“We are still very far from a strong labor market whose benefits are broadly shared,” Jerome Powell, chair of the U.S. Federal Reserve, said in a 10 February speech to the Economic Club of New York.
Powell pledged a “patiently accommodative” monetary policy for as long as needed, even as the jobs market grows stronger, and the Fed will leave interest rates untouched even if inflation briefly exceeds the Fed’s target cap of 2 percent.
However, “achieving and sustaining maximum employment will require more than supportive monetary policy,” he added, indicating the Fed has a limited role to play in reviving the jobs market.
Returning to full employment “will require a society-wide commitment, with contributions across government and the private sector,” Powell said.
The U.S. economy is still about ten million jobs smaller than a year ago, he noted, “a greater shortfall than the worst of the Great Recession’s aftermath. Nearly five million people say the pandemic prevented them from looking for work in January.”
In the early days of the economic shutdown, workers were furloughed temporarily. Yet, “as some sectors of the economy have continued to struggle, permanent job loss has increased,” as has long-term unemployment, defined as being jobless for at least 26 weeks.
Although January’s official unemployment rate was 6.3 percent, the figure does not reflect the labor market’s dire reality, Powell declared.
“The Bureau of Labor Statistics reports that many unemployed individuals have been misclassified as employed,” Powell said. “Correcting this miscalculation and counting those who have left the workforce since last February… would boost the unemployment rate close to 10 percent in January.”
The rate may be double that – about 20 percent – for the 25 percent of U.S. workers earning the least, according to figures released by Fed governor Lael Brainerd, a rate near that at the depths of the Great Depression.
“The published unemployment rates during COVID have dramatically understated the deterioration in the labor market,” Powell said. The pandemic and global shutdown have “led to the largest 12-month decline in labor force participation since at least 1948.”
Labor force participation dropped during and after the Great Recession but began to grow again in 2015, according to the World Socialist Web Site.
Powell has championed the call for more federal stimulus spending to strengthen businesses and create and sustain jobs.
Returning to a robust labor market will “not be easy,” Powell warned, in part because “the longer-run potential growth rate of the economy appears to be lower than it once was,” which can “lead to worse economic outcomes, particularly for the most economically vulnerable Americans.”
TREND FORECAST: The U.S. economy contracted 3.5 percent in 2020. Most Fed officials expect the nation’s labor market will not begin to approach 2019’s employment levels until at least 2023. As we reported, the Congressional Budget Office projects they will not return until sometime during 2024.
Again, the bottom line is the Federal Reserve will continue to keep interest rates low despite inflation rising to prevent a major market crash and a worsening unemployment crisis. This in turn will push the dollar lower and push precious metals and cryptocurrency prices higher.
