Dow Today – Fiery labor market faces Fed chill in 2022
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White House economic officials came in a year ago with a singular focus: returning the U.S. labor market to pre-pandemic health as quickly as possible.
That effort has gone better than nearly anyone expected. A flood of federal aid to businesses and households, coupled with widespread vaccine availability, led to a surge in economic activity in 2021 that propelled hiring and pushed down the jobless rate.
Now, growing worries over inflation — spurred by supply-chain disruptions and strong demand — could prompt the Federal Reserve to begin winding down the party just as it’s getting good for some workers.
As the Fed eyes interest-rate increases this year, Democratic lawmakers could try to pressure Fed Chair Jerome Powell to hold off until the economy reaches maximum employment and grill him on what conditions he thinks would warrant a rate increase. They’ll soon have their chance: The Senate Banking Committee plans to hold two confirmation hearings next week to consider Powell’s renomination and the selection of Governor Lael Brainard to be vice chair, according to a person familiar with the matter who wasn’t authorized to speak publicly about the hearing schedule.
A bright spot: With widespread angst over inflation, it’s easy to forget that the labor market — while not quite back to its pre-pandemic state — has been a bright spot for the economy and on the Biden administration’s recovery scorecard. Just how solidly the market has rebounded will become even more clear this week with new reports due on job openings, turnover and hiring.
About this time last year, the Congressional Budget Office projected the jobless rate would fall to 5.3 percent by the end of 2021, in line with private forecasters. By November, the rate was down to 4.2 percent, a full three years sooner than CBO expected.
Employers added an average of 555,000 jobs a month through November. That brought total payrolls up to 148.6 million — 1.4 million more than private economists projected for the fourth quarter, according to a February 2021 survey by the Federal Reserve Bank of Philadelphia.
“Growth in the labor market and the recovery that we’ve seen so far has objectively been very strong and beat all the expectations that people had at the beginning of last year,” said Nick Bunker, an economist at the hiring website Indeed.com.
That has translated into important gains for workers. The gap between employment rates for white and Black employees has narrowed, wages are rising at their fastest pace in years, especially for workers at the bottom of the wage scale, and the rate of employees quitting jobs remains near a record high, suggesting workers are confident they can find better positions.
Where does that leave us for 2022?
Powell said at a press conference last month that the economy “has been making rapid progress toward maximum employment.” But he’s been vague about what that threshold will look like, admitting it’s a judgment call that will depend on a range of factors, including the jobless rate, labor-force participation, job openings, wages and flows in and out of the labor force.
While labor-force participation has shown signs of improvement, especially among women, Powell emphasized it may take some time before participation returns to its pre-pandemic rate.
At the same time, brisk wage increases have caught the Fed’s attention. While wage growth hasn’t been a major contributor to elevated inflation, Powell said, he was concerned enough about an Oct. 29 report on compensation to briefly consider whether officials should pull back their support for the economy more quickly.
Bunker estimates the employment-to-population ratio for prime-age workers could return to February 2020 levels by May or June. But will the Fed judge that to be maximum employment? Bunker said it’s not clear the two are the same.
“Just because things are quite good doesn’t mean we can’t get better,” he said.
IT’S TUESDAY — Today’s Tweet of the Day comes from USA Today columnist (and wife of Sen. Sherrod Brown) Connie Schultz: “I am watching #Succession with the chairman of the Senate banking committee and holy cannoli the ongoing commentary.” Oh, to be a fly on the wall.
Labor Department releases November Job Openings and Labor Turnover Survey results at 10 a.m. … American Enterprise Institute hosts a virtual discussion at 10:30 a.m. on cryptocurrency with former CFTC Chair J. Chris Giancarlo.
CFTC HITS ETHEREUM-(BA)SED DEFI BETTING MARKETPLACE WITH $1.4M FINE — Our Sam Sutton: “The CFTC said Blockratize Inc.’s website Polymarket, which facilitated transactions using smart contracts on the Ethereum blockchain, offered trades that should have been regulated as swaps but failed to register with the agency as an exchange.”
OKLAHOMA HOUSING AUTHORITY TO PAY DOJ PENALTY IN DISCRIMINATION CASE — Our Katy O’Donnell: “An Oklahoma public housing agency will pay $75,000 in damages to settle allegations that it engaged in discrimination and violated the Fair Housing Act by denying housing to a Black woman and her child, the Justice Department said Monday.”
TAI FACES WORLD OF CHALLENGES IN 2022 — Our Doug Palmer: “President Joe Biden’s top trade official spent much of her first year in office resolving disputes left by former President Donald Trump without establishing a strong sense of the new administration’s own direction. Now, U.S. Trade Representative Katherine Tai faces pressure to implement a more detailed strategy for managing relations with adversaries such as China and with allies in Europe and the Indo-Pacific region.”
— Also from Doug: Key dates on the 2022 trade calendar.
SCHUMER TRIES TO JUMP-START DEMS WITH RULES CHANGE THREAT — Our Marianne LeVine and Burgess Everett: “Chuck Schumer is attempting a filibuster Hail Mary as Democrats’ agenda on both elections reform and President Joe Biden‘s economic plans remains stalled at the beginning of a critical midterm election year. The Senate majority leader warned Monday that the Senate will debate and vote on changes to the chamber’s rules by January 17, Martin Luther King Jr. Day, unless Republicans get out of the way on elections reform.”
What does it mean for Build Back Better? “Schumer told his caucus in December he would eventually bring the bill to the floor this year, despite Manchin’s opposition to the latest proposal.
“Now, Democrats’ expanded child tax credit has expired and voters will begin hitting the primary polls within weeks, creating increased pressure on Senate Democrats to somehow move the party’s stalled agenda forward on voting and expanding the social safety net. Democrats insisted they weren’t moving onto voting rights at the expense of the education, climate, health care, child care and climate-focused bill.”
WHITE HOUSE LIKELY TO NOMINATE PHILIP JEFFERSON FOR FED SEAT — Bloomberg’s Katia Dmitrieva and Jennifer Jacobs: “The White House is likely to nominate economist Philip Jefferson for a seat on the Fed board of governors, according to people familiar with the matter, an appointment that would make him just the fourth Black man to hold the position in the central bank’s more than 100-year history.
“With a doctorate in economics from the University of Virginia, Jefferson is the vice president for academic affairs, dean of faculty and an economics professor at Davidson College in North Carolina. He has worked at the Federal Reserve twice before, serving as an economist in the board’s monetary affairs division from 1996 to 1997, and as a research assistant in the fiscal analysis section from 1983 to 1985.”
BIDEN UNVEILS PLAN TO BOOST COMPETITION IN U.S. MEAT INDUSTRY — Reuters’ Leah Douglas: “The United States will issue new rules and $1 billion in funding this year to support independent meat processors and ranchers as part of a plan to address a lack of ‘meaningful competition’ in the meat sector, President Joe Biden said on Monday.”
U.S., EUROPEAN FACTORIES SEE EASING SUPPLY STRAINS, BUT OMICRON THREATENS SET(BA)CKS — Fintech Zoom’s Paul Hannon and David Harrison: “Factories in Europe and the U.S. reported a further easing of supply-chain problems and associated cost increases as 2021 drew to a close, although the rapid spread of Omicron around the world threatens to worsen shortages of labor and supplies.
“According to surveys of purchasing managers, there were some signs of a modest easing of bottlenecks in the final months of last year as Asian factories reopened following pandemic-related lockdowns.”
FIRST LOOK: INVESTOR TRADE GROUP URGES TREASURY MARKET REFORMS — The Healthy Markets Association, an investor trade group, in a letter to SEC Chair Gary Gensler Monday laid out a series of steps it says the agency should take to bolster the market for Treasury securities, including: mandating reporting and dissemination of Treasury trades in real time, expanding the scope of who reports Treasuries market information and expanding central clearing for Treasuries.
“There’s a reason this is a top priority for the SEC, and one Chair Gensler keeps raising,” HMA director Ty Gellasch said. “The Treasuries markets are enormous and critically important, and yet shockingly opaque and fragile.”
MORE RECORD HIGHS FOR S&P 500, DOW ON FIRST DAY OF 2022 — AP’s Damian J. Troise and Alex Veiga: “Wall Street got 2022 off to a solid start Monday with more record highs for the S&P 500 and the Dow Jones Industrial Average. The S&P 500 rose 0.6% and the Dow finished 0.7% higher. Both indexes eclipsed the record highs they set last Wednesday.”
BRIDGEWATER NAMES NEW CO-CEOS AS MCCORMICK STEPS DOWN FOR POSSIBLE SENATE RUN — Fintech Zoom’s Juliet Chung: “Bridgewater Associates named two new co-chief executives to head the world’s largest hedge fund on Monday, after CEO David McCormick told staff he would be stepping down to consider running for the U.S. Senate in Pennsylvania.
“Bridgewater elevated to co-CEO deputy chief executive Nir Bar Dea, 40 years old, along with former Aetna Chief Executive Mark Bertolini, 65, who has been a member of Bridgewater’s board for three years, according to a memo to Bridgewater employees that was released publicly.”
(BA)NKS TIPTOE TOWARD THEIR CLOUD-(BA)SED FUTURE — NYT’s Lananh Nguyen: “Banks see huge potential for cloud technology to make their systems faster, more nimble and responsive to the needs of their customers. … While Wall Street leaders have long acknowledged the potential of cloud computing to cut costs, they have only allowed their firms to take halting steps. Executives have been hesitant because banks are tightly regulated by governments and any sudden changes involving consumer deposits or privacy aren’t possible. They’re also concerned that computing over the internet will open the door to cyberattacks.”