Fed saw pandemic-related restraints on labor market before April jobs miss
Federal Reserve officials highlighted several pandemic-related factors that were suppressing the labor market’s recovery from COVID-19 during their last policy meeting in April, according to minutes released Wednesday by the bank.
Members of the Federal Open Market Committee (FOMC), the Fed’s monetary policy arm, “judged that the economy was far from achieving the Committee’s broad-based and inclusive maximum-employment goal” during their April meeting, according to minutes.
Many Fed officials said business contacts in their districts reported difficulty hiring workers and drawing more people into the labor market, “likely reflecting factors such as early retirements, health concerns, childcare responsibilities, and expanded unemployment insurance benefits.”
“Some of these factors were seen as likely to remain significant while pandemic-related risks persisted,” the minutes continued.
The FOMC’s April 27-28 meeting came roughly a week before the Labor Department’s monthly jobs report showed a disappointingly small employment increase that month. The U.S. economy only added 266,000 jobs in April, well below the 1 million-plus gain projected by economists.
The lackluster April jobs report helped fuel a Republican push to scrap expanded unemployment benefits, which were initially signed into law by former President Trump in March 2020 and extended by President Biden again in March.
The benefits — including a $300 weekly supplement, extended payments and programs for contract workers — are set to expire in September. But more than a dozen GOP governors have taken steps to cancel those benefits sooner, arguing that they provide a financial disincentive to return to work.
Economists have intensely debated how much of an impact expanded unemployment benefits have played in curbing the labor market’s recovery. While Fed officials cited them as one potential factor in labor shortages, they mentioned it as only one of several and did not indicate which was the primary restraint.
The U.S is still roughly 8 million jobs short of its pre-pandemic level after recovering nearly 13 million of more than 21 million jobs lost to the onset of COVID-19. While Fed officials expressed concern that the pandemic could still derail the economy, staff upgraded their economic projections for 2021 from the March meeting.
“With the boost to growth from continued reductions in social distancing assumed to fade after 2021, GDP growth was expected to step down in 2022 and 2023. However, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace that of potential over much of this period, leading to a decline in the unemployment rate to historically low levels,” the minutes read.