Fed Risks Repeating Past Mistakes in Calling Full Employment

The Federal Reserve has had a lot of trouble over the years deciding how hot to let the job market run before raising interest rates. In the late 1960s it waited too long, and the result was a wage-price spiral that helped send inflation into double digits during the 1970s. In the mid-2010s it was too quick off the mark, temporarily stifling economic growth and delaying a full-fledged recovery of the labor market until the end of the decade.

Fed Chairman Jerome Powell and his colleagues may soon have to make a call on whether the rebound from the pandemic has brought us to maximum employment. Their task is made more difficult by the mixed signals emanating from the job market, which has 10.4 million unfilled openings but 5 million fewer people on payrolls than before the pandemic.