The labor market remains very strong. This is good news for workers, but bad news for the Fed.
A mismatch between supply and demand for workers puts upward pressure on wages and thus inflation. People feel empowered to demand higher compensation when they know managers are struggling to recruit and retain staff. And higher wages = more spending = more demand = higher prices.
To the Fed’s credit, this wage price hike is a real and scary risk that the Fed desperately wants to avoid. That doesn’t mean people shouldn’t get mad about it. Democrats are especially vocal. Calling the Fed’s plan ‘ridiculous’ And he warns that if Fed Chair Powell doesn’t cool off by raising rates, he will be responsible for cutting millions of jobs. The United Nations is also unhappy, saying the Fed’s policies risk doing more damage globally than the 2008 financial crisis or the 2020 Covid-19 shock.
The Fed more or less says: Either lower inflation now to deal with “some pain” (job cuts, possible recession, falling wages) or lower inflation later to deal with a lot of pain (all bad things, even worse).
