For release on delivery
6:55 p.m. EDT
October 18, 2023
The Evolution of the Federal Reserve's Employment Mandate
Remarks by
Lisa D. Cook
Member
Board of Governors of the Federal Reserve System
at the
Louis E. Martin Awards Ceremony at the
2023 Future of Black Communities Summit
Joint Center for Political and Economic Studies
Washington, D.C.
October 18, 2023
Thank you. I am rarely at a loss for words, as my friends, family, and colleagues
know all too well.1 But I do find it a little hard to express everything I am feeling, to be
given the Louis E. Martin Great American Award in honor of a truly great American who
did so much to make ours a more perfect union. Tough to find the words, but I will try.
Louis Martin did not lack for words. He was prolific, writing and publishing
millions of words in newspapers as a key figure in the heyday of Black publishing in the
1950s and 1960s. There were also the words, and I would love to know what they were,
that he spoke to the advisers of presidential candidate John F. Kennedy, who helped free
the Rev. Dr. Martin Luther King from a Georgia prison and arguably changed political
history.2 And there were those words he whispered, in the ears of presidents and
politicos, that moved the nation forward on civil rights. When I think about everything
Louis Martin accomplished, including the creation of the Joint Center for Political and
Economic Studies, and I consider the distinguished men and women who have earned
this award before me, I am humbled and very grateful.
One way I hope I can show my gratitude is by using this occasion to tell the wider
world a story about the civil rights movement that should be better known and that is
additionally meaningful to me for two reasons. The first reason is that this is a story
about how the Federal Reserve, where I am a policymaker, came to be the first central
bank in the world to make maximum employment a primary and explicit goal, coequal
with its goal of price stability. And the second reason is that I had the memorable
experience, as a Spelman College undergraduate, to hear some details about the lobbying
for full employment and other economic policy objectives by one of the leaders of that
movement.
It is generally agreed that the legal roots of the Fed's employment mandate are in
the Employment Act of 1946, itself inspired by a 1944 speech by President Franklin
Roosevelt.3 The law required all of the federal government to "promote maximum
employment, production, and purchasing power."4 Alongside the preservation of
"purchasing power," even then, the employment goal was linked to inflation. Federal
Reserve Chairs cited the Employment Act as applying to monetary policy.5 But it was
rare for the Federal Reserve to refer to this statutory mandate when explaining monetary
policy decisions. For example, the Federal Reserve Board's annual report for 1975 noted
that in public statements on monetary policy given during the year by the Federal Reserve
Chair, he had pointed to the "the very high rates of unemployment and of idle industrial
capacity then prevailing" as a factor bearing on the Federal Open Market Committee's
3
The act, which Congress passed in 1945, was inspired by Franklin Roosevelt's 1944 State of the Union
message, which proposed a "Second Bill of Rights" or "Economic Bill of Rights." FDR said, "We have
come to a clear realization of the fact that true individual freedom cannot exist without economic security
and independence." His list of rights included "the right to a useful and remunerative job," echoed by the
Employment Act's recognition of "the right to a useful and remunerative job in the industries or shops or
farms or mines of the nation." The full 1944 State of the Union message is available on the Franklin D.
Roosevelt Presidential Library and Museum's website at https://www.fdrlibrary.org/address-text.
4
See the Declaration of Policy on page 1 of the Employment Act of 1946, available at
https://fraser.stlouisfed.org/files/docs/historical/congressional/employment-act-1946.pdf.
5
See, for example, William McChesney Martin's August 13, 1957, statement before the Committee on
Finance, U.S. Senate, which is available at
https://fraser.stlouisfed.org/files/docs/historical/martin/martin57_0813.pdf?utm_source=direct_download.
In 1971, a Federal Reserve Board lawyer, Howard Hackley, wrote a memo to Governor Sherman J. Maisel
concluding that the Federal Open Market Committee was required to consider the goals of the Employment
Act. See Howard Hackley (1971), "Responsibilities of the Board under the Employment Act of 1946,"
memorandum, Board of Governors of the Federal Reserve System, February 11.
(FOMC) decisions.6 But the same annual report made no reference to the Employment
Act.
For some people, there wasn't any question of whether the Employment Act of
1946 should be a top priority. From its earliest days, the civil rights movement included
full employment on a list of economic objectives deemed necessary to achieve the goals
of freedom and political equality. Several leaders of that movement carried forward that
goal into the 1960s, including the Rev. Martin Luther King and my cousin Floyd
McKissick, Sr., but I would like to focus on an individual who probably did as much as
anyone to establish maximum employment in 1977 as a goal assigned specifically to
monetary policy.
That person was Coretta Scott King. She had been a civil rights activist since
attending the 1948 Progressive National Convention, where economic rights were
discussed alongside other issues. After her husband's assassination, Mrs. King carried on
his work for nonviolence, civil rights, and peace, but she was particularly focused on his
economic justice agenda. Four days after MLK's death, in a speech at Memphis City
Hall, she said that the right to employment had been on his mind: "Every man deserves a
right to a job or an income," she said. "Our great nation ... has the resources, but his
question," (she means Dr. King's question) "was: Do we have the will?"7
A month later, she led a long-planned march in Washington known as the Poor
People's Campaign, to push for bringing troops home and creating jobs and economic
opportunity, with full employment prominent on the list of demands. That march was an
extension of the 1963 March on Washington for Jobs and Freedom, which was
commemorated this year for its 60th anniversary. In the following years, Mrs. King used
her considerable and growing stature to advocate for a broad agenda of economic
empowerment, centered around the maximum-employment guarantee that had been law
for decades. In 1973, the United States was hit with runaway inflation, this time
accompanied by what became a deep recession-stagflation. In 1974, Mrs. King joined
with elements of the labor movement to create the National Committee for Full
Employment/Full Employment Action Council. She testified and walked the halls of
Congress, doing just the kind of arm-twisting and coalition-building that Louis Martin
was known for. That work culminated in 1975, with early versions of what would
become the Full Employment and Balanced Growth Act of 1978, also known as the
Humphrey-Hawkins Act. In general terms, the law set economic priorities for the federal
government centered on promoting good-paying jobs for all Americans. Humphrey-
Hawkins established the objectives of maximum employment, stable prices, a balanced
budget, and a balance of foreign trade, and it defined them by setting numerical goals.
Coretta Scott King testified in favor of the legislation and its mandate of maximum
employment.
In practice, across the government, the numerical targets and goals in the
Humphrey-Hawkins Act were not treated as legally binding. But one of Humphrey-
Hawkins' undeniable legacies is how, as it headed toward likely passage, its employment
and inflation objectives were enshrined in the 1977 amendments to the Federal Reserve
Act, establishing the dual mandate of maximum employment and stable prices.
This began a process in which the Federal Reserve increasingly tied its policy
decisions to statutory goals. Starting in 1979, the Federal Reserve Board published the
Monetary Policy Report, as required by Humphrey-Hawkins, and, along with the report's
release, the Chair regularly gave testimony on the Committee's plans. In 1979, inflation
remained a big challenge, and a lasting period of price stability did not return until the
1990s. In 2007, the FOMC began publishing a summary of the economic projections of
its participants, including the range of estimates of the longer-run unemployment rate, an
indication of their views of maximum employment. Subsequently, the FOMC responded
forcefully to the deep recession caused by the 2008 financial crisis to support
employment, helping usher in an expansion that eventually brought the unemployment
rate to its lowest level in 50 years. It also reacted vigorously to the economic weakness
associated with the pandemic, and unemployment has now returned to its pre-pandemic
lows, even as we have worked to return inflation to our 2 percent objective.
Central banks around the world generally treat the stabilization of employment as
an important policy objective. Yet most have employment mandates only informally or
secondarily in their statutory assignments. In contrast, the Federal Reserve's mandate is
clear that maximum employment is on an equal footing with price stability. But Fed
policymakers recognize that the maximum level of employment is not directly
measurable and that it changes over time as the structure of our economy evolves. For
that reason, we do not set a fixed numerical goal for maximum employment. This is wise
considering that the past three decades have shown that unemployment can fall well
below the levels that economists once predicted would overheat the economy.
In a development that I suspect would please Augustus Hawkins and Coretta Scott
King, in 2020, the FOMC declared that "maximum employment is a broad-based and
inclusive goal."8 It is now common for Fed policymakers to note with enthusiasm when
long-term disparities in employment and wages between minorities and other groups
narrow. The Humphrey-Hawkins Act expired in the year 2000, but the spirit of Mrs.
King's quest for full employment is alive and well.
I dare to wonder what Coretta Scott King would think about these developments,
because of the experience I had as an undergraduate, meeting her and hearing her talk
about her lobbying for policies to promote employment and economic opportunity. At
the time, I had not yet decided to devote my career to the study of economics, but when I
did, it was in part because of the belief that wise economic policy could accomplish some
of the goals that Coretta Scott King devoted herself to.
Mrs. King pushed the maximum-employment mandate as hard and consistently as
she did because she believed, in her words, that "unemployment lies at the root of all our
major social problems."9 Economists also understand that employment is the key to a
healthy economy. Maximum employment boosts long-run (noninflationary) economic
potential. It means that a vital resource is being used productively. A strong labor
market increases labor force participation and the willingness of firms to recruit and
upgrade the skills of workers. Maximum employment also promotes business investment
that boosts productivity and long-run economic potential. And the full participation of all
segments of society should be expected to result in more ideas, including more diverse
ideas, more invention, and more innovation. These are the benefits of the Fed's
maximum-employment goal and part of the legacy of Coretta Scott King.
In closing, I want to thank Interim President Fulton and the board of the Joint
Center for the great honor of this award, as well as the opportunity to review some
important history that shaped the Federal Reserve's efforts to promote a healthy
economy.