Fed’s Kugler: US job growth remains stable

Investing.com -- Fed Governor Adriana D. Kugler addressed the Conference on Monetary Policy Transmission and the Labor Market at Banco de Portugal, Lisbon, discussing the rebalancing of labor markets worldwide. She highlighted the role of labor markets in achieving the Federal Open Market Committee’s (FOMC) dual mandate of maximum employment and stable prices.

In the United States, labor supply and demand have recently been in balance, with the unemployment rate running close to the FOMC participants’ estimates for its longer-run rate. This stability is consistent with the Committee’s maximum-employment goal. The employment report for February supports this view, showing the creation of 151,000 new jobs, a figure close to the six-month average of 177,000. The unemployment rate stood at 4.1 percent, within the range observed since last summer.

Average hourly earnings have risen by 4 percent over the past year, suggesting a balance between labor supply and demand. Despite strong productivity growth in recent quarters, wages are not seen as a significant source of inflation pressure.

On the inflation side of the FOMC’s dual mandate, inflation has fallen notably since its peak in mid-2022. The policy rate has been lowered accordingly, with a reduction of 100 basis points since last September. However, inflation has remained stable since the second half of last year, with uneven progress across its major categories.

Kugler also discussed the global impact of the COVID-19 pandemic on labor markets, noting the high levels of unemployment and slackness initially caused by the pandemic. The recovery from these disruptions varied widely across advanced and emerging economies.

The United States saw a strong recovery in labor force participation rates (LFPRs), particularly among prime-age workers, after an initial fall during the pandemic. However, the LFPR for all workers has remained below its pre-pandemic level in the U.S. and other advanced economies. In contrast, the euro area surpassed its pre-pandemic LFPR levels by early 2022, as policies in these countries promoted job retention.

The governor also highlighted the role of increased labor productivity and immigration in boosting labor supply during the economic recovery from the pandemic. Labor market policies in the U.S., which rely more heavily on unemployment insurance, may have contributed to higher productivity growth in the country.

The worldwide surge of inflation starting in 2021 led to the most synchronized tightening of monetary policy since 1970. As a result, labor demand began to soften by 2022, and vacancy rates decreased across advanced economies. This led to a better balance between labor demand and supply, as reflected in lower vacancies-to-unemployment ratios across many advanced economies.

Kugler concluded by noting that she sees the U.S. labor market as having substantially rebalanced, and conditions have stabilized at a level that aligns with the FOMC’s goal of maximum employment. However, she will continue to closely monitor the labor market to maintain its current state while bringing down inflation to the FOMC’s target.

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