MNI ANALYSIS: Fed's Powell: Labor Market Not Excessively Tight

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell in a major speech on

monetary policy Friday emphasized that the U.S. job growth remains solid and

healthy but that the labor market is not "excessively tight," bolstering the

Fed's case for gradual interest rate hikes over the next few years. 

     He avoided discussing in too much detail inflation dynamics, in spite of

much focus on the topic in recent months, saying only that monthly inflation

readings have firmed over the past few months and that year-over-year inflation

should "move up notably this spring" as last spring's soft readings drop out of

the calculation. 

     There was no mention of the symmetry of the Fed's inflation target even as

a growing chorus of Fed officials are publicly contemplating allowing inflation

to rise above 2% for a time to strengthen the perception of the target's

symmetrical nature. 

     Neither did he discuss in particular the latest March employment report,

out Friday, showing the economy added a smaller-than-expected 103,000 jobs. 

     Powell instead emphasized longer term trends, saying many measures of labor

utilization "suggest a labor market that is in the neighborhood of maximum

employment," while "a few other measures continue to suggest some remaining

slack." 

     In particular, "the absence of a sharper acceleration in wages suggests

that the labor market is not excessively tight," he said in remarks prepared for

The Economic Club of Chicago. While he does expect an additional pickup in wage

growth as the labor market strengthens further, weak productivity growth could

continue to keep a lid on wage gains.

     "It remains the case that raising rates too slowly would make it necessary

for monetary policy to tighten abruptly down the road, which could jeopardize

the economic expansion. But raising rates too quickly would increase the risk

that inflation would remain persistently below our 2% objective," he said. "Our

path of gradual rate increases is intended to balance these two risks."

     He mentioned the Trump administration's fiscal stimulus only once, noting

that it as well as continued accommodative financial conditions are supporting

both household spending and business investment, but did not comment on recent

trade tensions between the United States and China in his prepared remarks.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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