Job gains remain robust, wage growth is still going strong, and unemployment continues to hover near historic lows. That means the job market is still fueling demand in the economy, which the Fed has been trying to slow through rate hikes. And Fed officials have made it clear they think the central bank still has more work to do to bring down inflation, which is still running well above the 2% goal.
Labor costs are higher because of a persistent difficulty in hiring, weighing on labor-intensive service providers such as hospitals and restaurants, which has put upward pressure on consumer prices since businesses typically raise wages to address hiring challenges. Powell homed in on that dynamic in recent remarks, and research from top economists argues the Fed will have to slow the economy further to fully address the labor market’s stubborn impact on inflation.