The US labor market is still “extraordinarily strong,” according to Federal Reserve Chairman Jerome Powell, who also said on Tuesday that the latest January employment report, which showed the addition of 517,000 positions, underlines the fact that the central bank still has work to do to reduce inflation. He expressed amazement at the robustness of the job market and remarked that it would take a long time to complete the process.
Powell stated that the disinflationary process has started, with progress being made particularly in goods prices, but he added that price gains in the services sector still remain high. Powell was speaking during a question-and-answer session with David Rubenstein of the Economic Club of Washington. The Fed anticipates “substantial” drops in inflation this year, but according to Powell, it will take both this year and next to attain the central bank’s 2% inflation target.
Although economists contend that seasonal factors had a significant impact on the January job total and that it will likely be revised downward, the Fed still found it to be too high. The Fed’s efforts to reduce inflation are somewhat at odds with the labor market’s strength.
Powell is concerned that a tight job market will continue to push up wages, which might subsequently keep inflation high, which is one of the main reasons he wants more slack in the labor market. Workers’ ability to negotiate for greater salaries decreases when the unemployment rate rises, and consumers cut back on spending. Powell contends that despite the robustness of the job market, more has to be done to reduce inflation.