Central Concern

Every August since 1982, the Kansas City Branch of the Federal Reserve System hosts an event in Jackson Hole, Wyoming.  It’s like an economic summer camp, although they probably forego the sticky fingers that come with s’mores.  The idea is to foster open discussions about the economy, exchanging ideas and probably a few barbs.  Typically, the event centers around a specific economic theme.  This year’s focus was “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.”  This theme provided an opportunity for Jerome Powell, the soon-to-be-outgoing Chair of the Federal Open Market Committee (FOMC), to signal a change in their priority.

Per the dual mandate handed down by Congress, the FOMC is supposed to balance its attention between the labor market and price stability.  Most of the time, these two focuses are at odds with each other.  Given the price surge America faced a few years ago, the FOMC’s emphasis has been on inflation.  Doing so has brought inflation’s trend closer to their self-imposed target of 2.0%, but the mission is not yet accomplished.  In the meantime, the labor market has taken a weaker turn.  After the numbers were revised, the Bureau of Labor Statistics counted just 106,000 net new jobs from May through July of this year.  For context, the February 2025 tally was 102,000 on its own with March and April creating an additional 185,000 and 177,000 respectively. Hiring has ground to a halt, but America’s education system keeps churning out fresh grads ready to work.  In short, the labor market seems to have newfound vulnerability.

Powell has rolled up his sleeping bag in Jackson Hole for the last time as FOMC Chair, as his term ends in May.  Like a reaction to hearing something in the brush, the Fed is shifting its gaze back to the labor market.  All else equal, this could cause inflation to accelerate, especially as the economy continues digesting yet unknown impacts from tariffs.  After Powell is gone, who knows?  Although most expect President Trump to appoint a chairperson who will err on the side of easier monetary policy, potentially also letting inflation run a little hotter than has been the stated goal.  Further, they may choose to restate their inflation target altogether, adding further fuel to America’s fire.