BlackRock Investment Institute

Macro insights

What does full employment mean?

When will the Federal Reserve kick off its interest rate hikes? With its inflation objective met, it all depends on the labor market. The Fed’s goal is “broad and inclusive” full employment – but it hasn’t defined what that means.

All eyes on labor participation

Chart showing U.S. employment participation

Sources: BlackRock Investment Institute, U.S. Bureau of Labor Statistics, with data from Refinitiv Datastream, December 2021. Note: The labor force participation rate is the percentage of the working age population that is working or actively looking for work.

The unemployment rate is steadily falling back to its pre-Covid level of 3.5%, but the Fed will also be paying close attention to the labor participation rate (the share of the working-age population either with or actively looking for work). This fell sharply at the start of the pandemic – see the chart – as many people retired early or stopped looking for a job. This has helped lower the unemployment rate as those people are no longer counted. The labor participation rate is still well below pre-Covid levels, however, so the Fed may want to wait for a upward turn. It also may want to see less divergence in participation rates across ethic groups.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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