Susan M. Collins. Photo courtesy of the Federal Reserve Bank of Boston.

With benchmark interest rates untouched in November at 5.4 percent – its highest level in 22 years – the head of the Federal Reserve Bank of Boston believes that the rising unemployment figures are not a defining statistic for “full employment”, citing its dual mandate to keep prices low while maintaining maximum employment.

“While there often is a tradeoff between inflation and employment in the short run, history has shown that price stability is essential for a well-functioning economy – it is an important precondition for maximum employment that is sustainable over time. So, both aspects of the dual mandate are interrelated and complementary,” Boston Fed President and CEO Susan Collins said in a speech on Friday.

Since March 2022, Fed officials have been trying to bring down inflation to its 2 percent target through a series of aggressive rate hikes. This year, it only raised rates once in May, but the possibility of further rate hikes still hangs, resulting in an uncertain business climate.

Prices and unemployment normally have an inverse relationship – when interest rates are raised, usually in an attempt to lower prices, the unemployment rate has historically up. Massachusetts lost 2,800 jobs in September, according to the latest labor data, and the unemployment rate during the month was at 2.6 percent which is unchanged from August and lower than the national unemployment rate of 3.8 percent.

“Full employment has often been defined by referencing an unemployment rate. But no one statistic can adequately characterize the labor market, since aggregate numbers do not show the wide range of experiences across people, sectors and places,” Collins said, according to a transcript of her remarks to an economic conference being held at the Boston Fed.

Rather than unemployment numbers, Collins said the Fed needs to focus on the labor force participation rate – the share of the working-age population that’s employed – as one of the considerations in monetary policy, as well as the challenges that prevent people from participating in the workforce such as issues in child care, housing, and infrastructure.

“If participation increases in a tight labor market, labor supply expands, and higher levels of economic activity may not generate additional price pressures requiring tighter monetary policy. And the higher levels of activity and participation can benefit those drawn into the labor market,” the Boston Fed president said.

She noted that the challenges to labor force participation are long-run and structural, but said that the Fed needs to know, understand, and factor such barriers to assess the productive capacity of the economy, and to see areas of opportunities for more people.