Ending Inflation Will Take Months

Published Friday, December 2, 2022 at: 9:27 PM EST

The U.S. created 263,000 new jobs In November, despite six rate hikes implemented since March by the nation’s central banker to slow economic growth.

The rate of job creation was 30% higher than economists had expected. For investors, it means that the Federal Reserve System, the nation’s bankers, have no choice but to continue raising lending rates for months. They have to stop job growth because it puts upward pressure on wages and worsens inflation.

Job openings vastly outnumber job seekers. The pandemic led many Americans in their 60s to retire earlier than in previous decades. More Americans in their 30s, 40s, and 50s also dropped out of the U.S. labor force – those between 16 and 65.

In addition, from the beginning of the Covid-19 pandemic in March 2020 till late 2021, international immigration flows to the US decreased significantly, according to Giovanni Peri, Professor of Economics at the University of California, Davis and the Director of the Global Migration Center

The U.S. labor force has a shortage of about 3.5 million workers, Fed Chair Jerome Powell said in a speech on Wednesday. The shortage of qualified applicants for jobs will continue to put pressure on wages and will take time for the nation’s leaders to work out. Wage inflation is the problem.

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With inflation at a 40-year high in 2022, the Fed chair said Wednesday that supply chain bottlenecks are easing. However, rising prices of services, like dining out, building a house, and health care, as we predicted months ago, is quickly becoming the main cause.

Raising interest rates to slow the U.S. economy is a crude tool. It’s like trying to bowl a strike on an alley the size of a football field on a windy day. But it is the main tool of the Fed. The lag time for hikes to take effect and shifting crosscurrents means this process will take time.

The S&P 500 stock index closed Friday at 4,071.70, down one-tenth of % from Thursday, despite the bad news that the economy is creating too many jobs and that this will complicate the government’s ability to slow the economy and stop inflation from becoming entrenched in the American consumer’s psyche. The S&P 500 was up +1.13% from a week ago. The index is up +81.98% from the March 23, 2020 bear market low and 15.11% lower than its January 3rd all-time high.

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