WASHINGTON (AFP) – The Federal Reserve has been too cautious in its recent policy shift allowing higher prices to boost employment, one United States (US) central banker said on Friday, warning against heeding “ghost stories” about inflation.
As the US faces the world’s worst Covid-19 outbreak and is approaching 200,000 deaths, tens of millions of workers still have not returned to their jobs and the unemployment rate, though down from its peak, is at 8.4 per cent, more than double the pre-pandemic level.
The Fed on Friday released a survey showing only 30 per cent of workers who were laid off early in the crisis have returned to work, while 22 per cent do not expect to return to their jobs.
President of the Fed’s Minneapolis branch Neel Kashkari dissented from the Fed’s decision on Wednesday, which pledged to allow inflation to rise above two per cent “for some time” to achieve the central bank’s goal of maximum employment.
The statement reflects the policy shift first announced by Fed Chair Jerome Powell in August, but Kashkari said the Fed should have made a “stronger commitment to not raising rates until we were certain to have achieved” the full employment objective.
He stressed that economists and central bankers have long been proven wrong in their concerns about the threat of low joblessness sparking higher prices. And if the new policy had been in place in 2012, the Fed would have delayed increasing the benchmark lending rate by at least a year and allowed even greater employment gains, he said.
Official payroll data show only half of the more than 22 million workers who lost jobs in March and April have returned to work.
The Fed’s household survey released on Friday showed the greatest share of layoffs during the pandemic hit families earning less than USD40,000 a year, at 28 per cent, while half of all people laid off were either Black or Hispanic.