The U.S. job market “is still a ways off” from the progress the Federal Reserve wants to see before reducing its support for the economy, while current high inflation will ease “in coming months,” Fed Chair Jerome Powell said in remarks prepared for delivery at a congressional hearing on Wednesday.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said, restating the U.S. central bank’s faith that current price increases, despite the concerns they are raising about unmoored inflation, are tied to the reopening of the economy and will prove fleeting.
Meanwhile “there is still a long way to go” in repairing a labor market that is 7.5 million jobs away from its pre-pandemic level, with the burden falling hardest on lower-wage workers and major ethnic and minority groups, and the overall participation rate still depressed, Powell said.
Combined, the remarks show Powell holding to the Fed’s core narrative that a fast-evolving recovery will bring millions of people back into jobs if it continues, that inflation will remain anchored over time around the Fed’s 2% target, and that there is no reason to rush any tightening of monetary policy.
Ongoing Fed bond-buying and a target interest rate held near zero “will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” Powell said.
Powell is scheduled to appear before the U.S. House of Representatives Financial Services Committee at 12 p.m. EDT (1600 GMT). On Thursday, he will testify before the Senate Banking Committee at 9:30 a.m. EDT (1330 GMT).
At the Fed’s last policy meeting, some officials indicated the Fed may need to pull back faster than anticipated because of the jump in inflation.
Powell restated that Fed discussions are underway about when it might be appropriate to reduce the central bank’s $120 billion in monthly bond purchases.
There was no mention in his testimony of the risks of the emerging Delta variant of the coronavirus, but a strong expectation that the recovery should continue unimpeded.
“Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish,” Powell said.