The Federal Reserve will focus on increasing labor market participation and preventing lower inflation expectations as it considers its next steps, President Jay Powell said on Monday.
Speaking to the Greater Providence Chamber of Commerce in Rhode Island, Powell said the US economy was “generally good,” but added there was still room for improvement.
âFirst, as this expansion continues into its 11th year – the longest in US history – economic conditions are generally good,â he said. âSecond, the benefits of the long expansion are only now reaching many communities, and there is plenty of room to build on the impressive gains made so far. “
Mr Powell also reiterated his appeal this year to Congress to do more to help train workers and get them back into the workforce.
âThe literature suggests a variety of policies, beyond the scope of monetary policy, that could spur further progress,â he said. “Of course, the task of assessing the costs and benefits of these policies lies with our elected officials.”
At its October meeting, after completing a series of 75 basis points of total U.S. interest rate cuts this year, the Federal Open Market Committee suggested it would wait for more data before changing its policy further. .
Mr Powell’s remarks suggest a slight shift in focus over the coming year, instead of cushioning the impact of the US-China trade war and slowing global economic growth.
Instead, the Fed will encourage more workers in their prime to start looking for work again. And he will be more attentive to the risk that future inflation expectations of consumers and businesses will continue to decline, as they have done in Japan and Europe.
The unemployment rate in the United States is now at its lowest in half a century. Mr. Powell pointed out, as he frequently does, that “employment gains have been widely distributed across all racial and ethnic groups and at all levels of education.”
Moreover, he added, the strength of the US labor market has encouraged âmiddle-agedâ workers – between 25 and 54 – to re-enter the workforce. Income growth for low-income households increases as people re-enter the workforce – but even after recent improvements, the United States still lags behind other advanced economies in terms of labor market participation. job.
At an event earlier today, Mr Powell had listened in the gymnasium of an elementary school in East Hartford, Connecticut, to the various ways the local and state government, working with the Boston Federal Reserve, had helped residents find high paying jobs. – by training them in the construction of aircraft engines in the neighboring Pratt & Whitney plant, for example.
The Fed’s rate-setting committee can also help by encouraging full employment, Powell said. Echoing his comments to Congress during his testimony earlier in November, he added that lawmakers are also passing laws that encourage work and pay for training.
Mr Powell said that while people he spoke to at Fed public events focused on rising costs for medical care and housing, he was also concerned about the possibility of anticipation. Inflation – predictions among households and businesses of price increases in the future – would continue to fall, driving real inflation and, with it, interest rates.
“The experience of Japan, and now the euro zone, suggests that this dynamic is very difficult to reverse,” he said. “Once underway, it can make it more difficult for a central bank to support its economy by lowering interest rates further.”
Mr. Powell’s comments follow a series of discussions at Fed meetings about what economists are calling “Japanification.” It is essential, he added, that the Fed avoid an “unhealthy downward drift” in inflation expectations.