Here's the crucial disagreement that's splitting the Federal Reserve


A free daily digest of the biggest news stories of the day - and the best features from our website
Thank you for signing up to TheWeek. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.
The minutes from the July meeting of the Federal Open Market Committee (FOMC) were released today. On the face of it, they don't tell us anything the Fed's press release that month didn't reveal: The FOMC feels the crucial trends — rates of job creation, the return of people to labor force, etc — are all improving at a modest-but-encouraging pace. They anticipate inflation will begin rising in the near future, and they'll begin slowly taking interest rates off the zero lower bound.
But one chunk of the minutes does get at a crucial disagreement amongst the FOMC members:
Most members saw room for some additional progress in reducing labor market slack, although several viewed current labor market conditions as at or very close to those consistent with maximum employment. Many members thought that labor market underutilization would be largely eliminated in the near term if economic activity evolved as they expected. However, several were concerned that labor market conditions consistent with maximum employment could take longer to achieve, noting, for example, the lack of convincing signs of accelerating wages. [Minutes of the Federal Open Market Committee July 28–29, 2015]
"Maximum employment" (or "full employment") is where jobs are so plentiful that employers can only gain new workers by outbidding other businesses with higher wage offers. If productivity throughout the economy increases at a slower pace than those bids, inflation will start rising. So the Fed hikes interest rates to keep inflation contained.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
The problem is, while the headline unemployment rate of 5.3 percent is close to what's generally viewed as maximum employment, the other signs aren’t there. Wage growth and the inflation rate are still flat, and the portion of the population that's employed is still below its pre-2008 peak.
In fact, that 2008 peak was below its previous peak before the 2001 recession. So there's an argument in some quarters that not only should the Fed wait for full employment, but it shouldn't raise interest rates even after full employment has been achieved — just let the economy run hot for a while to repair the previous damage.
At any rate, this disagreement — between people who think maximum employment is nigh upon us, and those who think it's still a ways off — is splitting the FOMC itself. It's probably the most important yet under appreciated debate currently going on in economic policy.
Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.
Sign up to our 10 Things You Need to Know Today newsletter
A free daily digest of the biggest news stories of the day - and the best features from our website
Jeff Spross was the economics and business correspondent at TheWeek.com. He was previously a reporter at ThinkProgress.
-
Ten Things You Need to Know Today: 1 October 2023
The Week’s daily digest of the news agenda, published at 8am
By The Week Staff Published
-
Crossword: October 1, 2023
The Week's daily crossword
By The Week Staff Published
-
Sudoku medium: October 1, 2023
The Week's daily medium sudoku puzzle
By The Week Staff Published
-
Elon Musk used Starlink, which saved Ukraine, to thwart a Ukrainian attack on Russia's Crimea fleet
Speed Read
By Peter Weber Published
-
Fitch downgrades US credit rating, citing 'repeated debt-limit political standoffs'
Speed Read
By Peter Weber Published
-
Bed Bath & Beyond relaunches online following bankruptcy
Speed Read
By Justin Klawans Published
-
San Francisco's iconic Anchor Brewing is closing after 127 years
Speed Read
By Peter Weber Published
-
Lawmakers say tax prep companies illegally shared taxpayer data with Meta and Google
Speed Read
By Theara Coleman Published
-
Microsoft wins FTC battle to acquire Activision Blizzard
Speed Read
By Theara Coleman Published
-
Tesla reports record quarter for sales
Speed Read
By Catherine Garcia Published
-
48 states sue telecom company over billions of robocalls
Speed Read
By Theara Coleman Published