A new report released by the San Francisco Fed shows that the degree of contradiction in the U.S. job market signals has reached an “unprecedented” level and that attention needs to be paid to those signals that show the job market is sluggish.
By examining 26 labor market indicators that typically move in tandem, the report finds that in the current economic recovery, these indicators send very different signals about the health of the job market. For example, the unemployment rate shows that the U.S. job market is recovering, yet both the job openings rate and the labor force participation rate suggest that job market weakness may be much more severe than thought.
Earlier, senior Fed official Bullard also said in an interview with the Financial Times that the data showed that while nonfarm payrolls were only 8 million below the pre-flu outbreak level, other indicators were far from normal, which is consistent with anecdotal evidence of labor shortages.
As a result, he suggested the Fed pay more attention to other indicators indicating a tight job market, particularly the unemployment to job openings ratio, which stood at 0.8 in February 2020, rose to 5 during the first U.S. epidemic lockdown, and fell back to 1.2 in March 2021. as seen, the labor market is in worse shape than some of the key data suggest.
In addition, employers are generally reporting hiring difficulties. According to Bullard.
“While some companies say they will continue to raise wages for their workers, many actually have to continue to close because of labor shortages.”
Under such pressure, nearly half of the U.S. states have opted out of additional weekly unemployment benefits to combat the worker shortage and stimulate hiring.
The Fed has previously said that the U.S. economy must make substantial progress on inflation and the labor market before it will begin to scale back its asset purchases. And Fed Vice Chairman Quarles noted last week that while the recent rise in the consumer price index suggests that the test on the inflation front has passed, the labor market is still falling short of expectations.
It should be noted that while official Bullard mentioned downside risks in the job market, he is one of many officials who support early discussions on QE tapering. Bullard believes that the discussion of QE tapering is based on the judgment of when the epidemic is sufficiently controlled, depending on the decision of the FOMC meeting in June.
While bearish on the economy, while asking for an early discussion of stimulus reduction, how does he explain it?
Bullard believes that the Fed has made a lot of progress on the employment target, but has not yet fully met the target, and it may be futile to wait for a full recovery in employment and labor force participation rate, he said.
“Even though the economy and GDP are growing by leaps and bounds, I’m still not sure that the employment situation will improve with it. But it might be better if we think the epidemic is over and start talking about changing monetary policy.”
He still does not expect to add as many as 1 million jobs per month for some time to come.
By contrast, Bullard’s view on inflation seems relatively moderate. He expects inflation to remain above the 2% target through 2022, but in his view this is fully consistent with the Fed’s goal of pushing prices higher when the economy rebounds.
He added that he was very pleased with the new policy framework introduced by the Fed last summer, which is highly tolerant of high inflation for a period of time in order to pursue full employment. He stated.
“The only way to truly achieve the 2% average inflation target is to compensate for the loss of low inflation over time with high inflation.”
Some economists, investors and many Republican lawmakers have criticized the Fed, saying it may be forced to dramatically adjust its course to prevent a 1970s-like inflationary spiral from emerging, to which Bullard pushed back strongly.
“I think it’s unlikely that we’ll see the kind of explosion in inflation that we saw in the 1970s and early 1980s. We’re in a completely different state now, and the monetary policy strategy we’re implementing is sound and sensible.”
When it comes to future rate hikes, Bullard said the Fed will be cautious and will only raise rates from ultra-low levels after the end of the asset purchase program, which is roughly the same as the “tactics” used after the financial crisis.