Top Federal Reserve officials on Monday emphasized that the labor market is far from being fully healed, underlining that the central bank will need to see significantly more progress before it feels ready to raise interest rates.
“We still have a long way to go before we reach the Federal Reserve’s maximum employment target,” John C. Williams, the president of the Federal Reserve Bank of New York, said in a speech Monday afternoon.
Leading Fed officials — including Fed chairman Mr Williams, Lael Brainard and Jerome H. Powell — have issued similar assessments of the outlook in recent days and weeks. They have pointed out that the economy is recovering quickly, bringing back jobs and normal business activities, and that existing supply chain disruptions and recruitment difficulties will not last forever.
But they say the recovery is incomplete and it’s worth being modest about the path ahead, especially as the Delta variant shows the coronavirus could disrupt progress.
“Delta emphasizes the importance of paying attention to economic results and not getting too attached to prospects that could be tarnished by evolving virus conditions,” said Ms Brainard, a Fed governor, in her prepared remarks on Monday.
Those comments came on the heels of the Fed’s September meeting, when the central bank’s policy-making committee made it clear that officials could begin phasing out their sizable asset purchase program as early as November. They have bought $120 billion in government and government-backed securities each month.
Monday’s speeches emphasized that as officials prepare to take that first step away from full-fledged economic support, they are trying to separate the decision from the Fed’s path for its key policy rate, which has been set to zero.
Central bankers have said they want the economy to return to full employment and inflation to be on track to average 2 percent over time before interest rates bounce off their lows.
That makes the debate about the potential of the labor market a crucial part of the Fed’s policy discussion.
Some regional Fed presidents, including James Bullard of the Federal Reserve Bank of St. Louis and Robert S. Kaplan of the Federal Reserve Bank of Dallas, have suggested that the job market may be tighter than it appears, citing data including vacancies and retirement.
But mr. Williams said Monday that there is still a lot of room for improvement in the job market. While the unemployment rate has fallen from pandemic highs, he said the Fed is looking at more than just that number, tracking only people who are actively looking for work. The Fed also wants the employment rate to bounce back. He pointed out that a high number of vacancies is not a clear signal that the job market has healed.
“Even when vacancies are at record highs, vacancies are not jobs,” said Mr Williams. “These vacancies are not filled immediately.”
While Mr Williams said he had been monitoring the impact of the reopening of schools on the job market, he said he didn’t think it would cause a huge surge in people returning to work this month or in October. .
“It may take a little longer for the labor supply to fully recover,” he said.
Ms Brainard rejected the idea that employment rates – the proportion of adults who are working or looking for a job – may not return to pre-pandemic levels.
“The claim that the employment rate has fallen permanently as a result of a recession is not new,” she says. A similar debate took place after the 2008 financial crisis and employment eventually recovered, especially for people in their prime.
Ms. Brainard warned that Delta was slowing down progress in the job market. Last week, there were more than 2,000 virus-related school closures in nearly 470 school districts, she said, and “the possibility of further unpredictable disruptions could cause some parents to postpone their plans to return to the workforce.”