“Mission accomplished” in monetary policy is a moving target. The Fed’s mandate of maximum employment and price stability exists within a dynamic economic system with diverse economic players. While we shouldn’t expect policymakers to hit a bullseye, we should expect them to use the most accurate and efficient tools available.
In the case of maximum employment, the Fed aims to achieve the fullest level of employment without spiking inflation. The sweet spot for maximum employment falls between 4.1% and 4.7% unemployment rate. Some unemployment, such as frictional or transient cyclical unemployment, supports our economy by stabilizing wages and thus attenuating inflation, hence why an unemployment rate closer to 0 is never the goal.
July’s aggregate unemployment rate logged in at 3.5%, well below the recommended maximum employment range. This level of unemployment screams “too hot—take action.” And indeed, the Fed heard the call. Already this year they’ve set the fastest pace of interest rate hikes in four decades to cool off the economy. September’s Federal Open Market Rates meeting will continue the trend. However, the meaning of the call changes if we look at the disaggregated data.