Enter Federal Reserve Chair Jerome Powell to toss some cold water on those giddy Wall Street bulls continuing to cheer the surprisingly upbeat May jobs report that sparked hopes for a V-shaped economic recovery after the worst of the COVID-19 pandemic.
Powell — speaking to reporters following the Fed’s latest decision on rates — said “millions” of people will not return to work for some time because of the aftershocks to businesses from the health scare. The Fed chief suggested the lack of jobs would be rooted in the reality that companies were unable to survive the pandemic or the role no longer exists in the new world order.
By extension, that would suggest a certain kind of structural unemployment that may continue to weigh on U.S. growth unless workers get re-trained for new jobs.
The Fed’s concern around longer term unemployment was captured in its updated summary of economic projections released today.
Officials expect the U.S. unemployment rate to hit 9.3% this year, dipping to 6.5% in 2021 and falling further to 5.5% in 2022. The unemployment rate in May dropped to 13.3% from 14.7% in April.
Just before the pandemic took hold this past spring, the U.S. unemployment rate was hovering near 50-year lows around 3.6%.
The Fed’s muted employment outlook underscores its latest take on policy.
Powell & Co. reiterated the Fed funds rate would stay in the 0% to 0.25% range for the foreseeable future and stressed continued bond-buying to support market functioning. During the press conference, Powell clung to the view aggressive accommodation is needed to help pull the economy out of the COVID-19 induced downturn.
“The Fed is not even thinking about raising rates, we will do whatever we can and as long as it takes,” Powell said.
The policy guidance renews the Fed’s commitment to a lengthy period of accommodation, wrote macro strategists at Wells Fargo Securities.