Federal Reserve Chairman Jerome Powell said Wednesday that the central bank will not raise interest rates or pull back on its aggressive asset purchase program at the first signs of a strong labor market.

Powell told the Economic Club of New York that the central bank needs to “patiently” keep monetary policy accommodative by allowing a hot labor market to pull in low- and moderate-income workers that were displaced during the COVID-19 pandemic.

“At present, we are a long way from such a labor market,” Powell said.

Pointing to the January jobs report, Powell noted that there are nearly 10 million people still out of work compared to pre-pandemic levels.

The Fed chair reiterated that the central bank’s new framework prioritizes a reduction in “shortfalls” from maximum employment.

“This means that we will not tighten monetary policy solely in response to a strong labor market,” Powell clarified.

Since the crisis began, the Fed slashed interest rates to zero and ratcheted up its aggressive quantitative easing program (which is purchasing U.S. Treasuries and agency mortgage-backed securities at a $120-billion-per-month rate). Powell has said that economic conditions are far from warranting a rate hike, and added that a tapering of its asset purchases is not presently on the table.

“We’re not thinking about shrinking the balance sheet, to be clear,” Powell said.

Lesson from the last crisis

The central bank last year regretted that it had raised rates too early out of the last crisis, learning that keeping monetary policy easier for a longer period of time has the effect of pulling low-income and moderate-income workers back into jobs.

The Fed found that it could get a hot labor market with an unemployment rate as low as 3.5% without runaway inflation.

On Wednesday, Powell said the dynamics of the U.S. economy show that it can sustain a robust job market without unwanted inflation.

As such, the Fed chief said the lesson is clear for the Fed’s policy out of the pandemic: allow the labor market to run hot to pull low- and moderate-income workers back in.

The New York Fed reported Tuesday that although high-wage jobs (those with annual incomes above $85,000) have returned to pre-pandemic levels, low-wage jobs (those with incomes below $30,000) are actually starting to see losses again.

“Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy,” Powell said, adding that the government and the private sector have roles to play as well.