new York
CNN
—
The US economy has been remarkably resilient, defying a year of recession calls. From the labor market to consumer spending to inflation, key readings on the economy are bullish.
Incredibly, despite a war in Ukraine, labor shortages in the United States, biting consumer inflation, a looming debt ceiling showdown, and eight aggressive interest rate hikes in one year, the American economic engine is running. While this may sound like good news for Main Street, it’s a problem for the Federal Reserve.
“The latest economic data is stronger than expected, suggesting that the ultimate level of interest rates is likely to be higher than expected,” Federal Reserve Chairman Jerome Powell told lawmakers on Tuesday. “If all the data were to indicate that faster tightening is warranted, we would be prepared to accelerate the pace of rate hikes.”
Translation: The Fed needs to keep raising interest rates to cool the economy. While that could help keep inflation in check, an even more aggressive rate hike could slow the economy so much that people would lose their jobs, the housing market would slow, and loan rates would rise for millions of Americans.
After a string of stronger than expected economic data, buckle up for an intense few weeks of Fed guesswork, especially when it comes to the tight labor market. Despite headlines of layoffs in tech and finance, the labor market has so far been unresponsive to Fed tightening. There are almost two job openings for every job seeker and the unemployment rate at 3.4% is the lowest in 54 years. The strength of the labor market means that workers are enjoying the best wage growth in years. but wage growth fuels inflation.
“Let’s not question that it’s unequivocally good to see people with jobs and incomes,” ADP chief economist Nela Richardson told me on CNN’s Early Start. “What’s bad is that it comes at the cost of inflation.”
It’s one of the reasons the Fed is forecasting higher unemployment in coming quarters, angering progressives like Senator Elizabeth Warren who accuses the Fed of trying to weaken the labor market to achieve its inflation targets. By the Fed’s own estimate, higher rates could lead to around 4% unemployment, which would mean 2 million more people out of work.
That led to a testy exchange at the Senate Banking Committee hearing this week.
“If you could speak directly to the 2 million hard-working people with decent jobs today who you plan to fire in the next year, what would you say to them?” Warren asked Powell.
“I would explain to them that inflation is very high.” Powell replied, “And it seriously harms the workers of this country. All of them, not just 2 million of them. But all suffer from high inflation. And we are taking the only measures we have to bring inflation down.
Essentially, the Fed believes that the needs of the many (to get inflation under control for hundreds of millions of workers) outweigh the needs of the relatively few (the single-digit millions who could lose their jobs as the central bank deliberately slows down the economy. )
The next two weeks will serve as a crucial test of how much more medicine the economy needs. Friday’s jobs report, Tuesday’s CPI inflation report, Wednesday’s PPI inflation and retail sales reports, Thursday’s housing report, next Friday and the following Tuesday’s existing home sales will give the Fed plenty to think about ahead of its March 22 rate decision. .
If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – at itipspedia@gmail.com The content will be deleted within 24 hours.
