By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – The weak U.S. jobs report in April shows the value of the Federal Reserve’s willingness to wait before reducing its support for the economy to ensure that the recovery is fully on track, Fed Governor Lael Brainard said on Tuesday.
The 266,000 payroll positions added in April fell short of widespread expectations for a million or more new jobs, and Brainard connected the miss to the complexities of reopening an economy still battling a pandemic.
Even though the economy was strengthening and would add jobs at a rapid clip in coming months, the April report “reminds us that realized outcomes can diverge from forward projections and underscores the value of patience,” Brainard said in remarks webcast to the Society for Advancing Business Editing and Writing. “As the economy reopens fully and the recovery gathers momentum, it will be important to remain patiently focused on achieving the maximum-employment and inflation outcomes in our guidance.”
The Fed has committed to keeping its crisis programs in place until it is more certain that the economy is past the ill effects of the pandemic. That means keeping interest rates near zero and buying $120 billion in government securities each month even though the economy is expected to grow at its fastest pace since the early 1980s, and concerns are growing that inflation may rise as a result.
New consumer price data this week is expected to fuel debate over whether the Fed is creating risks of its own by leaving its loose policies in place even as the recovery accelerates.
Brainard, however, ran through the list of issues that may be creating friction and raising costs across markets — shortages of computer chips, vaccine hesitancy among some people leaving others reluctant to return to close-contact jobs, still-closed schools preventing women from returning to work — and said she expected each to be resolved over time.
“To the extent that supply chain congestion and other reopening frictions are transitory, they are unlikely to generate persistently higher inflation on their own,” Brainard said, noting that some of the very forces that might generate higher prices now — a surge in demand as people get back to normal activity, for example — won’t be repeated.
Government fiscal spending will also fade next year.
“Remaining patient through the transitory surge associated with reopening will help ensure that the underlying economic momentum that will be needed to reach our goals as some current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions,” she said.
(Reporting by Howard Schneider and Ann Saphir; Editing by Andrea Ricci)
