A new Brookings piece looks at Census data and finds that about 4 million workers are out of work because of long covid.
For comparison, the total number of unemployed is about 6 million, and total employment is 153 million.
The bottom line is that long covid is a key reason why there are labor shortages and hence why wage inflation remains so high.
It is difficult for the Fed to increase the labor supply, but by raising interest rates, the FOMC can lower labor demand and increase the unemployment rate to get wage and price inflation down to the Fed’s target.
The challenge for the Fed is that the unemployment rate has not increased yet, so the Fed will likely have to raise rates more than the market currently expects to get the softening in the labor market that is needed to get inflation down to sustainable levels.
Access the piece here.
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