By Ann Saphir
(Reuters) – With the Federal Reserve expected to adopt an inflation-fighting stance soon, it may appear at first glance that the US central bank will have to scrap its broad and inclusive target of full employment just one year after implementing -there.
The reality, however, is more subtle than the simple choice between controlling uncomfortably high inflation through an increase in the Fed’s overnight benchmark or promoting a return to full employment by keeping rates close to zero.
“Coming to a reliable estimate of full employment is much more feasible than is generally thought…we’re almost there,” said Skanda Amarnath, executive director of Employ America, a left-wing group that spent much of the Covid-19 pandemic putting pressure on the Fed heating up the economy.
Amid rising inflation, some argue that the Fed needs to quickly take its foot off the gas and start slamming on the brakes to slow economic activity and job growth before runaway price increases end both.
In doing so, the Fed is in danger of backing down on a September 2020 pledge to leave the Fed Funds rate at near zero until the job market fully recovers, while giving up job gains to rein in inflation. is, in this view, a trade-off that Fed Chair Jerome Powell simply has to make.
“Inflation is like a tax… very high inflation can also impact the progress of the labor market,” said Nela Richardson, chief economist at ADP.
(By Ann Saphir)
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