Despite strong job market, Fed worries

Chair Jerome Powell isn’t as pleased with the robust U.S. job market as you might think he’d be, and he and the Federal Reserve plan to do something about it: Take it down a notch.

On Thursday, Powell described the job market as “extremely, historically” tight and “unsustainably hot.” Available jobs are near record highs. Wages are rising at their fastest pace in decades. The unemployment rate is flirting with a half-century low, and layoffs are sparse.

Yet Powell doesn’t see all of this as purely a cause for celebration. With the highest inflation in four decades hurting households and businesses, the Fed chair regards the job market’s strength as a key driver of spiking prices.

But Powell is also betting that that very strength will give the Fed an unusual opportunity to cool the economy and fight inflation without derailing the job market or causing a recession. The Fed hopes to reduce the huge number of job openings, rather than spur layoffs. Fewer available jobs, in turn, would slow wage increases and help tame inflation.

On Thursday, in a panel discussion held by the International Monetary Fund, Powell said the Fed’s goal is to get the job market to “a better place.“

What’s better than really hot? And what would it mean to get there?

Start with the huge number of open jobs — 11.3 million at last count. That’s clearly a boon to anyone seeking a better job. For employers, though, all those openings are a source of continuing frustration because a worker shortage has made them hard to fill.

As Powell and the Fed see it, the surge in job postings forces employers to boost wages to attract and keep workers. Those higher labor costs are then passed to customers in the form of higher prices, thereby helping fuel inflation.

But this time, with so many open jobs, the Powell Fed is figuring that most employers will respond by cutting back on job postings, rather than laying off people. Fewer openings would reduce their need to raise pay and would ease inflationary pressures.

If it works — a big if — this would help Powell achieve the elusive “soft landing” that Fed chairs seek when the economy is growing too fast but that they rarely achieve when inflation is as high as it is now.

Economists are generally skeptical that the Fed can successfully thread that needle. But given the job market’s strength, they also say it’s a possibility.