Skip to content
nytimes – How does the Fed think about unemployment?

As he guides the financial system through the coronavirus pandemic, Jerome Powell, Chairman of the Federal Reserve, has worked to keep cash flow in the economy. He did so by cutting interest rates and speaking out at times – to a degree rare for a Fed executive – to demand legislative action on behalf of workers and businesses.

Powell testified today before the Senate Banking Committee, and tomorrow he will speak at the House Financial Services Committee. What he said this morning mostly reaffirmed his previous positions: he pledged to keep interest rates low until unemployment rises and inflation rises, and he said that a The recent surge in bond yields – although it scared some investors – was actually a demonstration of fiscal health.

To get a feel for what Powell’s testimony means and how it fits into the larger picture of Fed policy these days, I spoke to Jeanna Smialek, an economics reporter who covers the Fed and listened to the Senate hearing today.

Hi Jeanna. In his Senate testimony today, Powell said the economic recovery still has a long way to go and that the Fed will continue to keep interest rates low. What else have we learned from him today?

Powell made a specific point on the patience of the Fed before recalling the economic support.

For example, Senator Kyrsten Sinema, a Democrat from Arizona, asked if the Fed should meet the three goals it set for itself – full employment, 2% inflation, and an inflation outlook above 2. % – before raising interest rates. He answered that with an unambiguous “yes”. This matches what the Fed said in its statements, but it’s worth noting that it didn’t feel the need to add any caveats.

Likewise, he reiterated that the Fed needed to see “further substantial progress” towards full employment and stable inflation before pushing back its massive bond purchases. Investors are worried that a slowdown in bond buying, or a disappointing “slap” in terms, may begin soon. They took advantage of that assurance. (The audience was closely watched. JPOW, Powell’s internet nickname, was even all the rage on Twitter for a while.)

Unemployment fell to about 6 percent, from 14.7 percent last spring. But Powell and Janet Yellen, the Secretary of the Treasury, recently cited a different number – around 10% – as the actual rate of unemployment right now. Can you explain the gap? And tell us, is it rare for the country’s top economic and fiscal officials to cite unofficial unemployment data like this? To some extent, does this represent a new kind of thinking in Washington?

The Fed and Treasury take the official unemployment rate and add in people who (a) have dropped out of the workforce since February 2020 or (b) are misclassified due to a quirk related to the pandemic.

This is the latest development in a long-standing shift towards a more holistic approach to the weak labor market: officials have recognized for years that the official unemployment rate, which only counts job seekers assets, missed by many.

Fed and Treasury officials have used broader unemployment rates in the past, including a popular “underemployment” index after the 2009 recession, so it’s not entirely new. But one thing that has been interesting to watch is that they often describe that 10 percent figure as the “real” unemployment rate, given the strangeness of the pandemic crisis and the way it has messed up markets. normal data.

On Tuesday, Powell said that when the Fed thinks of “full employment,” it thinks of the employment rate to the population, not just the unemployment rate. He stressed that officials are keenly aware that the ordinary unemployment rate does not reflect the entire labor market.

This week, Congress is debating President Biden’s $ 1.9 trillion stimulus proposal, which includes sending 1,400 stimulus checks to many Americans. Some economists have expressed concern that injecting liquidity into the economy when interest rates are low could lead to inflation. Why is Powell apparently not affected by this?

Inflation has actually been declining for decades and in a number of major advanced economies, making it difficult for officials to believe that the smoldering trend will change overnight. It seems counterintuitive to portray slow inflation as a bad thing, but if consumers and businesses’ expectations for low price gains get stuck, it can actually cause all kinds of economic problems (from limited margin to wage hikes with less room for rate cuts in recessions.).

Inflation is expected to appear in the coming months, but most officials and economists don’t believe the temporary increase will last. And with regard to government spending in particular, Powell said on Tuesday that while “there was perhaps once a strong link between budget deficits and inflation – there hasn’t been of late. . ” He said he expected inflation to jump within a year or two, but did not expect the upward pressures “to be significant or persistent.”

“We’ve had a very volatile economy over the past 15 years, and inflation just did what it was going to do – it didn’t go up,” he said.

You wrote recently about the Fed putting new emphasis on responding to climate change, especially its effects on the economy. What steps are Fed economists taking – or planning to take in the future – in response to the ecological upheaval?

The Fed tends to describe its role in responding to climate change very narrowly: It wants to ensure that the banks it oversees and the financial system are prepared to deal with climate-related risks. Economists in the Fed’s system, which includes the Washington board of directors and 12 regional banks, are also studying the economic effects of climate change.

But the Fed is politically independent and has been very cautious about talking about tackling climate change itself, which is loaded partisan territory. As proof of the risk here, Senator Patrick Toomey, a Republican from Pennsylvania, said on Tuesday that the Fed should not try to expand its mandate and that “issues such as climate change and racial inequality just do not fall under of our central bank. “

When West Virginia Senator Joe Manchin III said yesterday that he would not vote for Neera Tanden, Biden’s candidate for the Bureau of Management and Budget, Progressives and Conservatives alike backed the decision, stressing his past tweets denigrating Republicans and some on the left like Senator Bernie Sanders.

But when Manchin expressed reluctance to confirm New Mexico’s Rep. Deb Haaland as Home Secretary, Democrats rallied to her. Some have urged Manchin not to derail the appointment of Haaland, who, if confirmed, would go down in history as the first Native American to head a cabinet agency. (You can also read more about Haaland’s confirmation hearing today in our live briefing.)

Some critics have said that opposition from the Manchins and Republicans to Tanden’s appointment reflects a sexist double standard, given their past support for cabinet candidates who have made perhaps more controversial statements. After expressing his hesitation about Haaland, others seized on the fact that the West Virginia senator appeared to be delaying the nominations of several women of color. Manchin’s office did not immediately respond to a request for comment.

“Democrats who oppose women in leadership of color and the historic confirmation of our very first Indigenous Secretary of the Interior represent a regressive and backward step for our nation and do not reflect the priorities of the Democratic Party of today.” hui, ”Aimee Allison, founder of advocacy group She the People, said in a statement. “Confirming Deb Haaland is a sign of a bright future.”

Jane Hall, a professor in the School of Communication at the American University and an expert on gender, media and politics, noted that the reasons for Manchin’s doubts about Haaland’s confirmation remained unclear – he said only that he had “reservations” – but she said a double standard was clear in approaching Tanden’s appointment.

“As people have pointed out, Kavanaugh yelled at Congress, and many other men said things louder or worse than Neera Tanden,” Hall said in an interview. “Women are much less tolerant of very strong language.”

Although the two women would be the first for their roles, with Tanden potentially the first woman of color to lead the Office of Management and Budget, Tanden’s support is pale compared to that of Haaland.

“I think there is a lot of excitement about the possibility of reshaping an agency that has taken its toll on Native American lives,” Hall said.

On Politics is also available as a newsletter. register here to have it delivered to your inbox.

Do you think we are missing something? Do you want to see more? We would love to hear from you. Write to us at onpolitics@nytimes.com.

Source link