The US labor market remains “extraordinarily strong” and Friday’s monster jobs report underscored that the central bank has more work to do to bring down inflation, Federal Reserve Chairman Jerome Powell said Tuesday. “We didn’t expect it to be this strong,” Powell said of the January jobs report, which showed the US economy added 517,000 jobs. “It kind of shows you why we think that this will be a process that takes a significant period of time.” Powell was speaking during a question-and-answer session with David Rubenstein of the Economic Club of Washington. “The disinflationary process has begun,” Powell said, noting progress especially in goods prices. However, price gains within the services sector remain high, he added. The Fed expects “significant” declines in inflation to occur this year. It will take “not just this year but next year to get down to 2%,” the central bank’s inflation target, Powell said. And rates will have to remain at a restrictive level “for a period of time” before that happens, he noted. Powell expects housing inflation to come down by the middle of this year but is keeping the closest watch on a metric within the Personal Consumption Expenditures report: Core services excluding housing. “There has been an expectation that [inflation] will go away quickly and painlessly; I don’t think it’s guaranteed that’s the base case,” Powell said. “It will take some time.” The major US stock indexes rallied during Powell’s discussion but then fell in early afternoon trading, with the Dow down by around 200 points or 0.6%, the S&P lower by 0.3% and the tech-heavy Nasdaq down by 0.2%. While economists said the January job total was heavily influenced by seasonal factors and will probably be adjusted downward, it was probably too hot for the Fed’s liking. The robustness of the labor market has stood somewhat at odds with the Fed’s efforts to lower inflation. “The labor market is strong because the economy is strong,” Powell said. The current labor market is also a reflection of the pandemic’s lasting effect on the US economy and labor supply, he noted. The demand exceeds the supply by 5 million people, and the labor force participation rate has declined, he said. “It feels almost more structural than cyclical,” he said. A key reason Chair Powell wants more slack in the labor market is out of concern that a tight employment situation will continue to push up wages, which could then keep inflation elevated. As the unemployment rate rises, workers lose bargaining power for higher wages and households pull back on spending. Fed officials also want to keep inflation expectations anchored. “We had a labor market with 3.5% unemployment in 2018 and ’19, and we had inflation just barely getting to 2%, and wages moving up for most of the people at the lower end of the spectrum,” he said. “We all want to get back to that place.” And the Fed will react accordingly with the data to ensure it does, he said. “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more,” he said.