By Howard Schneider

WASHINGTON (Reuters) – The U.S. economy’s gain of 850,000 jobs in June was another solid step towards the Federal Reserve’s milestone for changing monetary policy, but other data from the employment report on Friday may complicate the central bank’s debate over what to do next and when.

Businesses have added about 3.3 million jobs since the Fed announced in December that it would not reduce its support for the economy until there had been “substantial further progress” in getting the job market back to its pre-pandemic health.

That’s about a third of the 10 million jobs that were still missing as of December, with the U.S. economy now about 6.7 million shy of its February 2020 jobs level. Momentum in the form of strong economic growth and a record number of job openings suggests more to come in the months ahead.

Graphic: The jobs hole facing Biden and the Fed – https://graphics.reuters.com/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png

The jobs gain last month “keeps them on track to meeting the criteria over the next few months,” with a possible policy shift announced as early as September, said Karim Basta, chief economist at III Capital Management.

Beyond the headline number, however, the Labor Department’s monthly employment report may intensify debate at the central bank over where the recovery stands.

In laying out its response to the recession triggered by the coronavirus, the Fed has pledged that along with the overall number of jobs and the unemployment rate, it wants to see the recovery reach women, minority communities, and others hit hardest by the pandemic.

Officials are also paying close attention to the overall share of the population that is working, known as the employment-to-population ratio.

Many of those supplementary measures have stalled.

Graphic: “Substantial further progress” for the Fed? – https://graphics.reuters.com/USA-ECONOMY/FEDPROGRESS/yzdvxmmmdpx/chart.png

NOT ‘ENTIRELY CONVINCED’

The number of women working fell about 130,000 from May to June, to around 71.4 million, and the share of adult women either working or looking for work, known as the labor force participation rate, was unchanged at 56.2%.

Women’s labor force participation is still down notably from 57.8% at the start of the pandemic. That has been a particular concern of policymakers trying to determine if women have been permanently sidelined from work by rising family obligations during the crisis, or only temporarily displaced until schools and other services reopen.

The employment-to-population ratio was unchanged at 58% in June, leaving it more than 3 percentage points below where it was before the pandemic.

The slow progress on those and other metrics has already divided the Fed between officials who feel the economy just needs more time for families to get back to normal and return to work, and others who feel the pandemic may have led some people to retire or otherwise leave the job market for good.

Determining which is true, in turn, determines how close the Fed is to its goal of “maximum employment,” and the timing of an upcoming policy change.

“With the labor force rising by just 151,000 and still more than 3 million below its pre-pandemic peak, we aren’t entirely convinced that this is the start of a much stronger trend,” wrote Andrew Hunter, senior U.S. economist with Capital Economics.

The Fed has begun talks about how fast and when to reduce its support for the economy as the pandemic eases, and each major data point from now through the fall could help clarify how quickly the difficulties of reopening the economy are getting resolved – or not.

Progress has been steady but uneven, with the economy both beset by rising prices as families spent money hoarded during a quarantine year and suppliers struggled to keep up, and, until recently, a sometimes stodgy return of jobs.

The Fed’s most immediate decision, of when to start reducing the $120 billion in monthly government bond purchases it began making 16 months ago, is expected before the end of the year.

(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)

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