The U.S. job market is very strong, with Friday’s report revealing the lowest unemployment rate in half a century, wages rising rapidly and businesses hiring at a breakneck pace.
But good news today could become a problem for President Biden later.
Biden and his aides point to mass hiring as evidence that the U.S. is not in recession, with U.S. employers adding 528,000 jobs in July and salaries rising 5.2% year-on-year. I praised the report that showed that…just a moment ago. But the still-furious pace of job and wage growth means the Federal Reserve needs to take more decisive action to keep the economy in check as it works to curb inflation.
The Federal Reserve has been waiting for signs that the economy, especially the job market, is slowing. They want a balance between employers’ voracious needs for workers and the supply of available applicants. This will remove pressure on wages and pave the way for businesses such as restaurants, hotels and retailers to curb price increases.
Easing remains elusive, and central banks may continue to sharply raise interest rates to cool the economy and contain the fastest inflation in 40 years. A gradual slowdown could increase the risk of a recession rather than the so-called soft landing that central banks have sought to engineer.
“We are very unlikely to see a recession in the short term,” said Michael Gappen, head of U.S. economic research at Bank of America. “However, we would also say that numbers like this increase the risk of a more abrupt landing if we go further.”
Interest rates are dull tools, and historically, major Fed adjustments often triggered recessions. Stocks fell after Friday’s announcement, suggesting investors worry the new numbers have increased the likelihood of poor economic outcomes in the future.
Even as investors focused on the risks, the White House hailed the jobs report as good news and, while GDP growth has slowed this year, as a clear sign the economy is not in recession. welcomed.
“From a president’s perspective, a strong jobs report is always welcome,” Jared Bernstein, a member of the White House Council of Economic Advisors, said in an interview. ”
Still, the report appeared to undermine the administration’s view of where the economy is heading.Biden and White House officials have been arguing for months that job growth will soon slow. rice field. They said the slowdown was a welcome sign of the economy moving towards more sustainable growth with lower inflation.
The absence of such a slowdown could be a sign of more stubborn inflation than government economists had hoped.
“I think that’s good news for the American people,” White House Press Secretary Carine Jean-Pierre said at a news conference.
The state of jobs in the United States
Much better-than-expected job growth in July suggests the labor market is not slowing down despite the Federal Reserve’s efforts to cool the economy.
The Fed also expected a cooldown. Prior to the July jobs report, many other data points suggested the job market was slowing. Although the number of job openings is still rising, it has been on a downward trend.When unemployment insurance The filing is low, but it’s getting higher little by little.
The Fed welcomed the development, but the new numbers cast doubt on its easing. Average hourly wages have risen steadily on a monthly basis since April, with Friday’s report capping a string of jobs that meant the job market had returned to pre-pandemic levels.
“Reports like this underscore that the Fed needs to do more to keep inflation down,” said Brelina Urchi, U.S. economist at T. Rowe Price. ‘The labor market is still very hot’
Central banks have raised borrowing costs by three-quarters of a percentage point each in the last two meetings, at an unusually fast pace. Officials had hinted at a September meeting that they could raise interest rates by half a percentage point, but that projection depended in part on their expectations that the economy would cool significantly.
Instead, Omaia Sharif, founder of research firm Inflation Insights, said, “I think the report makes the three-quarters point the baseline scenario.” “The labor market is still booming, not the kind of slowdown the Fed is trying to ease price pressures,” he said.
Federal Reserve policymakers typically welcome strong employment and robust wage growth, but recent wage gains have been so high that inflation may be harder to contain. I have. As employers pay more, they must charge more to customers, boost productivity, or hit profits. Raising prices is usually the easiest and most practical method.
What’s more, inflation has soared that even robust wage growth has not kept up for most. Wages have risen 5.2% for him over the past year, 2% to 3% profit Normal before the pandemic, consumer prices jumped 9.1% in the year to June.
US Federal Reserve (Fed) officials are slowing the economy down in the hope that workers will be able to live better lives in a sustainable way if prices start to slowly rise again. We’re trying to get back to where both wage growth and inflation are slowing.
Fed Chairman Jerome H. Powell said at a press conference in July that “in the medium to long term, price stability ultimately drives the economy as a whole,” explaining why.
Some prominent Democrats question whether the US needs to rely too heavily on Federal Reserve policies (which work by hurting the labor market) to cool inflation.senator Elizabeth Warren Massachusetts and sherrod brown Both Democrats in Ohio argue that there must be a better way.
But most of the changes Congress and the White House can make to curb inflation will take time to implement. Economists estimate that the Biden administration’s climate and tax bill, the Inflation Reduction Act, will have a modest impact on inflation in the short term, but could help more over time.
The White House has avoided saying what the Fed should do, but Bernstein of the Economic Advisory Board said Friday’s report said more could be done for the Fed to raise rates without harming workers. He suggested that it can provide a cushion for
“This labor market strength is more than just a buffer for working families,” he said. “It also gives the Fed room to do what it needs to do while trying to maintain a strong labor market.”
Still, central banks could find themselves in an uncomfortable situation in the coming months.
An inflation report, due out Wednesday, is expected to show consumer price gains eased in July as gas prices fell. But fuel prices remain volatile and other signs that inflation remains out of control may persist. Rents are rising rapidly, making many services more expensive.
In addition, the continued overheating of the labor market may reinforce the view that the working environment is not cooling down quickly enough. This could lead the Fed to keep economic activity in check even if overall inflation shows signs of early, perhaps temporary, recession.
“Inflation will slow down in the coming months,” Sharif said. “Even if overall inflation calms down, the active part of the equilibrium is not working well at the moment,” he said.
Isabella Simonetti contributed to the report.
