WASHINGTON, Nov 16 (Reuters) – The Federal Reserve will use a broad set of employment measures including the labor force participation rate to determine when the economy has returned to “maximum employment,” part of an aggressive new approach to repairing the U.S. jobs market, Fed Vice Chair Richard Clarida said on Monday.
In an extensive elaboration on the new strategy, Clarida said the U.S. central bank was continuing to monitor the country’s economic progress during the coronavirus pandemic, and how its various programs – including the ongoing purchase of $120 billion per month in government securities – might best be deployed.
The current surge in coronavirus cases has led to speculation the Fed might alter its asset-buying as soon as December to provide more support, though Clarida in his prepared remarks for a panel hosted by the Brookings Institution gave no direct indication of that.
But he did spell out just how firmly the Fed is committed to not just returning the U.S. economy to a low unemployment rate, but ensuring that sidelined former workers are also drawn back into jobs after the dramatic job losses last spring.
Clarida said that “as a practical matter,” policymakers won’t consider the economy to be at full employment just because the unemployment rate has fallen back to a low level. Rather, he said, an adequate share of the population will have to be working, and the participation rate for key population groups, such as people in their prime earning years, will have to return to trend.
As long as those indicators are depressed, and as long as inflation remains controlled, “monetary policy should … continue to be calibrated to eliminate such employment shortfall,” Clarida said.
The comments are particularly notable in the current situation when the headline unemployment rate is falling fast, but partly because millions of workers have stopped looking for jobs due to the pandemic.
People who don’t look for work are not counted as unemployed, though in the current environment they effectively are – driven from jobs by the pandemic and facing constraints like child care or family health issues that prevent their return. (Reporting by Howard Schneider Editing by Paul Simao)