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The Initial Response to the Inflation Shock of 2021
During a presentation for the CFA Society St. Louis, St. Louis Fed President Jim Bullard said that U.S. inflation has surprised substantially to the upside in an environment where measures of real economic activity and labor market performance are expected to remain robust. “There has been an initial U.S. monetary policy response to the inflation shock, and this response is already reflected in financial market pricing,” he said.The Federal Open Market Committee “is in good position to take additional steps as necessary to control inflation, including allowing passive balance sheet ...
Searching for Maximum Employment
How well the economy is progressing toward the Federal Reserve’s goal of maximum employment is reflected in a range of indicators that evolve over time. Beyond the unemployment rate, two key metrics of labor market health are the labor force participation rate and the employment-to-population ratio. The aging of the population is reducing the levels of both measures, implying that they are unlikely to return to pre-pandemic highs. However, these two indicators remain well below their demographic trends, and analysis suggests that they will not recover to trend until 2024.
The Effects of Unemployment Benefits on Unemployment and Labor Force Participation: Evidence from 35 Years of Benefits Extensions
This paper presents estimates of the effect of emergency and extended unemployment benefits (EEB) on the unemployment rate and the labor force participation rate using a data set containing information on individuals likely eligible and ineligible for EEB back to the late 1970s. To identify these estimates, we examine how exit rates from unemployment change across different points of the distribution of unemployment duration when EEB is and is not available, controlling for changes in labor demand and demographic characteristics. We find that EEB increased the unemployment rate by about ...
Declining Labor Force Attachment and Downward Trends in Unemployment and Participation
The U.S. labor market witnessed two apparently unrelated secular movements in the last 30 years: a decline in unemployment between the early 1980s and the early 2000s, and a decline in participation since the early 2000s. Using CPS micro data and a stock-flow accounting framework, we show that a substantial, and hitherto unnoticed, factor behind both trends is a decline in the share of nonparticipants who are at the margin of participation. A lower share of marginal nonparticipants implies a lower unemployment rate, because marginal nonparticipants enter the labor force mostly through ...
Labor Force Exits Are Complicating Unemployment Rate Forecasts
What will the unemployment rate be in 2013? Even if you were certain how much the U.S. economy (gross domestic product, or GDP) would grow over the next year or two, it would still be difficult to forecast the unemployment rate over that period. The link between GDP growth and unemployment is complex in part because it depends on how many people decide to work or look for work?that is, the labor force participation rate. In this post, we discuss the recent steep decline in the labor force participation rate and explain how uncertainty regarding the future path of that variable contributes to ...