A couple weeks ago we visited the author of this piece in "Peak Inflation Is Hollow: It Provides No Context To Reduction in Speed or Duration of Cycle" wherein he made the very important point that all the jibber-jabber about "peak" inflation doesn't matter and doesn't help the analyst understand where we are and where we're going. Our introduction to that essay:
The author, Joe Carson is the former Chief Economist & Director of Global Economic Research at Alliance Bernstein. Prior to that he was Chief Economist at Chemical Bank and at Dean Witter, firms he left in such rough shape they were forced to merge with JPM and MS respectively. (Just Kidding Mr. C.)
And from his personal website, The Carson Report, July 8:
The June Employment Report Says the Fed "Job" of Reversing Inflation in the Economy is Far From Done
The June employment report has several important implications and consequences for policymakers and investors. In short, the Fed's "job" of reversing inflation impulses in the general economy is far from done. And with operating profits already in decline, higher official rates will only intensify the squeeze on margins and profits. Here's why.
First, an economy generating over 300,000 jobs a month is well above its potential. June's gain of 372,000 followed an increase of 384,000 in May and 368,000 in April. Adding 1.12 million workers over the last three months should quiet talk of recession and put the focus back on inflation.
Second, official rate hikes and tightening financial conditions have done little to undo the tightness in labor markets. The civilian unemployment rate stood at 3.6% at the end of Q2, off 0.3 percentage points from the start of the year. And it's near a 50-year low. The relatively low joblessness shields the Fed from politics as it fights inflation pressures....
....MORE (the meat of the matter)
And from Federal Reserve Board Chairman Powell via the Wall Street Journal May 4, 2022:
Transcript: Fed Chief Powell’s Postmeeting Press Conference
.... Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years...
Deeper into the transcript:
...Implications for inflation. Really the wages matter a fair amount for companies, particularly in the service sector. Wages are running high, the highest they’ve run in quite some time. And they are one good example of—or good illustration, really—of how tight the labor market really is, the fact that wages are running at the highest level in many decades. And that’s because of an imbalance between supply and demand and the labor market....
And later:
...So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that....
He used the word "wages" 11 times including this:
...There aren’t enough people to fill these job openings and companies can’t hire and wages are moving up at levels that would not over time be consistent with 2 percent inflation over time. And of course, everyone loves to see wages go up and it’s a great thing, but you want them to go up at a sustainable level because these wages are to some extent being eaten up by inflation....It doesn't really matter what tomorrow's report says, the die has been cast.
