July 27, 2022 19:09 GMT
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- Q: When does the FOMC expect to see a meaningful slowdown in the labor market, and how much weakness before rate pause / cuts?
- A: You've seen a decline from very high levels of job creation last year and earlier this year to modestly slower job creation. Still quite robust. You're seeing some increase in initial claims for insurance, although that may have to do with seasonal adjustments. We're not sure that's actually real. There's some evidence that wages, average hourly earnings, they appear to be moderating. Not so yet from the other wage measures. We'll be getting the employment compensation index measurement on Friday. That's an important one, it adjusts for composition.
- You anecdotally hear the level of concern on the part of businesses that they simply can't find workers. It's probably down a little bit from what it was, for example, late in the latter parts of last year.
- There's a feeling that the labor market is moving back into balance. If you look at job openings or quits, you see them moving sideways or perhaps a little bit down. It's only the beginning of an adjustment.
- If you look at the household survey, you see much lower job creation and the survey can be quite volatile; no jobs created in the last three months. That might be a signal that job creation is slower than we're seeing in the establishment survey. Executive summary, I'd say, there's some evidence that labor demand may be slowing a bit.
- Labor supply, not so much. We have been disappointed that labor force participation really hasn't moved up since January. That may be related to another, big wave of COVID and there's evidence that's the case. We're not seeing much in the way of labor supply. Nonetheless, there' has been some progress on demand and supply getting back in alignment.
- We need to see inflation coming down. We need to be confident that inflation is going to get back down to mandate consistent levels. That's not something we can avoid doing.
- We think that the labor market can adjust because of the huge overhang of job openings of excess demand.