Fed Risks Shattering Pro-Jobs Policy by Taking Hammer to Prices

Jerome Powell wants to quell inflation without sinking the labor market. Success or failure will be a defining part of the Federal Reserve chair’s legacy and the pro-employment policy he’s championed.

“Can we cool down -- sort of -- labor demand without causing employment to fall?” Fed Governor Christopher Waller said on April 11. He sounded cautious, calling interest rate policy a “brute force” hammer that sometimes breaks things: “That’s the tricky road that we’re on.”

What happens to the U.S. job market, where unemployment currently stands at an ultra-low 3.6%, will rank alongside Powell’s widely-praised emergency pandemic response in dictating how history records his two terms at the helm of the world’s most powerful central bank.

Powell will have one of the final words on the imminent policy outlook before the U.S. central bank enters its usual pre-meeting blackout when he addresses an International Monetary Fund panel on Thursday. The Fed next meets May 3-4.

The careful response of the Fed to surging price pressures has been slammed by some for being too slow. But it was rooted in an approach the central bank called its new framework, adopted in August 2020 as the economy still grappled with Covid-19.

That policy explicitly repented from pre-emptive strikes on distant inflation threats that left workers -- often from minority communities -- mired in jobless recoveries by slowing the economy too soon.