On Friday, however, the Labor Department reported that employers added 517,000 jobs in January after payroll growth had slowed to a pace of under 300,000 the last three months of 2022 from more than 400,000 earlier. The unemployment rate fell to a 54-year low of 3.4%.
Strong job growth and robust employer demand for workers could spur faster wage gains that trigger higher consumer prices.
Since then, the Standard & Poor’s 500 index has fallen and Treasury yields have risen. And markets now expect two more quarter-point rate increases.
“Since the labor market report, financial conditions are more in line with (Fed rate forecasts) than they were before,” Powell said.
He did note the Fed’s aim is to lower inflation, not hobble the job market. “What we’re trying to do is get inflation down,” he said. “We’re not targeting the unemployment rate.”
Powell acknowledged inflation pulled back notably last year and Fed officials expect it to ease further in 2023.
Consumer prices rose 6.5% annually in December, down from 7.1% in November and a 40-year high of 9.1% in June.
“The disinflationary process has begun,” he said.
But he also said it could be difficult to sustainably reduce inflation without cooling the labor market. He noted that a single jobs report could be a blip.
What is inflation? Understanding why prices rise, what causes it and who it hurts most.
He added, however, “If we continue to see strong labor market reports and high inflation reports that maybe we have to do more than what’s” expected in terms of hiking rates.