Fed Chair Jerome Powell’s speech at the ECB Forum on Central Banking in Portugal was titled “Monetary Policy at a Time of Uncertainty and Tight Labor Markets“. There he said that growth trend is “not as strong as we would like it to be”. But labor market is “particular robust”. Meanwhile, policymakers have “yet to see “if inflation could remain near to 2% target on “sustained basis”.
Powell also compared the current labor market to the period from  February 1966 through January 1970, when unemployment rate was below 4%. He pointed out that inflation jumped from 2% in 1965 to 5% in 1970. And the unsustainably low unemployment at the time had contributed to escalating inflation.
However, after half a century, Powell said the US economy has “changed in many ways”. And the so called “natural rate of unemployment” is “substantially lower now. The Congressional Budget Office’s estimated natural rate was at 5.75% in late 1960 but at 4.75% currently. Rising education levels was a factor that sent the natural rate down. Also, policymakers have a “greater appreciation” of the role of inflation expectation and and have clearer commitment to maintaining low and stable inflation.
So, Powell said that “historical comparison does not shed as much light as we might have hoped.”
