Powell Says Fed Will ‘Never’ Declare Victory on Full Employment

Matthew Boesler
Powell Says Fed Will ‘Never’ Declare Victory on Full Employment

(Bloomberg) -- Congress gave the Federal Reserve two mandates: maximum employment and price stability. Fed Chair Jerome Powell told lawmakers Tuesday that the central bank will never declare victory on the first one.

“That’s our goal. That’s what we’re working to do at all times. And I think we’re never going to say we’ve accomplished that goal, but we’ve certainly made some progress,” Powell said during semi-annual testimony before the House Financial Services Committee.

He was responding to Massachusetts Democrat Ayanna Pressley, who asked whether the central bank could ensure economic conditions in which “anyone who wants to work and can work will have a job available to them.”

Pressley then asked whether a federal job guarantee -- of the sort advocated by Martin Luther King Jr. and Coretta Scott King -- could succeed where the Fed hasn’t. Powell said he “would have to defer to the fiscal authorities on that.”

The questioning comes amid changes in how Fed officials talk about their employment objective under Powell’s leadership, which began in February 2018. At the time, the unemployment rate was 4.1%, and the Fed’s semi-annual report to Congress described the economy as “near or a little beyond full employment.”

Policy makers raised their benchmark interest rate four times that year on the premise that full employment would spur inflation. They received harsh criticism from President Donald Trump along the way, but price pressures never materialized even though the unemployment rate continued to decline. In 2019 they reversed three of the rate increases.

Now, with a 3.6% unemployment rate and inflation still below the Fed’s 2% target, central bankers say they’re taking a new approach. Vice Chair Richard Clarida said in a recent Bloomberg Television interview that “unless and until we see those low unemployment rates putting excessive upward pressure on inflation, we’re not prepared to say we’re necessarily at full employment.”

Pressley’s inquiry “got to the whole question of what full employment is,” said Ernie Tedeschi, an economist at Evercore ISI in Washington.

Defining full employment as “anyone who wants to work and can work will have a job available to them” is different from defining it as the level of unemployment at which inflation will begin to rise, which could be interpreted as “just a glorified inflation mandate,” Tedeschi said.

Read more: Even Fed Struggles to Nail Down Meaning of ‘Full Employment’

The concept of full employment has its roots in the Great Depression in the 1930s and the high-pressure wartime economic conditions that followed in the 1940s. Early in the postwar period, it was often discussed in the terms Pressley used.

The political fight over full employment came to a head in the 1970s amid high unemployment and inflation rates. Democratic lawmakers and civil-rights leaders were pushing for public-service employment programs to alleviate joblessness without spurring inflation, an approach backed by then-Fed Chair Arthur Burns. President Ronald Reagan scrapped those programs when he took office in the early 1980s, and the Fed has since hewed more to the inflation-centric definition of its employment mandate.

But with low inflation, Fed officials today haven’t had to compare the two definitions -- yet.

“I found Congresswoman Pressley’s questions to be prescient,” Tedeschi said. “They’re sort of anticipating this philosophical debate, this economic debate, before it’s been forced on us.”

--With assistance from Luke Kawa.

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Jeff Kearns, Ana Monteiro

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