Press conference exchange between MATTHEW BOESLER and Fed Chair Jerome Powell:

user: Hi, Chair Powell. Matthew Boesler with Bloomberg. So, when you’re looking at this question of assessing whether or not the U.S. economy is at maximum employment, do you have a framework for making that judgment that is independent of what inflation is doing? And, if not, does it complicate that assessment, given all of the uncertainty about inflation right now and the inclination to believe that, you know, the high inflation we’re seeing is not related to capacity utilization in the labor market? Thank you.

assistant: So we don’t actually define maximum employment as—we define it in terms of inflation, but, of course, there is a connection there. Maximum employment has to be a level that is consistent with stable prices. But that’s not really how we think about it. We think about maximum employment as looking at a broad range of things. You can’t just look at— unlike inflation, where you can have a number. But with maximum employment, you could be in a situation, hypothetically, where the unemployment rate is low, but there are many people who are out of the labor force and will come back in. And so you wouldn’t really be at maximum employment, because there’s this group that isn’t counted as unemployed. So we look at a range of things. So the thing is, by many measures, we are at a very tight labor market. I mentioned quits and job openings and wages and things. Many of them are signaling a tight labor market, but the issue is, how persistent is that? Because you have people who are held out of the labor market, you know, of their own—they’re holding themselves out of the labor market because of caretaking needs or because of fear of COVID, or, for whatever reason, they’re staying out. And it’s clear that there are, you know—with tremendous demand for workers and wages moving up, it does seem like we’re set up to go back to a higher job- creation rate. So that would suggest that you’re not at maximum employment. So, at the end of the day, it is a judgment thing. But, of course, at the end of it, it also has to be a level of employment that’s consistent with price stability.

user: And if I could just follow up briefly, you know, you’ve talked a little bit about this possibility that the two goals might be in tension and how you would have to balance those two things. Could you talk a little bit about what the Fed’s process for balancing those two goals would be in the event that, say, come next year, you decide there’s a serious risk of persistent inflationary pressures despite ongoing employment shortfalls?

assistant: Yes. I mean, again, it’s a risk-management thing. It’s not—I can’t reduce it to an equation, but, ultimately, it’s about risk management. So you want to be in a position to act, to cover the full range of plausible outcomes, not just the base case. And in this case, the risk is skewed. For now, it appears to be skewed toward higher inflation. So we need to be in a position to act in case it becomes necessary to do so or appropriate to do so, and we think we will be. So that’s how we’re thinking about it. And I think, though, that, judgmentally, too, it’s appropriate to be patient. It’s appropriate for us to see what the labor market and what the economy look like when they heal further. We know that we were on a path to a different place, as I mentioned, when Delta arrived. And Delta stopped, it stopped job creation. It stopped that transition away from a goods-focused economy where there’s excess demand for goods because there—services are not available. People are not traveling. That transition itself could help bring inflation down, because, presumably, people would spend a little less on goods while they start spending more on travel and all sorts of travel services and things like that. So we want to see that healthy process unfold as we decide what the true state of the economy is, and we think it will evolve in a way that will mean lower inflation. Bottlenecks should be abating. We start to see that now with some of them, but, overall, they haven’t gotten better overall, and, you know, we’re very aware of that. So that’s really how we’re thinking about it. We’re thinking that time will tell us more. In the meantime, we don’t think it’s time to raise rates now. You know, if we do conclude that it’s necessary to do so, then we’ll be patient, but we won’t hesitate.