President Joe Biden’s legislative program exacerbates the inflation fight. The labor market is tight and there are almost 11 million job openings.
Yet there are fewer than 6 million people looking for a job. The unemployment rate is running near half-century lows. Biden claims that his administration has revitalized the U.S. economy, which has led to the creation of hundreds of thousands of new manufacturing jobs. But the manufacturing sector can’t find workers. The Federal Reserve Bank of St. Louis says that labor shortages remain the greatest long-term obstacle to growth in the manufacturing sector.
Biden stimulates the economy and raises the deficit through his infrastructure legislation and his green energy policies. His legislation increases borrowing by over $4 trillion and entrenches inflation through an overly tight labor market. Wages increase to attract workers; prices follow wages higher. Prices and wages converge, and inflation is the result.
In August 2022, the U.S. unemployment rate fell to 3.7%, near historic lows. Over 300,000 jobs were created. Wages across the economy were growing at over 6%, a level clearly inconsistent with the Federal Reserve’s 2% inflation target. Biden continued to flame the inflation fire.
Today, the labor market remains too strong. Monthly job growth is over 300,000. Trend job growth consistent with low inflation and trend GDP growth should be around 50,000-100,000 new jobs a month. Equally troubling, consumer price inflation has stopped falling. It continues to grow at a 6% annual rate. Inflation is sticky. Wages are rising at 6%.
That is inconsistent with 2% inflation. Biden’s adoption of modern monetary theory, which says deficits don’t matter, is making the Federal Reserve’s inflation fight much more difficult. The risk of a hard economic landing is rising.
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.