December 15, 2021–Despite high and rising inflation, the U.S. Federal Reserve decided today to keep its federal funds rate between zero and 0.25 percent.
The Federal Reserve statement acknowledged that inflation has “exceeded 2 percent for some time.” Furthermore, the unemployment rate is at 4.2 percent–which is significantly close to the 4 percent target that Federal Reserve Chair Jerome Powell mentioned in March.
Defining Employment
In his comments to reporters in a virtual conference held today, Powell seemed to expand the definition of “maximum employment” that the Fed has traditionally considered. For example, asked to define maximum employment, Powell discussed not only the unemployment rate but also “a broad range of indicators” including:
- the labor participation rate,
- want ads,
- the quit rates,
- and employment among different demographic groups.
“Admittedly, it’s a judgment call,” Powell said. “We are making rapid progress toward maximum employment.”
Powell added earlier in the press conference that the labor participation rate is down due to child care issues and concerns by the public about COVID-19.
In a seeming contradiction to the need for a stimulative policy, Powell said the “labor market is hotter than it’s ever been.”
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