Brainard Reiterates FOMC's Holistic Take On Labor Market Slack

Gov Brainard largely repeated much of the Fed leadership's recent thinking about QE, inflation and the labor market in a speech at Harvard today.

• Brainard repeated language on "substantial further progress" before tapering asset purchases and noted it would be "some time" before that progress is made.
• The speech focused on a variety of metrics well beyond the traditional unemployment rate which could provide an indication of labor market slack. Reiterating what Chair Powell noted in his Congressional testimony yesterday, that the employment-to-population ratio was key to determining "full employment".
• Brainard and Powell (among other Fed officials) are emphasizing that even though the headline unemployment rate may drop rapidly over the coming years, this would not warrant Fed tightening if it were merely reflective of weaker labor force participation.
• Likewise, the traditional Phillips Curve relationship is broken (Brainard: "changes in economic relationships over the past decade have led trend inflation to run persistently somewhat below target and inflation to be relatively insensitive to resource utilization").
• In sum, Brainard is affirming that the Fed will take an increasingly holistic assessment of labor market slack in deciding when to tighten, meaning that the bar to tighten policy is arguably higher than it has been in previous cycles.