It goes without saying that economic policymakers should use all available tools to minimize supply-side damage from the crisis. We need policies that support labor force participation and the development of skills, business hiring and investment, and productivity growth – policies that are, for the most part, outside the remit of the Federal Reserve.
Monetary policy can contribute by continuing to support the expansion as long as inflation remains consistent with our 2 percent objective and inflation expectations remain stable. Strong labor markets do seem to be averting some of the damage that might otherwise have become permanent. Improved matching is reducing the natural rate of unemployment.