Fed's Jerome Powell: Jobless Rate Better Than Expected; Recovery To Take A Long Time

Sep 4, 2020
Originally published on September 8, 2020 4:38 am

Updated at 4:37 p.m. ET

Federal Reserve Chairman Jerome Powell said the pace of jobs growth is rising faster than many people expected, but it may take years before the economy has fully recovered.

Powell spoke in a wide-ranging interview with NPR on Friday, hours after the release of the August jobs report, which said unemployment continued to drift lower, falling to 8.4%.

"I would say today's jobs report was a good one," he said. "Through May and June, we got quite a few people back to work."

Powell also said the central bank isn't ready to let down its guard anytime soon and interest rates will stay low for a long time.

"We think that the economy's going to need low interest rates, which support economic activity, for an extended period of time," he said. "It will be measured in years."

While many jobs have come back, as many as 11 million people aren't back to work yet, including those in hotel, entertainment and travel-related jobs, Powell said.

"And in a sense, those may be some of the harder jobs to find because there are some parts of the economy that will take longer to recover," he said.

Powell also said that following social distancing guidelines and wearing masks is essential to controlling the virus and getting the country back to full employment.

"There's actually enormous economic gains to be had nationwide from people wearing masks and keeping their distance," he said.

Under Powell's leadership, the Fed has made unprecedented efforts to support the economy during the pandemic.

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As state and local governments urged residents to stay at home and businesses to shutter in an effort to stem the spread of the virus, tens of millions of people lost jobs within the span of a few weeks, sending the unemployment rate skyrocketing to nearly 15% in April.

The Fed was quick to step in, devising a series of initiatives to pump trillions of dollars into the economy by cutting interest rates to zero and restarting a bond-purchasing program used during the Great Recession.

The central bank also took steps to make low-interest loans available to banks, money-market funds, state and local governments and businesses of all sizes.

Many economists say the Fed's quick efforts have made the downturn less severe than it otherwise would have been, and unemployment has been gradually drifting downward.

But many critics say the Fed's actions have helped Wall Street more than Main Street. The belief that the Fed stands ready to let the money flow whenever necessary has fueled a great rebound in the financial markets, sending stocks up to record highs since March — though major indexes dipped this week.

Unemployment fell to 8.4% in August, but job growth has slowed, the Labor Department reported earlier Friday. (Just before the pandemic hit the U.S. economy, the jobless rate matched a 50-year low of 3.5%.)

Powell's comments come a week after he announced a major change in the Fed's inflation targeting policies. Powell said the Fed would allow inflation to run above its standard 2% threshold before raising interest rates, potentially giving the economy more room to grow.

"Many find it counter-intuitive that the Fed would want to push up inflation," Powell told the audience. "However, inflation that is persistently too low can pose serious risks to the economy."

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STEVE INSKEEP, HOST:

Walk amid the landmarks here in Washington and somewhere roughly between the White House and the Lincoln Memorial, you will see a building that tourists may overlook. It is the headquarters of the Federal Reserve Board. It's a white marble edifice built during the Great Depression. From his office inside, Fed Chairman Jerome Powell has been acting to prevent another depression. We met Powell there on Friday just before the holiday weekend. A jobs report that day showed unemployment dropping to 8.4%.

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JEROME POWELL: I guess I would just say the recovery is continuing. We do think it will get harder from here because of those areas of the economy that are so directly affected by the pandemic still. There's going to be a long period, we believe, where we'll have to take our time and see those people get back to work.

INSKEEP: Powell has said before that the recovery would take time. His remark a few months ago angered the president, who publicly lashed out. But lately, the president has not mentioned Powell as economic signs improve. Throughout the pandemic, Jerome Powell's job has been to provide reassurance along with access to almost unimaginable amounts of credit.

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INSKEEP: Are you anywhere near the limit in the liquidity that you can provide, the bonds you can buy, the loans you can make, any form of help?

POWELL: No, there really - as a practical matter, we're limited by our mandate. We can only do things that support our mandate. But we can provide the liquidity as needed.

INSKEEP: The Fed offered trillions of dollars to state and local governments and businesses this spring. The intervention was so huge that most of the loans weren't needed.

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POWELL: Just the fact that we were there and willing to make those loans has meant that the capital markets and the lending resumed on its own because we were there as a backstop.

INSKEEP: The chairman is 67 years old. He's a lawyer, former Treasury Department official, former private equity executive. And in a chaotic time, he has been the face of stability.

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POWELL: Good morning, everyone.

INSKEEP: Since early March, his regular press conferences...

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POWELL: Earlier today, the Federal Open Market Committee announced a 1/2% point reduction.

INSKEEP: ...Have announced regular moves to prop up the economy.

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JEANNA SMIALEK: You guys have cut rates to zero. You're buying up huge quantities of government debt. I guess the question is what more can you realistically do to help the economy?

POWELL: So let me say that we're committed to using our full range of tools.

INSKEEP: The Fed's intervention was arguably more significant than the trillions committed by Congress. As we talked on Friday, Powell was thinking ahead to whenever the pandemic might be over. He gave a speech last month announcing a different approach to inflation and to employment, the two huge economic indicators that the Fed is supposed to manage.

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INSKEEP: If inflation gets a little high, if employment gets a little high, you're going to be less quick to stamp on it. Is that a fair summary?

POWELL: Yes, it is. In fact, what we've learned is that unemployment can be even lower than we thought and not result in troubling levels of inflation. So we saw that for the last couple of years before the pandemic arrived. We had 3 1/2 % unemployment, which was sort of the lowest period of sustained unemployment in 50 years. And we didn't see inflation result. Now, if you go back 50 years, inflation would have reacted very strongly to low levels of unemployment. So we saw that it didn't.

INSKEEP: Where did inflation go? Why has it gone away?

POWELL: So low and declining inflation has been a phenomenon really around the world for the last few decades. And it comes from a couple of factors. One just is that with globalization, things can be made anywhere. And that means it's difficult to raise wages or prices. So if you raise wage costs or prices, someone will find a cheaper place in the world to make a product or increasingly to deliver a service.

INSKEEP: I can see why low wages would be seen as a problem. Why is a lack of inflation a potential problem?

POWELL: We all know that high inflation can be a problem, but persistently low inflation can be a problem, too, and this is less obvious and intuitive. And the reason is really this - when inflation is very, very low, it means lower interest rates. When interest rates get very low, the Fed will have less room to cut interest rates to support the economy. That means that unemployment will be higher more of the time. It means less attractive economic outcomes. And those burdens tend to fall most on those who are least able to bear them. So we really want some inflation. We want inflation to be around 2%.

INSKEEP: One of your predecessors in this office famously said my job is to take away the punchbowl just as the party starts heating up. So is your solution to keep the punchbowl out a little while longer?

POWELL: I guess I would say it a little bit differently. So in that world of 40 and 50 years ago, high inflation was the problem that we all talked about and the difficulty in solving it and would we ever get it under control? And inflation, remember, was 10% in the '70s. So high inflation has not been a problem in the United States. It's a different economy. The challenges have changed. The challenge now is how to get full employment, how to keep us close to full employment and part of the way we need to do that is to keep inflation at 2%. And most of the time, we're going to be pushing up rather than down.

INSKEEP: This means that you can keep interest rates super low for a little longer time or maybe a lot longer than you might otherwise have done. Is that what we should expect, the interest rates are going to be around zero for years to come?

POWELL: Well, I think that's really a function of the unique situation we're in right now. The economy is now recovering and about half of the jobs, the 22 million jobs - payroll jobs that we lost during that period have come back. But it's going to be a long time, we think. We think that the economy is going to need low interest rates, which support economic activity, for an extended period of time and...

INSKEEP: Years.

POWELL: It will be measured in years, yes, we believe. And that's - however long it takes, we're going to be there. We're not going to prematurely withdraw the support that we think the economy needs. So there's still - while we've gotten something like 11 million people back to work, there's still another 10 or 11 who are not back to work. And in a sense, those may be some of the harder jobs to find because there are some parts of the economy that will take longer to recover. And these are the ones that involve direct person-to-person contact in crowds.

INSKEEP: How do the risks to the economy and the economic risks to ordinary people change now that we're about six months into this pandemic in the United States and infection rates are still quite high and the end is not quite in sight?

POWELL: So the key thing for the economic recovery and also just in general is to get the spread of the disease well and truly under control. And the best way to do that, short of arriving at a vaccine, is to take these social distancing measures and employ them. And that means masks. That means keeping your distance and things like that. Those things actually enable people to go back to work and not get sick. So it's really important that we do those things. And, I mean, there's actually enormous economic gains to be had nationwide from people wearing masks and keeping their distance.

INSKEEP: Congress is now debating, as you know very well, further steps because the first few trillion dollars only went so far. Do you need to take further steps at the Fed knowing what you do about how the pandemic has evolved over the last six months?

POWELL: So I think it's likely that we will need to over time. I think we took very aggressive action, historically aggressive action, at the very beginning of the pandemic. And that has put us in good stead. So I think we - you know, we've done many things. We've done a lot of the things we can do, but we can do more, and we will do them as we see the need for that.

INSKEEP: Has the pandemic driven inequality?

POWELL: Yes, absolutely. Well, I would put it this way. The burdens of the pandemic have fallen to a greater extent on people at the low end of the income spectrum. And that's people who worked in the service industry in relatively low paid jobs dealing with the public, for example, in restaurants, in bars, in hotels, in airlines, in entertainment. Those people have tended to be, you know, have lower wages, be more skewed to minorities and more skewed to women. And so I would say without question this event has exacerbated, really, preexisting disparities in our economy that were already troubling, which is one of the reasons - one of many reasons - we're so eager to get back to the economy we had, get back to a tight labor market with low unemployment, high labor force participation, rising wages, all of the virtuous factors that we had as recently as last winter.

INSKEEP: Are partisan politics adding to the risk to the economy?

POWELL: I shouldn't comment on that. You know, it's - we do monetary policy here. We do it without taking political considerations into effect. And I try not to comment directly on political things on the theory that we'll be left alone to do our monetary policy.

INSKEEP: But I'm just thinking Congress either does or doesn't pass a relief package. Either way, that affects what you need to do here, doesn't it?

POWELL: So we'll - yes, we certainly take that into account. I should say, though, that Congress passed a, you know, $2 trillion relief package earlier in the year, and that's part of the reason why you see the amount of recovery we have seen with half of the people who lost their jobs now having gone back to work. Part of that is the support that Congress provided in the CARES Act, which was historically large. I sense that there's - you can see that there is pretty widespread agreement on both sides of the aisle that something needs to be done. I guess there are differences, it appears, as to what needs to be done and how big it needs to be.

INSKEEP: Extending unemployment, for example. Sure.

POWELL: But those sorts of things are for Congress to decide. But I do think there's agreement that something needs to get done, and my guess is that in time more will be done. And certainly I think more will be needed.

INSKEEP: Granting that interest rates, as we've been discussing, are going to be super low for a while, you don't have to worry that much about borrowing a lot of money. You still have to think about it. At what point would the United States have borrowed too much?

POWELL: So this is a fiscal policy question, and it's not really for the Fed. But I would say that the U.S. fiscal policy at the federal level has been on an unsustainable path for some time. And by that, what I mean is the debt is growing faster than the economy. And you can't - by definition, that is unsustainable. Eventually, that can't go on. So - and the time to deal with that is when the economy is healthy, when there's growth, when unemployment is low, when people can afford to pay taxes and we can control spending. That's the time to deal with that. The time to start working on fiscal sustainability is not right now when we have so many people in need. In fact, if you do keep these people connected to the economy, it will cost money now, but it will pay dividends later.

INSKEEP: Mr. Chairman, thanks very much.

POWELL: Thank you.

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INSKEEP: Jerome Powell, chairman of the Board of Governors of the Federal Reserve System, he spoke with us on Friday. As we left the Fed's cavernous headquarters, we were the only people we saw in the lobby or in the halls. Like so many people, most of those managing the world's largest economy are working from home. Transcript provided by NPR, Copyright NPR.