Jobs, Not Inflation, Will Ultimately Be What Forces the Fed
The labor market is recovering at lightning speed, and by next summer full employment will be just another reason to raise interest rates.
Full employment is on its way.
Source: Bloomberg
Debate has intensified in the past several months over whether the elevated level of inflation will lead the Federal Reserve to tighten monetary policy sooner than expected: winding down asset purchases followed by an increase in interest rates. The standard pushback has been to blame much of the rise in prices on supply-chain bottlenecks that should abate over time — and besides, the Fed needs to stay the course in order to ensure the labor market fully heals.
But as the October jobs report showed, the labor market improvement is accelerating again, and we're closer to measures of full employment than generally appreciated. By the middle of next year it will be a robust labor market, not inflation, that leads the Fed to begin raising interest rates.