News for the Economy: Interest Rate Increases, Why Has Inflation Got So High, World Economic Growth Problems, a Coming Boom, and Unemployment Claims

On American jobs, what can we expect for the rest of 2022?  Most of it we don’t know, but there are considerations that will help us. 

We start with the oldest article, on a subject with little more information since provided.  “Fed Eyes 3 Rate Increases in 2022; Slows Stimulus as Prices Rise,” by Jeanna Smialek in the December 15^th New York Times, dealt with a then-new Federal Reserve announcement, that as well as cutting “monthly bond-buying,” they would hike interest rates.  Since then, all we have heard is that these boosts will start in March and continue for an unspecified time.  From the current 0% to 0.25%, “Fed officials” expected about 0.75% by the end of this year and 1.75% in December 2023.  The Dow Jones Industrial Average dropped several hundred points when the Fed non-specifically confirmed that last month, and may do more as the rate increases happen.  It is questionable whether higher borrowing charges will help at all, with the causes of inflation now supply chain problems and Covid-distorted demand, but it seems the Fed is under pressure to do something, and this is their usual and well-understood tool.

As for inflation itself, it probably was the best option.  As described in “President Biden’s Economy Is Failing The Big Mac Test” in the January 23^rd New York Times, “the discomforting truth is that the United States last year faced a choice between a protracted period of economic pain and an economic recovery whose benefits are temporarily attenuated by high inflation.”  People hate paying more, but would they like shortages, which would be caused by trying to hold prices in place, any better?  It is a natural result, caused as it is supposed to be by too much money chasing too few goods and services, and when we get more of those, as we will when supply routes are smoothly functional again and demand settles down, it will be reduced.  That has nothing to do with interest rate levels.

When the two largest economies have problems, it makes the world look worse – that is the thesis of “Slowdowns in the U.S. and China will hold back global growth, a report says” (Patricia Cohen, January 25^th, also in the Times).  The author mentioned the two factors in the previous paragraph, along with inflation itself, resulting in the International Monetary Fund’s cutting “its estimated global growth rate to 4.4 percent from the 4.9 percent it projected just three months ago.”  That may mean more than usual, as “the dimmed economic prospects come at a time when governments have less room to maneuver in how they spend their money,” caused mostly by pandemic-relief debt.

The good news came from Megan Cassella, in the January 26^th barrons.com “Expect a Post-Omicron Boom as Americans Binge on Services.  Workers Are the Wildcard.”  When the current overwhelmingly predominant coronavirus variant fades nationally even more than it has over the past week in the greater New York City area, which will probably happen within the month, people, “many armed with either triple or quadruple vaccinations or heightened immunity due to infection,” will be ready to rush into activities and spend a lot of money doing them.  Per the title’s second sentence, though, there may not be enough workers to keep up with demand, unless they are paid more, which of course would be inflationary.  Prices on many services will rise, but as before customers will generally pay for them anyway and be glad they are truly available.  Unless our government tries to freeze prices…

The Department of Labor issues a weekly report on “unemployment insurance weekly claims,” the main number nationally reported.  This issue, released February 3^rd, tells us that “seasonally adjusted initial claims” reached 238,000 in the previous entire week.  That is more or less an ordinary pre-pandemic result, above its 184,000 low several weeks before but vastly below almost anything in widespread Covid’s first year and a half.  The report also provided unadjusted figures and 4-week moving averages, which don’t vary much from the regular weeklies.

Add all of this up, and where are we going?  More inflation from multiple sources, as the supply-chain problem is hardly solved.  Higher but still low interest rates, for better or worse.  Massive numbers of employment opportunities, though not all paying market rates.  Ever more money, though still largely pooling up in a few spots.  Does all of this sound familiar?  It should.  It means the American jobs situation may not change for a while.