Beyond these traditional sources of policy uncertainty, the supply and demand dislocations unique to this cycle raise further complications through their effects on inflation and labor market dynamics. For example, so far, job openings have declined substantially without increasing unemployment—a highly welcome but historically unusual result that appears to reflect large excess demand for labor. In addition, there is evidence that inflation has become more responsive to labor market tightness than was the case in recent decades. These changing dynamics may or may not persist, and this uncertainty underscores the need for agile policymaking.
That is not what is happening. The FED is breaking an asset inflation spiral. Labor is not the problem. Labor is the solution. Meaning labor prices contribute to our growing economies of scale. Asset prices are forcing the inflation rate higher.
Which means the ALLEGED “job openings” were not real, just as in the early 2000s. Lots of CLAIMS about “available jobs” then, but those “fishing expeditions” by companies to see what they could find at rock-bottom prices. Those jobs never existed. Too old? OVER QUALIFIED.
What is the reverse of “slack”? When I was in b-school, “slack” was surplus time/resources in the system. Maybe the “JCs” were listing openings, based on traditional staffing levels. But, perhaps, over the last couple years, unable to staff to traditional levels, the “JCs” have discovered they can beat enough more work out of the people they have, that they don’t need to staff at traditional levels. so have reduced their staffing requirements and “job openings”.
A soy ink column a few days ago allowed for three possible scenarios, based on the fact that the Fed wants to change its mind and raise its target a little, but bankers and Fedsters are afraid doing so will damage their credibility going forward.
They admit to following the statement attributed to Keynes “when the facts change I change my mind.) Unlikely.
The Fed will adopt a policy of strategic hypocrisy, in which they keep saying 2%, but are willing to live with a modestly higher rate so long as the economy thrives, as it is doing today. I’m hopeful.
The Fed insists on hitting 2%, even if that means plunging the economy into a recession of unknown depth and duration. This would be a disaster.
I am hopeful that they choose Door #2, and in fact although Powell said “2%” again, I also note a lot of weasel-words in the statement. Specifically:
“Given how far we have come, at coming meetings we are in a position to proceed carefully,” as officials “decide whether to tighten further or, instead, to hold the policy rate constant and await further data,”
Housing is down. Rents are down. Retail companies, with a few exceptions, are warning that consumers are stressed. Credit card companies say delinquencies are up, and at record levels. Mortgage rates are the highest in 30 years. Gas prices are inching up. Student debt repayments start hitting pocketbooks in October.
How about option 2.5. They continue to press for lower inflation as long as they can but stop short of recession. Not two quarters of negative growth but how about 0 to 0.2% growth. Not recession but slow expansion.
I asked our kids who live in NYC what the rental housing market is like, they told me last week that it’s still pretty difficult to get an apartment in NYC and the prices are NOT coming down at all there.
That’s not the same as them saying they “want to increase unemployment”. This is saying that they have a job to do, and that doing that job may increase unemployment to an extent that is acceptable to them.
This is completely bizarre, since inflation has already come down from a high of 9.1% to around 3% (core) while there are more jobs and jobs-filled than ever before.
He sounds like he’s wedded to the philosophy that “only unemployment increases can bring down inflation”, in other words, he’s fighting the Volker war of 1980. To me it looks a lot Ike Team Transitory was mostly right, just not in the definition of “transitory”, which turns out not to be 6 months but more like 24.
Powell said that when inflation was 5%. When it is that high, I would agree with Powell. Now that it is around 3%, the situation has changed. Now Powell et al is focused on bringing inflation down from 3-3.5% to 2% - saving Americans just 1% on inflation. That is NOT worth increasing unemployment by 1% or more.
Ok, but they are watching the numbers closely and trying to adapt by those numbers. I think soft landing means exactly that. People say they are not likely to pull that off but we all wish them well and should appreciate the effort.