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A12 BUSINESS
Tuesday 13 december 2022
A diminished U.S. workforce could lead

Fed to keep rates high

By CHRISTOPHER RUGABER
AP Economics Writer
WASHINGTON (AP) — Still
eager to hire, America’s
employers are posting
more job openings than
they did before the pan-
demic struck 2½ years
ago. Problem is, there
aren’t enough applicants.
The nation’s labor force
is smaller than when the
pandemic struck.
The reasons vary an un-
expected wave of retire-
ments, a drop in legal im- Shoppers leave the Primark store, Saturday, Dec. 10, 2022, at
migration, the loss of work- Downtown Crossing in Boston.
ers to COVID-19 deaths Associated Press
and illnesses. The result, raise its benchmark rate by output per hour. Under
though, is that employers a half-point this week, and that scenario, businesses
are having to compete for many economists expect could raise pay without
a smaller pool of workers quarter-point rate hikes having to raise prices. But
and to offer steadily higher after that. Cumulatively, productivity has been es-
pay to attract them. It’s a those rate increases may pecially weak in the past
trend that could fuel wage be helping slow inflation. year. And Powell has not-
growth and high inflation But they have also sharply ed that higher pay will like-
well into 2023. increased borrowing costs ly feed too-high inflation
In a recent speech, Fed- for consumers and busi- in the service sector ev-
eral Reserve Chair Jerome nesses on mortgages, auto erything from restaurants
Powell pointed to the short- loans and credit cards, and hotels to retail stores,
fall of workers and the re- among other loans. Many medical care and enter-
sulting rise in average pay economists have warned tainment. The employers in
as the primary remaining that the resulting decline these industries are labor-
driver of the price spikes in borrowing and spending intensive, and they tend
that continue to grip the will likely cause a recession to pass their higher labor
economy. in 2023. Yet with price in- costs on to their custom-
Though inflation pressures creases still uncomfortably ers through higher prices.
have eased slightly from high, Powell and other Fed Higher wages also typically
four-decade highs aver- officials have underscored spur Americans to keep
age gasoline prices are that they expect to keep spending, a trend that can
now below where they rates at their peak for an perpetuate a cycle that
were a year ago costs are extended period, possibly keeps prices high.
still rising fast in much of the through next year. “This labor shortage that
economy’s vast service On Wednesday, members we have,” the Fed chair
sector. As a result, the Fed of the Fed’s rate-setting said, “it doesn’t look like
is expected Wednesday to committee will update it’s going away anytime
raise its benchmark short- their projections for interest soon. It’s been very dis-
term rate for a seventh rates and other economic appointing and a little bit
time this year, though by a barometers for 2023 and surprising.” The leading
smaller amount than it has beyond. The higher wages cause of the worker short-
recently. The central bank that many employers are fall, according to research
has boosted its key rate by having to offer don’t al- by the Fed, is a surge in
a substantial three-quar- ways lead to higher infla- retirements. In his recent
ters of a point four straight tion. If companies invest in speech, Powell noted that
times, to a range of 3.75% more efficient machines or there are now about 3.5
to 4%, the highest level in technology, workers can million fewer people who
15 years. Powell has sig- become more productive: either have a job or are
naled that the Fed will likely They can increase their looking for one compared
with pre-pandemic trends.
Of the 3.5 million, about 2
million consist of “excess”
retirements — an increase
in retirements far more
than would have been ex-
pected based on pre-exist-
ing trends. Roughly 400,000
other working-age people
have died of COVID-19.
And legal immigration has
fallen by about 1 million. q