Sarah Hunter: Defining full employment and its intertwined relationship with inflation
Remarks by Ms Sarah Hunter, Assistant Governor (Economic) of the Reserve Bank of Australia, at Committee for Economic Development of Australia "CEDA: in conversation series", Perth, 12 February 2026.
The views expressed in this speech are those of the speaker and not the view of the BIS.
We meet today on the lands of the Whadjuk peoples of the Noongar nation, who are the traditional owners and custodians of the land on which we are gathered. We are very lucky in Australia to have First Nations people who take care of our land, country and culture, and pass this on to future generations. I pay my respects to Elders past and present and extend that respect to any First Nations people here today.
Today I want to talk about the labour market – a market that almost all Australians will have firsthand experience in during their lives. I dare say all of us are in this room today because we are on the supply side of this market, and most of you as business professionals also have substantial experience on the demand side too. For macroeconomists like me, understanding the labour market is particularly important as it sits at the heart of the economy; given that every good and service we consume requires some human input to produce it, conditions in the labour market are closely linked to conditions across the whole economy.
Indeed, the labour market is so important it forms part of the RBA's monetary policy objectives. Under the Statement on the Conduct of Monetary Policy, the RBA's Monetary Policy Board sets policy to over time achieve sustainable full employment, which is defined as the maximum level of employment that is consistent with low and stable inflation.
This means that our full employment objective is closely linked with our inflation objective; while deviations can occur in the short run, over time if the labour market is in balance (i.e. achieving full employment), then inflation will be at our mandated target (i.e. low and stable). A bit like a double helix – the twisted ladder shape that encodes our DNA – full employment and price stability are separate, yet entwined. Given this relationship, understanding current and future conditions in the labour market and how they are reflected in underlying inflationary pressures defines the core of the Monetary Policy Board's policy decisions.