Let’s begin with April’s employment numbers and then later bring up why, we believe, the Fed wrongly uses this data to carry out its current monetary policy.
On the whole, the establishment survey shows labor market conditions continuing to improve, with manufacturing employment adding 55,000, and leisure and hospitality posting another 78,000 to payrolls last month. First, there appears to be a tendency by the Fed to pick and choose data points that essentially highlight the strength of the labor market to justify ramping up the pace of monetary tightening. Whether that is a valid criticism or not is arguable. But as an economist, I must say it always sounds bizarre to hear Fed chair Powell — or any government official — claim the job market is too strong. Or as Powell put it, the current labor market is “too hot,” even “unsustainably hot.
But the villain here is not the strength in U.S. hiring. If anything, we view the robust growth in jobs as a way to help increase the output of goods and services — and thus cool inflation pressures. The real villain is that we do not have adequate policies in place to increase the supply of qualified workers.
Frankly, the percentage growth in real personal consumption expenditures in the first quarter was really no different than what it was in the years prior to the pandemic!
We need a post 21st century outlook on the economy
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