some fears that the Fed could cut down on the pace of its asset purchases sooner than expected. Kansas City Fed President Esther George said Tuesday that inflation could reach the Fed’s target “more quickly than some might expect” if the economy’s hardest hit sectors quickly recover.

A swifter-than-expected rebound could prompt an interest-rate hike as early as mid-2022 Atlanta Fed President Raphael Bostic said Monday. The projection stands in contrast with the FOMC’s general expectation for rates to remain near zero through 2023.

Powell reassured that, when the Fed starts considering a more hawkish stance, messaging will come well before action is taken. Treasury yields responded in kind, with the 10-year yield climbing nearly 4 basis points to 1.127 and the 30-year yield rising about 6 basis points to 1.874.

“We’ll communicate very clearly to the public and we’ll do so, by the way, well in advance of active consideration of beginning a gradual taper of asset purchases,” the Fed chair said.

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