Job creation should be strong through July, thus lowering the unemployment rate, Federal Reserve Chair Jerome Powell told the House Financial Services Committee on Wednesday.
Until the American people feel safe and comfortable going about a normal day, the economy won’t fully recover, he said.
“If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing,” Powell said. “We should see some strong job creation between now and July, so you should see the unemployment rate go down in that time.”
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The Fed, he said, will continue to “keep our foot on the gas until we really know we are past this.”
“We will keep rates where they are until we are confident, we are on the road to recovery,” he said. “We aren’t thinking about raising rates right now. Deepest recession, it may not be a very long one but the recovery process will take a while. We want to get back to 3.5% unemployment rate, we will be using our tools to get back there as fast as possible.”
Speaking separately, Federal Reserve Bank of Cleveland President Loretta Mester in a videoconference told Economists on the Economy, “In my view, very accommodative monetary policy will be needed to support the recovery and the return to the FOMC’s goals of price stability and maximum employment over time.”
She expects recovery in the second half “continuing over the next couple of years.” According to text released by the Fed, she added, “Almost all of my FOMC colleagues agree with me that it will be appropriate for the fed funds rate to remain at its current level through 2022, the end of our projection horizon, in support of the recovery.”
Housing starts
Housing starts gained 4.3% in May to a seasonally adjusted 974,000 annual rate from a 934,000 million pace in April, according to the Commerce Department. Year-over-year starts dropped 23.2%.
Building permits increased 14.4% in the month to a seasonally adjusted 1.220 million annual rate from April’s 1.066 million pace, and are 8.8% below the May 2019 level of 1.338 million.
Economists surveyed by IFR Markets expected 1.1 million starts and 1.248 million permits in the month.
“Mortgage applications surged in late May and early June, which should help to buoy the housing market in the short term,” said Yelena Maleyev, associate economist at Grant Thornton. “Inventories remain extremely tight, which is supporting home prices. The euphoria could be short-lived if we can’t better contain the spread of the virus before the second wave hits with the onset of flu season this fall. We can’t lose sight of the fact that this is a health crisis with significant downside risks for the economy.”
“Housing construction inched up in May, but single-family starts remained almost 18% below last year’s pace, and multifamily starts were 33% lower,” said Mike Fratantoni, chief economist, Mortgage Bankers Association. “At only 9% below last year, new permits are recovering more quickly and are an indication that the pace of construction should continue to improve in the months ahead.”
“We have long maintained that housing will be a positive contributor to the economic recovery, primarily because of the very tight inventory of unsold homes entering this crisis,” said Roiana Reid, U.S. economist at Berenberg Capital Markets. “The months’ supply of unsold homes has ticked up in recent months but remains relatively low, contrasting the 2008-2009 housing crisis that involved over-building, which resulted in record highs in housing inventory. Additionally, mortgage rates continue to fall to new all-time lows, boosting affordability and enticing potential buyers. Clearly, the huge job losses pose a risk to the housing sector in the near term, but demographics are favorable in the intermediate run.”