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Federal Reserve Governor Lael Brainard on Tuesday called for patience in pulling back policy support after a disappointing April jobs report, noting that while the recovery is gathering pace, the economy remains as many as 10 million jobs short of the Fed's full employment goal.
"The outlook is bright, but risks remain, and we are far from our goals," Brainard said in remarks prepared for a webcast with business journalists in Washington. "The latest employment report reminds us that realized outcomes can diverge from forward projections and underscores the value of patience."
Fiscal support and increasing vaccination rates drove a strong rebound in activity in the first quarter, and the second quarter looks to be even stronger, Brainard said. The latest jobs report is "a reminder that the path of reopening and recovery -- like the shutdown -- is likely to be uneven and difficult to predict, so basing monetary policy on outcomes rather than the outlook will serve us well."
Risks are more balanced than earlier this year, she said, but vaccine hesitancy, deadlier variants, and a resurgence of cases in some foreign countries adds to the greater-than-usual atmosphere of uncertainty, she said.
Demand for workers appears to be out of step with supply at this time and the two could continue to recover at different rates, she said. Jobs in the hardest hit leisure and hospitality sector are still 3 million below pre-Covid levels. The overall employment shortfall of 8.2 million relative to the pre-pandemic level would be over 10 million if one accounted for normal job growth during the past year.
The current prime-age employment-to-population ratio of 76.9% is "far from the 80% level reached during both of the past two expansions," she noted. MNI has reported on the significance of the EPOP indicator for policymakers.
The path of inflation is also "difficult to predict," she said, adding "to the extent that supply chain congestion and other reopening frictions are transitory, they are unlikely to generate persistently higher inflation on their own."