Powell on Whether Level of Max Employment Has Changed and Hiking

Q: Has your view of the level of maximum employment changed this year? How close now to max employment?

• A: "We're not going back to the same economy we had in February 2020, and early on that was the sense was that'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 business cycle and over a longer period, in part reflecting evolution of the factors that affect labor supply, including those from the pandemic."
• Powell goes on to say that though unemployment rate has been dropping very quickly, labor force participation has been disappointing. "It feels likely now that the return to higher participation is going to take longer...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 account."
• On follow-up Q on hiking before reaching max employment: "This is not at all a decision the Committee has made, you're asking a question about how our framework works, and yes there is a provision." Describes the "balanced approach" provision, re if the two goals are not complementary, have to take account distance from the goals. "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 is a provision that will enable us to in this case, because of high inflation, move before achieving maximum employment.
• Now, as I said we're making rapid progress toward maximum employment. I don't at all know that we will have to invoke that paragraph but just as a factual matter that's part of our framework and has been really for a very long time."
  • Powell made that point re potentially hiking prior to max employment, in his Congressional testimony, so not really new.