The exact content of that ‘pain’, as well as its intensity and duration, can vary widely in an economic environment peppered with high inflation and other volatility.
Assuming no change in the labor force participation rate, about 1.6 million jobs will be lost for each 1 percentage point increase in the unemployment rate, said chief economist Mark Zandy. at Moody’s Analytics. So, he said, if the U.S. were to experience a typical recession, with unemployment hovering around 6%, that would equate to about 5 million jobs.
For context, before the Great Recession, the unemployment rate was already around 5%, but it jumped to 10% as economic conditions deteriorated.
“Job growth and job creation need to decelerate urgently to slow wage growth momentum and contain inflationary pressures,” Zandi said.
“The prospects for the Fed are better if job growth slows,” Zandi said. “Ironically, it feels a little strange to say that, but that’s the reality if the economy is at or above full employment.”
A number of employment reports are due out this week and should give you some sense of how these trajectories are trending.
Mizuho Securities USA chief U.S. economist Steven Rickiut said inflation usually doesn’t fall until unemployment rises to some extent. “A lot of people in the Federal Reserve are hoping right now, and so far the data is working in their favor, job openings are down and employment numbers are really down. I hope not.”
The Fed’s best-case scenario would be a situation in which people entering the labor market find it harder to find work, resulting in mass layoffs.
“[The Federal Reserve members] “They need to ease the labor market and take some of the pressure off,” he said. Likewise, they don’t want to cause unnecessary pain in terms of the economy as a whole. “
“So the real question is, ‘Is medicine worse than disease?'” asked Rickiut. “If left untreated, the disease can be very fatal. So if you’re going to get short-term painful treatment for long-term benefit, is it worth it? Answer is “yes”.
Whether the pain is related to a tight labor market, layoffs, rising mortgage rates, rising costs of capital, or a contractionary business environment, there is one thing that seems likely. .
“There’s not going to be one particular area in the environment that’s guaranteed to help,” he said.