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Can the United States fight inflation without sinking the labor market?

Unemployment is one of the lowest in the last 50 years, and there are not enough workers to fill all the vacancies.

Photo: AFP Agency

It is possible to reduce record inflation in the United States while maintaining a healthy labor market, US Treasury Secretary Janet Yellen said on Thursday.

“There is a way in which this can be successful in reducing inflation while maintaining a strong labor market,” Yellen said a day after the Federal Reserve (Fed) raised interest rates by 0.75% for the third time. consecutive. “I very much look forward to the Fed being successful,” she added.

Read: The Fed raised its interest rates again: what does it imply?

The Federal Reserve made another sharp hike to its key rate in an effort to slow the economy and fight inflation, a fight that its chairman, Jerome Powell, warned would be “painful.” The increase in rates automatically makes loans to individuals and companies more expensive.

However, the shortage of workers in the US labor market, which translates into higher wages, is one of the sources of inflation that “likely” exerts pressure. “It’s the Fed’s job … to deal with supply and demand imbalances,” Powell said.

And it is that this voluntary slowdown of the economy is very delicate, since an excessive slowdown could cause the United States to fall into the recession that is already looming over the entire world economy.

Also read: Butterfly effect: the meeting in the US that would make your credit more expensive in Colombia

The labor market is in good health, but even Powell said that bringing inflation back to more acceptable levels will have an impact on unemployment and the broader economy. “If we want to return to a very strong labor market period, we have to leave inflation behind. I wish there was a painless way to do it, but there isn’t,” he assured.

The Federal Reserve also updated economic forecasts, in which it contemplates more rate hikes, and for longer than it had anticipated.

The unemployment level is expected to average 3.8% in 2022 (vs. 3.7% previously forecast), rising to 4.4% in 2023 (from 3.9%). In August, the unemployment rate was 3.7%, one of the lowest in 50 years.

Yellen acknowledged that “the pressure of the labor market needs to be relieved”, without this implying “that the unemployment rate (necessarily) increases so much”. For the Secretary of the Treasury, it is still possible to have a good and solid labor market, without so much pressure on wages.

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Source: Elespectador

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