Jackson Hole Fed Powell Remarks
Federal Reserve Board
2021 Economic Symposium Opening Remarks
Friday, August 27, 2021
Witnesses
- The Honorable Jerome H. Powell, Chairman, Federal Reserve
Opening Statements
In his opening remarks, Powell began by saying the path of recovery has been difficult and thanked the front line workers for keeping the economy going. He said strong policy support has fueled a vigorous but uneven recovery. He mentioned the increase in aggregate personal income, the shift from services to durable goods, shortages and bottlenecks resulting in elevated inflation, and turbulent improvements in labor market conditions but said many other advanced economies are experiencing similar unusual recoveries.
Powell discussed the Federal Reserve’s (Fed) two goals of maximum employment and price stability and said the pace of recovery has exceeded expectations, but joblessness continues to fall on lower-wage workers and even more so on African Americans. The Fed found that spending has shifted away from services and towards durable goods and that spending is running 20 percent of pre-pandemic levels. Total employment is now 6 million below its February 2020 level and the outlook for the labor market has brightened in recent months as job gains have risen steadily and the pace of hiring is higher than ever before. He assured that these favorable conditions for job seekers should help the economy return to maximum employment. He noted that long term unemployment remains elevated, and recovery in labor force participation has lagged behind as it has in past recoveries. But with increases in vaccines and the end of unemployment benefits, he believes many factors that may be holding back job seekers are fading.
Powell then turned to inflation, noting that businesses and consumers have reported upward pressure on prices and wages. He agrees that inflation at levels above two percent are a cause for concern but assured that the elevated readings are temporary and that the Fed is carefully assessing inflation factors from a number of perspectives. Powell said the spike in inflation is largely related to a narrow group of goods that have been affected by supply and demand of the economy. He added that these effects should wash out over time and noted that their measures of broad-based inflation have generally remained moderate. He said if wage increases were to move persistently above the level of productivity gains, businesses would likely pass those prices on to consumers but said they have seen little evidence in data that suggest such a wage-price spiral. Powell said as they have been carefully monitoring a wide range of indicators of longer term inflation expectations, these measures today have been broadly consistent with the Fed’s two percent goal.
Powell discussed monetary policy responses and explained that policy makers will refrain from offsetting temporary inflationary measures as it can do more harm than good. He said if a central bank tightens policy on temporary inflation factors, the main effects are likely to arrive long after the need has passed. On the other hand, he said history has shown central banks that they cannot take for granted the idea that transitory inflation factors will fade and noted that they are monitoring the factors very carefully.
Powell said if sustained higher inflation were to become a concern, the Federal Open Market Committee (FOMC) will respond accordingly. He said they are prepared to adjust their policy but believes current policy is well positioned. For asset purchases, Powell said the plan was to continue until they see substantial progress towards employment and price stability goals, and added that he believes the further progress test has been met for inflation. At the FOMC’s recent July meeting, Powell said his view was that if the economy evolved as anticipated, the Fed would be ready to taper its purchases and noted that July and August have shown progress toward these goals. However, as the Delta variant has spread, Powell said they are continuing to monitor these factors. He assured that even after the asset purchases end, the Fed’s elevated holdings of longer term securities will continue to support financial conditions. Powell concluded by emphasizing that the tapering of asset purchase will not signal interest rate lift off and added they have articulated a more stringent test for interest rates.
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