Jerome Powell
Fed Chair Powell speaks on economy at the annual Jackson Hole Symposium (8/27/21)
Link.
17 months have passed since COVID started.
This shock lead to an immediate decline as large parts of the economy were completely shut down.
Strong policy support has fueled a vigorous, but uneven recovery.
During this downturn, aggregate personal income rose (usually falls during downturns) and consumers switched spending from services to manufactured goods.
COVID constrained supply side hasn’t been able to keep up with demand, which has resulted in inflation in durable goods.
The pandemic recession displaced 30 million workers.
People are spending more on durable goods (appliances, cars) and less on services (travel & leisure).
Total employment is still down 6 million (5 million in the service sector).
Rising durable prices is lifting inflation well above their 2% objective.
Job gains have averaged 832,000 over the last 3 months.
Unemployment has declined to 5.4%, a post-pandemic low. The reported rate understates the amount of unemployment slack.
The latest inflation readings are high, but temporary.
The spike in inflation thus far is due to a narrow group of goods/services directly impacted by the pandemic and reopening of the economy.
Since 1990, inflation has run below 2% in many advanced economies. Technology, globalization, and demographic factors can be disinflationary.
Baseline outlook:
- continued progress to maximum employment
- inflation returning to levels consistent with goal of 2% over time
Policy shouldn’t react to transitory inflation spikes. Central bankers have always struggled with differentiating transitory inflation from troublesome inflation. It’s hard to perform this assessment in real time.
The Fed will monitor real time data and intervene if troublesome inflation starts.
The Fed will support the economy for as long as is needed to achieve full recovery.
Even after the Fed’s asset purchases end, their elevated holdings of long term securities will continue.
They will keep rates at zero till the economy is at full employment and inflation has reached 2%.