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By the same token, they don’t want to cause undue necessary pain in terms of the overall economy.”Īnd at this point, inflation is inflicting plenty of pain of its own, Ricchiuto added. “They need to ease up the labor market to take some of the pressures off. “ are in a difficult balancing act,” he said. The best-case scenario for the Fed would be a situation where people coming into the labor market have a harder time finding work versus mass layoffs occurring, he said. “Now a lot of people at the Fed are hoping, and so far the data is working in their favor, that job openings come down and the number of people employed doesn’t really come down.” Typically, inflation doesn’t come down without some level of higher unemployment, said Steven Ricchiuto, US chief economist for Mizuho Securities USA.

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“It’s ironic, it feels a little odd to say that - but that’s the reality when the economy is at full employment or even beyond full employment.”Ī slew of employment reports are set for release this week and should provide some sense as to how these trajectories are trending. “For the Fed, the outlook is better if we saw job growth slowing,” Zandi said. That would mean employment growth would have to stall out from a massive 528,000 jobs added in July to essentially below 100,000 per month, he said. “We need the slowdown in job growth and job creation pretty quickly to take the steam out of wage growth and quell inflationary pressure,” Zandi said. The tight labor market conditions have resulted in higher wages as employers compete for talent (although those gains haven’t kept pace with inflation).

The unemployment rate remains near a record low, job openings are near record highs, and monthly job gains continue to be robust. However, the current US labor market has been anything but typical. If the Fed continues to try to get inflation all the way back down to 2%, RSM said the costs would be “much higher,” causing the loss of up to 5.3 million jobs and lifting the unemployment rate to 6.7%.įor context, prior to the Great Recession, the unemployment rate was already at around 5% - then shot to 10% as economic conditions worsened. However, “while a soft landing would be an optimal outcome, resetting the inflation target from the flexible target of 2% it announced two years ago would hurt the Fed’s credibility,” they noted. “That is about as close as one may get to what can charitably be called a soft landing,” RSM economists Joe Brusuelas and Tuan Nguyen wrote in the report. That would translate to the unemployment rate rising from today’s 3.5% to 4.6%. So if the United States suffers a typical recession, where joblessness hovers at around 6%, that would amount to about 5 million jobs, he said.Įven if the Fed were to revise its inflation target from 2% to 3%, it would still need to slow the economy to the point where roughly 1.7 million jobs are lost, according to an analysis from RSM released Monday.

Elizabeth Warren of Massachusetts criticized the Fed’s plan during an interview with CNN’s Dana Bash this weekend, saying: “What calls ‘some pain,’ means putting people out of work, shutting down small businesses because the cost of money goes up, because the interest rates go up.”Īssuming there’s no change in the labor force participation rate, every 1 percentage point increase in the unemployment rate translates to a loss of around 1.6 million jobs, said Mark Zandi, chief economist at Moody’s Analytics. Warren slams Jerome Powell over interest rate comments: 'I'm very worried that the Fed is going to tip this economy into recession'ĭemocratic Sen.