SCOTT SIMON, HOST:
Some encouraging news now and some efforts to try to keep it going - the U.S. Labor Department says the job market is in better shape than many forecasters had expected, and the Federal Reserve plans to raise interest rates this month in an effort to curb inflation but not enough to stall that strong job growth. Here's Federal Reserve Chairman Jerome Powell answering a question this week from Tennessee Congressman David Kustoff.
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DAVID KUSTOFF: A number of pundits reference it back historically to the late '70s and the early 1980s. Is that the proper historical reference to what we're experiencing today as it relates to inflation?
JEROME POWELL: That's the proper historical reference for what we're trying not to replicate.
SIMON: Inflation is still well below that 1970s level, but the war in Ukraine and sanctions on Russia loom over all. NPR chief economic correspondent Scott Horsley joins us. Scott, thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good morning.
SIMON: And let's start with that jobs report. U.S. employers added 678,000 jobs in February. How big a lift is that for the economy?
HORSLEY: This is really good news. February was the strongest month of job growth since last July. That is before the delta and omicron waves of the pandemic. And it shows how resilient the economy's become even in the face of this stubborn virus. The U.S. has now recovered more than 90% of the jobs that were lost when the coronavirus first hit. And what's equally encouraging - more people are now coming off the sidelines to help fill the near-record number of job vacancies. Economist Julia Coronado of MacroPolicy Perspectives says those newly available workers should help to ease the labor shortages we've all heard so much about.
JULIA CORONADO: It relieves some pressure. It allows the economy to grow. Now, one of the challenges for consumers is that it also means that wage growth has slowed down.
HORSLEY: Average wages in the private sector were up 5.1% in February compared to a year ago.
SIMON: And, of course, annual inflation in January was 7.5%. We'll find out the February inflation numbers this coming week, but how does this affect American budgets?
HORSLEY: On average, wages are not rising as fast as inflation, so even though paychecks are getting bigger, they don't go as far as they used to. Workers in some industries like restaurants and retail have seen larger pay increases. Restaurant wages were up more than 11% over the last 12 months, so they're outpacing inflation. But even there, Coronado says it looks like those wages are starting to level off, so they're probably not going to keep climbing at that rate in the months to come.
CORONADO: On the one hand, that's good news that we're not going into kind of a '70s-style wage price spiral. But it does mean that consumers are going to face a crunch in purchasing power from the energy price spike that's tied to the war.
SIMON: Scott, there are just a lot of moving pieces here. How does the Federal Reserve adjust?
HORSLEY: With caution. Ordinarily, the central bank likes to telegraph its moves well in advance so nobody is surprised when rates go up. But in this case, we just don't know how high rates are going to go or how quickly because the Fed says they can't see that far ahead. Many of the Fed's predictions during the pandemic have proven to be off the mark, and, of course, Russia's invasion of Ukraine just adds to the uncertainty.
You know, back in the 1970s, the Federal Reserve didn't do much to fight inflation until Paul Volcker came along and really tightened the screws. That worked, but it was really painful. You know, mortgage rates soared to 18%. The economy sank into a deep recession. Alabama Senator Richard Shelby asked Powell this week if he and his colleagues are prepared to administer the same kind of tough medicine that Volcker did.
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RICHARD SHELBY: And a lot of it was draconian. Is the leadership at the Fed under you prepared to do what it takes to get inflation under control?
POWELL: Well, let me say I knew Paul Volcker. I think he was one of the great public servants of the era - the greatest economic public servant of the era. And I hope history will record that the answer to your question is yes.
HORSLEY: Still, Powell and his colleagues hope they can tame inflation this time around with baby aspirin rather than amputation. They're going to start that process in a couple weeks. Interest rates, which have been near zero for the last two years, are expected to rise by one-quarter of 1%.
SIMON: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome.
(SOUNDBITE OF JACK WILKINS' "RED CLAY") Transcript provided by NPR, Copyright NPR.
