Unemployment Is Low, Inflation Is Falling, but Recession Worries Linger

“For this tiny moment, we finally see what a labor market is supposed to do,” said William Spriggs, a Howard University professor and chief economist for the A.F.L.-C.I.O. And the workers benefiting most from the labor market’s current strength, he said, will be the ones who suffer most from a recession.

“You should see from this moment what you are truly risking,” Mr. Spriggs said. With inflation already falling, he said, there is no reason for policymakers to take that risk.

“The labor market is finally hitting its stride,” he said. “And instead of celebrating and saying, ‘This is fantastic,’ we have the Fed hanging over everybody and casting shade on this unbelievable set of circumstances and saying, ‘Actually this is bad.’”

But other economists caution that there are also risks in the Fed’s doing too little. So far, businesses and consumers have treated inflation mostly as a serious but temporary challenge. If they instead begin to expect high rates of inflation to continue, it could become a self-fulfilling prophecy, as companies set prices and workers demand raises in anticipation of higher costs.

If that happens, the Fed may need to take much more aggressive action to bring inflation to heel, potentially causing a deeper, more painful recession. That, at least according to many economists, was what happened in the 1970s and 1980s, when the Fed, under Paul A. Volcker, brought inflation under control at the cost of what was, outside of the Great Depression and the pandemic, the highest unemployment rate on record.

Article source: https://www.nytimes.com/2023/04/14/business/economy/economy-jobs-inflation-recession.html