Strong Labor Market Frustrates Fed

On August 27, 2020, Fed Chair Jerome Powell's speech at Jackson Hole explained why on that same day the Fed issued a revised Statement on Longer-Run Goals and Monetary Policy Strategy. The statement and Powell's remarks stressed that monetary policy would focus on reviving the labor market after it was weakened by the pandemic. Powell said: "With regard to the employment side of our mandate, our revised statement emphasizes that maximum employment is a broad-based and inclusive goal. This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities."

Powell wasn't particularly concerned about the inflationary consequences of maximizing employment. He said that the Fed would adopt a "flexible form of average inflation targeting."

Two years later, at his Jackson Hole speech on August 26, 2022, Powell said that inflation was too high and blamed it partly on the strong labor market, with "demand for workers substantially exceeding the supply of available workers." He reiterated the Fed's commitment to bringing inflation down even though it would probably soften labor market conditions and "bring some pain to households and businesses."