Lingering Virus, Lasting Inflation: A Fed Official Explains Her Pivot

The jobless rate has fallen to 4.2 percent, and Fed officials expect it to drop to 3.5 percent next year. That would match the rate that prevailed before the pandemic, and would be a marked improvement from a pandemic high of 14.8 percent in April 2020. Black unemployment is dropping swiftly, too.

“The economy has been making rapid progress toward maximum employment,” Jerome H. Powell, the Fed chair, said during a news conference this month.

Yet that unemployment rate tells just part of the story, because it counts only people who are actively applying for jobs. The share of people in their prime employment ages, between 25 and 54, who are either working or looking for work has dropped notably, and is only starting to recover.

Ms. Daly said she was thinking about the Fed’s full employment target in terms of what is achievable in the short term, as the coronavirus keeps many workers at home, and in the longer term, when more employees may be able to return because the virus is more under control.

“There’s the labor market we can get eventually, after Covid,” she said. “And there’s the labor market that we have to deal with today.”

For now, job openings far exceed the number of people applying for positions, and wages are climbing briskly, two signs that suggest that workers are — at least temporarily — scarce.

It may be the case that “in the short run, this is all the workers we have,” Ms. Daly said. “But in the long run, we expect more workers to come.”

Article source: https://www.nytimes.com/2021/12/21/business/economy/mary-daly-federal-reserve-inflation.html