In the final Federal Open Market Committee (FOMC) meeting of the year, the Fed did what everyone knew they would. They raised rates. They then proceeded with the usual Fedspeak dance regarding projections for the upcoming year including inflation and rate hikes. The labor market doesn’t normally garner as much attention; but Chair Powell made several statements worthy of consideration.
According to Powell, things couldn’t be better. In his own words:
I’ve made it clear that right now, the labor market’s very, very strong, near a 50-year low where you’re at or above maximum employment. In 50-year low in unemployment, vacancies are very high, wages, nominal wages are very high. So the labor market’s very, very strong.
It reads as a classic comedy of errors; the figurehead of the Politburo sitting comfortably atop his Ivory Tower, having not the slightest inkling nor care for the very thing he’s charged with. His conviction comes from the diligent work of handsomely paid statisticians, whose job is to assure him, and by extension the public, that everything is awesome.
When a reporter questioned unemployment projections, whether the Fed is: seeing signs that the labor market isn’t quite as strong as we think it is? Powell insisted:
No. It’s not about the strength of the labor market. The labor market is clearly very strong.
Despite strong assurance, something is not quite right about the labor market. Anecdotally, since the pandemic, it appears every retailer has HELP WANTED signs posted. For some strange reason, it seems, people just don’t want to work… of course, it could just be perception.
However, CBS News posed the question many were wondering:
Why have so many American men given up on work?
Citing stats of their own:
Roughly one in nine men ages 25 to 54, an individual’s prime working years, are out of the labor market today; that compared to one in 50 in the mid-1950s.
An Austrian would never profess to know what the ideal number of men in the workforce should be. But the precipitous decline in people’s desire to work is concerning. Stranger still, contrast Powell’s talk of a strong labor market with that of a labor shortage. If, for example, there were simply no job vacancies, perhaps it would make more sense.
But this is the opposite. We’re being told jobs are available, plentiful even; yet simultaneously, people just aren’t going to work.
Powell haphazardly calculates the labor shortage and explains:
So what I meant by that with structural labor shortage is, if you look at where we are now, as I mentioned there, if you just look at demand for labor, you can look at vacancies plus people who are actually working. And then you can take supply of labor by are you in the labor market? Are you looking for a job or have a job? And you’re 4, more than 4 million people short.
It’s easy to criticize the Fed for not understanding inflation, interest rates, or the boom-bust cycle they cause. But we must also remember that they have little to no understanding of employment. He literally tells us the market is “very strong” and that we’re “at or above maximum employment.” Meanwhile, the country needs 4 million people to fill labor shortages. As for the continual disappearance of working age men, what are they doing? Where they have gone is anyone’s guess.
In the midst of this, nowhere did the market distortion of $5 trillion in Fed balance sheet expansion come into the discussion. But since 2020, it never has; don’t expect that it ever will.
