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The Federal Reserve Act calls for ‘maximum employment’, not ‘minimum unemployment’

the Federal Reserve Act calls for ‘maximum employment’, not ‘minimum unemployment’. This distinction did not matter much in the past, but it is becoming increasingly important. The ‘participation gap’ remains as big a drag on growth as ‘unemployment’ and we, like Goldman, would expect the Fed to ‘change’ its target for their outcome-based guidance (to enable moar printing)…

The unemployment rate is increasingly distorted by the decline in labor force participation.

Some of this decline is clearly related to the aging of the US population. Population aging shifts the composition of the over-16 population – which forms the denominator of the participation rate. The chart below shows that changes in the composition of the population account for 1.2 percentage points of the decline in labor force participation…

The shift of jobless individuals from unemployment into inactivity is making the unemployment rate a less appropriate measure of broad labor market conditions. This has important implications for Fed policy because it implies that the committee might still be quite far from reaching the jobs side of its mandate even once the unemployment rate is back at 6%. After all, the Federal Reserve Act calls for “maximum employment”, not “minimum unemployment.” This distinction did not matter much in the past, but it is becoming increasingly important.

Chosen excerpts by Job Market Monitor

Zero Hedge

via Goldman Caves: “The Unemployment Rate Is An Inappropriate Measure Of The Labor Market” | Zero Hedge.

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