Jobs Strength Leaves Fed and Powell With Nowhere to Hide
A robust July labor report gives the central bank less leeway to maintain stimulus. Expect a less dovish tone from now on.
Expect Jerome Powell to start signaling that the economy has made enough progress to allow the Fed to ease its foot off the stimulus pedal.
Photographer: Alex Wong/Getty Images North AmericaThe Federal Reserve and Chair Jerome Powell have come under fire the last couple of months for seemingly ignoring the spike in inflation. The latest salvo came Thursday, when Senator Joe Manchin, the West Virginia Democrat, urged Powell to start pulling back on the Fed’s $120 billion in monthly bond purchases aimed at providing stimulus. Failing to do so “will lead to our economy overheating and to unavoidable inflation taxes that hard-working Americans cannot afford,” Manchin wrote in a letter he made public.
Measures of inflation have surged, it’s true, but Powell defended the Fed’s stance by saying he was more concerned about the more than 6 million Americans who were still out of work because of the pandemic. But as Friday’s strong jobs report showed, Powell can no longer hide behind that excuse. Expect a less dovish tone from the central bank, and for it to start tapering its bond purchases as soon as next month.