Press conference exchange between NICK TIMIRAOS and Fed Chair Jerome Powell:

user: Thank you, Nick Timiraos at the Wall Street Journal. Chair Powell, in March you answered a question about maximum employment like this: You said 4 percent would be a nice unemployment rate to get to, but it’ll take more than that to get to maximum employment. More recently, you have hinted at a possible distinction between the level of maximum employment that’s achievable in the short run versus in the long run. Has your view of the level of maximum employment changed this year? And if so, how? And how close is the economy right now to your judgment of the short-run level of maximum employment? Thank you.

assistant: Right. So the—you know, the thing is, we’re not going back to the same economy we had in February of 2020. And I think early on, that was—the sense was ’s where we were headed. The post-pandemic labor market, and the economy in general, will be different. And the maximum level of employment that’s consistent with price stability evolves over time within a—within a business cycle and over a longer period, in part reflecting the evolution of the factors that affect labor supply, including those related to the pandemic. So I would say: Look, we’re, we’re at 4.2 percent now and it’s been—the unemployment rate has been dropping very quickly. So we’re already in the vicinity of 4 percent. The way in which—The important metric that has been disappointing really has been labor force participation, of course, where we had widely thought—I had certainly thought— that, last fall, as unemployment insurance ran off, as vaccinations increased, and as schools reopened, that we would see a significant surge, if you will, or at least a surge, in labor force participation. So we’ve begun to see some improvement. We certainly welcome the 2/10 improvement that we got in the November report. But I do think that it’s—it feels likely now that the return to higher participation is going to take longer. And, in fact, that’s, that’s been the pattern in past cycles—that labor force participation has tended to recover in the wake of a strong recovery in unemployment, which is what we’re getting right now. So you—it could well have been that this cycle was different because of the short nature of it and the very strong—the number of job openings, for example, you would have thought would have pulled people back in. But, really, it’s the pandemic, it’s a range of factors. But the reality is, we don’t have a strong labor force participation recovery yet, and we may not have it for some time. At the same time, we have to make policy now. And inflation is well above target. So this is something we need to take into—take into account.

user: If I could—if I could follow up, you’ve talked recently about risk management. And so does that mean that the Committee might feel compelled to raise interest rates before you’re convinced that you’ve achieved the employment test in your forward guidance?

assistant: So this is—this is not at all a decision that the Committee has made. But you’re really asking a question about how our framework works. And, yes, there is a— there’s a provision, it used to be called the “balanced approach” provision, that says, in effect, that in situations in which the pursuit of the maximum-employment goal and the pursuit of the price-stability goal are not complementary, we have to take account of the distance from the goal and the—and the speed at which we’re approaching it. And so that is, in effect, an “off-ramp” which could, in concept, be taken and it’s in our framework, it’s been in our framework a long time. I’ve talked about it on a number of occasions. It, it is a provision that would enable us to, in this case, because of high inflation, move before achieving maximum employment. Now, we’re—as I said, we’re making rapid progress toward maximum employment in my—in my thinking, in my opinion. And I don’t at all know that we will—that we’ll have to invoke that, that paragraph. But just as a factual matter, that is part of our framework—and has been, really, for a very long time.