By Jon Hilsenrath
The U.S. is a long way from a strong job market, Federal Reserve Chairman Jerome Powell said Thursday, an indication that the central bank's easy-money policies will remain in place for the foreseeable future.
Friday's U.S. jobs report -- which showed the U.S. lost 140,000 payroll positions in December -- pushes the central bank farther from its goals, though officials and many private economists expect the economy to rebound this year as a Covid-19 vaccine is distributed through the population. A Wall Street Journal survey of forecasters this month projected the U.S. economy will grow 4.3% this year and the unemployment rate will drop from 6.7% in December to 5.3% by the end of this year.
"Now is not the time to be talking about exit" from easy money policies, Mr. Powell said in a webcast with Princeton University, his undergraduate alma mater, adding, "The economy is far from our goals." In addition to high unemployment, he noted, inflation isn't clearly on a path to reaching 2% on a sustained basis, even though it might spurt higher this year.
The Fed has pushed short-term interest rates to near zero and signaled it expects to keep them there for years. It also has been buying $80 billion in Treasury securities and $40 billion in mortgages bonds, net of redemptions, every month since June and committed to continue doing that until it sees "substantial further progress" in the job market.
The central bank's next policy meeting is Jan. 26-27 and little change is expected in policy or communication.
The Fed aims for 2% inflation over time and a strong job market. Its easy-money policies are aimed at promoting that by encouraging borrowing, spending and investment. Mr. Powell said the appropriate moment for interest-rate increases to stave off higher inflation would be "no time soon." One lesson from the 2007-2009 crisis, he said, was to be careful about exiting from such policies too soon.
The Fed doesn't have a formal target for unemployment. Mr. Powell noted that before the pandemic the jobless rate fell lower than expected without stoking inflation. In the future, he said, a strong job market would be one in which people on the fringes of the labor market -- including low-skilled and low-income workers -- are drawn into jobs.
He added that under the Fed's new framework for interest-rate policy adopted last year, the central bank won't raise interest rates to prevent unemployment from falling unless it sees a serious risk of excessive inflation.
After a burst of activity to support the economy in 2020, the Fed could take a back seat to the U.S. Treasury in 2021. The new Biden administration is expected to launch large spending programs to boost economic growth and the Fed has indicated its policies are likely to hold steady.
Mr. Powell said a strong fiscal policy response to the latest crisis could help the economy to recover sooner than it did after the 2007-2009 crisis, when he said fiscal policy was tightened too quickly.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
(END) Dow Jones Newswires
01-14-21 1538ET
