Federal Reserve Chairman Jerome Powell has said that curbing inflation will have to be painful. However, there is now a growing possibility that this will not happen.
The current unemployment rate is 3.7%, about the same level as it was in March 2022, when the interest rate hike began. Meanwhile, the pace of slowing inflation has taken policymakers by surprise, just as it did when it was accelerating, leaving it just one percentage point away from the 2% target.
US Unemployment Rate Has Defied Forecasts for an Increase
Fed officials boosted their projections in 2022 before reducing them in 2023
Source: US Bureau of Labor Statistics, Federal Reserve Board of Governors
If these trends continue, there is little doubt that there will be debate among central bankers about the important lessons learned from the experience of the coronavirus pandemic.
Julia Coronado, founder and president of MacroPolicy Perspectives, said: “We need to develop a framework so that central banks don’t rely on unreasonably simplistic macro models that lead them to conclude that the trade-offs are painful or even more painful.” It’s really important to expand.”
The U.S. Federal Reserve releases its forecasts for the unemployment rate, inflation rate, and interest rates every quarter. In September, the government lowered its median unemployment rate forecast for the end of 2024 from 4.5% to 4.1%.
If the latest forecasts released on the 13th result in a similar unemployment rate, or if next year’s inflation forecasts are revised downward, policymakers will continue to warn, as they have previously warned. This seems to indicate that there is a growing view that most of the pain can be avoided.
WATCH: US underlying inflation picked up in November. Bloomberg Television guests weigh in on the data and its implications for Federal Reserve policy.
Source: Bloomberg
change in tone
Federal Reserve staff economists have followed a similar trajectory. In March, he predicted the economy would enter a recession, but in July he withdrew his prediction. By September, it was determined that the unemployment rate would remain “roughly flat” for several years.ProceedingsI found out from
This change in tone comes as inflation has sharply moderated since the beginning of this year. Economists inside and outside the Federal Reserve believe that the slowdown in inflation is largely due to improvements in the economy’s supply side.
On the other hand, regarding the labor market, many people point out that the re-influx of immigrants into the United States has made it easier for companies to secure human resources. Other disruptions caused by the coronavirus pandemic have largely resolved, supporting the labor force participation rate and contributing to curbing upward pressure on wages.
Inflation Has Moderated Without Rising Unemployment
Surprise development raises questions about standard models
Source: US Bureau of Labor Statistics, US Bureau of Economic Analysis
Skanda Amarnath, executive director of Employ America, a think tank that aims to achieve full employment, said, “In an economy with high turnover and a seller’s market, there will likely be a one-time burden on recruitment costs and This may have temporarily pushed up wages.” “As a result, wage growth has gone up and down, even though the unemployment rate has remained roughly the same.”
Chairman Powell continues to suggest that further improvement in inflation may require further downward pressure on the “demand side” of the economy. If this actually happens, there is a risk that more jobs will be lost than currently anticipated.
However, the message has softened compared to last year, when the Speaker first began warning of “pain”.
Chairman Powell said at a press conference after the Federal Open Market Committee (FOMC) meeting on Nov. I think everyone is very happy with what we’ve accomplished.”
new data
Since then, there has been continued good news on inflation and the labor market.
The US personal consumption expenditure (PCE) core price index, which the US financial authorities focus on as an inflation indicator, showed slow growth in October, rising 3.5% compared to the same month last year. If things continue as they are, they are expected to be lower than the 2023 forecast made by financial authorities in September. Data released on the 12th also showed that the underlying inflation rate fell below 3% on a six-month annualized basis for the first time since 2021.
Meanwhile, the November employment statistics released on December 8 showed that the unemployment rate declined while the number of employees showed strong growth.
“Economists who have been saying we need very high unemployment to get this done are now having to admit they were wrong,” Treasury Secretary Janet Yellen said last week. “It doesn’t seem like we need an increase in the unemployment rate at all,” he said.
Not everyone is confident that the job market will remain strong until the end of the slowdown in inflation. For example, Bloomberg Economics (BE) analyzes that there is a high possibility that an economic recession is already underway due to the monetary tightening that has been implemented to date.
BE’s chief U.S. economist, Anna Wong, said after the release of November’s jobs report that “job creation has been limited to sectors less susceptible to recession, and the underlying pace of potential job growth has actually slowed. is quite weak.” “There is no solid evidence in this data to overturn our recession expectations, and the Fed is likely to start cutting interest rates in March 2024,” she said.
Original title:Fed Enters Last Leg of Inflation Fight Without ‘Pain’ It Feared(excerpt)
2023-12-12 19:39:00
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