The Inflation Fight: Why the Fed Wants You to Lose Your Job


  • August saw a 3.7% surge in U.S. inflation, driven by a sharp rise in energy costs.
  • Price growth remains significantly lower than the peak of 9.1% in June last year.
  • In the labor market, job and wage growth have slowed, while quit rates, job openings and job-to-unemployed ratios approach pre-pandemic levels, closely monitored by the Fed.
the Fed - The Inflation Fight: Why the Fed Wants You to Lose Your Job

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U.S. inflation increased to 3.7% in August due to rising energy prices, marking its first rise since June 2022. While this is lower than the peak of 9.1% last year, it may prompt the Federal Reserve to consider raising interest rates to approach its 2% target.

Economists expected a 3.6% rise in overall inflation year-on-year, but it reached 3.7%. Core inflation, excluding volatile energy and food prices, also rose by 4.3%, in line with forecasts. The Federal Reserve’s focus on core inflation appears to be effective, as overall inflation in July 2022 was 3.2%, while core inflation stood at 4.7%.

With inflation surging across the country, what does that say for Americans’ wallets — and jobs?

Rising Unemployment Rates

The U.S. Federal Reserve, mandated to prioritize employment and low inflation, is facing scrutiny for its traditional approach to combating inflation, raising doubts about its effectiveness.

In July, U.S. job openings hit a 2.5-year low, signaling a slower labor market and likely no interest-rate changes. People quitting jobs dropped to early 2021 levels, showing reduced confidence. However, the job market is still tight, with 1.51 job openings per unemployed person in July, down slightly from June’s 1.54 but indicating a balanced market. Layoffs remain historically low.

“The job market is still tight, but it’s rebalancing as companies reduce vacancies without raising unemployment,” said Conrad DeQuadros, a senior economic advisor at Brean Capital.

In July, job openings fell to 8.827 million, the lowest since March 2021, led by declines in various sectors.

Workers Are Most Affected

The job market stayed strong despite multiple Fed interest-rate hikes since March 2022, aided by pandemic-related labor dynamics. Unemployment remained low at 3.5% in July.

August might see an increase in the unemployment rate. The Conference Board’s labor market differential dropped to 26.2%, the lowest since April 2021.

Most economists think the Fed is done raising rates, reducing the risk of a recession and aiming for stable growth. Hiring, resignations and job-hopping have all decreased recently, potentially contributing to wage inflation restraint and lower labor market confidence. Additionally, reduced job-hopping may contribute to keeping wage inflation in check, as the quits rate dropped to 2.3%, the lowest since January 2021.

Mixed Reactions from Analysts

Michael Pearce, chief U.S. economist at Oxford Economics, anticipates that the recent inflation increase, mainly driven by elevated energy costs and rising airline prices, will likely keep inflation in the 3%-4% range throughout the year, avoiding the peak levels of the previous year.

Pearce observed that medium-term inflation pressures are easing, with housing inflation declining, the labor market softening, and wage growth aligning with the Fed’s 2% target. He expects further rate hikes only if data indicate unsustainably rapid economic growth not in line with the Fed’s desired slowdown. Moreover, he anticipates the Fed emphasizing this in future messages and maintaining its current stance.

Steven Kamin, a senior fellow at AEI, attributed rising inflation mainly to higher energy costs, particularly a 10% surge in gasoline prices in August. Despite these increases, he doesn’t anticipate a return to last year’s peak inflation levels.

“August data offered mixed signals, with rising headline and core CPI inflation,” he observed. Kamin anticipates one more rate increase if inflation persists. He also cautioned that continued high inflation might lead to further tightening and potentially a recession.

Final Thoughts

Fed officials seem committed to their interest rate hikes and high inflation target. Some experts argue for a pause and reconsideration of the 2% inflation goal.

That said, the Fed will likely keep an eye on inflation-sensitive sectors like housing and travel to determine whether there is a need for further monetary tightening or policy shifts. Until then, Americans should prepare for a volatile job market with ever-increasing energy prices. As always, it’s best to stay informed on the latest economic developments and changes in interest rates, as well as trends in your industry, to make sure your career is on the right track. 

For now, it’s a wait-and-see game for the Fed and for the American people who are counting on it to make the right moves. Let’s hope that these decisions will lead us closer to better economic times and more stable job markets. 

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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