Federal Reserve officials are tasked with promoting “full employment,” and while it’s been hard to guess what that means as the economy recovers from the massive job cuts at the start of the pandemic, March hiring data seemed to inform policymakers. likely to reaffirm that the market is running hot.
Now central bankers are hoping that conditions will lead to a more sustainable balance.
The unemployment rate fell to 3.6 percent in March from 3.8 percent in February, data released Friday showed. Unemployment is fast approaching the 3.5 percent unemployment rate that prevailed before the pandemic.
At the same time, wages rose by a solid 5.6 percent last year. For context, wage growth fluctuated between 2 and 3 percent for much of the 2010s.
While the proportion of people working or looking for a job remains low compared to pre-pandemic levels and people are returning to the labor market every month, it is not clear when the supply of potential workers will return to previous levels . level. In the meantime, officials worry that the labor market is showing signs of an unsustainable heat, with labor shortages and rising wages that could push prices up while inflation is already high.
“Under many measures, the labor market is extremely tight, significantly tighter than the very strong labor market just before the pandemic,” said Jerome H. Powell, the Fed chairman, in a recent speech. Mr Powell previously called the current job market, in which there are 1.8 vacancies for every unemployed worker, tight to ‘an unhealthy level’.
The Fed has started raising interest rates and has indicated that it will increase them significantly this year. Making borrowing and spending more expensive can curb consumer and business demand, giving supply the opportunity to catch up and cooling the labor market. The goal is to temper the economy just enough to bring inflation under control and lay the foundation for sustainable growth.