While most members of the Federal Open Market Committee at the July 27-28 meeting said they believed the economy had met the Fed’s goal of “substantial further progress” on the price-stability front, they judged that employment had fallen short, the minutes released Wednesday indicated. As a result, the committee decided to continue supporting the economy with near zero short-term interest rates to keep borrowing cheap, and ample cash through its massive bond-buying program to keep money available. The committee noted, however, that its goal might be met later this year and, if so, it could start to remove support by paring back its bond buying—the first step in tightening the money supply. Interest rate hikes typically follow. Inflation has generally risen more than expected this year, with one of the Fed’s favored inflation measures—the core personal consumption expenditures price index that excludes volatile food and energy prices—hitting 3.4% for the 12 months ending in May. That’s above the central bank’s goal for 2% over the long-run, but seen as “transitory” by officials due to supply issues resulting from pandemic shutdowns. Members noted employment remained well below its pre-pandemic level, and said that continuing Fed support for the economy could encourage further progress towards the central bank’s “broad and inclusive maximum-employment goal and a return over time to labor market conditions as strong as those prevailing before the pandemic.”
Jobless Rate Still Elevated
During the pandemic last year, when lockdowns were imposed to slow the spread of the coronavirus, more than 22 million people lost their jobs between January and April. Though job gains have picked up recently, with 850,000 nonfarm jobs added in June, some committee members noted the unemployment rate remained elevated, at 5.9%. In February 2020, before the pandemic’s onset, the jobless rate was 3.5%. However, several members questioned whether the Fed should even be comparing the current labor market to the pre-pandemic job market in an effort to determine policy. These members commented that “the pandemic might have caused longer-lasting changes in the labor market and that the pre-pandemic labor market conditions may not be the right benchmark against which the committee should assess the progress toward its maximum-employment objective,” the minutes said. A few other members also said monetary policy had limited ability to address the labor shortages and hiring difficulties currently constraining employment. Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com
