The Jobs Number the Fed is Actually Paying Attention To
The speaker argues that the Fed should shift focus away from monthly payroll numbers, suggesting the traditional 150,000 jobs per month benchmark may be outdated. He contends that labor supply dynamics and inflation persistence are more important metrics than the headline jobs report, which Fed leadership has acknowledged is unreliable until final revisions.
Summary
In this discussion about labor market metrics and inflation, the speaker challenges conventional wisdom about job creation targets. He notes that the Fed has traditionally focused on monthly job production around 150,000 as a benchmark for economic health, but argues this mental model may no longer be appropriate. The speaker references comments from Jay Powell, who suggested near the end of his tenure that the required monthly job creation could be as low as zero, and that even 25,000-50,000 jobs monthly might be sufficient to support the economy without requiring Federal Reserve intervention. The speaker also critiques the reliability of the payroll report itself, citing Kevin Walsh's characterization of the employment report as merely 'an echo of the past' that only becomes accurate through its third revision, which occurs 18 months after initial publication. This raises questions about whether the Fed should even be paying close attention to headline payroll numbers. The underlying debate centers on whether sticky inflation can persist given wage growth constraints and declining consumer savings rates, with the speaker suggesting the focus should instead shift to labor supply dynamics as a key metric for understanding inflation persistence.
Key Insights
- Jay Powell stated near the end of his term that the required monthly job creation for economic stability might be close to zero, and that even 25,000-50,000 jobs monthly could be acceptable without requiring Federal Reserve support
- The speaker argues that policymakers have been operating under an outdated mental model for decades that assumes approximately 150,000 monthly jobs should be the production target
- Kevin Walsh characterized the payroll report as 'an echo of the past' that is only reliable upon its third revision, which comes 18 months after initial release
- The speaker suggests the Fed may not prioritize the monthly payroll report going forward, raising the question of what alternative labor market metrics policymakers should focus on instead
- There is a debate about whether sticky inflation can persist given that wages have not expanded enough and consumer savings rates are declining significantly
Topics
Transcript
[0:00] Jim, is there anything in particular that you're expecting to see in some of the labor market metrics that we're going to be getting that supports this idea of stickier inflation that has legs? Because what some people push back on is wages haven't kept up in terms of how much they've expanded. So, you can't see an ongoing increase in prices, especially with the savings rate going down so much among consumers. What are you looking for to rebut that thesis? >> Well, I think you have to, you know, pivot to the labor supply argument. I know we all are of this mode because we [0:31] have been for decades to focus on the labor market and…
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