new york
CNN
—
The US economy has been remarkably resilient, defying a year of calls for recession. From the laboratory market to consumer spending to inflationkey readings on the economy have been glossed over.
Incredibly, despite a war in Ukraine, a labor shortage in the United States, inflation biting consumers, an impending debt ceiling comparison and an aggressive eight increases in interest rates in one year, America’s economic engine is humming. While this may be good news for Main Street, it is a problem for the Federal Reserve.
“The latest economic data came in stronger than expected suggesting that the ultimate level of interest rates is likely to be higher than previously anticipated,” Federal Reserve Chairman Jerome Powell told lawmakers. Tuesday. “If the totality of the data indicates that faster tightening is warranted, we will be prepared to increase the pace of rate increases.”
Translation: The Fed needs it continue to raise interest rates to cool the economy. Although it could help tame inflation, hiking rates even more aggressively could slow the economy so much that people lose their jobs, the housing market slows and mortgage rates rise for millions of Americans .
After a bunch of stronger than expected economic data, buckle up for an intense few weeks of Fed guessing, especially around the tight labor market. Despite the headlines of layoffs in technology and finance, the labor market has so far been impervious 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 strong labor market means workers are enjoying the best wage growth in years. but that wage growth fuels inflation.
“There’s no question that it’s unequivocally good to see people with jobs and income,” ADP Chief Economist Nela Richardson told me on CNN’s Early Start. “What is bad is that it comes at the cost of inflation.”
That’s one of the reasons the Fed is penciling in a higher unemployment rate in the quarters ahead, drawing the ire of progressives like Senator Elizabeth Warren who accuses the Fed of trying to weaken the labor market by achieve its inflation targets. According to the Fed’s own estimate, higher rates could lead to unemployment in the middle of 4%, meaning 2 million more people without work.
It led to a head exchanges at the Senate Banking Committee hearing this week.
“If you could speak directly to the 2 million workers who have decent jobs today, who do you think will be laid off next year – what would you say to them?” Warren asked Powell.
“I will explain to them that inflation is very high.” Powell responded. “And it hurts the workers of this country a lot. All of them, not just 2 million of them. But they all suffer from high inflation. And we are taking the only measures we have to lower inflation.”
Essentially, the Fed thinks that the needs of the many (keeping inflation in check 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 on 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, the next Friday’s consumer sentiment and next Tuesday’s existing home sales will give the Fed plenty to think about before its March 22 decision. .