Federal Reserve Chairman Jerome Powell today said that risks to the U.S. labor market are rising, signaling a possible shift in the Fed’s approach to monetary policy moving forward.
During a speech on monetary policy in Jackson Hole, Wyoming, Powell said the effects of tariffs on consumer prices “are now clearly visible,” although it remains unclear whether those price increases will lead to an ongoing inflation problem. However, the Fed also has the mission of creating economic conditions to maximize employment, and there are indications that the labor market could be heading for a downturn.
“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said. “This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside — a challenging situation,” Powell added. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate. Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Powell also debuted the Federal Open Market Committee’s updated “Statement on Longer-Run Goals and Monetary Policy Strategy,” which articulates the committee’s approach to monetary policy and guides its policy actions. The statement is updated every five years.
