Federal Reserve officials were concerned that the job market was unsustainably strong through 2022 and much of 2023. Employers raced to obtain a limited supply of labor, the logic went, leading to rapid wage gains that ultimately prompted those firms to raise prices to cover their labor costs.
But rather than view rapid job gains as an inflationary problem, the Fed has recently embraced them.
That's because strong hiring has come with a significant pickup in the labor supply. Immigration is much stronger than expected Thousands of men And Women It's especially tricky in the labor force, enabling companies to hire without too much competition for employees. Wage growth has been strong, but not gangbusters, and inflation has cooled across a range of purchases, including those in service categories that are typically sensitive to labor costs.
Data released on Friday showed that many of those trends persisted. Hiring was particularly strong in March, and wages rose at a solid clip, but continued to moderate somewhat on an annualized basis. Average hourly earnings rose 4.1 percent last month from a year earlier, up from 4.3 percent in February.
Overall labor force Participation Slightly higher, meaning most adults are working or looking for work, and Employment among Foreign-born workers continued to climb—immigrants likely accounted for some of the solid job growth.
The question now is how long policymakers will be willing to tolerate such strong hiring without worrying that consumer demand, economic growth and inflation will pick up again. The job gains seen in March were faster than most economists thought would be sustainable, even as the labor supply increased.
But in recent speeches, central bankers have mostly expressed comfort with an active labor market.
Federal Reserve Chairman Jerome H. said the job market was “strong but realigning.” Powell said Talk this week. He noted that surveys report that job vacancies are down and that employers are finding it easier to hire.
A balanced but strong job market is good news for the central bank. If businesses manage to hire workers, it means the economy can grow at a solid pace without overheating and creating inflation. That means the Fed can squeeze the economy a little bit with higher interest rates — something it does to bring inflation under control — without slamming on the brakes.
In fact, the recent dramatic improvement in the labor supply is a big reason the Fed is pulling a “soft landing,” which sets up the labor market without causing a slow and painful recession. Mr. Powell cited immigration as a big reason this week that the economy blew past forecasters' expectations for growth last year without generating inflation.
truly, The rise in prices has cooled It ended at 3.3 percent, up from 6.4 percent, even as consumer spending continued to beat forecasts.
“Our economy is short-term labor, and probably still is,” said Mr. Powell said, but immigration “illustrates what we've been asking ourselves, which is, 'How could the economy have grown more than 3 percent in one year? Did an outside economist predict a recession?'”
However, even accounting for faster immigration, the current pace of job growth remains strong, which may keep central bankers wary that the economy risks overheating if hiring continues at this pace.
As immigration adds to the labor supply, economists expect job growth to be strong without overheating the economy. A Brookings Institution analysis Recently Employers are estimated to be able to add 160,000 to 200,000 jobs per month this year without the risk of rising wages and inflation. Without all the immigration, it would have been 60,000 to 100,000.
Some central bank officials have already questioned whether the central bank should cut rates at a time when inflation is stubborn and the economy appears to be heating up again.
Central bank policymakers have been suggesting for months that they may soon cut borrowing costs, which are now set at around 5.3 percent. But with inflation reaching a sticking point after months of decline, investors are steadily scaling back expectations of when that might happen. Expect now First action only in June or July.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, suggested that if price hikes stuck even this week, it would make sense to leave interest rates at their current high levels for the rest of the year. Mr. Although Kashkari won't vote on policy in 2024, he has a seat around the debating table at tariff-setting meetings.
“If we continue to see inflation move sideways, it makes me question whether we should be doing those rate cuts,” Mr. Kashkari said. During an interview It notes that the economy has “a lot of momentum,” along with pensions and investments.
