Federal Reserve Chairman Jerome Powell said Tuesday that the job market has “cooled significantly” over the past two years.
“The latest labor market data send a pretty clear signal that labor market conditions are much weaker than they were two years ago,” Powell said at a Senate Banking Committee hearing.
“This is no longer an overheated economy,” he continued. “This is an economy that is, by most measures, pretty much back to where it was pre-pandemic. And it was a robust labor market, but it was not an overheated labor market.”
The U.S. economy added 206,000 jobs last month, according to data released on Friday, but a slight increase in the unemployment rate and a sharp downward revision to the previous month’s payroll numbers also suggest the job market is cooling.
As the central bank considers cutting interest rates, Powell stressed on Tuesday that the bank is “fully aware” it faces “risks on both sides.”
“Easing policy too late or too little could have adverse effects on economic activity, while easing too early or too much could stifle inflationary progress,” he said. “So we’re very concerned about the balance between those two risks, and that’s really the essence of what we’ve been thinking about recently.”
The Fed is keeping interest rates in a 5.25% to 5.5% range from July 2023 onwards, as inflation has fallen but remains above the central bank’s 2% target.
Inflation hit a 40-year high of 9.1% in June 2022 before easing significantly, falling to 3.3% in May.
Powell on Tuesday acknowledged recent progress on inflation but suggested the Fed still needs “better data.”
“While progress toward achieving the 2 percent inflation target was lacking earlier this year, recent monthly data indicate moderate progress,” the governor said, adding: “As better data become available, we will be more confident that inflation is moving sustainably toward 2 percent.”
