US economy on track for strong jobs market despite Delta: Fed chair
NEW YORK: The US economy continues to make progress towards the Federal Reserve’s benchmarks for reducing its pandemic-era emergency programmes, Reuters quoted Fed Chair Jerome Powell, as saying on Friday, in remarks that defended the view current high inflation will likely to pass and stopped short of signalling the timing for any policy shift.
In prepared remarks for a speech to the Jackson Hole economic conference, Powell signalled the US central bank will remain patient, as it tries to nurse the economy back to full employment, repeating that he wants to avoid chasing ‘transitory’ inflation and potentially discouraging job growth in the process, a defence in effect of the new approach to Fed policy he introduced a year ago.
On the potentially imminent decision by the Fed to begin reducing its $120 billion in monthly asset purchases, Powell said that the weeks since the Fed’s policy meeting in July “brought more progress” towards repairing the jobs market, with nearly a million positions added, and that progress should continue.
But it also coincided with “the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks,” Powell said, signalling that Fed discussions about exactly when to begin reducing the bond-buying programme remains unresolved, and now must be squared against the health and economic risks posed by the highly contagious coronavirus strain.
The Fed officials have largely said they expect the resurgent health crisis will not throw the recovery off track. But it forced the central bank itself to move its Jackson Hole symposium from a Wyoming mountain resort to a virtual event for the second year in a row.
The expectations for continued job growth are in part based on reopened schools, eased childcare constraints, and a steady return to consumer spending on close-contact activities, developments that may be influenced by the worsening outbreak.
The Fed officials “expect to see continued strong job creation. And we will be learning more about the Delta variant’s effects”, Powell said.
“For now, I believe that [the] policy is well-positioned; as always, we are prepared to adjust.”
Much of Powell’s speech was devoted to an exposition of why he feels current high inflation is likely to pass, reciting a list of factors, from supply chain bottlenecks that are likely to ease to globalisation acting as an anchor on prices.
While the current fast pace of price increases is “a cause for concern”, it would also be damaging, he said, adding that if the Fed jumps the gun with any policy shift, particularly with a premature decision to raise the central bank’s benchmark overnight interest rate from the current near-zero level.
“We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 per cent inflation on a sustainable basis,” Powell said.
“If the central bank tightens policy in response to factors that turn out to be temporary … the ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired. Today, with substantial slack remaining in the labour market and the pandemic continuing, such a mistake could be particularly harmful.”
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