Powell Remains Particularly Confident on Jobs

Q: On what full employment means in context of volatile data and changes due the pandemic.

• A: There isn't one indicator we can look to and no one number that we can point to. We look at a range of indicators and it's a very broad range. Certainly it will include things like employment to participation and wages and different flavors of that.
• How do we think about it? A couple things. We are 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. We have to be alert to see whether that can happen again.
• It is a different economy. We have had retirements that may weigh on participation. But that effect should wear off in a few years, and as you move through that window, people would have retired anyway and you will be back where you would have been. Lesson number 1 is just to be careful about assessing maximum employment.
• During the last cycle there were waves of concern that we were reaching full employment as early as 2012 when I arrived at the Fed. And 8 years later, we were still creating jobs, and it was quite remarkable. We are all going to be informed by that.
• At the same time we understand this is a different economy, that demographics, people are getting older, that should have a secular effect of reducing participation over time. We have to be sensible about what can be done. But I think we are going to be optimistic.
• We are seeing wage increases, a natural thing to be seeing in a strong economy. We don't see anything that is troubling, what would be troubling would be very wide across the economy wages that at unsustainable levels without high inflation.
• In other words, wages in excess of productivity and inflation, by a meaningful amount, broadly across the economy, forcing companies to keep raising prices and getting into a wage price cycle. That is 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 people who are mostly new, entering into new jobs, many of them in low skilled jobs.
• But you have got to think in the labor market right now where supply and demand are not matched up well, we think it's a flexible economy and it will clear. There will be a level at which supply and demand meet, and that we think that will be happening in coming months.
• If you look at the forecasts, we are going to be in a very strong labor market pretty quickly, there is still a big group of unemployed people, and we are not going to forget about them, we are going to do everything we can to get people back into work and give them a chance to work. But there is every reason to think that we will be in a labor market with with low unemployment, high participation, and rising wages across the spectrum. That is a little bit how we are looking at the labor market.