After reciting the current reasonably upbeat data on the labor market, Federal Reserve Chair Janet Yellen reminded her audience at the Fed’s annual retreat in Jackson, Wyo., that the labor market has yet to fully recover. She noted also that the quicker pace to reaching an unemployment rate of 6.5% or less does not mean that all is well and that the Fed will raise its policy rates now that that target has been reached.

Looking at the labor market in more detail, Yellen noted that the employment-to-population ratio has increased far less over recent years than indicated by the unemployment rate. Partly that’s due to retiring baby boomers. Of other contributing factors to the low ratio, Yellen said that flattening out of the labor force participation rate since last year could indicate that more people are rejoining the workforce as labor market conditions improve. Adding discouraged workers back into the economy contributes to added slack in the labor market.

Yellen also said that nearly 5% of the labor force is comprised of workers with part-time jobs who would prefer full-time employment, and this higher-than-normal level also contribute to an understatement of the slack in the labor market. The rate at which people with jobs quit those jobs voluntarily is also rising as the labor market improves.

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Referring to the Fed’s labor models Yellen said:

[T]he labor market has improved significantly over the past year, but [the Fed model] also suggests that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions.

The sluggish pace of wage increases may also point to weaker labor market conditions than the unemployment statistics indicate, but Yellen urges caution in drawing such a conclusion.

The big question, of course, is what all this means for Fed monetary policy. Yellen reiterated the FOMC’s latest statement that “it likely will be appropriate to maintain the current target range for the federal funds rate [0% to 0.25%] for a considerable time after our current asset purchase program ends …”

Other members of the FOMC don’t entirely share Yellen’s view. Kansas City Fed President Esther George said on Thursday that it is time for the central bank to think seriously about raising short-term interest rates off of their current near-zero percentage levels. St. Louis Fed President James Bullard echoed that sentiment Friday morning for Bloomberg News.

Federal Reserve Bank of San Francisco President John Williams told CNBC Thursday that he still expects the first central bank increase in short-term interest rates will come around a year down the road (summer 2015). Atlanta Fed President Dennis Lockhart sides with Williams and Yellen. Neither Lockhart nor Bullard is a voting member of the FOMC this year.

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