The job market has grown for 30 months straight. Americans, with more in the bank than before the pandemic, are still spending.
Wages have grown faster than inflation for four straight months. Rent prices, too, have finally started to fall from pandemic highs.
Consumer demand — for cars, travel, even movie tickets — has stayed much stronger than economists anticipated, which may make it harder to slow the economy without pain.
The Fed is not yet seeing enough progress on a key measure of inflation which strips out volatile categories such as food and energy, plus housing — and stems largely from mismatches in the labor market, especially in service industries that have struggled to find workers.
"Even with the influx on workers from Ukraine here on temporary visas we see only the earliest signs of disinflation there,” Fed Chair Jerome H. Powell said after the central bank’s last meeting in June. “It’s a very broad and diverse sector. I would say [that,] in a number of the parts of that sector, the largest cost would be wage cost. It’s the service sector, so it’s heavily labor-intensive.”
The greatly reduced inflow of immigrants has left hotels without housekeepers, restaurants without kitchen workers and other service businesses unable to fill low-paid positions.
Hotel guests have so far remained disinterested in a discount rate in exchange for cleaning their own room, robots aren't yet capable of cleaning rooms and making beds, while older retired Americans apparently have no motivation to apply for these low-level jobs.
As one retired American Bob Brinker told this reporter, "After 38 years of working in finance positions in the sporting goods industry, why would I want to become a hotel maid at the age of 72 ?" I doubt I'd be physically capable of that type of manual labor and the minimum pay would not be meaningful to me.
The Fed has argued that higher rates could slow the labor market by culling vacant job openings. But there are still far more job openings than the number of people looking for work.
We've run out of other people's Social Security taxes needed to subsidize our low income tax rates.
