A Federal Reserve Governor speaks out: If the unemployment rate worsens, swift action will be taken
A Federal Reserve board member said that if the unemployment rate deteriorates, the Fed will take action promptly. She predicted that the U.S. economy may experience a soft landing after inflation. The U.S. labor market is still strong, but the Fed is very concerned about the unemployment rate. In addition, she discussed the impact of the COVID-19 pandemic on inflation and central bank response measures. Federal Reserve Chairman Powell also stated that policymakers are waiting for more data to confirm the inflation path. Traders expect the Fed to cut interest rates in September. This information is related to macroeconomics
Federal Reserve Governor Powell said that although research by Federal Reserve staff shows that it is not common for developed economies to experience a soft landing after high inflation, she predicts that the United States will experience such a situation because inflation in the United States has cooled down and is approaching the Federal Reserve's target, and high interest rates do not have much impact on the labor market.
In a prepared speech on Thursday, she said, "My baseline forecast (as well as that of many external observers) is that inflation will gradually move towards the 2% target over time, and the unemployment rate will not rise much further. Although a soft landing is rare in economic history, rapid inflation decline in the absence of a significant increase in the unemployment rate is a good sign."
Powell stated that with a 4.1% unemployment rate, the U.S. labor market remains strong. However, she also mentioned that the Federal Reserve is currently "very concerned" about the unemployment rate, and will "respond" if the unemployment rate deteriorates. She said, "These data may have a non-linear relationship."
Powell's speech mainly focused on the coincidence of inflation in various economies after the COVID-19 pandemic and central banks' response measures. She explained that there are many reasons for the rise in inflation in many countries, such as supply chain disruptions and global food and energy supply interruptions.
Her comments came after Federal Reserve Chairman Powell testified on Capitol Hill for two consecutive days. Powell stated that policymakers are waiting for more data to confirm whether they are continuing on the path towards 2% inflation. Traders predict that there is a slightly higher than 70% chance of a 25 basis point rate cut by the Federal Reserve in September.
Powell also emphasized that high inflation is not the only risk facing the Federal Reserve, especially given the recent cooling of data, the FOMC is now more focused on the labor market.
The Federal Reserve has kept its benchmark interest rate near a 20-year high of 5.25% to 5.5% to curb inflation. The next FOMC meeting will be held on July 30th and 31st