Bloomberg has several articles today where prominent economists respond to today’s strong jobs report. Here is the president of the Chicago Fed Austin Goolsbee:
Federal Reserve Bank of Chicago President Austan Goolsbee praised the strong September jobs report but cautioned against putting too much stock in the one-month data, adding that there were risks that inflation could undercut the central bank’s 2% target.
“This jobs number today, and the overall report, is a very good report,” Goolsbee said Friday in an interview with Bloomberg Television’s Michael McKee.
And here it is Larry Summers:
Former Treasury Secretary Larry Summers said the Federal Reserve’s decision to cut interest rates last month was a mistake after new data showed US job growth last month exceeded all estimates.
“With the benefit of hindsight, the 50-point cut in September was a mistake, albeit a counterproductive one,” Summers, a paid contributor to Bloomberg TV, said in a post on X.
Nonfarm payrolls rose 254,000 in September, the most in six months. The unemployment rate fell to 4.1% and hourly earnings rose 4% from a year ago, according to figures from the Bureau of Labor Statistics released Friday.
I go with the genre. While it is true that inflation may gradually reduce the 2% target, that may be due (if at all) to an existing shock. The Fed should focus on rising inflation, and all the evidence I see points to strong growth in NGDP and real wages. It is not true that “every report, is a very good report.” Twelve-month earnings growth rose to 4%, a record high. We need more monetary controls to get inflation up to 2%.
I think Summers is right that a smaller reduction would have been better, and that the error was not true. If the Fed makes a serious mistake (and it’s very close to that conclusion), it will likely be due to overly conservative guidance rather than setting the fed funds rate target 0.25% too low in one meeting. For now, I’m willing to give them the benefit of the doubt, as most of the market-oriented forward indicators look very positive. It is clear, however, that the mild panic about the labor market that occurred a few months ago was premature. We were teetering on the brink of recession.
In my view, Fed hawks and Fed doves are making the same mistake, responding equally to deliver shocks depending on whether the results support their policy or not. Doves therefore tend to underestimate inflation driven by a reduction in aggregate supply, while ignoring the importance of inflation driven by an increase in aggregate supply. The Hawks made the opposite mistake. Recently, the supply situation has been quite positive, leading to a headline inflation rate that is below the inflation rate (and also lower than predicted from NGDP growth, or nominal wage growth.) That won’t last long.
The only “standard inflation targeting” mechanism that works in the long run is stable NGDP growth, around 4%. We’re not there yet, but the Fed has made a lot of progress since the highest inflation in 2022.
Source link