Powell finds labor participation is a poison pill

3 minute read

A screen displays a statement by Federal Reserve Chair Jerome Powell following the U.S. Federal Reserve's announcement as traders work on the trading floor at New York Stock Exchange (NYSE) in New York City, New York U.S., July 28, 2021.

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WASHINGTON, Nov 5 (Reuters Breakingviews) - When it comes to labor markets, Federal Reserve Chair Jerome Powell has lots of responsibility without much control. America added a solid number of jobs in October and the unemployment rate fell to 4.6%. But the share of those working or looking for a job was unchanged and fell among the Black population. That problem, coupled with inflation, creates a difficult situation that Powell helped to create but will struggle to fix.

The 531,000 jobs that were created in the United States in October are a sign that the U.S. economy is moving past the surge in Covid-19 cases that occurred the previous month. The latest gains beat expectations of economists surveyed by Reuters. But the labor participation rate remains stubbornly low at 61.6%, below its pace in February 2020. The participation rate for Black workers and job seekers fell from September by 0.2 percentage points to 61.1% while it was flat for Hispanic employees at 65.7%.

Women, who took up most of the child care duties while schools and daycares were closed, eased back into the workforce a little – their participation rate rose slightly in October from the previous month to 56%, but was still lower than the pre-pandemic rate of 57.8%.

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For Powell, this is a problem because of his revised definition read more of maximum employment. Last year, he noted that the pandemic hit women, people of color, and the most vulnerable the hardest. So he made big job gains for those groups a marker for when the Fed could consider raising interest rates from near-zero. But the central bank has little influence on employment for specific populations, which is up to government policymakers.

At the same time, inflation continues to be a problem. The personal consumption expenditures price index rose 4.4% in September, a 30-year high. Rising wages, which increased 4.9% year-over-year in October, also increases costs.

The Fed’s most obvious tool to fight inflation is raising interest rates. Powell, whose time as chair expires in February and is being considered for a second term read more , said on Wednesday that supply chain bottlenecks should work through by mid-2022, and maximum employment could be reached by then. If that doesn’t happen, he may face low headline unemployment and rising prices, yet stubbornly high numbers of women and non-white Americans are still out of work. Then he’ll face tough choices.

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- The U.S. economy added 531,000 jobs in October while the unemployment rate edged down to 4.6%, the Labor Department said on Nov. 5.

- Economists surveyed by Reuters projected an addition of 450,000 jobs. The labor force participation rate was unchanged at 61.6%.

- The previously-reported number of jobs added in August and September was revised upward by 235,000 positions.

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Editing by John Foley and Amanda Gomez

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