"As [Fed Chair] Jerome Powell and his colleagues continue to judge the job market as hot, that stays on the side of the ledger compelling them to continue to raise interest rates," he said.
A hot jobs market means that demand for labor is high, which drives wages growth, which drives inflation, so the Fed’s going to keep raising interest rates until inflation cools down, and unfortunately that means possibly tanking a hot jobs market amid a possible recession1.
Instead of taking the W, the Fed’s going to make sure people don’t get too many jobs, because they might get uppity and keep demanding higher wages to keep up with inflation. Once again, the rich get richer while everyone else suffers!
“possible” because it’s rare to have strong and accelerating jobs growth despite two straight quarters of negative GDP growth.
One way to look at this is that GDP is lagging jobs growth due to inflation. In fact, nominal GDP growth (IE not inflation-adjusted) is actually accelerating (just like jobs are)! It’s just that when you adjust it for inflation, we look like we’re in a recession.
The downside risk is that we take this good news and ignore the risk of stagflation — which pairs the current situation of “inflation drowns out GDP into the negative” with high unemployment. Unemployment’s low now, but if the jobs market tanks, splat, we go straight into stagflation.
The upside is that maybe we pull out of the GDP dip if inflation gets under control. Out of all the recent, rapidly-rotating cast of drivers of inflation, wage growth dropped off the radar a long time ago (last year). Wages have in fact been lamented as lagging inflation! (That’s what the “Mean Translation” captured)
The point is, there isn’t as strong a case for keeping “high but not astronomical jobs numbers” on the hawk side of the ledger. If jobs are growing, nominal GDP is growing, and wages aren’t driving inflation, then that’s a reason to hope that with some more modest rate increases (but nothing insane like raising them to 8%, as some hawks want to), we can still manage just about the first-ever “soft landing” in the entire history of the economics profession.
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