Federal Reserve officials received bad news in the September jobs report, which showed weak hiring and stagnant labor market participation – signs that the labor market will take time to recover . But with high inflation and a rapid recovery in wages, the risk is that central bank officials may not have the leeway to wait for a full recovery.

The Fed has two jobs, promoting maximum employment and keeping inflation low and stable. In recent decades, inflation has been contained, if not lukewarm, so that central bankers have been able to give the labor market a lot of leeway to recover. But today inflation has jumped and rising wages suggest employers may have to keep raising prices to cover costs. At the same time, millions of jobs are still missing from before the pandemic, and they are only reappearing.

These trends could prompt the Fed to pass a harsh judgment on its political aid, which it had been prepared to withdraw only slowly. Jerome H. Powell, the chairman of the Fed, and his colleagues inject $ 120 billion into the markets each month and keep interest rates close to zero to keep borrowing costs cheap and credit fluid, helping thereby fueling demand and encouraging employers to develop and hire.

Officials have signaled that they will soon start slowing bond buying – something they could announce as early as November depending on progress in the labor market. September’s jobs report is unlikely to derail those plans, which officials said were based on cumulative job gains and not on single-month data. The United States has recovered more than 17 million jobs since the pandemic’s worst lows.

Yet Fed policymakers have repeatedly promised that even if they back down on bond purchases, they will continue to support the economy with low rates – their most traditional and powerful tool – for as long. that he will need their help. If rapid inflation looks set to persist and the labor market is slow to recover, they may still be forced to raise rates earlier than expected as employment picks up.

“This is not the situation we have been facing for a very long time, and it is a situation where there is tension between our two goals,” Powell said in a recent public appearance. He later added that “managing this process over the next two years, I think, is the highest and most important priority, and it’s going to be very difficult”.

Central bank officials hope the jobs lost during the pandemic will return soon, but progress in recent months has been halted and restarted. Employers created 194,000 jobs last month, disappointing forecasts by economists, who had announced half a million.

Inflation stood at 4.3% in August, well above the central bank’s target of 2% on average over time.

The price hike in 2021 was driven almost entirely by pandemic whims. Strong consumer demand for refrigerators and computers has overwhelmed supply chains at the same time as coronavirus-related plant closures have delayed parts production. The combination has led to shortages of items as diverse as rental cars and washing machines, driving prices up.

Officials still expect the price pressures to prove temporary. But it has become increasingly clear that while drivers are mostly on time, they could linger for months. Shipping routes are struggling to catch up, pandemic epidemics continue to force factories to close, and now rising commodity prices threaten to keep price increases high.

The Fed is watching closely to ensure that long-term inflation expectations remain at healthy levels. If consumers and investors come to expect higher inflation, they could change their behavior, creating a self-fulfilling prophecy.

Some key indicators of the outlook for consumer prices have started to increase. And Fed officials are also monitoring wage data, because when wages rise rapidly and companies must raise prices to cover costs, it can trigger a cycle that blocks rapid inflation.

Average hourly earnings rose 0.6% in September from the previous month, more than economists in a Bloomberg survey had expected.

This combination raises an unfortunate possibility: The Fed could find itself under pressure to raise interest rates and cool the economy before jobs fully rebound.

There is little that a central bank can do to stimulate better port capacity or more apartments, but it could arguably calm demand by raising interest rates. With fewer consumers buying condos, sofas and patio furniture, factories, home builders and freighters could catch up, helping to ease cost pressures.

But higher rates would also slow business growth and hiring, trapping pandemic unemployed people on the fringes of the job market. That is why Mr Powell and his colleagues advise patience, in the hope of avoiding overreacting to a price hike that will run out.

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