With too few people willing to work and wages rising, job demand will have to fall before the Federal Reserve lets up on its rate hikes, the Federal Reserve chairman, Jerome Powell, is saying.   

The unmet labor demand is keeping inflation cooking despite what has added up to a 3.75-point increase in interest rates by the central bank this year. 

“Right now the labor market is incredibly strong. So this is a great labor market in that sense. It’s too great in a way, because it’s going to be adding to inflation,” Mr. Powell said during a speech Wednesday at the Brookings Institution.

Mr. Powell cited an aging population that declined to return to the labor market after the pandemic for half of the 4 million fewer workers in the job market at the moment. A plunge in migration and slower growth in the working-age population are also contributing to the shortage, he said. Worker abandonment has driven the labor force participation rate down to 63.7 percent, 1.5 points lower than the 2020 level. 

“It has been very disappointing and a little surprising,” Mr. Powell said of the decline.

Many older workers who have not returned to the labor market had accumulated wealth through improved housing values and stock market earnings from between 2013 and 2020, he said. Sickness and caregiving are also factors in the decline.

Despite the job openings, wage growth is not keeping pace with inflation. Labor groups argue that the disparity continues to harm working Americans — but Mr. Powell suggested that, on the contrary, if more workers don’t rejoin the workforce, companies will start looking for automated technology to take their place.

“Could it be a dividend going down the road? It will have to be,” he said.

While more job openings are a benefit for those seeking higher wages, Fed officials would like to see the number of openings fall. Fewer openings would indicate less competition between businesses to find and keep employees, reducing pressure on them to raise wages.

Employers posted 10.3 million job vacancies in October, down from 10.7 million in September, the Department of Labor said Wednesday. However, that number was higher than in August, when they dipped below 10.3 million before rebounding the following month. The number of people quitting their jobs also slipped in October, to 4 million from 4.1 million. 

Job gains have also slowed to an average of 290,000 a month over the last three months. That’s more than the 100,000 jobs a month that Mr. Powell said is enough to balance the curve. The number of open jobs dropped last month in construction, manufacturing, professional services such as architecture and engineering, and health care. They rose in financial services and remained high for restaurants, bars, and hotels.

“The labor market is cooling,” which is what the Fed wants, “but it is far from cold,” an economist at BMO Capital Markets, Jennifer Lee, told the Associated Press.

Mr. Powell said he did not wish to get into the domain of labor policy, “but policies to support labor force participation could, over time, bring benefits to the workers who join the labor force and support overall economic growth. Such policies would take time to implement and have their effects, however.”

Mr. Powell said he won’t predict at what point the Fed will end its rate hikes, considering the still-strong housing services market and a higher but more manageable demand for goods. He did signal that the Fed may soon temper the pace of its rate hikes as it looks to measure the effects. 

“The time for moderating may come as soon as the December meeting. The timing is far less significant than how much further we will have to raise rates and hold policy at a restrictive level,” he said.