WASHINGTON: Bringing the US economy back from the brutal downturn caused by Covid-19 will take time, and hiccups like last month’s weak hiring data will happen, a top Federal Reserve official said Monday.
The comments from Fed Vice Chair Richard Clarida come after government data showed the US economy added only 266,000 jobs in April, far fewer than expected and complicating expectations for a strong bounceback in employment and growth this year.
“We’re still more than eight million jobs short of where we were 14 months ago, so there’s still a deep hole in the in the labor market. But I also believe that it may take more time to reopen a $20 trillion economy than it did to shut it down,” Clarida said in a conversation with Atlanta Federal Reserve President Raphael Bostic. “This was an unprecedented shock, it led to an unprecedented collapse, and we may have an unprecedented recovery,” Clarida said.
The world’s most severe Covid-19 outbreak hammered the US economy in 2020, causing tens of millions of layoffs and a severe 3.5 percent contraction in growth.
The United States is expected to bounce back strongly this year as Covid-19 vaccines quell the pandemic in its borders, and Clarida said growth could be as high as seven percent. But the economy’s reopening following business restrictions imposed to stop the virus, combined with the Fed’s recent decision to allow interest rates to remain low for a long period of time to generate maximum employment, has raised fears of a spike in inflation.
There are signs those increases are already here, with the Labor Department’s consumer price index in April jumping 4.2 percent compared to the same month in 2020, its biggest yearly increase since 2008.
Clarida said the central bank is ready to act to quell inflation, but the price increases are likely to be temporary and shouldn’t get in the way of the Fed’s goal of spurring hiring among communities with high joblessness, like racial minorities and workers with less education. “Our baseline view is that achieving maximum employment will not put unwanted or unwelcome upward pressure on the price level,” he said.
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