Invoking post-World War II efforts to reach full employment and pledging continued loose monetary policy to help the process, Federal Reserve Chair Jerome Powell made a broad call Wednesday for a “society-wide commitment” to get Americans back to work, particularly minorities and those ousted from lower-paying jobs during the pandemic.
“Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy,” Powell said in remarks to the Economic Club of New York. “It will require a society-wide commitment, with contributions from across government and the private sector.”
“He’s fairly close to the messaging of the Fed. He’s reiterating the Fed’s stance on staying with interest rates where they are until you see sustained inflation, defined as over 2% inflation for more than a year. So I don’t think anything coming out there is surprising.
“They have the dual goals of price stability and a full labor market, but the labor market is weighting more in their heads because that is the one that’s dislocated.
“It’s been fairly typical of Powell, and Yellen prior, to say that they remain dependent on how the economy shakes out. He’s basically giving you the goalposts, saying we need to see the labor market pick up and inflation pick up before we move.”
“Basically Powell is saying he’s not changing his tune, and that simply means between the combination of an overly friendly Fed and stimulus, that’s just adding more enthusiasm to the marketplace.
“The market is now rallying on that… He’s been dovish and he continues to be dovish, and that’s the key to this stock market rally.”
“It didn’t seem like there was anything that really seemed material to investors. People are trying to understand the end game here for the Fed. They’ve been on a low interest rate stimulative plan for a couple of years. They’ve had low rates now really for years. They lowered it again with pandemic but they were lowering it before that.”
“What people are wondering is, they’ve borrowed, they’ve blown up the balance sheet and they’ve lowered rates at the front end as low as you can go, so what is the end game? When are we going to get what people consider normal levels or is this the future for the next 5-10 years? That’s been supportive of the stock market all the way through.”
“This is what he’s been saying … Yes, we all see the amount of cash in savings accounts. Some people are pointing to that saying we don’t need additional support. The difficulty with all these things is getting that cash support to the right people.”
“There are five million-plus people who have dropped out of the labor force. It’s been a year-plus of this. No (unemployment) program keeps people on for years and years…You start to get people falling through the cracks.”
“The Fed is still trying to balance a fine line. There’s a big chunk of people who are not in a full employment situation. If it means overheating a little bit here or there, even that’s not going to be all that pervasive…We need to get a lot more data points before we get to point where we’re overheating by providing too much stimulus.”
ROBERTO PERLI, HEAD OF GLOBAL POLICY RESEARCH, CORNERSTONE MACRO, WASHINGTON
“There’s zero incentive whatsoever here to take the foot off the accelerator anytime soon. The only thing that could force them to do that is inflation, but I didn’t pick up any signs of concern whatsoever. So it’s full speed ahead with current policies.”
“The references to inequalities are pretty strong. Inequality had already become part of the Fed policy considerations and I think this speech puts it even more front and center.”
“You could look at futures prices and so on and say well there are some increased signs that the market might be thinking the Fed may raise rates sooner than the Fed indicates. You can read this speech as a push back against those bets.”
“(Powell) didn’t rock the boat with these prepared remarks. Fed policy is going to remain dovish and won’t change any time soon. We know the Fed is going to keep rates low for the foreseeable future in an attempt to jump-start a sluggish labor market.
“Not much of a change in tone, the stance he’s used is the Fed has done a lot, more than they’ve done before and the ball is in the court of Congress and the private sector. The Fed is almost demanding that Congress and private sector step up and help the sluggish employment backdrop we’re seeing.
“He cited the bleak jobs picture saying that policy will be patiently accommodative. The employment picture says the Fed will remain dovish for the intermediate future.
“We remember when we all said the Fed was out of bullets last April. Then we realized they weren’t. They had many tricks up their sleeves to bring back confidence and liquidity and we saw how the stock market reacted.
“So now when he speaks people listen very closely to see if he’ll pull another rabbit out of the hat. He didn’t do that today. He stayed on script with what we expected. But investors want to pay close attention anytime the man leading the most powerful central bank opens his mouth, as we saw last spring how powerful those words can be.”