One of the dumbest parts about this moment in American capitalism is the way the Fed must inflict pain when things are, on the whole, pretty good. We the people can create the strongest job market in a generation and what do we get in return? Higher borrowing costs and a potential recession.
Here's the deal: The labor market is still very, very strong. And while that's great news for workers, it's bad news for the Fed.
Today, as the central bank gathered for the start of its two-day policy meeting, economists got yet another data surprise showing the labor market is just not letting up.
Economists had expected the number of job vacancies in the US to decrease in the closely watched September JOLTS report, given how aggressively the central bank is raising interest rates. Instead, the number of available jobs in the United States increased in September. Meaning workers remain in high demand.
(JOLTS, by the way, is the much cooler-sounding acronym we use for the rather dully named "Job Openings and Labor Turnover Survey.")
Key stats:
- There were 10.7 million open positions in September, up from 10.3 million in August.
- That's still much higher than the pre-Covid level of 7 million openings.
- There were roughly 1.9 open positions for every person looking for work in September — up from 1.7 in August.
- The "quit rate" held steady at 2.7%, or about 4.1 million voluntarily leaving their jobs — not a record, but still historically high.
- In summary: "If you were waiting for signs of labor inflation easing, you'll have to keep waiting," said Lightcast senior economist Ron Hetrick.
Why it matters: The mismatch in supply and demand for workers creates upward pressure on wages, and therefore inflation. People feel empowered to demand higher pay when they know managers are struggling to hire and retain staff. And higher pay = more spending money = more demand = higher prices.
To the Fed's credit, that wage price spiral is a real and scary risk that it desperately wants to avoid. That doesn't mean folks can't be angry about it. Democrats, especially, are sounding off, calling the Fed's plan "foolish" and warning that Powell is going to be responsible for millions of layoffs if he doesn't cool it with the rate hikes. The UN is also unhappy, saying the Fed's policies risk inflicting more damage globally than the financial crisis in 2008 and the Covid-19 shock in 2020.
To which the Fed is more or less saying, look, we hear you, but we don't have much choice here. Either we bring inflation down now and deal with "some pain" (read: layoffs, possible recession, wage depreciation), or bring inflation down later and deal with a lot of pain (all of the bad stuff, but worse).
BIG PICTURE
The economy has been super weird (to use a technical term) since the pandemic, and things just keep getting more and more wacky.
On one hand, the housing market is cooling and consumer spending — the biggest driver of US economic growth — is slowing. But the labor market has barely budged.
Americans can feel good because their job prospects are strong and their wages are rising. But inflation is mucking all that up. And while the Fed is trying its darndest to bring it down, it takes months for the impact of interest rates be felt.
Look ahead: The consensus right now is that the Fed will unleash yet another 0.75% rate hike Wednesday, and that it won't relent for quite a while longer.
But all eyes will be on the Silver Fox, Jay Powell, when he steps up to the lectern tomorrow. The 75 basis-point hike is pretty much guaranteed, but Wall Street (and journalists) will be parsing every syllable from the central bank chief's mouth for clues about how long the tightening policy will last.
(Free idea for a Fed press conference drinking game: Take a shot every time Jay says "mandate," or "price stability." Finish your drink if he dares say the words "pivot" or "transitory.")
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