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The Fed has given up on it's short-lived attempt to make America's job market work for everyone

7 16 25

September's Federal Open Market Committee (FOMC) meeting made clear that the Federal Reserve has abandoned its short-lived effort to foster true maximum employment.

During the last expansion, the FOMC consistently believed labor markets were close to the point that any further improvement of the US labor market — signaled by a decline in unemployment — would spark high inflation. As a result, the Fed started to tighten monetary policy with its tapering of bond buying in 2013, and would eventually hike interest rates to over 2% despite the still-steadily declining unemployment not triggering an inflation surge.

By 2019, the FOMC realized that unemployment could keep falling without causing inflation to run out of control, so interest rates were cut as a precaution against a recession amidst a slowing global economy and a weak US housing market.

During that time, the central bank launched a comprehensive and public review of the framework it uses to decide when to adjust interest rates and support the economy, including a public listening tour around the country designed to engage communities that typically don't get a lot of attention from the FOMC.

In so many words, the Fed had stomached millions of unemployed people for years because they thought it was necessary to prevent wages from surging, thus driving up prices. But finally, after years of a labor market that employed ever more people despite the unemployment rate being below what the Fed assumed was the lowest level possible without triggering an inflation boom, the Fed finally admitted it needed to rethink how strong the job market could get.


© Business Insider

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