MNI POLICY: Powell--Stronger Jobs Won't Prompt Fed Hikes

The Federal Reserve must keep supporting the U.S. recovery with low interest rates because the job market remains weak and probably won't generate much inflation even through any significant rebound, Chair Jerome Powell said Wednesday.

"We will not tighten monetary policy solely in response to a strong labor market," Powell said in prepared remarks to an Economic Club of New York webinar. "We are still very far from a strong labor market whose benefits are broadly shared."

The recent drop in the jobless rate to 6.3% in January overstates the level of improvement, while "in the past few months, improvement in labor market conditions stalled as the rate of infections sharply increased," he said.

"Published unemployment rates during COVID have dramatically understated the deterioration in the labor market," Powell said, citing the biggest 12-month decline in labor force participation since 1948.

LEARNING FROM EXPERIENCE

"Experience tells us that getting to and staying at full employment will not be easy," he said. "Important is a patiently accommodative monetary policy stance that embraces the lessons of the past."

Powell pointed to the recovery from the Great Recession, when a jobless rate consistently below 4% failed to spark inflation pressures. The Fed undershot its 2% target for most of the post crisis expansion.

He cited broad based benefits from a strong labor market and noted "many of these benefits only arose toward the end of the previous expansion."

"These benefits were achieved with low inflation," Powell added. "Indeed, inflation has been much lower and more stable over the past three decades than in earlier times."

The Fed chair also reiterated that QE will continue until the economy makes substantial further progress.