Unemployment rises above the level seen one year ago

The national unemployment rate inched up to 3.9 percent in February, up 0.3 percent from the rate recorded one year ago. At nearly four percent, this is the highest unemployment rate since early 2022, a sign that the labor market is softening in a high-interest rate environment. Although the percentage of workers without a job increased, the US economy did add 250,000 jobs last month, bringing the total size of the labor force up to 167.4 million from 166.2 million a year ago. The labor force participation rate has held steady at 62.5 percent over the last year.

Federal Reserve officials provides an update on their economic outlook

The Federal Reserve’s Free Open Market Committee (FOMC) has held the federal funds rate (FFR) at 5.25 to 5.50 percent for months as it evaluates the impact rate hikes have had on the economy.

While inflation has come down, it remains above the Fed’s target of keeping price increases under an annualized rate of 2 percent. However, it is still rising, driven by increasing housing prices, according to recent reports from the Bureau of Labor Statistics. Federal Reserve Governor Michelle W. Bowman spoke about the current state of the economy and the central bank’s thinking earlier this week. “We had also seen signs of the labor market coming into better balance, but recent strong jobs reports—including upward revisions to employment growth—show a continued tight labor market,” argued Gov. Bowman. The official also spoke to how solid consumer spending indicated to the FOMC the need for the central bank to continue its “restrictive” monetary policy to “reduce inflationary pressures.” Nevertheless, some economists, like Nobel Prize winner Joseph Stiglitz, disagree with the Fed and believe that maintaining a high-rate environment will not lead to lower housing prices as it dissuades people from selling their homes and discourages investment in new construction.

Gov. Bowman said that “continued labor market tightness could lead to persistently high core services inflation.” While earlier, the Fed had said that a wage-price spiral was not driving inflation, the central bank seems to backtrack, saying that “some businesses continue to report above-average wage increases to compensate for elevated prices and high inflation.” However, with Congress unwilling to punish companies that are price gouging, workers continue to demand higher wages to prevent decreases in purchasing power. Senator Elizabeth Warren (D-MA) took to X after the Federal Reserve reported that corporate profits “accounted for ALL inflation from around July 2020 to July 221, and 41 percent of all inflation from July 2020 to July 2022,” when prices were at their highest.

If companies feel encouraged to continue increasing prices even when their costs are not rising, a wage-price spiral could begin, with the economy in a very vulnerable position.