Sarah Hunter on full employment, inflation, and policy challenges
Sarah Hunter, a BIS official, delivered a speech defining full employment and examining its complex relationship with inflation. Her remarks, published on February 25, 2026, highlighted the policy implications of this intertwined dynamic.
The evolving concept of full employment
Sarah Hunter's speech delves into the multifaceted nature of full employment, moving beyond a singular unemployment rate.
She emphasizes that a comprehensive understanding requires considering various labor market indicators, including labor force participation rates, underemployment, and the prevalence of part-time work for economic reasons.
Hunter highlights how demographic shifts, technological advancements, and global supply chain reconfigurations have altered the structural characteristics of labor markets, making the traditional NAIRU (Non-Accelerating Inflation Rate of Unemployment) concept more fluid.
This evolving landscape presents significant challenges for policymakers attempting to gauge the true slack in the economy and its potential inflationary implications.
The speech underscores that a robust assessment of full employment is crucial for effective monetary policy calibration.
Inflationary pressures from a tight labor market
Hunter explores the intricate connections between a tight labor market and inflationary pressures, particularly in the context of wage-price dynamics.
She discusses how sustained periods of low unemployment can lead to increased bargaining power for workers, translating into higher wage demands.
If these wage increases outpace productivity growth, firms may pass on elevated labor costs to consumers through higher prices, potentially triggering a wage-price spiral.
The speech examines recent evidence of labor market tightness across advanced economies and its contribution to persistent inflation.
Hunter stresses the delicate balance central banks must strike between fostering maximum sustainable employment and maintaining price stability.
Beyond simple unemployment rates
This speech offers a timely and essential re-evaluation of full employment, urging policymakers to adopt a broader, more nuanced perspective than simple unemployment figures.
Such an approach is critical for central banks to navigate today's complex economic environment and avoid misinterpreting labor market signals.
However, the practical implementation of these insights remains challenging due to data limitations and the inherent uncertainties in measuring real-time labor market slack.