At the heart of the Federal Reserve’s 18-month fight to lower inflation has been a presumed trade-off between stable prices and a weakening labor market. Mainstream economic thinking and decades of economic history both suggest that to wrestle price growth back to target, the central bank will have to slow the economy enough to drive up the unemployment rate, thereby putting millions of Americans out of work. Otherwise, the theory goes, inflation persists, along with the hardships it causes.
If it isn’t, as now seems possible, the central bank might finally achieve the elusive soft landing about which Fed officials—and so many others—have dreamed. The job market was growing at “breakneck speed” in the past two years, says Nick Bunker, research director at Indeed Hiring Lab, part of the job-search site Indeed. “So, a reduction in hiring intentions, or hiring itself, hasn’t led to a big spike in unemployment.”
Generous fiscal stimulus doled out to counter the economic impact of the Covid pandemic had been particularly helpful for low- and medium-income Americans, enabling them to pay down debts, improve their credit scores, and lock in low interest rates on fixed-rate mortgages and loans. Those workers also saw some of the largest real wage gains among all workers, the Atlanta Fed’s wage tracker shows. As a result, wealth among the bottom half of U.S.
Residential construction has also boomed after years of depressed building activity following the 2007-08 housing crisis left the country with a lack of supply of single-family homes. That dearth coincided with a spike in demand as millennials reached peak homebuying years and remote-work policies allowed for migration out of urban centers.
But the slowdown never materialized. Monthly business applications hit record highs when the economy reopened in 2020, and the trend has remained strong. After leveling off in 2022, new-business applications are up again since the start of this year, and are 55% above February 2020 levels, census data show.
Newsletter Sign-up Crucially, participation could be poised to keep rising. Department of Labor data show that the share of people moving into employment after being disconnected from the labor force—meaning they found a job without spending time searching for work—is at elevated levels, notes Elise Gould, a senior economist with the Economic Policy Institute. That, she says, means “the reserve of workers is much larger than the unemployment level would suggest.