New York CNN
The Federal Reserve wants the latest job data to be bad for Americans. The Fed, however, wants to hear good things about inflation.
The latest jobs report, which revealed that fewer Americans were hired, can be interpreted negatively on the job market. This could indicate that unemployed Americans will have a harder time finding work or that layoffs are imminent.
Stable prices are good news for Americans. If the economists' predictions are accurate, the Consumer Price Index data that is due on Wednesday should show an annual inflation rate dropping from 4% to 3.1% according to Refinitiv. This will be good news for Americans and the Fed.
The Fed's mandate
The Fed's dual mandate is a legal obligation. It requires it to achieve maximum employment while maintaining price stability. The Fed has been able to achieve historically low unemployment rates for almost two full years. The Fed has not been able to achieve price stability (inflation) which is well above its 2% target.
Sean Snaith is the director of the Institute for Economic Forecasting, University of Central Florida. He said that any news that the inflation rate is above the target rate, or that the rate of decline is slowing, is bad news for Fed.
Snaith stated that low unemployment rates coupled with high job growth could be counterproductive to the Fed’s goal of price stability, as it can lead higher wages, which in turn can contribute to higher inflation.
Jerome Powell, Fed chair, has said repeatedly that in order to control inflation the number and type of jobs available must better match the number of people seeking work. According to the latest JOLTS (Job Openings and Labour Turnover Survey), there are 1.6 job openings for every person looking for work. That's more than 3,000,000 job openings.
Kermit Schoenholtz is a former Citigroup chief economist and professor emeritus at New York University.
He told CNN that a'sustainable job market' where it is easier to predict the future would be better for job seekers. He said that the job market post-pandemic was not sustainable.
Investors have good news
Investors are looking for signs that Federal Reserve will either stop raising interest rates or, better yet, lower them.
The Fed has not yet let up on the brakes, despite the fact that inflation is nearly twice the Fed's target of 2%. The Fed is not only poised to raise rates again at its meeting this month, it has also signaled more rate increases could follow.
The Fed's increased interest rates increase the costs of doing business, especially for businesses that rely on external funding. This is because the interest rates on loans rise along with the Fed's benchmark rate.
Since last March, the Fed has increased interest rates by a cumulative five percentage points. This helped to fuel massive layoffs across industries such as tech, real-estate and media who struggled with rising financing costs. Many publicly traded companies' stocks in interest-rate-sensitive industries took a hit as a result, though some have started to recover this year.
Investors remain optimistic despite Powell's repeated statements that a rate reduction is not going to occur this year. This would lower the cost of borrowing. It may just be wishful thinking.
What the Fed needs to know to cut
When the economy is about to enter or has entered a recession, the Fed will lower interest rates. It hopes that consumers and businesses will spend more to avoid further layoffs or economic distress.
If the Fed cuts interest rates during a good economy, this could lead to inflation. This is because it gives businesses and consumers a greater reason to spend money.
Recent economic data show that the number of job openings is decreasing and fewer people get hired. The unemployment rate is still near its historical low. In the meantime, GDP grew unexpectedly at a rate of 2% annually in the first quarter.
The outlook is still a bit murky, even though the Fed will need to see signs of a slowing economy before it can begin to think about cutting rates.