The Fed’s policy patience is part of a new framework it announced nearly a year ago that pledged to achieve an average of 2% inflation over time and not pre-judge the level of maximum employment. Fed officials in June started a conversation about when to begin scaling back their asset purchases.
Forecasts released by Fed officials last month also showed them pulling the timing of interest rate liftoff forward, with two increases penciled in for 2023, a move that pushed some market measures of inflation expectations lower.
“Measures of longer-term inflation expectations have moved up from their pandemic lows and are in a range that is broadly consistent with the FOMC’s longer-run inflation goal,” Powell said, referring to the rate-setting Federal Open Market Committee.
Fed officials last month signaled their view of risk and uncertainty around inflation had risen, according to their forecasts.
Powell emphasized in his prepared remarks that the labor market recovery was still far from complete.
“Conditions in the labor market have continued to improve, but there is still a long way to go,” “Powell said. “Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish.”
He added that despite “substantial improvements” for racial and ethnic groups, “the hardest-hit groups still have the most ground left to regain.”
The U.S. economy added 850,000 jobs in June, the biggest monthly increase since August. Still, broader measures of labor-market slack indicate it is still short of the Fed’s mandate of maximum employment. The jobless rate for Black workers stood at 9.2% compared to 6% in February 2020.
The overall unemployment rate has fallen to 5.9% from a pandemic peak of 14.8% with high rates of churn in industries facing strong demand such as retail and hospitality. Prior to the pandemic, the unemployment rate stood at 3.5% in February 2020 while the 12-month change in inflation was 1.8%, according to the Fed’s preferred measure, the personal consumption expenditures price index.
This article was provided by Bloomberg News.