Fed’s Bullard Says Unemployment May Continue to Fall Rapidly

(Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said the U.S. economy is recovering faster from the Covid-19 slump than during previous downturns, and the unemployment rate may continue to fall rapidly.

“The U.S. labor-market recovery is about four years ahead of where it was following the 2007-09 recession,” Bullard said Wednesday in remarks prepared for delivery to CFA Society St. Louis.

Employment losses from the pandemic have been concentrated in temporary furloughs, and these workers may be called back faster than those who permanently lost jobs, Bullard said. A recall of those on temporary layoffs would bring the unemployment rate down to as low as 4.8% from 6.7%, he said.

The Fed left interest rates unchanged near zero last week and repeated its pledge to keep buying bonds at a $120 billion monthly pace until it’s made “substantial further progress” toward its goals. Chair Jerome Powell said it’s too early to discuss tapering asset purchases with the labor market far from full employment and the economy moderating.

Read More: Powell Bats Down Bond-Taper Talk, Warning Against an Early Exit

“U.S. monetary and fiscal policies continue to be exceptionally effective in mitigating macroeconomic damage,” Bullard said. In his presentation, he didn’t comment on the outlook for tapering asset purchases, which has been publicly aired by some policy makers in recent weeks.

While Bullard’s overall view was optimistic and he predicted a decline in fatalities as vaccinations of the population continue, he also emphasized threats to the outlook from the course of the pandemic.

“Downside risk remains, and continued execution of a granular, risk-based health policy will be critical to maintain economic momentum,” he said. “Virus mutation that renders current vaccines ineffective poses a tangible risk to this scenario.”

Market measures of inflation expectations have risen and further increases would be desirable and consistent with the Federal Open Market Committee’s new framework calling for overshooting of its 2% target to make up for past misses, Bullard said.

“This would be a welcome development for the FOMC, as inflation has generally been below target for many years,” Bullard said.

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