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Federal Reserve Chairman Jerome Powell on Wednesday painted a grim picture of the employment situation in the United States, saying continued aggressive political support was needed to address the myriad of issues workers still face. faced.
Solving the problem will require “patiently accommodative monetary policy that incorporates lessons from the past” regarding the benefits low interest rates bring to the labor market, the central bank chief told the Economic Club of. New York.
Even though the economy has recovered more than 12 million jobs since the early days of the Covid pandemic, Powell said the United States is “far” from where it needs to be in terms of jobs.
“Full realization of the benefits of a strong labor market will require the continued support of short-term policies and longer-term investments, so that all who seek employment have the skills and opportunities that will enable them to contribute.” and share the benefits. prosperity, ”he said in prepared remarks.
The pace of job creation has slowed considerably.
Although the unemployment rate fell from its peak of 14.8% in 2020 to 6.3%, the non-farm payroll only rose by 49,000 in January and fell by 227,000 in December. More than 10 million workers are still unemployed – 4.4 million more than before the pandemic a year ago.
Powell added that the overall unemployment rate had “dramatically underestimated” the real damage, including the biggest 12-month drop in labor force participation since at least 1948.
Without the misclassifications that have plagued the Labor Department since the pandemic began in March, the unemployment rate would be closer to 10%, Powell added. He also noted that the impact has been particularly heavy on low wages, with employment in the bottom quartile falling 17% during the coronavirus crisis, while the top tier saw a decline of just 4%.
“Despite the surprisingly quick early recovery, we are still a long way from a strong labor market with widely shared benefits,” said Powell.
To address the disparities, 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 interest rates until that target. would not be achieved. At the heart of this approach is the desire to allow inflation to rise a little faster than the Fed’s standard 2% target for price stability.
Powell noted that in the last few years of the record-breaking expansion that ended a year ago, wage and employment gains began to be distributed more evenly as the unemployment rate declined, without threat. high inflation. When the unemployment rate fell in the past, the Fed would raise rates to ward off inflation, but won’t do so now.
The Fed is keeping its benchmark short-term borrowing rate anchored near zero and is buying at least $ 120 billion in bonds each month.
While he said he was convinced the Fed’s new approach would lead to better results, he said monetary policy alone could not do everything.
Given the number of people who have lost their jobs and the likelihood that some of them will struggle to find work in the post-pandemic economy, achieving and maintaining as many jobs as possible will require more than a policy. monetary support. This will require a commitment from society, with contributions from across government and the private sector, ”he said.
Powell added that mass vaccinations will help as well as tax programs such as the Paycheck Protection Program, which provides loans to businesses that hold workers.
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