Powell Says Fed Policy Will Likely Need More Time to Work

The performance of the US economy over the past year has really been quite strong. We had growth of more than 3% last year as rebounding supply supported both robust growth and in spending and also employment alongside A considerable decline in inflation. The more recent data show solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal. So I’ll say a little bit about our two mandate goals, maximum employment and price stability. As I mentioned, the labor market remains very strong. Payroll job gains have been strong over the first quarter, averaging just a tick above 275,000 per month. The unemployment rate has been below 4% for 26 consecutive months, which hasn’t happened in more than 1/2 a century, the longest streak of its kind. Strong demand. Demand for workers has been met by a substantial increase in the workforce due both to rising labor force participation and a substantial increase in immigration, as indeed Canada has experienced as well. So even by with even with this strength, by many measures our labor market has been moving into better balance over the past year. The ratio of job openings to unemployed workers was extremely elevated in 2021 and 22 has now moved back down to levels just above for the pre pandemic era. Surveys of workers and businesses indicate A normalizing labor market. So do the rates of both quits and hires and broader wage pressures also continue to moderate albeit gradually. So the overall picture for the labor market is one of real strength but gradual normalization turning into price stability. Our inflation mandate inflation of course declined quite significantly over the second-half of last year, over the whole year but particularly in the second-half. But 12 month core PCE inflation which is one of the most important things we we look at is estimated to have been little changed in March over February at 2.8% and the three and six month measures of inflation are actually above that level. So we’ve said at the FOMC that we’ll need greater confidence that inflation is moving sustainably toward 2% before it’d be appropriate to ease policy. You know we took that cautious approach and sought that greater confidence so as not to overreact to the string of low inflation readings that we had in the second-half of last year. The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence. That said, we think policy is well positioned to handle the risks that we face if, if higher inflation does persist, we can maintain the current level of restriction for as long as needed. At the same time, we have significant space to ease should the labour market unexpectedly weaken right now. Given the strength of the labour market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us come what may. We remain strongly committed to returning inflation overtime sustainably to 2%.