“It’s possible that this time is really different,” Fed chair Jerome Powell observed after hiking interest rates for a tenth straight time. “It’s interesting that we’ve raised rates by 5 percentage points and the unemployment rate is even lower than where it was when we started.”
Except … wait: doesn’t it typically take fourteen months from the time the Fed starts raising interest rates until the unemployment rate reaches its lowest point and begins to rise? With the first Fed hike in March 2022, that means the unemployment rate should increase now.
Our bet is that it won’t.
In The Four Agreements, Don Miguel Ruiz counsels us to refrain from making any assumptions. “If we don’t make assumptions,” he writes, “we can focus our attention on the truth, not on what we think is the truth. Then we see life the way it is, not the way we want to see it.”
The idea that the job market will weaken is predicated on the assumption that all recessions look the same. But the pandemic-induced recession was quite different.
Past recessions disrupted employment from the demand side. Job losses were centered around goods-producing sectors, such as manufacturing and construction. In contrast, the pandemic disrupted labor supply, with job losses mostly in the service sector. The emergency monetary and fiscal response unleashed a positive...