President Joe Biden’s top labor economist has a message for the Federal Reserve: run the economy hot.
Inflation remains largely transitory and linked to supply-chain and COVID-related issues, said Janelle Jones, the chief economist at the Department of Labor. But raising interest rates or reducing economic support for the economy too soon — which many economists are urging to tame rampant inflation — could spell disaster for the nascent jobs recovery, she said.
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“I don’t really want to — and I think the folks at the Federal Reserve would agree — I don’t want to slow the economy down, because we’re not recovered,” Jones told Bloomberg.
Jones, who worked at the Economic Policy Institute before joining the administration, said, “That’s why I think we should not pump the brakes on the economy. It is much harder and it takes much, much longer — and we saw this after the great recession — to bring millions of people back into the labor market than it is to slow inflation.”
A growing chorus of market watchers, including some former and current Fed officials, are calling on the central bank to reduce asset purchases faster after data showed consumer prices skyrocketed the most since 1990 in October. Tightening policy would increase borrowing costs and keep a lid on prices, but also restricts businesses’ ability to hire.
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While the Fed maintains that price increases will ease as the pandemic subsides, others contend that there are more persistent aspects to inflation that warrant policy action. Labor shortages are contributing to an acceleration in wage gains, but for many workers, it’s being more than offset by higher prices.
In about 12 months, inflation will likely be “at least half” of today’s pace, though wage pressures will remain well into next year, Jones said.
Surging prices have emerged as a key issue for Biden as he pushes forward with a roughly $1.75 trillion social spending bill that Republicans say will worsen inflation. It’s also a challenge for Fed Chair Jerome Powell, who says the central bank won’t raise interest rates until the tapering of the central bank’s asset purchases is complete and the economy reaches full employment.
The U.S. added 531,000 to payrolls in October after large upward revisions to the prior two months. The unemployment rate is falling, but remains elevated for Black and Hispanic Americans. And even though wages are rising at a rapid clip, millions of Americans — particularly women — are still choosing to sit on the sidelines, leaving businesses desperate for talent.
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It’s these workers, who were also hardest hit in the recession, who would be most at risk if hiring slowed — “something that I just don’t think we can risk right now,” Jones said.
Recent strike activity, including that from unions representing Deere & Co. workers, may push wages even higher. That’s welcome news for Jones, who wants to ensure better pay isn’t just a fad.
“We’re basically an ‘at-will’ employment country,” she said. “So it’s hard to say this stuff is locked in without the protections of a union.”
