The job machine keeps churning

But the Fed should reduce interest rates nonetheless

Friends,

The consensus among economists is that this morning’s jobs report, showing that the United States added a whopping 272,000 jobs in May, will cause the Fed to leave interest rates unchanged at their current high level when the Fed meets next week.

Fed officials still fear the specter of inflation. Average hourly earnings rose 0.4 percent in May from April, and 4.1 percent from a year ago.

But it would be a mistake for the Fed to postpone reducing interest rates. Five reasons:

1. The unemployment rate for May ticked up to 4 percent for the first time since January 2022. The household survey (which is more indicative of where the economy is than the business survey) paints a picture of an economy that could still tip into recession.

2. Consumer spending (especially by lower-income consumers) is slowing.

3. Wage growth has not been a major cause of inflation over the past several years. A bigger cause has been corporate monopoly power to raise prices and keep them high. That’s been particularly true in the food and energy sectors. High interest rates won’t reduce this monopoly power.

4. The job trend isn’t as robust as some may think. For example, March’s and April’s job reports were revised downward by 15,000 jobs in all.

5. Finally, high interest rates are hurting Americans with car loans, student loans, credit-card debt, and mortgage debt. Many of these Americans have exhausted their post-pandemic savings. Most are low income. It’s unfair to put the burden of continuing to fight inflation on them.