Federal Reserve press conference, 2021-06-16 — Chair Jerome Powell

Question (Rachel Siegel, Washington Post): Thank you, Michelle, and thank you, Chair Powell, for taking our questions. I’m wondering if you can walk us through expectations you have, specifically when it comes to the labor market going into 2023. And I’m curious about people who may have left the labor market, who have yet to come back, or who may face issues with childcare. Perhaps they’ve retired early. Any barriers that you see in keeping people from the labor market as you consider full employment going into 2023? Thank you.
Answer: Thank you. So I would say, if you look at the labor market and you look at the demand for workers and the level of job creation and think ahead, I think it’s clear, and I am confident, that we are on a path to a very strong labor market—a labor market that, that shows low unemployment, high participation, rising wages for people across the spectrum. I mean, I think that’s, that’s shown in our projections, it’s shown in outside projections. And if you look through the current time frame and think one and two years out, we’re going to be looking at a very, very strong labor market. In terms of exactly what that means, we’ll, we’ll have to see how things evolve. I think we learned during the course of the last very long expansion, the longest in our history, that labor supply during a long expansion can exceed expectations, can move above its estimated trend. And, and I have no reason to think that that won’t happen again. At the same time, we have seen—in terms of participation, we’ve seen a significant number of, of people retire. And so we, we don’t actually know exactly what labor force participation will be as we go forward, but I, I would tend to, to look at it and think that it—that it can return to high levels, although it may take some time to do that. But overall, this is—this is going to be, you know, a very strong labor market. In terms of the near term, you ask as well—so we see a couple of things, a few things that seem likely to be holding back labor supply. There are very large amounts of job openings, and there are a very large number of people who, who are unemployed. And the pace of, of filling those jobs is—somehow feels slower than it might be. So I’d point to a number of things, the first of which is just that most of the, the act of sort of going back to one’s old job—that’s kind of already happened. So this is a question of people finding a new job. And that’s just a process that takes longer. There may be something of a speed limit on it. You’ve got to find a job where, where your skills match what, you know, what, what the employer wants. It’s got to be in the right area. There’s just a lot that goes into the function of finding a job. So that’s, that’s sort of a natural thing. In addition, I would say that we, we look at, for example, a, a significant number of people still say that they’re concerned about going back to work in jobs where there’s a lot of public facing because of—because of COVID. So that’s clearly holding back some people, and that should diminish as vaccinations move ahead. There’s also the question of childcare. Many are engaged in, in caretaking. And as schools reopen and, and, and childcare/daycare centers open in the fall—in the fall, then we should see—we should see that supporting labor force participation by caretakers. Finally, unemployment insurance for something like 15 million people will either end or be diminished as we move through the summer and into, into, into the fall by the end of September, and I’d like some—that may also encourage some to go back in and take jobs. So you would think that that would add to an increase in job creation as well. So you put all those together, I would expect that we would see strong job creation building up over the summer and going into—going into the fall. I will also say, though, the last thing I’ll say is, this is an extraordinarily unusual time. And we, we really don’t have a template or, or, you know, any experience of, of a situation like this. And so I think we have to be humble about our ability to understand the data. It’s not a time to try to reach hard conclusions about the labor market, about inflation, about the path of policy. We need to see more data. We need to be a little bit patient. And I do think, though, that we’ll, we’ll, we’ll be seeing some things coming up in coming months that will—that will inform our, our thinking.

Question (Jeanna Smialek, New York Times): Hey, Chair Powell. Thank you for taking our questions. I was wondering if you could follow up a little bit on your response to Rachel at the very beginning and talk a little bit about how we should understand what full employment means in a world that, as you mentioned, is pretty roiled. All the data is pretty—has been pretty roiled by the pandemic, and we’re not really sure where EPOP is going to settle in, we’re not sure where participation is going to settle in. And wages are already looking, you know, decent. So I guess I wonder what full employment means in this context and, and sort of how you’re thinking about those wage data.
Answer: Yeah. As, as you well know, there isn’t one indicator we can look to, and there’s no one number that we can therefore point to. We look at a range of indicators, and it’s a very broad range, you can count to a high number just quickly—but, but, certainly, it will include things like unemployment and participation and wages and many different flavors of that. So how do we think about it? A couple of things. We’re all going to be informed by what we saw in the last cycle, which was labor supply outperforming expectations over a long period of time. Now, that hadn’t happened in many other cycles, but this was a very long cycle. So we’re going to have to be alert to see whether that can happen again. It is a different—it’s a different economy. We, we have had a slew of retirements, and that may weigh on participation. That, that effect, though, should wear off in a few years and, and, you know, as you move through that window, because they would have—people would have retired anyway, and you’ll be back where you, you would have been. So I think we’re—I think that lesson number one is, is just to be careful about assessing maximum employment. And I think if you—during the last cycle, there were—there were waves of concern that we were reaching full employment as early, you know, as, as 2012, when I arrived at the Fed. And, you know—you know, nine years later— eight years later, we were still creating jobs. And, you know, it was quite remarkable. So we’re all going to be informed by that. At the same time, we understand this is a different economy. You know, the, the demographics are, people are getting older, and that should have a secular effect of, of reducing participation over time. So we have to be sensible about what, what can be done. But I think we’re going to be—we’re going to lean into that and be optimistic. You asked about wages. You know, we’re seeing wage increases. That’s, that’s sort of a natural thing to be seeing in a strong economy. And what we’re seeing is—we don’t see anything that’s troubling in the sense of—what would be troubling would be, you know, very wide across the economy, wages at unsustainable levels without high inflation. In other words, wages in excess of productivity and inflation, you know, by a meaningful amount broadly across the economy, sort of forcing companies to keep raising prices and getting into a wage–price cycle. That’s, that’s the old formula for—one of the old formulas for having high inflation. We don’t see anything like that now. We do see high wages. We see them for, for people who are mostly new, you know, entering into new jobs, many of them in low-skilled jobs. And, but we, we do think—you’ve got to—you’ve got to think in the labor market right now, where, where supply and demand are just not matched up well. And, you know, we think it’s a flexible economy and, and it will clear. There will—there will be a level at which supply and demand meet. And that’ll—we think that’ll, that’ll be happening in coming months. So—but the last thing I’ll say is, again, if you look at, at the forecasts, we are going to be in a very strong labor market pretty quickly here. There are still a big group of unemployed people. And, you know, we’re not going to forget about them. We’re going—we’re going to do everything we can to get people back into work and give them the chance to work. But there’s every reason to think that we’ll be in a—in a labor market with very attractive numbers, with low unemployment, high participation, and rising wages across the spectrum. So that’s, that’s a little bit how we’re looking at the—at the labor market.

Question (Victoria Guida, Politico): So the, the, the change in the projections reflect the fact that you all are more optimistic about the economic outlook, and not necessarily that you think that this will change the way people think about inflation?
Answer: Yeah, I think—there may be an element of the latter as well, because inflation expectations have continued to move up. You know, it’s all in people’s individual thinking, and you can’t—it’s hard to say. It’s not something the Committee debates in terms of, you know, what, what the outlook is for 2023. So I’m, I’m a little bit speculating, which I shouldn’t do. But it wouldn’t surprise me if there’s an element for some people in, you know, seeing the inflation performance that we’ve had and thinking that I have more confidence that we could see inflation above 2 percent, that it may not be as hard to do that as we thought, and that inflation expectations may move up to a—to a level—they were—they were really at a level that was kind of a little below 2 percent. They might move up as a consequence of this or, or, or as a consequence of, of, of the new framework. You know, we did see inflation expectations moving up in the—in the wake of the announcement of the framework. But, you know, we don’t really know that. So, ultimately, I think it’s consistent with both those things.

Question (Greg Robb, MarketWatch): Doesn’t it seem like there’s a risk of, of, you know, like stagflation— where that—you’re going to go from 7 percent and down, that means the economy’s really, you know, dropping in some way. We haven’t seen that, right?
Answer: Well, the economy’s not, not decel—the economy is still growing, and growing at a, at a very healthy rate. Our estimate—I mean, different people have different estimates—but, broadly speaking, economists think the economy has the potential to grow at around 2 percent per year. If you’re growing above that, then the unemployment rate should be declining, people should be being pulled into the labor force, wages should be going up, lots of things should be happening, businesses should be investing. So, you know, I guess to answer your question a different way, is there a risk that inflation will be higher than we think? Yes. As I said earlier, you know, we, we don’t have any certainty about the timing or the extent of these effects from reopening. And therefore we don’t—we don’t think that—we think it’s unlikely that they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a century. The underlying forces around the globe that have created those dynamics are intact, and those are aging population, low productivity, globalization, all of those things that, that we think have, have, you know, really held down inflation. All that’s out there still. You know, when we get through this, we may well—we’ll be facing those same forces. Nonetheless, is there a risk that inflation will remain higher than we—than we thought? Yes. And if, if we see inflation moving above our goals in, in a time—sorry, to an extent, to a level or, or persistently—or persistently enough, you know, we would be prepared to use our tools to address that.