Just days before an election that may decide the future growth path of the U.S. economy, the Labor Department’s JOLTS report shows Americans still fully employed. It seems companies aren’t yet ready to shrink their payrolls in the face of high inflation and soaring interest rates.
This is a volatile mix—high inflation plus interest rates, vs. plentiful jobs—that may stir Americans to elect a political party in the midterm that wants to cut taxes and many government programs during a war and economy already depressed in many red states, when it is government spending that is keeping America and most developed countries solvent after suffering through the worst pandemic in 100 years.
“The number of job openings increased to 10.7 million on the last business day of September, the U.S. Bureau of Labor Statistics reported today. The number of hires edged down to 6.1 million, while total separations decreased to 5.7 million. Within separations, quits (4.1 million) changed little and layoffs and discharges (1.3 million) edged down.”
The fact that job openings are still almost double the 6.1 million job hires will, alas, probably not deter our Fed from continuing to boost interest rates another 0.75 points tomorrow after conclusion of the FOMC meeting.
By doing so, the Fed will send the wrong message to many Americans, because the investments needed to win the war in Ukraine and cool global warming are far more important priorities than continuing to fight an inflation rate that is already trending downward.
For instance, the Fed’s preferred PCE inflation index has dropped nearly one percent to 6.2 percent in three months, the core rate down to 5.1 percent without food and energy, whereas the Euro Zone just reported the inflation rate in their 19 countries has risen to 10.7 percent.
The European Commission reported annual inflation rates of 11.6 percent in Germany with its terror of inflation that came from the 1920s, 16.8 percent in the Netherlands, and even higher inflation in the Baltic countries and Russia.
So why such a preoccupation with inflation when so much of it is due to outside circumstances the Fed cannot control? Are we still looking in the rear-view mirror of 1970s stagflation, while trying to solve everyone else’s problems?
Psychologists say that people tend to focus on what’s right in front of them—fixing the pain of inflation now, rather than the future benefit of reducing global warming, or even a Ukraine free of the Russian yoke.
It’s sad to see that party politics in the upcoming election has made such a painful choice possible, and that autocrats such as Vladimir Putin are well aware of. He has increased the pain level caused by the food and energy shortages to such a level with his war in the Ukraine that it may convince enough Americans to vote for a party that will opt to reduce support of this war and what it takes to reduce global warming.
So, I was wrong to say last week that draconian choices might be avoided. Plentiful jobs are a necessity to weather the upcoming storms. We may have to tolerate a moderately higher inflation rate in order to maintain near full employment until the storms have passed.
But how to convince voters to conquer their inflation fears for the better good in the upcoming midterm elections?
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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