Fed's Brainard: U.S. still "a bit short" of jobs mark for bond taper

FILE PHOTO: Federal Reserve Board Governor Lael Brainard speaks at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts, U.S., March 1, 2017. REUTERS/Brian Snyder

WASHINGTON (Reuters) – U.S. employment is “still a bit short of the mark” for the Federal Reserve to begin reducing its monthly bond purchases, Fed Governor Lael Brainard said on Monday in remarks highlighting the risk that a resurgent pandemic may continue to thwart hiring into the fall.

Brainard, repeating language in the Fed’s most recent policy statement, said she agreed that if hiring continues “as I hope,” the economy “may soon meet the mark” that would warrant scaling back the Fed’s $120 billion in monthly bond purchases.

But in remarks prepared for a National Association for Business Economics conference, she also cautioned that the slowdown in hiring seen in August could continue as the spread of the coronavirus Delta variant hits restaurants, travel and other parts of the economy.

“Employment gains flatlined in August in the leisure and hospitality sector…As a result of Delta, the September labor report may be weaker and less informative of underlying economic momentum than I had hoped,” Brainard said. “We need to be humble about our ability to correctly anticipate future economic conditions given the unpredictability of the virus.”

Brainard has been an influential voice on policy since joining the Fed in 2014, and her comments indicate how a final decision on when to reduce the Fed’s bond purchases may hinge on the upcoming jobs report for September. That report will be released on Oct. 8, and will be the last employment report the Fed has before an early November policy meeting.

Brainard in her remarks focused on the fact that despite recent progress in hiring, “employment remains over 5 million below pre-COVID levels and nearly 8.5 million below where it would have been in the absence of COVID.”

The recovery in labor force participation has also lagged, she said, a fact that distorts data showing, for example, that there are more job openings than unemployed. Over time, she said, she is confident people who have left the work force will begin looking for jobs again.

She said she is also confident that currently high inflation is largely driven by factors that will ease over time.

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