Press conference exchange between VICTORIA GUIDA and Fed Chair Jerome Powell:

user: Hi, Chair Powell. I wanted to follow up on maximum employment. So, you know, the new framework was basically designed, as I understand it, so that there was a de-emphasis on guessing where inflation would pick up because of employment. And, basically, you were going to wait until you saw the whites of the eyes of inflation. And that’s how you would know that you reached maximum employment. So, I’m wondering, you know, you’ve talked a lot about the different ways that you might measure maximum employment. But from what I understand, that’s still basically: The way you’re there is inflation. So is that understanding correct? And how is—are those signals likely to be clear right now given that you have inflation that’s caused by, you know, these supply chain disruptions that might also lead to, you know, inflation in wages and those sorts of things? So how do you sort of, like, tease out the signal of maximum employment?

assistant: Okay. So let me start by saying that the inflation that we got was not at all the inflation we were looking for or talking about in the framework. This was—it really was a completely different thing. It was to do with, you know, strong monetary policy and fiscal stimulus into an economy that was recovering rapidly, and in which there were these supply-side barriers which effectively led to, you know, in certain parts of the economy, what you might call a vertical supply curve. So, you know, automobile purchases are very interest rate-sensitive, and you would think demand would drive up the quantity of cars, But it can’t, because they don’t have semiconductors. So, so that—it was a very different inflation. This is not the inflation we were looking for under our framework at all. It’s nothing to do with our framework. And our—the way we’ve approached it is really nothing to do with our framework. But coming to maximum employment, which is really your question. How do you know? So I think you look at, you know, prices and quantities. When you—if you want to look at maximum employment, you look at prices and quantities, and the main price you look at is wages. It’s one of the things you look at. And, you know, it’s—So I mentioned a number of other things. You can get to 20, if you wanted to, easily, but labor force participation, the unemployment rate, different age groups of—you know, prime-age labor force participation, in particular, gets a lot of focus, the JOLTS data get a lot of focus. And wages, that’s, that’s really one of the great signals. The quits rate is another one. The quits rate is really one of the very best indicators, according to a lot of labor economists, because people quit because they feel like they can get a better job. And there’s, you know, record amounts, historically high levels of that going on—suggesting, again, that you’ve got a very tight labor market. So on wages, that’s the price indicator we look at to tell us, along with all the other data, whether we’re—whether we have labor market conditions that are consistent with maximum employment. And so that’s, that’s how we think about it. But the—one of the complications is that, again, we’ve got to make policy in real time. So how do we think about that? Do we—if we think we can make labor, you know, participation might move up—if we, let’s say we knew that it would start to move up in two years, would we wait two years when inflation is running way above target? Probably not, you know, so you have to make an assessment that what’s max—what is the level of maximum employment that is consistent with price stability in real time is, is one way to think about it.

user: Just to follow up on that for a second, if you do raise interest rates next year and, you know, it’s—you’re not certain whether you’re at maximum employment, are you all going to point—when you raise interest rates, are you going to point to ways in which the labor market could still improve?

assistant: Yes. I mean, I—absolutely. I, I think—well, whether or not we— whether or not we say “we’re at conditions—labor market conditions consistent with, with maximum employment” next year, we would all be open and I think expect, over time, that the level of maximum employment that’s consistent with price stability would increase further over time—for example, through increasing participation. So I—we would certainly—we would not, in any way, want to foreclose the idea that the labor market can get even better. But, again, with inflation as high as it is, we have to make policy in real time. We’ve got to make that assessment in real time.