Fed’s Barkin Sees Long-Term US Labor Constraint Keeping Inflation Heat

Federal Reserve Bank of Richmond President Thomas Barkin said the US economy may be entering a period where labor supply is constrained for a long time, which could keep upward pressure on inflation and require firms to spend more to attract and keep their workforce.

“Labor supply looks like it will remain constrained,” Barkin said Friday in the text of a speech to the Virginia Economic Summit and Forum on International Trade, which was prepared before release of the November payroll report by the US Labor Department. “The Fed’s efforts to bring demand back into balance won’t be easy when Americans still have about $1.3 trillion more in savings than they did pre-pandemic and fiscal stimulus continues.”

Non-farm payrolls rose by a more-than-expected 263,000 last month, a sign of still strong demand for workers amid resilient consumer demand, and one measure of supply -- the participation rate of workers aged 25 to 54 -- was little changed at 82.4%.

In his actual remarks, Barkin said that the November employment report showed that “layoffs remain muted because businesses seem reluctant to shed workers that they’ve fought hard to hire.”

Barkin listed several sources of labor scarcity, from declining net migration to complications arising from the pandemic, as well as retirements.