Policy intervention ‘wouldn’t go to waste,’ Fed Chair says

Jerome Powell

Federal Reserve Chair Jerome Powell, addressing the nation’s current state of economic recovery, said insufficient policy intervention would lead to a weak recovery, creating unnecessary hardship for households and businesses. 

“By contrast, the risks of overdoing it seem, for now, to be smaller,” Powell said. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

The combined effects of fiscal and monetary policy, Powell said, have supported a solid recovery of the labor market so far, though “there is still a long way to go.”

Payrolls have recovered about half of the 22 million decline. After rising to 14.7 in April, the unemployment rate is down to 7.9 percent, “clearly a significant and rapid rebound,” Powell said, though “a broader measure that better captures current labor market conditions — by adjusting for mistaken characterizations of job status, and for the decline in labor force participation since February –– is running around 11 percent.”

And the burdens of economic decline have been far from evenly shared. “The initial job losses fell most heavily on lower-wage workers in service industries facing the public — job categories in which minorities and women are overrepresented. In August, employment of those in the bottom quartile of the wage distribution was still 21 percent below its February level, while it was only 4 percent lower for other workers.”

Combined with the disproportionate effects of COVID on communities of color, and the overwhelming burden of childcare during quarantine and distance learning, which has fallen mostly on women, the pandemic is further widening divides in wealth and economic mobility, Powell said.

“We should continue to do what we can to manage downside risks to the outlook,” Powell said. “Managing this risk as the expansion continues will require following medical experts’ guidance, including using masks and social-distancing measures.”

The FOMC will aim to achieve inflation moderately above 2 percent, so that over time, inflation averages 2 percent, the committee’s long-run goal. “The committee expects to maintain an accommodative stance of policy until these outcomes are achieved,” Powell said. The federal funds rate remained unchanged at 0 to 0.25 percent, and the committee expects this target to remain inflation is on track to exceed 2 percent.