Fed’s Brainard Says Labor Market Hasn’t Satisfied Goals for Reducing Bond Purchases

Fed governor

Lael Brainard

signaled the central bank hasn’t met that standard yet but could do so by December or a little bit before that. In her remarks, she said the Fed would be in a better position to assess the job market’s progress in October, when spending, school and work patterns “should settle into a post-pandemic normal.”

Some presidents of regional Fed banks have called for the central bank to reduce its bond purchases sooner in recent speeches. Ms. Brainard’s remarks on Friday laid out data pushing back against an earlier timetable.

As of June, the economy has a shortfall of around seven million jobs compared with February 2020 and of around nine million jobs relative to the pre-pandemic trend. Since December 2020, when the Fed laid out its objective of reaching “substantial further progress,” the economy has closed between one-fourth and one-third of the employment shortfall, Ms. Brainard said.

Ms. Brainard said she expects recent hiring progress to continue and ultimately yield a labor market that is strong or stronger than existed before the pandemic. If the pace of job growth during the second quarter continues for the rest of the year, about two-thirds of job losses as of December 2020 and nearly half of the gap relative to the pre-pandemic trend would be closed by year’s end, she said. A more notable acceleration in job growth could reach those levels somewhat sooner, she said.

“The determination of when to begin to slow asset purchases will depend importantly on the accumulation of evidence that substantial further progress on employment has been achieved. As of today, employment has some distance to go,” she said.

Inflation has accelerated this year as the economy faces supply-chain bottlenecks and materials shortages. The Fed’s preferred inflation gauge, excluding volatile food and energy categories, rose 3.5% in June from a year earlier, compared with a 3.4% year increase in May, the Commerce Department reported earlier Friday.

Categories that comprise 8% of that price basket were responsible for more than 60% of the June price increase, Ms. Brainard said.

Ms. Brainard said she expects forces that have fueled rapid price gains in recent months to dissipate by this time next year, though she said she was watching for evidence that inflation pressures could broaden or that recent high inflation readings would push longer-term inflation expectations to uncomfortably high levels. “Currently, I do not see such signs,” she said.

Ms. Brainard said she sees risks of both stronger- and weaker-than-expected growth and spending resulting, respectively, from high levels of household savings and from risks associated with the Delta variant of the Covid-19 virus. Fears related to the more contagious variant risk dampening a rebound in services and complicate the return to in-person school and work in some areas, she said.

Ms. Brainard spoke in Aspen, Colo., at an annual meeting of the Aspen Economic Strategy Group.

Write to Nick Timiraos at nick.timiraos@wsj.com