The strong March U.S. jobs report is welcome news but not a sign that there should be a shift in the current easy monetary policy stance, said Chicago Federal Reserve President Charles Evans on Wednesday.
“We still have a long way to go before economic activity returns to pre-pandemic vibrancy. Even after the very strong March employment report, at 6%, the unemployment rate is well above the 3.5% we saw on the eve of the pandemic,” Evans said, in a speech sponsored by the Prairie State College Foundation.
Employers added 916,000 new jobs in March and the unemployment rate fell to 6%.
Evans’ message was echoed in remarks from other Fed officials this week.
On Monday, Cleveland Fed President Loretta Mester told CNBC the March report “was a great report” but the central bank needed to be patient.
“But we’re still far from our policy goals. We need to be very deliberately patient in our approach to monetary policy,” Mester said.
And Dallas Fed President Rob Kaplan told the Wall Street Journal on Wednesday that the economy still needs central bank support.
At the start of the pandemic last year, the Fed cut its policy interest rate to zero. In addition, the central bank is buying $120 billion of assets per month to support the economy.
The central bank has said it would maintain that pace of purchases until there has been “substantial further progress” toward the Fed’s goals of full employment and stable 2% inflation.
Ethan Harris, head of global economics research at Bank of America Merrill Lynch Global said that the Fed policy was equivalent having “both feet pressed on the accelerator.”
In addition, the fiscal stimulus checks approved by Congress have put “a lot of caffeine” into the economy and more spending is on the way, Harris said.
The Fed will release the minutes of its March meeting at 2 p.m. Eastern on Wednesday. Economists are looking for clues about what might cause the Fed to change its mind and begin to pull back its support for the economy.
Tim Duy, chief U.S. economist at SGH Macro Advisors, said surging U.S. economic growth in the spring and summer will maintain “the battle of wills” between Fed officials who insist they will not preemptively strike against inflation and market participants who fear the Fed has already fallen behind the curve.
Evans told reporters after his speech that it is going to be “months and months” before he has an opinion about whether inflation has sustainably returned to the Fed’s 2% target.
“And that’s going to be uncomfortable,” Evans said.
Looking back at the experience of the Bank of Japan and the European Central Bank, the Fed is going to “have to be patient and be willing to be bolder than most conservative central bankers would choose to be, if we are going to actually get inflation expectations to move up in a sustainable fashion,” he said.
Stocks saw muted losses ahead of the Fed minutes with the Dow Jones Industrial Average
down 69 points in midday trading.