Fed Chair Powell Offered a Patient Message. Markets Quivered Anyway.

on Mar4
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Jerome H. Powell, the chair of the Federal Reserve, said he and his colleagues have a “high standard” for what full employment means, underscoring that the central bank is likely to be patient in removing its support for the economy.

Mr. Powell pointed out that the virus has pushed many people out of the job market and said that “4 percent would be a nice unemployment rate to get to, but it will take more than that to get to maximum employment.” It is unlikely the job market will return to full speed this year, he added, speaking in an online question-and-answer session hosted by The Wall Street Journal.

In fact, Mr. Powell’s entire message on Thursday centered on how cautious the central bank plans to be in dialing back economic policies — low interest rates and large-scale bond buying — that are meant to help the economy recover from the painful coronavirus shock.

But antsy markets appeared unconvinced: Rates jumped and stocks slumped as the Fed chair spoke. The S&P 500 index, which had been up more than half a percent earlier in the day, fell into negative territory — eventually closing with its third consecutive day of decline.

Mr. Powell reiterated on Thursday that the Fed would communicate “well in advance” when it thinks it is reaching that threshold, while declining to put a date on when that might happen.

“There’s reason to think that we’ll begin to make more progress, soon,” Mr. Powell acknowledged. “But even if that happens, as now seems likely, it will take some time to achieve ‘substantial’ further progress.”

When it comes to lifting shorter-term interest rates, their classic policy tool, officials have been clearer about precisely what they want to accomplish before adjusting their cheap-money stance.

“That’s going to depend entirely upon the path of the economy,” Mr. Powell said of the plan for interest rates. He said the country had to get to maximum employment, inflation must sustainably reach 2 percent, and those price gains must be on track to exceed 2 percent for some time.

“Those are the conditions,” he said. “When they arrive, we will consider raising interest rates. We’re not intending to raise interest rates until we see those conditions fulfilled.”

Even as many analysts anticipate higher inflation this year after very weak price increases in 2020, Mr. Powell was careful to draw a distinction between a short-term pop and a sustained acceleration.

“If we do see what we believe is likely a transitory increase in inflation” then “I expect that we will be patient,” Mr. Powell said. “There’s a difference between a one-time surge in prices and ongoing inflation.”

And when it comes to the job market, he pointed out that American employers now report 10 million fewer jobs than before the pandemic, leaving a lot of room for a labor rebound. The unemployment rate, which will be updated Friday, stood at 6.3 percent in January — still well above its 3.5 percent rate last year. And that understates the pandemic’s labor market cost, since many people have stopped looking for work altogether and are not counted into the official jobless number.

Initial jobless claims increased last week after a big drop the prior week, the latest report showed, showing that the labor market’s recovery remains rocky for now, though a better performance might lie ahead as vaccines allow the economy to reopen more fully.

“There’s good reason to expect job creation to pick up in coming months,” Mr. Powell said. “We need that.”

Mr. Powell, whose term as Fed chair ends early next year, declined to comment on whether he would like another term. He was originally appointed as a governor by President Barack Obama, then elevated to chair by President Donald J. Trump. He said he was focused on the job at hand.

“There’s a lot left to, we have a lot of ground left to cover,” he said. But given the advent of widespread vaccinations, there’s “good reason for optimism.”

Matt Phillips contributed reporting.

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