One big question: When will jobs come back?

One big question: When will jobs come back?
Written by admin
One big question: When will jobs come back?

One big question: When will jobs come back?

The Federal Reserve is debating when and how to slow its massive bond purchases, the first step in moving away from its emergency stance as the economy rebounds from the pandemic. As it does, the hole the coronavirus has dug in the job market is looming.

The reasons for withdrawing support soon are obvious. Growth is strong, supported by large government spending. Inflation has accelerated and, while this is probably only a temporary situation, the price increase is surprisingly strong.

But the employment situation is another story. About 6.8 million jobs are missing from employers’ payrolls compared to February 2020.

The central bank has every reason to expect the economy to continue to recover once it slows down (or even stops) buying bonds. Asset prices could drop a bit and long-term interest rates could rise slightly, but the Fed’s key rate is still at its lowest, which should keep borrowing costs relatively low. Public spending continues to influence the economy. Many consumers are bursting with savings and spending them eagerly.

The key for Jerome H. Powell, the chairman of the Fed, and his colleagues is to avoid slumping the economy by surprising investors and causing market rotation, credit crunch and growth decline. brutal than expected.

The state of the labor market is a particularly good reason to proceed with caution. If the Fed accidentally sends too aggressive a signal to the markets, making financial conditions too tight while millions of people still need new positions, it could be a long way back to full employment.

READ Also  Standard professional indemnity policy for insurance intermediaries soon; IRDAI committee recommends details

The risk is especially great because a variant of the coronavirus is causing an increase in cases in many countries, including the United States. While it’s not yet clear to what extent the Delta variant is a hindrance to growth, she stressed that the pandemic is a persistent threat.

For now, the Fed is making sure to broadcast each additional step as it debates when and how to start moving away from its political support, something it only wants to do after the economy will have made further “substantial” progress. The idea is that a constant drip of communication will prevent any surprises that shake up the market.

And the central bank has set itself an even more ambitious and more patient interest rate target. Barring a big surprise in which financial risks or inflation boil dangerously, officials want the labor market to return to peak employment before lifting borrowing costs.

“They would like to wait,” said Kathy Bostjancic, chief US financial economist at Oxford Economics. She explained that officials weighed the need to keep long-term inflation a secret against the many jobs still missing – and hoped the price pressures would be short-lived.

“They are betting on the T word,” said Bostjancic. “Transient.”

Yet when this goal of “full employment” is achieved is a major unknown. Many workers have retired since the start of the pandemic, and it is unclear whether they will return to work even though the opportunities are plentiful.

But the participation rate of prime-age workers – the share of people aged 25 to 54 who are either working or actively looking for a job – has fallen sharply since last year, and Fed officials hope to see this figure recover. Persistent childcare issues and pandemic nervousness may prevent potential workers from staying at home.

READ Also  Budget 2021 Expectation: Tax relaxations, incentives to enhance insurance penetration

The Fed is trying to wait and see what the job market can do.

“It would be a mistake to act prematurely,” Powell recently told lawmakers. “At some point the risks may shift, but at the moment the risks to me are clear. “

#big #question #jobs

About the author