[New York Diary] Biden and Powell's "Last Stronghold"... Cracks Already Showing in the Labor Market

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Photo by Reuters]

[Asia Economy New York=Special Correspondent Seulgina Jo] It was ten days ago when Ailey Miller, a New Yorker in her third year at the company, attended an emergency video town hall meeting for all employees. At this meeting, the management revealed a sudden restructuring plan. And just one day later, Miller, along with more than 100 colleagues, received layoff notices. As soon as she sat down, Miller shared the news, saying weakly, “I was more shocked than during the first layoffs right after the pandemic.” The tech company she worked for had been aggressively expanding just two to three months prior.

The higher the mountain, the deeper the valley. This thought came to mind while watching the rapidly spreading wave of layoffs and hiring freezes. Unfortunately, the long-standing adage of the stock market seems to apply equally to the recent U.S. labor market. This is because the tech and growth companies that had aggressively grown during the pandemic are now facing a strong chill of workforce reductions.

A strong labor market is considered a pillar that led to the rapid economic recovery of the U.S. after the pandemic. It is also a representative topic that President Joe Biden and his key administration aides do not hesitate to praise publicly ahead of the midterm elections this November. President Biden evaluated in the first half of the year that “we created the strongest job-creating economy since World War II.” Earlier this month, he declared, “We have recovered all the jobs lost due to COVID-19.”

Jerome Powell, chairman of the Federal Reserve (Fed), the central bank, also never misses mentioning the strong labor market in his public appearances. The reason he is confident that the U.S. economy can withstand the intense tightening monetary policy is based on ‘tight’ employment indicators such as the lowest unemployment rate in 50 years. In fact, it was the last ‘cornerstone’ that President Biden and Chairman Powell relied on amid the pressure from soaring inflation.

So, will Chairman Powell repeat his assessment that the labor market remains strong at this week’s Federal Open Market Committee (FOMC) meeting?

Dozens of major companies, including Apple, Tesla, Meta Platforms, Netflix, JPMorgan Chase, Rivian, and Ford, have recently formalized layoff or hiring reduction plans. Including startups, the scale is even broader. According to LinkedIn, employment in the tech sector decreased by 9.1% last month. Across all industries, it shrank by 5.4%. Julia Pollak, an economist at ZipRecruiter, reported that “the number of job postings on various online platforms has declined nationwide for five consecutive weeks.”

Weekly released indicators are also worsening. The number of U.S. unemployment benefit claims for the week of the 10th to the 16th of this month exceeded market expectations, reaching the highest level since November last year. Moreover, Chairman Powell officially acknowledges that the Fed’s high-intensity tightening to reduce inflation will inevitably raise the unemployment rate.

The Fed’s dilemma between inflation, which has yet to peak, and the labor market has now fully emerged. While voices within the Fed suggest that some economic slowdown and unemployment must be accepted, the important thing is an ‘accurate diagnosis.’

Having already lost significant market trust due to misjudgments about inflation, the Biden administration and the Fed must not simply evaluate the labor market as “strong” or “okay,” but must examine it more seriously. This is to prevent another delayed admission from Chairman Powell and key Biden administration aides a year from now, saying “the judgment at that time was wrong.”

This content was produced with the assistance of AI translation services.