WASHINGTON – Federal Reserve Chairman Jerome Powell says that the economy is in a "good place" with low inflation and maximum employment. But he says not every American has enjoyed the benefits of the long expansion.
In remarks Thursday to the Citizens Budget Council in New York City, he said policymakers must do more to address problems that are holding back long-term growth.
Powell repeated the view he gave Congress this week that the Fed can afford to be "patient" in deciding when to boost interest rates again. That gives the central bank time to assess how "crosscurrents," such as a global slowdown, will impact the economy, he said.
Policymakers need to boost efforts to address long-term problems, such as low workforce participation and weak productivity growth, he said.
From 1991 through 2007, the economy, as measured by the gross domestic product, expanded annually by about 3 percent, similar to the pace seen for much of the period after World War II, Powell noted.
But he said since 2007 — a period marked by the Great Recession — growth has averaged just 1.7 percent, a slowdown that has meant incomes are almost 20 percent lower now than they would have been if the stronger growth had prevailed over the past 12 years.
He cited two elements of this slowdown: a drop in the growth rate of hours being worked, and the pace of productivity improvements.
The slowdown in hours worked is due in part to a slowdown in growth in the labor force, reflecting lower birth rates and a growing retiree population as the baby boom generation ages.
But he said a more surprising and troubling reason is that the share of Americans counted as being in the workforce has fallen significantly since the late 1990s. While some of this decline is a result of younger people staying in school longer, a drop in the participation rate for those aged 25 to 54 is more troubling, and this decline has been much greater in the United States that in other industrialized countries.
He said research indicates that the decline is larger among workers with less education and suggests that more needs to be done to prepare people to participate in a modern workforce.
Productivity growth, the amount of output per hour of work, has also been declining, Powell said. Researchers have been unable to pinpoint the exact reasons for this drop, which is occurring not only in the United States but in other developed countries.
He said while the actual causes for the productivity slowdown may be difficult to isolate, policymakers should focus on creating an environment that will support stronger productivity gains through such methods as encouraging investment in more efficient equipment.
"We need policies that support innovation and create a favorable environment for investment in both the skills of workers and the tools they have," Powell said.