Thursday, September 21, 2023

The strong US labor market is at the mercy of the Fed

The labor market in the United States has withstood attacks from the Federal Reserve, which has raised its interest rates to curb inflation without really hurting employment, an unusual situation that could worsen if it new monetary policy adjustments occur.

“My concern is that if the Fed takes further action and we go into a mild recession, the impact will be more severe for some groups and could be damaging,” summarizes Elise Gould of the Economic Policy Institute, a progressive think tank.

The Fed’s Monetary Policy Committee (FOMC) will meet on Tuesday and Wednesday where market expectations suggest it could keep its benchmark interest rates stable.

The Fed has two missions: fighting inflation and promoting full employment. In normal times, fighting inflation by raising interest rates leads to an increase in unemployment. Consumption and investment are falling and the economy is cooling down.

The central bank’s challenge is to contain price increases without harming the labor market.

But after the pandemic, the labor market in the United States is breaking records: the unemployment rate is well below 4%, the lowest level in more than 35 years.

The number of jobs created is high and labor shortages have been the norm in the last months and years after the pandemic.

This means that the employment rate for 25 to 54 year olds is close to its record level, emphasizes Gould.

These are “higher values ​​than before the pandemic,” emphasizes the specialist, underlining the solidity of the labor market, which had an unemployment rate at historic lows before the Corona crisis.

“Traditional models were not designed for a period like this, with the causes of inflation that we saw and the shocks that the economy and society experienced,” reflects Aaron Sojourner, senior researcher at the Upjohn Institute for Employment Research, who focuses on the Research into inflation has specialized in the labor market.

“After a long period of low interest rates” to stimulate the economy during the pandemic, “it is normal that the impact” of the monetary policy adjustment “takes time to be felt, as both companies and households are in good financial position.” says Madhavi Bokil, Vice President of Investments at Moody’s.

For Treasury Secretary Janet Yellen, according to CNBC, there are “no signs that the economy could change course.”

“It’s the best of all worlds: a strong economy, a strong job market and falling inflation,” said Joe Biden’s Commerce Secretary.

The Fed will release its interest rate decision on Wednesday.

Nation World News Desk
Nation World News Desk
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