Stocks rise after Fed steps up fight against inflation: Live updates

Federal Reserve Chairman Jerome H. Powell suggested on Wednesday that the economy could meet the central bank’s target of full employment by next year, a development that could point to a rate hike. interest from their lowest levels.

Mr Powell pointed out that a wide range of economic indicators, including unemployment, vacancies, wages and other metrics, suggest that the labor market is recovering quickly, leaving more room for the bank. central to withdraw its economic support.

“In my opinion, we are making rapid progress towards as many jobs as possible,” said Powell.

Mr. Powell said that the unemployment rate, which was 4.2 percent in November, fell rapidly. He said the labor force participation rate had been “disappointing”, even as vaccinations increased and schools reopened, and it now seemed likely that a return to a higher participation rate would take a toll. time.

“We are not going back to the same economy as in February 2020,” said Powell. “The post-pandemic labor market and the economy in general will be different, and the maximum level of employment compatible with price stability changes over time.”

Inflation far exceeds the Fed’s target, climbing 6.8% on the year through November, the fastest pace in nearly 40 years. But it’s less clear whether the Fed has achieved its other economic goal – full employment – which means Americans who want to work are able to find jobs.

The unemployment rate is still above the 3.5% that prevailed before the start of the pandemic, but it has fallen rapidly. New economic projections The Fed released on Wednesday, officials expect the unemployment rate to drop to 3.5% by the end of next year.

Around 4 million jobs are still missing from before the pandemic, making it harder for the Fed to assess whether it has achieved its twin goals of keeping prices stable and a job market. solid.

The question has been whether and when the missing workers will return and whether policymakers feel the need to keep interest rates low until they do. The virus has complicated this prospect. While many workers have retired, some are reluctant or unable to return for health, childcare, or other reasons.

Mr Powell said it would likely take time, and the pandemic to recede, for these people to return to the workforce, and inflation would likely have to stay under control in the meantime to allow for a long period of recovery. economic growth .

“One of the two big threats to returning to peak employment is actually high inflation,” he said. “Because to get back to where we were, the evidence is growing that it’s going to take some time. “

Fed officials have said they want to achieve sustained inflation above 2% – which has been more than accomplished, many have pointed out – and full employment before raising interest rates. Economic projections released by the Fed on Wednesday suggest officials expect to hike interest rates three times next year.

Mr. Powell has previously said that the two Fed goals came into tension This year. He also signaled that the central bank will not allow inflation to get out of hand.

“We need to balance those two goals when they’re under stress as they are now,” Powell said in testimony Dec. 1. “But I assure you that we will use our tools to make sure that this high inflation that we are experiencing does not take hold.

In remarks Wednesday, Powell said the Fed has a framework it can use to make decisions about its interest rate when its dual goals of price stability and employment collide. But because of the improving labor market, the Fed wouldn’t necessarily have to use it.

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