Labor Market Will Help, Not Hinder, Fed's Inflation Fight

The labor market is turning out to be a new source for optimism in the Federal Reserve's fight against inflation. Worker shortages that drove up wages during the pandemic and in the economic reopening are fading. It might not amount to a labor glut, but we at least have new areas of employment stability in some industries.

While the overall labor market remains strong, it also now appears that worker pay in these industries may have overshot the fundamentals. That's leading to a growing prospect that wage growth for certain jobs is going to stagnate for a while. It's not great news for people employed in warehouses or hospitality businesses, but it offers up more hope that the elevated inflation the country has experienced over the past 18 months will normalize quickly.

Amazon.com, as I've written before, continues to be a good reflection of the country's labor market dynamic. In its quest to meet growth targets, Amazon went on a hiring spree in 2021 that drove up wage growth not just in the warehousing industry, but in related industries like manufacturing and transportation, where employers were competing for similar kinds of workers. Because Amazon is such a big employer, it almost single-handedly pushed average hourly earnings up almost 17% in 2021 for warehousing and storage workers.