“Today’s jobs report is almost too good to be true,” said Julia Pollak, chief economist at ZipRecruiter. “Like $20 bills on the sidewalk and free lunches, falling inflation paired with falling unemployment is the stuff of economics fiction.”
The past year’s consistently robust hiring gains have also defied the fastest increase in the Fed’s benchmark interest rate in four decades — an aggressive effort by the central bank to cool hiring, economic growth and the spiking prices that have bedeviled American households for nearly two years.
In economic models used by the Fed and most mainstream economists, a job market with strong hiring and a low unemployment rate typically fuels higher inflation. Under this scenario, companies feel compelled to keep boosting wages to attract and keep workers. They often then pass those higher labor costs on to their customers by raising prices. Their higher-paid workers also have more money to spend. Both trends can feed inflation pressures.
Those trends have raised questions about a core aspect of the Fed’s higher interest rate policy. Chair Jerome Powell has said that conquering inflation would require “some pain.” And the Fed’s policymakers have forecast that the unemployment rate would rise to 4.6% by the end of this year. In the past, an increase that much in the jobless rate has been associated with a recession.
“This does suggest that the traditional Fed models are not describing the current situation and that perhaps this time is actually different," Pollak said in an interview.
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