Sunday, 03 Nov 2024

Why the Fed wants a good inflation report â€" but not a good jobs report


Why the Fed wants a good inflation report â€
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When it comes to the job market, the Federal Reserve seems to want the latest data to bear bad news for the average American. But with inflation, the Fed is rooting for good news.

On the job market, indications like the latest jobs report - which showed that fewer Americans are getting hired - can be interpreted as bad news. It could mean that it will be harder for unemployed Americans to find work, or that layoffs could be ahead.

On inflation, good news for the average American is stable prices. So if economists' forecasts are correct - that the Consumer Price Index data due on Wednesday will show the annual inflation rate falling from 4% in May to 3.1% in June, according to Refinitiv - it will be welcome news to Americans and the Fed.

The Fed is legally bound by what is known as its dual mandate: to promote maximum employment and price stability. It's been successful in achieving historically low unemployment for almost two years. But that's not the case with inflation (aka price stability), which has been well above the Fed's 2% target for more than a year.

"Any news that inflation continues above that target rate or if the pace at which the rate of inflation is coming down is slowing is bad news for the Fed," said Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida.

Low rates of unemployment coupled with strong job growth can be counterproductive to the Fed's price stability goal, since it can lead to higher wages - which can then contribute to higher inflation, Snaith said.

Fed Chair Jerome Powell has repeatedly said that the number of job openings needs to better align with the number of people looking for work in order to get inflation under control. As of the latest Job Openings and Labor Turnover Survey, or JOLTS, there were 1.6 jobs available for every job seeker - or more than 3 million job openings than people searching for jobs.

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