Jerome Powell’s Economic Outlook: Key Insights from the NABE Annual Meeting, Nashville, TN

But in a recent speech, Federal Reserve Chairman Jerome Powell was remarkably upbeat about the US economy – indicating that it has made such significant strides toward maximizing employment and keeping inflation in check under the dual mandate that he was loathe to do much of anything to ruffle the optimism.

Powell said the labor market is strong. It has cooled from its overheated state, but there is still overall strength in the labor market, he said. For instance, the unemployment rate at 4.2% reflects a healthy labor market. He noted that the unemployment rate is still low on the historical scale, and layoff rates are minimum.

 Labor Market Dynamics

Powell noted that participation in the labor force for people aged 25 to 54 is near historical highs, while for prime-age women, participation is at new highs. Rising in tandem with higher productivity, real wages are also on the upswing, indicating that workers are indeed reaping the fruits of a strong labor market.

Though job openings have been steadily falling since job openings started their decline, the ratio of job openings to the number of unemployed people is still quite high with job openings outpacing unemployed workers – an event that has occurred relatively rarely since the beginning of the 2019 cycle.

Still, despite all these positive indicators, the significant shift in perceiving job availability since 2019 is likely to make workers more pessimistic and, therefore, is likely to lead to a more cautious view.

Powell does not feel that another easing of labor market conditions are required in order to reach the Fed’s inflation objective of 2%.

 Inflation Trends

In the inflation front, Powell reported that headline as well as core inflation rates have eased over the past year. They stood at 2.2% and 2.7%, respectively. He also added that disinflation has been pretty pervasive in nature, and while progress toward sustainable inflation continues, some headwinds remain.

On the core goods side, their prices have been going down. Housing services inflation has been an issue, though it’s slowly dwindling, as rent growth on new tenants slows down.

This new economic environment has seen Powell announce a unanimous decision by FOMC to reduce the federal funds target range by 0.5 percentage points.

This move represents a new course in the monetary policy to further labor market strength, moderating growth, and returning inflation to 2 percent over time. According to Powell, this policy stance adjustment is in line with their belief that the inflationary forces have eased and that there is an equal amount of risk between meeting the employment and inflation objectives.

In his own words, according to him, work on return to price stability is still a work in progress. According to Powell, what the Fed had focused on in the past is “achieving greater reductions in inflation rates than were substantially above target.”

As for the economy evolution, Powell said the policy rate should be moved toward neutral over time, yet he emphasized that this should be an evolving economic data basis as decisions are not based on a given course.

 Future Prospect

Powell, though promised that the Fed remains committed to maximum employment and price stability. Every action is service to the public mission. The message that comes through in Powell’s speech is cautiously optimistic:

while the challenges still linger, perhaps the US economy is now better placed for sustainable growth. Indicators will remain closely monitored by the Fed to make necessary adjustments in policies to foster a healthy economic environment.

In a word, the US economy has proved to be resilient due to strong labor market conditions and declining inflation.

The latest policy moves by the Fed reflect confident steps into this economic landscape in accordance with its dual mandate. It follows that the growth and price stability would continue to be in balance.