By Wong Kon How
Why “Good is bad for economy”? Why is lower unemployment bad for today’s market?
Low unemployment rates and wage growth may appear to be good for an economy that’s close to recession, but has actually proven bad for markets. Inflation rates are shifting to a new area of concern: Unemployment.
Good is bad for the economy
Inflation and unemployment have an opposite relationship — higher wages and lower unemployment data mean higher inflation as companies pass on higher costs by raising the price of goods. Investors worry that a strong jobs report could fuel Fed officials to accelerate their rate increase campaign.
Bad could be worse
At the same time, if jobs fall too quickly and with slow growth, the economy could plunge into a deep recession.
The best case scenario
Investors are hoping for a Goldilocks situation where unemployment falls just enough to convince the Fed that its rate hikes have cooled the labor market enough to end hikes but not enough to cripple the economy. That’s a very narrow path to land on.
What Jerome Powell is saying?
Fed Chair Jerome Powell did not mince words last week when he said that the strong job market is exceedingly responsible for inflation and will have to weaken before rate hikes end. “There’s an imbalance in the labor market between supply and demand,” he said, adding that it will take a “substantial period” to fix that imbalance.
“Without price stability, the economy doesn’t work for anyone,” Powell said Wednesday.
That path to the Fed’s 2% inflation target is through the jobs market. “There will be some softening in labor market conditions,” Powell said. “And I wish there were a completely painless way to restore price stability. There isn’t. And this is the best we can do.”
I have included the links from the source, enjoy the read:
I have included the links from the source, enjoy the read: