The U.S. labor market remains in a “deep hole” and needs aggressive support to speed its healing from the Covid-19 pandemic, said Federal Reserve Bank of Minneapolis President Neel Kashkari.
“We are still somewhere between 8 and 10 million jobs below where we were before the pandemic,” Kashkari said Sunday on CBS’s “Face the Nation.” He said there was “some truth” to the idea that enhanced jobless benefits create a disincentive to returning to work.
U.S. job growth unexpectedly softened in April from the prior month, with payrolls increasing just 266,000. Economists in a Bloomberg News survey had projected a hiring surge of 1 million people in April. The unemployment rate edged up to 6.1%.
“We still are in a deep hole and we still need to do everything we can to put those folks back to work more quickly,” Kashkari said. “We at the Federal Reserve are doing everything we can to accelerate that job-market recovery, because it’s good for the economy and it’s good for families all across the country.”
Kashkari does not vote on the Fed’s policy-setting committee this year.
U.S. central bankers at their April 27-28 meeting held interest rates near zero and repeated they would keep buying $80 billion of Treasuries and $40 billion of mortgage-backed securities each month until the economy had made “substantial further progress” on employment and inflation.
Fed Chair Jerome Powell said in a press conference afterward that progress would take “some time.” Officials don’t expect to begin raising the central bank’s benchmark interest rate from its current near-zero level before 2024, according to the median estimate of projections they published in March.
Kashkari said there was “some truth” to the criticism from Republican governors and others that enhanced unemployment benefits were creating a disincentive for Americans returning to work, along with lingering fear of the virus and a shortage of affordable childcare while many schools remain closed to in-person learning.
“All three of those factors are all going to trend in a better direction in the next few months,” Kashkari said. “As the virus continues to slow down — schools reopen and people regain their confidence — things should get better which should lead to strong growth in the second half of the year and a strong labor-market recovery.”
The $300-a-week extra in jobless benefits being paid to some Americans as part of coronavirus relief efforts expires in September. Governors in Montana, South Carolina and Arkansas plan to terminate the benefits earlier, citing worker shortages. The U.S. Chamber of Commerce has also called for ending the supplement.
Critics of the central bank’s aggressive monetary support say it’s risking runaway 1970s-style inflation against the backdrop of multi-trillion spending proposals by President Joe Biden.
Kashkari said that inflation will “look high” in the next few months due to base effects — as the very low readings from 12 months ago as the pandemic took hold fall out of the calculation — as well as supply-chain bottlenecks as the economy reopens.
But he was skeptical that this will prove to be persistent while millions of Americans remain out of work.
“I do think inflation is going to pop in the near-term but that is likely going to be transitory,” he said. “But if we’re wrong, and if high inflation comes because of a lot of government spending over the next few years, the Federal Reserve has the tools to make sure we do not have a repeat of the 1970s.”
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