The Federal Reserve raised interest rates by another .75% last week, the latest in a series of rate hikes designed to tame inflation. The question looming over the economy now is whether the Fed has gone too far or not far enough. The answer depends on how much slack there is in the labor market. The Fed would like to see labor markets with enough slack that wage growth moderates to a level consistent with their 2% inflation target. But how do we assess the current degree of slack?
The U.S. Labor Market Is Less Tight Than It Appears
New research from economists at LinkedIn suggests that conventional metrics may be misleading.
November 07, 2022
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Summary.
The Federal Reserve is hiking interest rates to fight inflation, and looking at measures of the labor market to see how it’s doing. When the labor market has very little slack—when there aren’t many workers looking for jobs—inflation tends to rise. But conventional measures of labor market slack aren’t perfect, and a new measure from LinkedIn researchers paints a much different picture: it suggests the labor market is much looser, which means inflation might not be as high in the future as traditional metrics would indicate.