What you're not hearing about the Fed's liftoff from zero policy rates

Markets have moved forward their expectations for Fed liftoff from the zero funds rate to September 2022. The FOMC has stated it won't happen until maximum employment is achieved. The unemployment rate is likely to be back to pre-pandemic levels as soon as April. But the labor force is likely to still have contracted by more than 3 million even at September. At the same time, unemployment rates remain worse versus pre-pandemic levels for blacks, Latinos and Asians compared to whites. The political climate, especially with Powell competing to be re-nominated, is focusing his competitors on minority employment, as well as climate change. Powell himself is the architect of defining maximum employment as an "inclusive" goal. The lesson from the prior expansion is that it takes a long time of running the economy hot before the least advantaged find employment, and that there is no inflation cost for doing so. With the Fed oriented this way, we think liftoff will happen later than markets expect.