Low unemployment and slow wage growth are two of the latest indicators. “more inflation in the pipeline” when workers pinched by high prices demand higher wages and those wages create even more inflationary pressure, explained Breitbart Economics Editor John Carney in an interview Friday on Larry Kudlow’s eponymously named Fox Business show.
Friday’s hotter-than-expected jobs report—showing the U.S. economy added 517,000 jobs in January—sparked fears that the Fed will have to fight a more protracted war to bring inflation down. This likely means multiple interest rate hikes this year beyond the expected hike after the Fed’s March meeting,Carney stated.
“I think the Fed is going to look at this [job] number and say, ‘We’re not going to bat signal that when we raise rates in March that that’s the end.’ A lot of people on Wall Street thought, ‘Yeah, maybe they’re going to end the hiking cycle at March.’ I think this number is enough to keep [the Fed hikes] going through May and probably through June. So, rather than just one more hike, we have two,” Carney said.
The figure for the three-month average in job creation might provide the best crystal ball for Fed Chair Jerome Powell’s thinking, Carney explained.
“The three-month average in job creation is now 357,000. That is really high. We haven’t had a number that high since 1994,”He said. “And, you know, that [year] was leading into Alan Greenspan talking about irrational exuberance. So, that’s what I think we saw in the market today. They looked at the parts they like, which is the wage number, and ignored the parts they didn’t, which is jobs.”
On July 20, 1994, Alan Greenspan, Chairman of the Federal Reserve Board testified before Senate Banking Committee. Greenspan pointed out to Congress that the interest rate may have to go higher in order to maintain a steady inflation. (AP Photo/John Duricka)
As Carney noted in today’s Breitbart Business Digest:
[T]Under Alan Greenspan, the Fed saw 1994 as an economy that required tighter monetary policy. This should come as a shock to those who believe that the Fed will end its hike cycle at March’s meeting, and perhaps even reduce in the second half of this year. Historical standards suggest that monetary policy remains very flexible given both the current employment and inflation situations.
Brian Brenberg (co-host of the show) said that high unemployment should not be taken as a bad thing. “Big Money”Fox Business.
“This economy needs job creation more than almost anything else,” Brenberg said. “I want to see big numbers like this because that’s what gets us more productive again and helps us get out of the inflation problem.”
“This is the problem where the Fed wants to see that wage number come down, and the rest of America says, ‘No, I want the wage number to come up because I’m still treading water,’”He explained.
Brenberg sees the Fed’s slow roll out of incremental rate hikes as delaying the inevitable downturn and extending the pain of Americans struggling with rising prices.
“That’s why I hate this drip, drip, drip from the Fed because I think it just slows down the adjustment that we need,”He said. “People at home say, ‘Wall Street is celebrating, but I still can’t put eggs on the table and put gas in my car at the same time.’ And that’s why you’re seeing some of that consumer confidence remain very, very bad even now.”
Carney stated that inflationary pinch workers will seek pay increases, which could lead to more inflation.
“I think that because we have not seen real wage gains—because we’re lagging behind—that probably means there is a lot of wage increases coming down the pipeline. That is possible inflationary pressure. I think the Fed knows that,”He said.
“People are going to push to be made whole to be compensated for the inflation we’ve experienced. So, this is a delayed wage gain. So, while Wall Street was saying, ‘Yes! Look, there’s not a lot of inflation in this,’ I look at it and say, no, people aren’t going to accept being poor. They are going to push for higher wages. And so, in fact, this is telling you there’s more inflation in the pipeline coming later this year,”Carney also added.
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