[ad_1]
Federal Reserve officials spent much of 2022 and 2023 worrying that the labor market was too strong to be sustainable. Employers would race to snap up a limited number of workers, according to this logic, resulting in rapid wage gains that would eventually incentivize those companies to raise prices to cover labor costs.
But instead of viewing rapid job gains as a potential inflationary problem, the Fed has recently embraced them.
This is because strong hiring has come alongside a notable recovery in labor supply. The migration was much stronger than expected, and Millennium men And slim In particular, it flows into the workforce, enabling companies to hire without having to compete fiercely for employees. Wage growth was strong but not explosive, and inflation fell across a range of purchases, including those in service categories that are typically sensitive to labor costs.
Data released Friday showed that many of these trends remain. Hiring was very strong in March, wages rose solidly but continue to moderate somewhat year over year. Average hourly earnings rose 4.1 percent last month from a year earlier, down slightly from 4.3 percent in February.
Total workforce sharing It rose slightly, meaning a larger percentage of adults were working or looking for jobs Employment between Foreign-born workers continued to rise, suggesting that immigrants may have been responsible for some of the strong job increases.
The question now is how long policymakers will be willing to tolerate such strong hiring without worrying that it will send consumer demand, economic growth, and inflation soaring again. Job gains at the pace we saw in March are faster than most economists believe is sustainable, even when accounting for increased labor supply.
But in their recent speeches, central bankers have mostly indicated their comfort with an active labor market.
The labor market is “strong but in a state of rebalancing,” Federal Reserve Chairman Jerome Powell said at a news conference. Speech this week. He noted that job opportunities have declined and that employers report in surveys more ease in hiring.
A balanced and strong labor market is good news for the Fed. If companies can find workers to hire, it means the economy can grow at a strong pace without overheating and generating too much inflation. This means the Fed is able to squeeze the economy a bit through higher interest rates — which it does to control inflation — without hitting the brakes.
Indeed, the recent sudden jump in labor supply is a big reason why the central bank might implement a “soft landing,” where it gently lowers the labor market without causing a painful recession. Mr. Powell noted this week that immigration was a big reason the economy beat forecasters' expectations for growth last year without generating inflation.
In reality, Price increases cool From 6.4% at the beginning of the year to 3.3% at the end, even as consumer spending consistently exceeded expectations.
“Our economy was labor-short, and probably still is,” Powell said, but immigration “explains what we've been asking ourselves, which is: How can the economy grow more than 3 percent in a year where almost every country? Was the outside economist anticipating a recession?
However, the current pace of job growth is strong even when rapid migration is taken into account, which may keep Fed officials cautious that the economy is still at risk of overheating if hiring continues at this pace.
Economists believe that as immigration increases labor supply, job growth can remain strong without overheating the economy. Brookings Institution analysis newly It is estimated that employers could add between 160,000 and 200,000 jobs per month this year without much risk from higher wages and higher inflation. Without all this migration, their number would have reached between 60,000 and 100,000.
Some Fed officials have already questioned whether the central bank should cut interest rates at a time when inflation is proving stubborn and the economy looks like it may be recovering.
Fed policymakers have been suggesting for months that they may soon lower borrowing costs, which are now set to reach about 5.3%. But with inflation reaching a sticking point after months of slowdown, investors have been steadily lowering their expectations of when that might happen, and anticipating it will happen. Expect now The first step is in June or July only.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, even suggested this week that if rate increases stall, it might make sense to leave interest rates at the current high level all year. While Mr. Kashkari will not vote on policy in 2024, he does have a seat around the table at rate-setting meetings.
“If we continue to see inflation moving sideways, it will make me question whether we need to do these interest rate cuts at all,” Kashkari said. During the interview With pensions and investments, he noted that the economy has “great momentum.”
[ad_2]
Source