Fed's Powell says "hot" labor market is overhyped
- "We don't have any basis or any evidence for calling this a hot labor market," Fed Chairman Powell said in his House testimony today.
- He praised solidly low joblessness but noted that wage and benefit hikes of 3% barely cover productivity increases and inflation.
- "While we hear reports of companies finding it hard to find qualified labor, we don't see wages responding," Powell said.
Federal Reserve Chairman Jerome Powell sharply contradicted President Donald Trump's claims that the U.S. economy was the best ever. He told Congress on Wednesday there isn't "any evidence for calling this a hot labor market."
Powell spoke to the House Financial Services Committee on Wednesday on the state of the economy, praising solidly low unemployment but voicing concerns about slowing global growth and the effect of the trade war with China. Powell is widely expected to announce an interest rate cut at the next Federal Reserve meeting later this month.
President Trump is the top cheerleader for a rate cut, even as he touts what he calls the hottest economy "ever." On Friday he called the central bank "our most difficult problem." He followed up Saturday by saying the Fed would cut rates if it "knew what it was doing."
At Wednesday's hearing, Rep. Steve Stivers, R-Ohio, asked Powell about the possibility that lower interest rates would cause the job market to run "hot," dropping the unemployment rate further and boosting wages.
"We don't have any basis or any evidence for calling this a hot labor market," Powell said. "We have wages and benefits moving up at 3%, which is good because it was 2% a year ago, but 3% barely covers productivity increases and inflation," he continued. However, he said, "we haven't seen wages moving up as sharply as they have in the past."
In a true labor shortage, employers would be dramatically increasing wages to attract workers. But the current unemployment rate of 3.7% hasn't made it noticeably difficult for businesses to hire.
"3% is a low unemployment rate, but to call something hot, you need to see some heat," Powell said. "While we hear reports of companies finding it hard to find qualified labor, we don't see wages responding."
He declined to weigh in on an upcoming House bill that would raise the federal minimum wage to $15 an hour, despite numerous questions from Republican committee members.
"The question of the minimum wage is really one for you," he said, noting that economists haven't been able to agree on whether wage hikes lead to job cuts. "It's not a judgment that we make on net, it's a judgment that you have to make."
Earlier in his testimony, Powell spoke about waning business confidence and falling business investment -- two elements that got a boost last year in the wake of the corporate tax cuts but now appear to be fading.