Twice each year, the Federal Reserve is required to report to Congress, a process which involves both testimony from Fed Chair Jerome Powell and also the publication of the Monetary Policy Report, which comprises a broad statement of how the Fed is perceiving the US economy. The most recent report has a section on the movement of employment and earnings since 2019, the year before the pandemic hit.
For employment, the Fed report focuses on the employment-to-population ratio. A benefit of this approach is that categorizing those who do not have jobs as “unemployed” or “not looking for work” will always have a gray area between the two. The employment-to-population ratio sidesteps that issue.
For example, here’s are shifts in the employment-to-population ratio by age. During the pandemic, the employment-to-population ratio of the age 55+ group dropped by the least. but now, employment-to-population for the other age groups has rebounded to slightly above pre-pandemic levels, while remaining low for the 55+ group. A likely explanation here is that the pandemic causes a certain number of older folks to retire–and they just stayed retired.
Here’s a breakdown by sex and education level. The solid lines show men and women with “some college or more” education; the dashed lines show “high school or less” education. During the pandemic, employment-to-population dropped more for those with less education. At present, employment-to-population for women of all education levels has rebounded more strongly than for men.
For wages, the general pattern is that during the pandemic, those with lower wages and education way lower increases in wages, but they continued to see raises. However, those in higher wage groups and with higher education saw actual negative wage growth. But quite recently, wage increases for those with higher wage and education levels has now moved slightly ahead of other groups. two figures on the left-hand side of the panel illustrated these patterns, with corresponding patterns by race and sex on the right.
Does all of these mean that the Fed is ready to start reducing interest rates? To answer this question, you can gaze into the crystal ball that is the Monetary Policy Report youself. But in a different part of the report, the Fed discusses the recent path of inflation:
After declining modestly last year, consumer price inflation continued to ease during the first four months of this year, although at a bumpy pace and with some early signs that higher tariffs on U.S. goods imports are pushing up prices for some consumer goods. The 12-month change in the price index for personal consumption expenditures (PCE) was 2.1 percent in April, down from 2.6 percent at the end of last year (figure 1). Meanwhile, inflation for core PCE prices—which exclude often-volatile food and energy prices and are generally considered a better guide for future inflation—has also eased further this year but remains somewhat elevated, with the 12-month change receding from 2.9 percent in December to 2.5 percent in April.
The Fed has for some years now focused on “core PCE” inflation as the key measure that it watches. By that standard, inflation has not yet fallen to the Fed’s goal of 2%.
Finally, I was also struck by a graph from the report on debt of households and nonfinancial firms. For households, total debt-to-GDP was trending up during the 1980s and 1990s from about 0.5 to 0.7. During the housing boom of the early 2000s, the household debt-to-GDP peaked at nearly 1.0. But since then, the ratio has sagged back down to about 0.7, where it was in the late 1990s.
For nonfinancial businesses, it appears that debt-to-GDP was hovering in the range of about 0.5 to 0.7 from the mid-1980s up through the mid-2000s. This debt-to-GDP ratio then appeared to be rising from the Great Recession through the pandemic, but has now sagged back to about 0.7. In short, most of the US economy does not appear to be in a debt-and-credit boom of the sort that can cause big problems when that boom turns to bust. The exception, of course, is the strongly growing debt of the US government.
