The jobs market is creating a challenge for the Fed. The Fed wants to bring inflation down, and though inflation no longer moving up, inflation isn’t declining sharply either.
Part of the problem, in the Fed’s view is wage inflation from a tight labor market. The Atlanta Fed currently estimates wage growth at around 6% year-over-year and the Fed believesThe Fed has signaled that they are getting close to peak interest rates, likely in early 2023. However, if the jobs market doesn’t soften, then the Fed may have trouble getting inflation back to its 2% goal and may keep rates at high levels.
A U.S. recession in 2023 is becoming the consensus view. However, the jobs market remains resilient. It would be surprising and unusual to have a recession without unemployment moving higher. A recession may very well still come in 2023, but the jobs market suggests it’s not imminent.
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