US economy has a long road ahead, says Fed chairman Jerome Powell

Washington: Federal Reserve Chairman Jerome Powell said that while US unemployment data for August was positive, the economy’s recovery from the coronavirus pandemic has a long road ahead and interest rates will remain low for a long time.

“The recovery is continuing; we do think it will get harder from here,” Powell told National Public Radio in an interview Friday. “Today’s jobs report was a good one,” he said, adding that “to get us back to full employment, we’re going to have to get the disease under control.”

“There may be a modest slowing in the pace of improvement, but improvement goes on. And in the labor market, I would say it goes on at least at the pace we expected.”

Powell spoke hours after a report showed the U.S. labor market extended its rebound for a fourth month in August, with the unemployment rate falling by almost 2 percentage points, to 8.4%. The much better-than-expected improvement in the jobless rate spanned demographic groups, while the payroll gains of 1.37 million were broad-based across industries.

Mixed data

Other recent economic data have been mixed. While a measure of manufacturing expanded in August at its fastest pace since late 2018, consumer spending – the heart of the U.S. economy – decelerated in July.

Powell suggested that more support for the unemployed and small businesses may be necessary to help Americans hard hit by the coronavirus crisis. Lawmakers remain deadlocked on another aid package, with Democrats pushing for a much bigger program than Republicans and the White House are willing to agree to.

Helping Americans

“We shouldn’t let those people lose everything they have and have to move out or be evicted or move in with family. That’s also not going to be good for containing the Covid spread,” Powell said. “I do think we ought to do everything we can as a country to keep those people – I wouldn’t say make them whole, but I would say to look out for them.”

He suggested Fed will do more to aid the economy without spelling out what that would entail.

“It’s likely that we will need to over time,” Powell said. “We’ve done a lot of the things we can do, but we can do more and we will do them as we see the need for that.”

Powell told NPR that he sees interest rates staying low for years.

“We think that the economy’s going to need low interest rates, which support economic activity, for an extended period of time,” he said. “It will be measured in years.”

At their June meeting, all 17 Fed policy makers projected that the federal funds rate they target would remain near zero this year and next. And all but two saw rates staying at that level in 2022. Officials will provide updated quarterly forecasts at their Sept. 15-16 meeting, including the first projections for 2023.

New Framework

The Fed last week unveiled a new long-term strategy for conducting monetary policy under which it will seek an average 2% inflation rate over time and “broad-based and inclusive” gains in the jobs market. The new framework, which was 1 1/2 years in the making, was seen as reinforcing the Fed’s ultra-expansionary monetary policy.

A series of policy makers this week suggested that they were in no rush to build on the framework by providing more specific details on their interest-rate plans – so-called forward guidance.

While saying he didn’t want to comment on the level of the stock market, Powell pushed back against suggestions that the Fed’s super-lax monetary policy was leading to a bubble in equity prices.