Press conference exchange between OLIVIA ROCKEMAN and Fed Chair Jerome Powell:

user: Thank you. Good afternoon, Chair Powell, and thank you for taking our questions. I wanted to follow up on some of your earlier comments about labor force participation. And I wondered, what do you think needs to change in the economy to get a meaningful recovery in labor force participation, and also whether running the economy hot, like in the last expansion, is one way of doing that?

assistant: Well, the labor market is, by so many measures, hotter than it ever ran in the last—in the last expansion, if you think about it. You know, the ratio of job openings, for example, to, to vacancies is at all-time highs. Quits, the wages—all those things are, are even hotter. But what would it take for labor force participation to move up more? You know, that’s—really, “Why is it low?” is the question. So there, there are a bunch of answers, and all of them probably have some, you know, some validity. Part of it will be that people—for certain people, they don’t want to go back in the labor force because either they’re medically vulnerable or they’re not comfortable going back while COVID is still everywhere. That’s one thing. The lack of availability of childcare made for caretakers is certainly part of it—not just for children, but for older people. It has been pointed out by many that the stock market is high, people’s portfolios are stronger—they may go back to being a one-income rather than a two-income family. The same thing with people’s houses. People buy—they have a mortgage, you know, with leverage, and the house price increases, the equity they have in their home might have doubled. And they might make—reach the same conclusion. So they’re—and people have savings on their balance sheet because of forced savings because they couldn’t spend on travel and things like that and also because of, you know, because of government transfers. So, for all of those reasons—and it’s hard to know exactly the part each of them plays— we, we have a situation where we’ve had a shock to labor force participation that is not unwinding as quickly as, as many, as expected. And people—in effect, a good part of it is voluntary. You know, people—and this is how they want to maximize their welfare and that’s, that’s their, certainly their choice. In other cases, it’s something that will abate very quickly if and when the pandemic gets under control. And the longer the pandemic goes on, you know, maybe the less likely that people will come back because they’re—you know, they get used to their new life and they lose contact with their old jobs. That’s, that’s what the evidence would say. So it’s a range of things. It isn’t that the economy lacks stimulus. You know, usually, in every other expansion, it’s that there aren’t enough jobs and people can’t find jobs and, you know, we’re stimulating demand and trying to get demand to come up. That’s not the problem here. The problem is a supply-side problem, which—what it would take to work it out, I think it’s going to be time. And the number-one thing would, would really be to have the pandemic get under control. That’s what everyone would really like to see: What does the labor force— what does the labor market look like in a world without COVID? That would be the thing that we’d really like to see but, you know, it doesn’t look like that’s coming anytime soon.

user: And just to quickly follow up on that: If some of the reason that labor force participation isn’t back to, you know, February 2020 levels is because people are voluntarily making life decisions that are different, does that make you think we’re going to end up at a lower rate overall?

assistant: Well, there’s a demographic trend underlying all of this. And we actually got above the demographic trend at the end of the last expansion. But—so one would expect over time that labor force participation would, would move down because an aging population, the older people are, the lower their participation rate is. So you would expect that, that the trend would be lower and that, over time, participation would move down. The question of how much we can get back up closer to where we were in February of 2020—and, indeed, for the year or so before that—is a good one. And, I mean, I—What we can do is try to create the conditions. There’s a lot of good for society when you have a tight but stable labor market, where people are coming in, they’re getting into the labor force, they’re getting paid well. In the labor market we had before, we had, you know—the biggest wage increases were going to people at the bottom end of the wage spectrum for the last couple of years. There were just a lot of really desirable aspects of a labor market like that. Higher participation is one of them. And we’d love to get back there. But, again, ultimately, we have the tools that we have, which are essentially to stimulate demand and also to control inflation. I mean, really, it might be—one of the two big threats to getting back to maximum employment is actually high inflation, because, to get back to where we were, the evidence grows that it’s going to take some time. And what we need is another long expansion, like the ones we’ve been having. Over the last 40 years, we’ve had, I think, three of the four longest in our recorded history, including the last one, which was the longest in our recorded history. That’s what it would really take to get back to the labor market we’d like to see. And to have that happen, we need to make sure that we maintain price stability.