Fed’s fight against inflation could cost 1.2 million US jobs

CNN business

In an effort to bring down historic inflation and cool the economy, the Federal Reserve has identified the potential impact on American employment, from economic “pain” to “unfortunate costs” to a “softening labor market.” I have used multiple euphemisms to express my influence.

However, data is not chopping words.

The Fed’s latest economic forecast, released Wednesday along with its third consecutive large rate hike of 75 basis points, shows the central bank expects the country’s unemployment rate to rise to 4.4% next year. . Up from 3.7% in August and could go up to 5%. Assuming no change in the workforce, about 1.2 million people will be out of work. At the top end of the Fed’s range of 5%, he would have 2.2 million more unemployed.

EY-Parthenon chief economist Gregory Dako said: “We are slowly realizing that the rose-tinted view that simply reducing job openings can alleviate a tight labor market is gone.” “We now tacitly recognize that in order to cool the labor market, unemployment will need to rise significantly, and employment growth will need to slow with potential job losses. I have.”

In the first eight months of 2022, the United States added an average of 438,000 net jobs per month, according to Bureau of Labor Statistics data. In August, 315,000 jobs were added. Before the pandemic hit, the average number of monthly jobs in the US was less than her 200,000.

Those numbers could drop relatively quickly, Dako said.

“In an environment where businesses are more cautious and applying more discretion to hiring decisions, it is not surprising that we could see potential net job losses by the end of the year,” he said. .

Job seekers visit our booth during the spring job fair at the Las Vegas Convention Center.

Labor market strength is expected to continue to moderate in the coming months, Ataman Ozyildirim, senior director of economics at The Conference Board, said Wednesday in the release of the think tank’s latest leading economic index. . According to The Conference Board, the August 2022 index will see him fall for a sixth straight month, which could indicate an impending recession.

“Average hours worked per week in manufacturing have shrunk in four of the last six months, a notable sign as companies have cut hours before cutting their workforce.” said Ozyildirim in a statement. “Economic activity is likely to continue to slow and contract more broadly across the U.S. economy. That’s it.”

Still, this is neither a typical high inflation nor a typical job market, said Robert Frick, a corporate economist at the Navy Federal Credit Union.

The pandemic has upended labor markets, disrupted supply chains, and more than two years later many of these challenges are still present, with food and New challenges have been added, such as skyrocketing energy prices. War and extreme weather in Ukraine.

The Federal Reserve can’t just “hit its heels three times to raise interest rates and lower inflation,” Frick said.

“There are a myriad of factors going on right now, and it would be a mistake to think that the Fed controls more than a handful of them,” he said.

However, the Fed may affect demand. Rising interest rates make it harder to buy a home, harder to buy a car or finance a business, and much higher credit card balances.

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The labor market remains an outlier while parts of the economy’s demand side show a slowdown in response to the Federal Reserve’s move. The unemployment rate is near historically low levels, the number of job openings is twice as many as those looking for work, and the labor force participation rate is below pre-pandemic levels.

“If you think the Federal Reserve will shrink the labor market even if you raise it above 4%, then I think you are wrong because we see the pre-pandemic trend as still 4 million. “Because it’s more than people down and employers are still working. Money, and employers still have to hire people,” Flick said. “In fact, at this point, it’s kind of like telling the tide not to come, hoping that the labor market will soften.”

Fed Chairman Jerome Powell’s main reason for wanting the labor market to ease is concern that tight employment conditions will continue to push up wages and inflation may continue to rise. As unemployment rises, workers lose bargaining power for wage increases and households cut back on spending.

“Powell has said we haven’t seen inflationary wage increases yet, but I see them coming in the future,” Frick said. “At the moment, this is all very theoretical. I think it’s a matter of resolution.”

To do so, American workers may have to bear the brunt of the pain of problems they are not the cause of.

Powell and the Fed have won many critics on this front, notably Democratic Senator Elizabeth Warren of Massachusetts, who tweeted on wednesday She said, “Chairman Powell’s Fed has warned that it will put millions of Americans out of work – and I fear he is already on the road to doing so.

“It’s not fair,” said Flick. “But no one said economics wasn’t cruel at times.”

Powell says a prolonged and entrenched high inflation is worse than a moderate rise in unemployment. The Federal Reserve’s latest economic forecasts see GDP growth slowing from 1.7% to 0.2% by the end of the year.

“This is a very slow growth rate and it could cause unemployment to rise, but I think it is necessary,” Powell said. I don’t mean to say there are too many people working, but the real point is this: Inflation, what we hear from people when we meet them is that they really suffer from inflation. is.

“If we want to be ready and light the way for another period of a very strong labor market, we need to slow inflation. rice field.

The next batch of key employment data, including job openings, layoffs and monthly job growth, will be released the first week of October when the Bureau of Labor Statistics releases its September job openings and turnover survey and monthly employment report. will be

The number of first-time applications for unemployment benefits stood at 213,000 in the week ending Sept. 17, according to unemployment claims data released Thursday, according to the Labor Department. 5,000 down from last week’s total of 213,000. Weekly billings remained close to their lowest levels in months, highlighting that employers are holding onto workers well as the labor market is still brimming with opportunities for job seekers. increase.

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