Now that the job losses attributable to the pandemic have been recovered, it would appear that the scorching labor market is as hot as the summer weather. All of this economic growth, coupled with a shortage of skilled workers, have resulted in extraordinary wage gains, and increased employee leverage. The dark side of that story is that wage growth also fuels inflation.
Of course, wage growth has not kept pace with inflation (currently at 9.1%). Low income households are having difficulty making ends meet, especially with the rising cost of fuel and housing.
Still, there are many who are leary of inflation and how it may impact the economy. However, one of the significant changes from last week to this week is the agreed upon Inflation Reduction Act
. As reported by
the Committee for a Responsible Federal Budget (CBO), "Overall, CBO estimates the legislation includes $790 billion of offsets to fund roughly $485 billion of new spending and tax breaks (as negotiators account for the policies, it includes $739 billion of offsets and $433 billion of investments). Unlike prior versions of this reconciliation bill, such as the House-passed Build Back Better Act
, this legislation would reduce deficits. Along with other elements of the bill, it is likely to reduce inflationary pressures
and thus reduce the risk of a possible recession."
However, in an article published last week, Forbes disagrees. Citing the nonpartisan, research-based Penn Wharton Budget Model
, their study concludes that " ... there's low confidence that the legislation will have any impact on inflation.
Where do we go from here?
Again, although a crystal ball would come in handy, there are some signs worth noting. First, in lieu of the surprising increase in jobs, some economists belief that the Fed may become more aggressive in their attempts to cool down the economy, which, after the jobs report, prompted financial markets to fall early in Friday trading last week, although this did not last. But, the continued job growth also signals the FED that they may have struck the right balance - it remains to be seen.
Again, as reported in the Washington Post
, "...the economy is showing signs that the labor market can remain robust and continue to recover even as the Fed raises interest rates to combat inflation."
What is encouraging is that the large number of new jobs created indicates that the pool of available job seekers has not been exhausted, but continues to expand.
So, to answer the question, where do we go from here, the best advice from the experts is to stay the course, while keeping a weather-eye out for any storms on the horizon.
If you're a bit unsure as to what your future may hold, we don't have a crystal ball, but our professionals at ASN are constantly keeping track of the economic pulse. Give us a call - we would love to talk with you.