The head of the Federal Reserve has promised to do everything possible to keep the jobless rate from going up. If it does, the U.S. economy could go into a recession.
In a speech on Friday, Fed Chairman Jerome Powell made the case for lowering interest rates. He said frankly, “We do not seek or welcome further cooling in labor market conditions.”
He also said that the Fed has “ample room to respond to any risks we may face,” which includes the risk of the job market getting even worse, which would not be welcome.
This is likely to happen in September. For the past year, the Fed has kept interest rates at a 24-year high in order to keep inflation in check.
The Fed is now focusing on rising unemployment because inflation is slowly falling toward its 2% yearly goal. It is the Fed’s job to keep inflation low and the job market healthy.
Powell gave a much-anticipated speech at the Federal Reserve’s summer vacation in Jackson Hole, Wyoming. In it, he said, “there are less upside risks to inflation.” “And the bad risks to jobs have gotten worse.”
The most obvious sign? The jobless rate has unexpectedly gone up. It went from a very low 3.4% a year and a half ago to a nearly three-year high of 4.3% in July.
It’s already higher than what the Federal Reserve thought it would be at the end of each year in 2024, 2025, and 2026.
In a CNN interview, Austan Goolsbee, President of the Chicago Fed, said, “We are not just fighting inflation now.” “There are alarm bells going off in some parts of the job market.”
Other indicators of the job market, like the number of job openings and job growth, have also slowed down a lot.
The government said last week that from the spring of 2023 to the spring of 2024, the U.S. economy had added 818,000 fewer jobs than they had said before.
“The job market is now more important than inflation,” said Oxford Economics’ top U.S. economist Ryan Sweet. “The Fed won’t let the unemployment rate rise any further,”
Powell, unlike other Fed chairmen, has talked a lot about how important it is to have a low jobless rate in public while he has been chairman. People of color and people who live in poorer parts of the country have had better working conditions, which makes him very proud.
He said, “In the years just before the pandemic, we saw the big benefits to society that can come from a long period of strong labor market conditions.”
Powell said that a strong labor pool led to “low unemployment, high participation, historically low racial employment gaps, and healthy real wage gains that were increasingly concentrated among those with lower incomes.” A strong labor pool also kept inflation low and stable.
The head of the Fed said that the job market is still pretty good. He said that the main reasons for the rise in unemployment are more people looking for work and “a slowdown from the previously frantic pace of hiring.”
He said that the number of people losing their jobs or getting fired stayed surprisingly low.
He said, “So far, rising unemployment has not been caused by more layoffs, which is usually the case when the economy is bad.”
Powell also said it was strange that the job market hasn’t been a cause of inflation. Inflation in the U.S. has often been caused by a tight job market and rising pay in the past.
Powell said that the Fed has more room to lower interest rates because the job market isn’t causing inflation. By making it cheaper to borrow money, the Fed will help the business and even make people want to work more.
This is why Powell said the Fed would do whatever it takes to keep job numbers high. He said, “We will do everything we can to support a strong job market.”
