It will be “some time” before the U.S. economy is healed enough for the Fed to consider reducing its monthly bond purchases, Fed vice chair Richard Clarida said on Wednesday, acknowledging that April’s weak employment report makes the pace of the jobs recovery “more uncertain” than that of the economy as a whole.
Fed officials hoped April would mark the beginning of a string of strong reports of a million or more job positions added each month, but the pace for the last three months is now only about half of that.
While the recovery of overall output is expected to “pick up steam” this year, Clarida said, the current pace of job growth means the U.S. would not return to its pre-pandemic level of employment until the second half of next year.
“The near-term outlook for the labour market appears to be more uncertain than the outlook for economic activity,” Clarida said in webcast remarks to a National Association of Business Economics symposium, calling April’s weak jobs gains of just 266,000 indicative of shifts in the economy that may take time to unfold.
A host of factors may be at play. Some, such as child care constraints or the incentives created by enhanced federal unemployment benefits, are expected to ease over time. Others, such as structural shifts in company employment patterns and a wave of pandemic-related retirements, may put a longer term drag on hiring and change the supply of labour available.
Clarida said it remained unclear how long all of that will take to resolve, and how it might affect wages and prices or the central bank’s progress toward its maximum employment goals.
“What this necessary rebalancing of labour supply and demand means for wage and price dynamics will depend importantly on the pace of recovery in labour force participation as well as the extent to which there are post-pandemic mismatches between labour demand and supply in specific sectors of the economy and how long any such imbalances persist,” Clarida said.
U.S. consumer prices rose by 4.2 per cent year-over-year in April, their biggest rise since September 2008, according to data from the Labor Department on Wednesday.
Though Clarida is not concerned a coming expected rise in prices will persist, he said the accelerating recovery is not shifting the Fed’s commitment to keeping low interest rates and a $120 billion pace of monthly bond purchases until the labour market is fixed.
“Notwithstanding the recent flow of encouraging macroeconomic data, the economy remains a long way from our goals,” Clarida said. “It is likely to take some time for substantial further progress to be achieved.”
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