... The loss of confidence in the main jobless rate as a definitive economic indicator also has big policy implications.
Even if the US unemployment rate continues its rapid descent in the coming months, the Fed has said it will not start removing its monetary support for the economy by increasing interest rates until full employment can be measured by a much broader range of measures, which will almost certainly include labour force participation.
This stance is the result of a big shift in thinking at the US central bank over the past decade away from pre-emptive tightening based merely on fears of inflation spikes.
“The Fed has definitely been highlighting and putting emphasis on not looking at the unemployment rate as the only gauge of labour market health,” said Lydia Boussour, an economist at Oxford Economics.
The Biden administration has also largely ignored the quickly falling US unemployment rate, as evidenced by its push to pass a $1.9tn fiscal stimulus package. The White House says the relief bill is justified because of the millions of Americans who are still out of work and the lingering devastation of the crisis on small businesses and low-income households. ...
Criticism of the mainline "U-3" unemployment rate has been long and widespread. As the Financial Times piece notes, this change has "big policy implications", an extreme understatement.
Note that unemployment in the US is measured by the Department of Labour, not the Federal Reserve, and likewise for the Fed's other policy target, inflation --- don't measure what you regulate being the guiding principle. There are actually six measures of unemployment tracked by DoL's Bureau of Labour Statistics, creatively named U-1, U-2, U-3, U-4, U-5, and U-6, described in Table A-15. Alternative measures of labor underutilization. Most critical and significant to this story is the determination of just who is, or is not, included in the definition of the denominator "US Labour Force", which is now considered far too exclusionary a measure. As the article notes:
The fear is that a significant number of people will never return — and will be part of along-term economic scarring left by the pandemic.
Indeed.
https://archive.is/xsyi0
https://www.ft.com/content/10c3d7aa-8b92-42d0-97f7-e2090561fc42
#economics #FederalReserve #unemployment #BidenAdministration #LabourStatistics
