Apr 3, 2023

Fighting inflation, or workers?

For the Fed, “balance” in the labor market means maintaining the imbalance of power:

Jerome Powell, the chairman of the Fed, has made one thing crystal clear: He is not going to let up on his war on inflation. American workers are the inevitable casualty.

“Demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time,” Mr. Powell said in a speech late last year. For that reason, the Fed wants to see “the restoration of balance between supply and demand in the labor market” before it stops fighting inflation. In layman’s terms, that means a restoration of the power imbalance in favor of employers over their workers.

On March 7, Mr. Powell sounded a similar note, declaring that in order to get inflation down to where he thinks it should be, “there will very likely be some softening in labor market conditions.” There’s nothing soft about what he means: less demand for American employees, which leads to fewer raises and more people out of work.

Read more here. Meanwhile, in Europe it is dawning on the central bankers that something else is going on: see here.