E-Paper
Unemployment levels to remain low in US amid surging inflation?
President Biden is betting on the fact that 6% inflation can be beaten while keeping unemployment levels low.
US President Joe Biden keeps seeing bad public approval ratings besides delivering good economic news. The unemployment rate under Biden fell to 3.5% in March. More than 236,000 jobs were added to the state. However, reports suggest that it has not been beneficial for the president politically.
High inflation levels, the after-effect of the pandemic and the political polarisation have left the people feeling horrible in the US diminishing his popularity in the state. Reports also suggest that the unemployment rate could rise in the US in the upcoming days. According to the Federal Reserve, the jobless rate is expected to hit 4.5%.
The jobs report of Friday showed that wage growth slowed in the US contributing to inflation. However, Biden is betting on the fact that the conventional economic wisdom is wrong and that 6% inflation can be beaten while keeping unemployment levels low. “We continue to face economic challenges from a position of strength,” Biden said in a statement about the latest jobs report.
The job market is what economists call “inefficiently tight,” a problem the United States also faced during the Vietnam War, the Korean War and World War II. Reports suggest that the current tightness of the economy is as severe as it was at the end of World War II.
Based on his calculations on the US job market from a 2022 paper, researcher Pascal Michaillat estimates that a 4.6% unemployment rate would make the labour market efficient. At that rate, the day-to-day transactions that shape an economy would have less friction because the demand for workers would be similar to the supply.
Biden’s unemployment rate so far is better than that of Presidents Barack Obama, Ronald Reagan, Bill Clinton, Gerald Ford, Jimmy Carter, and both Bushes.
A White House official, who preferred not to be named, said that Biden's goal was to increase hiring that would cause strong growth in the long term. Biden has rejected criticisms that the size of COVID relief contributed to inflation, although research published by the New York Fed indicates that federal aid accounted for about one-third of the higher inflation from late 2019 to June 2022.
(With inputs from AP)
