Commentary
After more than a decade of chained stimulus packages and extremely low rates, with trillions of dollars of monetary stimulus fuelling elevated asset valuations and incentivising an enormous leveraged bet on risk, the idea of a controlled explosion or a “soft landing” is impossible.
In an interview with Marketplace, the Federal Reserve chairman admitted that “a soft landing is really just getting back to 2 percent inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now.” He went on to say that “nonetheless, we think there are pathways … for us to get there.”
The first problem of a soft landing is the evidence of the weak economic data. While the headline unemployment rate appears robust, both the labor participation and employment rate show a different picture, as they’ve been stagnant for almost a year. Both the labor force participation rate, at 62.2 percent, and the employment–population ratio, at 60.0 percent, remain each 1.2 percentage points below their February 2020 values, as the April jobs report shows. Real wages are down, as inflation completely eats away the nominal wage increase. According to the Bureau of Labor Statistics: “Real average hourly earnings decreased 2.6 percent, seasonally adjusted, from April 2021 to April 2022. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 3.4-percent decrease in real average weekly earnings over this period.”
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