Bloomberg Businessweek - USA (2020-01-27)

E C O N O M I C S

28

Edited by

Cristina Lindblad

Figuringoutwhentheeconomyhasreachedmaximum

employment is no easy thing. Just ask the Fed

By the time the jobless rate dipped below 4%

in the spring of 2018—for only the second time in

a half-century—central bankers thought they had

accomplished their goal of maximum employment.

Their next challenge was to ensure the tight labor

market didn’t trigger a so-called wage-price spiral.

They began charting a course to raise interest rates

high enough to discourage hiring. Yet, unexpect-

edly, inflation didn’t bubble up, even as unemploy-

ment continued to drift lower. It’s 3.5% now.

Fed officials are currently engaged in some deep

introspection about what they got wrong. At the cen-

ter of those discussions is the notion of full employ-

ment. Zero joblessness is almost an impossible goal,

Last year was humbling for the Federal Reserve.

In 2019 policymakers were forced to unwind a

series of interest-rate hikes they had implemented

the year before, citing strains on the U.S. econ-

omy from President Trump’s trade wars and a

global slowdown. In the process, the central bank

appeared to be sacrificing its autonomy by caving

in to Trump’s relentless demands for cheap money.

There was still another reason for the Fed’s rever-

sal, one that goes to the heart of the institution’s

dual mandate of ensuring full employment and sta-

ble prices. It had underestimated how many job-

less Americans were still out there—not technically

counted as unemployed but willing to work.

The Trouble With Full Employment

BloombergB k January 27, 2020