Unemployment could go much lower than was thought possible just a few years ago, Federal Reserve Chairman Jerome Powell suggested Tuesday.
In congressional testimony, Powell said a 3.5 percent unemployment might represent “full employment” — that is, the lowest unemployment rate that wouldn’t generate spiraling inflation.
“If I had to make an estimate, I’d say it’s somewhere in the low fours,” Powell said when asked what he thought the full employment rate was. “But I would stress that it could be — what that really means is: It could be five, it could be three-and-a-half.”
Currently, unemployment is 4.1 percent, the lowest it’s been in 17 years.
An unemployment rate of 3.5 percent, though, would represent about a million additional employed people.
Most officials at the Fed think that the unemployment rate can’t go lower without eventually generating out-of-control inflation, which is why the central bank has gradually been raising interest rates in recent months.
The Fed’s monetary policy report, released last week, suggested the labor market is already “near or a little beyond full employment at present.”
But Powell and other central bankers have been wrong in recent years about how low unemployment can go, and have revised their estimates downward.
As recently as December of 2016, for instance, Fed officials projected that unemployment would never go lower than 4.5 percent, and would eventually settle at 4.8 percent.
