In prepared remarks today, Brainard clarified the meaning of maximum employment as a precondition for liftoff. Brainard’s appearance was bookended by a couple of appearances by Clarida.
Chair Powell also spoke today, appearing for a second day for the semiannual monetary policy testimony, this time before the House Financial Services Committee. We covered yesterday’s appearance in a note. Today, Powell’s testimony adhered to the same policy stance. In particular, he pushed back gently against several questions that cited his comment that 2021 GDP growth “could be” 6%. He is not willing to commit to 6%–or a rate “in that range” or any other rate–as his baseline. The market also took note of his remark that reaching 2% inflation “may take more than three years, but, you know, we’ll update that.” He said that in response to a question about the forecast horizon of the SEP (which is “arbitrary”).
As we thought might be the case, the appearances by Clarida and (especially) Brainard were more intriguing.
While Clarida did not go into the topic in as much detail as Brainard, both covered the key part of the definition of maximum employment. That definition is in line with my interpretation since the new monetary policy framework was announced: Ultimately, maximum employment is about inflation, not a broad range of labor market indicators. That means that the maximum employment and price stability objectives are consistent and that the preconditions for exit are about realized and expected inflation, and only that.
When I saw the title of Brainard’s speech, “How Should We Think about Full Employment in the Federal Reserve’s Dual Mandate,” I was a bit disappointed that she did not use the term “maximum employment” rather than “full employment.” Are full employment and maximum employment synonyms? That’s a good place to start.