The Fed Can't Fix COVID Lockdowns

The Full Employment and Balanced Growth Act of 1978 gave the Fed a "dual mandate" – to promote maximum sustainable employment and stable prices. Over the years, the meaning of these two mandates has changed.

Initially, in 1978, it was to get the economy to 3% unemployment and 3% inflation, or less. Since then, the unemployment rate has never been as low as 3%. So, this morphed into a target of "full" employment – an economy where everyone who wants a job has a job. Because inflation remained below 3% for a long time, the Fed has reduced its target for inflation to 2%.

In recent years, under the leadership of Janet Yellen and Jerome Powell, the targets for employment have been the locus of change.

During the recovery from the 2008-09 Financial Panic, former Fed Chairwoman Janet Yellen shifted focus from the simple unemployment rate to targets that included broader measures of unemployment such as discouraged workers and part-timers, the rate of job openings, the share of workers quitting their jobs, labor force participation, and earnings growth.

Fed Chair Jerome Powell, under political pressure, believes equality (or "equity") should also be a policy priority. As a result, the Fed is focusing more on the health of the labor market for those who fall behind when the labor market lags but benefit the most from a tight labor market. As a result, he is focused on the black unemployment rate, wage growth for low-wage workers, and labor force participation among those without a college degree.