Navigating Inflation: The FOMC’s Single Mandate

Key Takeaways

  • The current focus of the FOMC is on achieving the inflation mandate rather than the employment mandate.
  • The FOMC is more concerned about the risk of inflation than the state of the labor market.
  • Unemployment remains low and is not a major concern for the FOMC unless it rises substantially further.

The Federal Open Market Committee is always data-dependent. But the dependency is not always the same. There are times when inflation matters more than the labor market, and times when the situation is reversed. Every regime is unique. There is never a perfect corollary to a previous experience. This time is not different.

This time, it is a confidence game. One where the FOMC needs to be incrementally more confident about the trajectory of inflation. There is less—arguably, much less—focus on the state of the labor market. And that makes sense. The full employment mandate is not under the same pressure as the stable prices side. When confronted with a tilted risk outlook, the FOMC reacts to it. And, in the current monetary policy regime, ties it to data.

It is that data that matters. When the FOMC tells you what will cause it to move policy rates, it should not be ignored. It should be embraced. That makes the relevant question to every single data point, “Does this alter the FOMC’s inflation confidence?”

The short answer is, “Maybe?” The longer answer is, “Maybe.” It is all about confidence, and there is less confidence in achieving the inflation mandate than accomplishing the employment mandate.