Markets will be waiting to pounce on the US Federal Reserve chair’s slightest nuance in her congressional testimony this week. Will the central bank lift rates in June or September? The key to her thinking lies in the US labour force participation rate. If it improves, the Fed can keep rates at zero without fear of wage inflation. If it stays put, Ms. Yellen may have to end the party far sooner.
Much has been made of the sharp fall in US unemployment in the past few months; it is now at just 5.7 per cent. But if the same number of Americans were active in the labour force today as at the start of the recession in 2007, the jobless rate would be almost 10 per cent. The labour force participation rate — the basis for calculating joblessness — has fallen to 62.8 per cent of adults today from a peak of 67.3 per in 2000.
What is often overlooked, however, is the starring role of the US criminal justice system.