Weak Employment and Rising Prices Raise the Stakes for the Fed

Jerome H. Powell, the Fed chair, and his colleagues have been pumping $120 billion into markets each month and holding interest rates near zero to keep borrowing costs cheap and credit flowing easily, helping to stoke demand and encouraging employers to expand and hire.

Officials have signaled that they will soon begin to slow the bond purchases — something they could announce as early as November, based partly on progress in the labor market. The September jobs report probably will probably not thwart those plans, which officials have said were based on cumulative job gains and not a single month’s data. The United States has regained more than 17 million jobs since the worst depths of the pandemic.

Yet Fed policymakers have repeatedly promised that even as they pull back on bond buying, they will continue to support the economy with low rates — their more traditional and more powerful tool — for as long as it needs their help. If rapid inflation looks poised to stick around and the labor market is taking a long time to heal, though, they may find themselves forced to lift rates sooner in the jobs rebound than they would like.

“This is not the situation that we have faced for a very long time, and it is one in which there is a tension between our two objectives,” Mr. Powell said during a recent public appearance. He later added that “managing through that process over the next couple years, I think, is the highest and most important priority, and it’s going to be very challenging.”

Central bank officials are hoping that jobs lost during the pandemic return soon, but progress in recent months has been stop and start as coronavirus infections tied to the Delta variant surged, keeping diners away from restaurants and causing rolling school closures. Employers added 194,000 jobs last month, disappointing compared with economist forecasts, which had called for half a million.

Article source: https://www.nytimes.com/2021/10/08/business/economy/fed-jobs-full-employment-inflation.html