Powell’s Answer on Supply Chains Hints at Changing Jobs Analysis
(Bloomberg) -- Federal Reserve Chair Jerome Powell gave an interesting answer during Wednesday’s news conference when asked if more inflationary pressures from supply-chain strains emanating from China lockdowns and the Russia-Ukraine war would mean the Fed would have to rein in domestic demand even more than it otherwise would.
He answered by immediately citing the historically elevated ratio of job openings to unemployed people actively searching for work, pointing to it as an imbalance that the Fed needs to address. Essentially, it suggests that the central bank is looking directly at labor-market indicators and making independent assessments of appropriate levels for them as it charts tighter policy, instead of merely the extent to which those indicators are actually feeding into inflation.
That’s a slightly different approach than the one the Fed articulated when it introduced its new framework for monetary policy-making in 2020, which was all about being agnostic as to how much labor markets could strengthen until it actually saw inflation rising. Of course, that’s very difficult to do now, when there are so many inflation drivers emanating from developments not connected to the state of the U.S. labor market.
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