HOUSTON: The Federal Reserve (Fed) projected its aggressive plan to fight inflation will drive up the ultralow unemployment rate – an outcome chair Jerome Powell says is needed in an overheated labour market full of imbalances.

       “The labour market has remained extremely tight,” Powell said in the opening remarks of his Wednesday press conference following a meeting at which policymakers raised interest rates by 75 basis points and signalled more increases to come.

       Unemployment was 3.6% in May, or just slightly above the pre-pandemic level, which was the lowest in 50 years.

       At the same time, inflation last month reached 8.6%, the highest since 1981.

       The US central bank, one of the few globally to have both price stability and maximum employment as part of its legal mandate, has pivoted hard to to cool price pressures.

       The rate increase was the largest since 1994 and Powell said officials could do the same thing next month, or take a smaller 50-basis-point step, and want to see compelling evidence inflation is heading lower.

       Forecasts released on Wednesday signalled officials have pencilled in another 175 basis points of tightening this year, lifting the benchmark rate to 3.4% by December. They see rates peaking at 3.8% in 2023, according to their median estimate.

       Those same forecasts show the jobless rate climbing to 4.1% by the fourth quarter of 2024. That’s what’s needed to cool demand enough to bring inflation down toward the Fed’s 2% goal, Powell argued.

       “We don’t seek to put people out of work – we never think too many people are working and fewer people need to have jobs, but we also think that you really cannot have the kind of labor market we have without price stability,” Powell said.

       He and his colleagues have often pointed to the labour market right before the pandemic, which saw historic gains for groups that are often marginalised, as ideal.

       The Black and Hispanic unemployment rates hit record lows, and women were starting to come into the labour market after years of exits following the financial crisis.

       Now, more than two years after the start of the pandemic, US workers are again reaping the benefits of a hot labour market.

       The Black labour-force participation rate rose in May to 63%, above the level for the overall population for the first time in 50 years. — Bloomberg