Powell says pickup in job gains likely this fall

Powell says pickup in job gains likely this fall
© AFP/Pool

Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that the U.S. remains on track for a strong rebound from the coronavirus recession despite several speed bumps that have weighed on the recovery.

Testifying before a special House COVID-19 subcommittee, Powell expressed confidence that rising inflation and lackluster job growth would both turn around as the global economy smoothed out the kinks of reopening.

“I think we'll see strong job creation in the fall. I really do,” Powell said.

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For now, he said, "there seems to be some kind of a speed limit," pointing to more than 9 million job openings and even more Americans who are unemployed.

"It may just be that it's hard to match up with a new job and people feel like they can wait a little bit longer and really shop carefully,” Powell added.

His appearance before the subcommittee comes as the Fed is coming under growing pressure from inflation hawks to raise interest rates and halt monthly bond purchases with prices rising sharply from pandemic lows.

The consumer price index, a closely watched gauge of inflation, rose 5 percent in the 12 months leading into May and 0.6 percent in last month alone. The producer price index for final goods, which measures prices charged by suppliers for shelf-ready items, also rose 5.3 percent annually — the fastest recorded yearly rate.

At the same time, the U.S. has gained an average of 540,000 jobs over the past three months — half the rate Powell and many other economists had expected.

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Powell acknowledged that the pace of job gains had plenty of room to rise with millions of Americans out of the labor force. He also said that caretaking responsibilities, lingering pandemic fears, enhanced unemployment benefits and a desire among millions of Americans to find better, more fulfilling work have all dampened net job creation.

But Republican lawmakers remained unconvinced, insisting that President BidenJoe BidenOvernight Defense: Senate panel adds B to Biden's defense budget | House passes bill to streamline visa process for Afghans who helped US | Pentagon confirms 7 Colombians arrested in Haiti leader's killing had US training On The Money: Senate braces for nasty debt ceiling fight | Democrats pushing for changes to bipartisan deal | Housing prices hit new high in June Hillicon Valley: Democrats introduce bill to hold platforms accountable for misinformation during health crises | Website outages hit Olympics, Amazon and major banks MORE’s extension of jobless benefits and other support measures included in the $1.9 trillion COVID-19 relief bill from March have disincentivized work and overheated the economy. 

“These Biden administration inflation policies have put you in a tough spot,” House Minority Whip Steve ScaliseStephen (Steve) Joseph ScaliseOvernight Health Care: Biden officials says no change to masking guidance right now | Missouri Supreme Court rules in favor of Medicaid expansion | Mississippi's attorney general asks Supreme Court to overturn Roe v. Wade S.E. Cupp: 'The politicization of science and health safety has inarguably cost lives' GOP's Banks burnishes brand with Pelosi veto MORE (R-La.) told Powell.

“The Fed has tools to deal with inflation, but those tools are harsh. Raising interest rates and constricting the money supply, they work, but as we saw with Paul Volcker, it causes tremendous pain,” he continued, invoking the former Fed chief known for quashing rapid price increases during the 1970s.

Fed officials have tried for months to reassure the American public, lawmakers and investors that the recent spike in inflation will reverse without their intervention. Powell, echoing a broad range of economists, says the jump in inflation reflects two short-term factors: prices returning to pre-pandemic levels and supply shortages driven by a surprising rebound in consumer demand.

“If you look behind the headline, look at the categories where these prices are really going up, you'll see that it tends to be areas that are directly affected by the reopening,” Powell said.

“There's no reason why it should leave a mark on inflation, say, a year or so ahead because we should be through it then.”

Biden’s top economic officials, including Treasury Secretary Janet YellenJanet Louise YellenAfrica doesn't deserve last place in the vaccine race Biden says wages will need to increase to solve recruitment problems Just 6.5 percent of rental aid has reached tenants, landlords: Treasury MORE, have made the same case to lawmakers. An ideologically diverse range of economists also generally agree that inflation will likely cool off on its own this year but are unsure exactly when.

Fed officials expect inflation to settle at a 3.4 percent annual rate with the economy growing by 7 percent in 2021, according to median estimates released by the central bank last week. If those projections hold, inflation over the past two years would average out close to the Fed’s annual target of 2 percent.

Despite the pressure facing the Fed, lawmakers largely avoided criticizing Powell or the central bank directly. Even Republicans who eviscerated Biden’s economic policies expressed sympathy for Powell, saying he’d be left to clean up any mess.

“Your job is stable employment and low inflation. Right now we have 9 million job openings and inflation that's went up five months in a row,” said Rep. Jim JordanJames (Jim) Daniel JordanDemocrats plow ahead with Jan. 6 probe, eyeing new GOP reinforcements S.E. Cupp: 'The politicization of science and health safety has inarguably cost lives' GOP's Banks burnishes brand with Pelosi veto MORE (R-Ohio).

“So something has to give. I'm not necessarily blaming you. I'm blaming the Democrat policies.”

Powell said that while the inflation outlook is uncertain, it is “very, very unlikely” that the U.S. would see the double-digit price increases of the 1970s invoked by GOP lawmakers in recent months.

“What we're seeing now, we believe, is inflation in particular categories of goods and services that are being directly affected by this unique historical event that none of us has lived through before,” he explained.

“You see extremely strong demand for labor for goods or services, and you see the supply side caught a little bit flat-footed and trying to catch up,” he continued. “I graduated from college in 1975. I had a front row seat. I don't expect anything like that to happen.”