WASHINGTON (AFP) – The US economy is a long way from a strong job market and the experience of past recessions shows it could take years to recover, Federal Reserve chairman Jerome Powell said on Wednesday (Feb 10).<\/p>\n
In addition to mass vaccinations to halt the Covid-19 health crisis, it will take a full suite of government policies to repair the damage done by the pandemic to the US labour market, the central bank chief said in a speech.<\/p>\n
\u201cDespite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared,\u201d Powell told the Economic Club of New York.<\/p>\n
He again noted the true jobless rate is about 10 per cent, far above the official 6.3 per cent rate in January, after adding in people who have given up looking for a job and workers who were laid off but misclassified as employed.<\/p>\n
The damage is not equally shared and has eroded progress during the decade-long recovery that preceded the pandemic and brought gains for minority groups, especially African Americans, he said.<\/p>\n
That experience showed \u201cit can take many years to reverse the damage\u201d to the workforce.<\/p>\n
While the central bank has said explicitly it will not raise interest rates as unemployment begins to fall, Powell said that responding to the crisis will require more than the Fed alone.<\/p>\n
Repairing the damage \u201cwill require a society-wide commitment, with contributions from across government and the private sector,\u201d he said.<\/p>\n
He also highlighted the Fed\u2019s pledge to continue to purchase large amounts of assets to ensure high levels of money flow through the economy.<\/p>\n
But Powell cautioned, \u201cExperience tells us that getting to and staying at full employment will not be easy,\u201d and workers and households \u201care likely to need continued support.\u201d<\/p>\n
He also stressed that \u201cpolicies that bring the pandemic to an end as soon as possible are paramount.\u201d<\/p>\n
President Joe Biden\u2019s proposed US$1.9 trillion (S$2.5 trillion) rescue package includes funds to accelerate vaccinations and aid families and businesses suffering from the Covid-19 downturn, which caused widespread layoffs as businesses were forced to close or curtail operations.<\/p>\n
Pledging to \u201cstick to our knitting,\u201d Powell declined to weigh in on the specifics of Biden\u2019s plan, saying that was a question for Congress.<\/p>\n
But he repeatedly downplayed concerns about the risks of a rise in inflation, which some economists, most prominently former Treasury secretary Larry Summers, have said could happen if stimulus is excessive or poorly targeted.<\/p>\n
Even when unemployment fell to a 50-year low of 3.5 per cent in February 2020, inflation remained moderate and barely achieved the Fed\u2019s 2 per cent goal, Powell noted.<\/p>\n
\u201cYear after year after year, inflation fell short of that\u201d target, due to dynamics of the past three decades that severed the previous link between low joblessness and rising prices.<\/p>\n
In the current environment, \u201cwe want to see actual inflation,\u201d Powell said.<\/p>\n