Further, this move radically undermines what Trump says his own goal is: lowering U.S. interest rates to spur faster economic growth. Instead, it will likely raise interest rates over the long term and lead to higher costs for working people.

Why will this happen? The interest rates that truly influence economic growth are long-term rates generally set in financial markets. These longer-term rates are usually strongly influenced by the Fed’s decisions over the shorter-term rates it controls directly—but that’s only because the Fed has, until now, been seen as a non-political, evidence-based institution. If the Fed instead becomes politicized, its influence will falter, and changes it makes to short-term rates will have far less effect on the long-term rates that influence economic growth.

Presidential capture of the Fed would signal to decision-makers throughout the economy that interest rates will no longer be set on the basis of sound data or economic conditions—but instead on the whims of the president. Confidence that the Fed will respond wisely to future periods of macroeconomic stress—either excess inflation or unemployment—will evaporate. As a result, investors will demand higher premiums to hold on to U.S. Treasury bonds (and other long-term bonds), because without faith that the Federal Reserve will tamp down inflationary pressures when they appear, they will need reassurance—in the form of higher long-term interest rates—to hold on to these investments.

These higher long-term rates will ripple through the economy—making mortgages, auto loans, and credit card payments higher for working people—and require that rates be held higher for longer to tamp down any future outbreak of inflation. In the first hours after Trump’s announcement, all of these worries seemed to be coming to pass.

The source of the allegation of mortgage fraud against Governor Cook is also extremely concerning: a public announcement by the head of the Federal Housing Financing Authority (FHFA), the agency that oversees Fannie Mae and Freddie Mac. The FHFA has access to mortgage information for tens of millions of U.S. households—access that could be abused by a politically-motivated agency looking to harm perceived political opponents of the president. This seems clearly to be what is happening in the Cook case. Under an honest and well-run administration, any potential impropriety identified by FHFA staff in the normal course of their activities would have been referred (without public notice) to the Department of Justice, which would have conducted an investigation without any public comment. Only if the allegations rose to the level of an indictment would a public announcement be made. That the FHFA has been weaponized to find damaging allegations against a perceived political opponent of the president is deeply worrying.

EPI urges the courts to act quickly to overturn this unlawful dismissal and to reaffirm the independence of the Federal Reserve, which is critical to the health of our economy and our democracy.

The Fed’s key job is to maintain macroeconomic stability, which means trying to ensure both unemployment rates and inflation are kept low. Often this involves some short-run trade-offs: There are times when a Fed that wanted unemployment to fall and didn’t care at all about inflation could lower interest rates dramatically. This would incentivize more borrowing and spending in the economy, boosting demand for goods and services. If all this happened with unemployment already relatively low, businesses would find it hard to assemble the inputs (including workers) needed to produce enough to satisfy this new demand—and inflation would follow. Conversely, if the Fed wanted to ensure that inflation remained low and didn’t care much about keeping unemployment low, it could keep interest rates high and tolerate too-high unemployment for extended periods to ensure demand never came close to outrunning the economy’s supply side.

The Fed has extraordinary levels of independence in making decisions about these trade-offs. They haven’t always gotten it right. I’d argue that for decades after the 1970s they acted like the caricature I drew above: They tolerated excess rates of unemployment in order to avoid any risk of rising inflation. This toleration of slack labor markets was a key driver of wage suppression in those decades.

For most of the 21^st century, however, the Fed has placed an appropriately higher weight of importance on keeping unemployment low. They are an institution that is not rigid on macroeconomic management, and they react and change course relatively quickly when the evidence warrants it. These are incredibly valuable attributes for such an important economic policymaking institution in the U.S.—degrading their value by allowing a president to bully or micromanage the Fed’s decision-making would be a disaster for the U.S. economy, including typical workers and their families.

In the post-pandemic period of high inflation, many (including powerful politicians) urged the Fed to overreact and raise interest rates “until something broke” in a wild effort to contain inflation no matter what the cost in terms of higher unemployment. The Fed refused, still wanting to slow the economy to help bring inflation under control but also being properly protective about the huge benefits of very low unemployment in those years. The result was that the post-pandemic inflation episode was well-managed, with inflation falling even as unemployment remained low.

This “soft landing” would have been impossible if the Fed was not independent of political influence and not trusted to do their job of bringing inflation down. To put it more simply, nobody thought the Biden administration would hamper the Fed’s inflation-fighting job by threatening to fire Powell if he raised rates and risked the very low unemployment rates that prevailed at the time. Because nobody thought this, everybody was confident that inflation would indeed normalize as the Fed did what it needed to do. And this confidence that inflation would indeed normalize meant that workers were not building in expectations of spiraling inflation when they bargained for wages, and firms were not building in expectations of spiraling input costs as they made pricing decisions. In short, the Fed’s independence muffled—not amplified—the inflation burst of 2021–2022.

If Trump degrades confidence in the Fed’s political independence, any future inflation burst (say, one driven by a large increase in budget deficits) could well get embedded quickly into expectations, as workers and firms assume the Fed would not be effective in constraining inflation going forward. People will begin planning with inflation in mind and it could well begin accelerating. While lots of this bad dynamic would be kicked off by the Fed trying to keep the interest rates they control too low to constrain any inflationary burst, higher inflation expectations would start pushing up market-based interest rates like those for mortgages and auto loans. Lenders in credit markets know that inflation exists and if it begins rising, they will demand higher interest rates to account for it. This would lead to a future of permanently higher inflation and interest rates for things that matter to typical families.

To be clear, Fed independence does not just mean independence to slow the economy during periods of inflation. This independence also helps them ignore calls to tolerate crisis levels of unemployment. When congressional Republican majorities actively tried to throttle a robust recovery from the Great Recession, the Fed pushed in the opposite direction and stretched the policy envelope in efforts to bring unemployment back down to tolerable levels. They mostly failed, but only because the current tools they have for fighting recessions and spurring recovery are much weaker than the tools they have for slowing the economy.

Ironically, some of the names being floated to replace Jerome Powell in the event of a firing are people who savagely criticized the Fed for trying to bring down crisis levels of unemployment in the 2010s, even as inflation remained historically low. Given today’s still-low unemployment and above-target inflation, are these people being even louder about the Fed’s need to raise interest rates? They are not. Now that President Trump wants lower interest rates, these former critics have pivoted 180 degrees and have joined the chorus for cutting. They are, in short, unserious partisan hacks. And degrading the political independence of the Federal Reserve to appoint people like this would lead to a U.S. economy with higher inflation and interest rates in the long run. It would be yet another unnecessary self-inflicted economic wound from the Trump administration.

Americans often tell pollsters that they think the economy is in recession, but this seems like a shorthanded way to express their frustration with the state of economic rewards in this country. And it is true that the U.S. economy—the richest in the history of the world—does a bad job of translating overall growth into true economic security for most families. Contrary to popular opinion, though, recessions rarely occur, and when they do, they make economic outcomes far worse and notably increase deprivation for typical families.

In short, the question of whether a recession is coming is not driven by political point-scoring, it cannot be assessed by quirky responses to poll questions, and it has dire and significant consequences for the material circumstances of tens of millions of American families.

Why have people been talking more about a possible recession lately?

Summary: Despite inheriting a strong and stable economy, the Trump administration has made policy announcements and commitments that are highly likely to cause a recession over the next year, unless they are reversed.

Read the full answer

Recent concerns about recession are 100% driven by poor policy decisions from the Trump administration. The macroeconomy was in an extraordinarily strong and stable state when it was handed off to the Trump administration. The historically high and broad tariffs the Trump administration has repeatedly threatened since early March would, by themselves, pose a recessionary threat to the economy. The chaotic way the administration has rolled out, retracted, changed, paused, and re-upped the tariffs have made things even worse by creating mammoth economic uncertainty as well, which nearly all economic observers think will lead to sharp contractions in several kinds of economic activity.

Figure A shows Google search trends for recessions, along with the dates of various tariff announcements.

Figure A

The International Monetary Fund said the following about global growth prospects in January 2025 (before President Trump’s inauguration):

The forecast for 2025 is broadly unchanged from that in the October 2024 World Economic Outlook (WEO), primarily on account of an upward revision in the United States offsetting downward revisions in other major economies…. Upside risks could lift already-robust growth in the United States in the short run, whereas risks in other countries are on the downside amid elevated policy uncertainty.

In April of 2025, a revision to these growth forecasts noted the following about the negative effects that the new tariffs would have:

Since the release of the January 2025 WEO Update, a series of new tariff measures by the United States and countermeasures by its trading partners have been announced and implemented, ending up in near-universal US tariffs on April 2 and bringing effective tariff rates to levels not seen in a century (Figure ES.1). This on its own is a major negative shock to growth. The unpredictability with which these measures have been unfolding also has a negative impact on economic activity and the outlook and, at the same time, makes it more difficult than usual to make assumptions that would constitute a basis for an internally consistent and timely set of projections.

Further, on April 9, the Goldman Sachs macroeconomic forecasting team moved their baseline scenario for the next year to recession, based on announcements of the “Liberation Day” tariffs. When the Trump administration announced a pause on tariffs, the forecast changed back to just under 50% chance of recession.

In short, there is universal agreement that the Trump tariff policy is bad for growth in substance and in implementation, and that this policy is driving increased risk of recession.

On top of the botched tariff policy, the other big threat to growth in the near term is a similarly chaotic effort to destroy capacity in the federal government. The administration has rolled back or ended federal employment and grants in numerous extralegal ways. These cutbacks could eventually be large enough to weigh on growth in the short term, and they will absolutely reduce longer-run growth as key public goods and services that complement private-sector growth-generating activities are no longer provided. Further, many of the key functions being hamstrung by recent cutbacks involve surveillance of potential economic risks—either financial, epidemiological, or climate-related. Impaired surveillance could well mean future risks (say of cascading bank failures or of another pandemic) wouldn’t be anticipated, and there wouldn’t be sufficient time to mount a strategic response, further harming growth.

All the uncertainty associated with bad policy implemented chaotically has led to the highest economic policy uncertainty readings since the beginning of the COVID-19 pandemic. This uncertainty is poison for all sorts of high-stakes spending decisions from businesses and households, and so these decisions will be deferred, and economic activity will begin contracting.

So far, the core data normally used to declare recessions have not signaled that a recession has begun. This could take a number of months (see answers to the questions below that talk a bit more about this data). But other data, often sentiment-based, is strongly signaling that a recession is very likely.

Are standard recession indicators clearly signaling an imminent economic contraction?

Summary: Not as of May 2025. Standard recession indicators do not look strongly contractionary at the moment. Since January 2025 there has been more weakening than strengthening in these indicators, but by themselves, they are not clearly showing signs of recession.

Read the full answer

As of May 2025 these standard indicators are not strongly signaling an imminent contraction. Table 1 shows a number of indicators used by the National Bureau of Economic Research to define recessions. It shows how these indicators slowed in the six months before the last two recessions before COVID-19 and then compares their pace of growth since January 2025 relative to their pace in 2024.

Table 1

In the last two nonpandemic recessions, growth in nearly all indicators slowed sharply in the six months before a recession hit. Since January 2025, of the 10 indicators for which data are available, growth has slowed in six and has not improved at all relative to 2024 for two indicators. Two indicators have seen faster growth so far in 2025 than in 2024.

So far, while more indicators are slowing in this table than not, without other information (discussed in more detail in the following question), this table would not generally raise huge concerns about a coming recession. But these indicators certainly bear watching.

Another commonly referenced recession predictor is the “Sahm rule” (when the rolling three-month average of the unemployment rate exceeds the lowest point this measure reached over the past 12 months by 0.5 percentage points, this often predicts a recession). The Sahm rule has already triggered one “false positive” in the past couple of years, but is not signaling a recession now (see Figure B for the Sahm indicator and thresholds).

Figure B

Do recessions clearly increase poverty and other measures of economic suffering?

Summary: Yes, recessions are strongly associated with higher poverty and greater material deprivation. During the pandemic recession and early recovery, government support was so unprecedentedly generous that the poverty increases spurred by the recession were swamped by poverty declines driven by government aid. But that recession was a clear outlier.

Read the full answer

The labor market is the main source of income for low-income families, and higher unemployment during a recession causes reductions in annual earnings, pushing more families below poverty income thresholds.

Figure C uses annual state-level data to show that higher unemployment rates are associated with higher poverty rates. In particular, a one percentage point increase in unemployment typically leads to a 0.6 percentage point increase in the standard poverty rate, or about 2.1 million additional people in poverty according to recent data.2

However, poverty rates are less likely to rise when there is stronger fiscal support to combat a recession, particularly when the fiscal support is targeted directly at lower-income households. This happened most recently during the COVID-19-induced recession in 2020 when expanded unemployment benefits, higher child tax credits, cash payments, and low interest rates directly benefited families and kept aggregate demand high. The annual unemployment rate more than doubled between 2019 and 2020, but the standard poverty rate based on pre-tax money income only rose by 1.0 percentage point. The supplemental poverty rate, which includes post-tax income, fell by 3.9 percentage points between 2019 and 2021, and only rose in 2022 after many of the COVID-19-related supports expired. Further, by the end of 2021, unemployment rates nearly returned to pre-recession levels.3

Figure C

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Notes:

2. A regression of state-level official poverty rates on unemployment rates from 1978 through 2023, with state and year fixed effects, weighted with mean state age 16 and over population levels, yields a coefficient of 0.623. In 2023, the poverty rate was 11.1%, and the poverty level was about 36.8 million people, so a 0.623 percentage point increase in poverty is equivalent to about 2.1 million people. Poverty rates, unemployment rates, and civilian population levels are available from the EPI State of Working America Data Library, retrieved May 9, 2025.

3. Official and supplemental poverty rates are available from the EPI State of Working America Data Library, retrieved May 9, 2025.

Who is hurt the most in recessions?

Summary: Workers with the least labor market leverage usually bear the largest costs of a recession. Concretely, this means that employment declines the most for Black and Hispanic workers, younger workers, and workers without a college degree.

Read the full answer

Due to discrimination and other structural inequalities in the labor market, Black and Hispanic unemployment rates are consistently higher than white unemployment rates. Black workers have unemployment rates that are twice as high as their white counterparts, and the 2:1 Black-to-white unemployment rate ratio implies that Black unemployment rates soar during a recession. Figure D shows that in every recession over the last four decades, Black and Hispanic workers have experienced a much larger fall in employment than white workers. During the Great Recession, for example, the Black prime-age employment-to-population ratio (the share of adults between the ages of 25 and 54 with a job) fell by 7.4 percentage points, while the white rate fell by 4.3 percentage points.

Moreover, Black workers experience higher unemployment for a longer period relative to white workers. White unemployment began to fall 19 months after the technical end of the Great Recession in June 2009, but Black unemployment only began falling after 26 months. Relative to their white counterparts, Black workers experienced higher unemployment rates, which have taken longer to fall in every recession since the 1980s. When there is a negative economic shock, Black workers experience larger declines and slower recoveries of prime-age labor force participation and employment rates. In addition, Black workers who remain employed see disproportionately lower wage growth than white workers during periods of higher unemployment.

Figure D

Instead, the administration seems determined to squander and wreck the strong economy. Each of the individual policies they are pursuing—illegal layoffs of federal workers, mass deportations, constant threats and retractions of broad-based tariffs, and Medicaid spending cuts—would be bad for the economy. But each policy is also being pursued with maximum levels of chaos and incoordination, creating unprecedented levels of economic uncertainty. This uncertainty is itself a serious economic threat.

Below, we sketch out the macroeconomic dangers posed by each of the administration’s big policy initiatives so far, and end with an assessment of where this leaves the U.S. economy. The best outcome that could result from continuing these policies would be avoiding a recession but still sharply reducing growth and creating an U.S. economy that is significantly poorer than it would have otherwise been. The most likely outcome, however, is a recession in the coming year.

DOGE and the illegal attack on the federal workforce and payments

Among all the Trump administration blunders, the so-called Department of Government Efficiency’s (DOGE) illegal layoffs and contract cuts will show up first in macroeconomic data (they might already be showing up in unemployment insurance claims). The size of these cuts to date are not large enough to cause a recession by themselves, but if DOGE continues to pursue further cuts and they begin to add up to significant shares of the federal workforce, they could certainly spark a recession.

Further, the medium- and long-term damage of DOGE’s efforts are profound. DOGE is arbitrarily hacking away at key state capacity that is incredibly valuable and would be hard to reassemble quickly in the future. Their cuts also open up a number of new possible channels to trigger an economic crisis. Any one of these potential crises has a low probability of coming to pass, but creating multiple new possibilities for an economic wreck is extraordinarily reckless.

For example, cuts might erode our ability to detect and manage new pandemics. Or they might hamstring key public services that facilitate private-sector activity (such as air travel safety or scientific research). Given DOGE’s multiple demonstrated instances of misunderstanding basic facts about the government systems they are meddling with, it is far from inconceivable that DOGE could inadvertently cause key federal payments (say, interest payments to U.S. Treasury holders) to be missed or delayed. All in all, the unanticipated illegal DOGE attack on the public sector is the clearest current danger to the economy, which is saying a lot given the other bad policy efforts underway.

Further, the DOGE effort also creates huge uncertainty about how long the legal challenges will take to play out, whether Republican-appointed judges will be willing to cross the Trump administration, how long and in what form restitution will take, and even whether the administration will further the constitutional crisis by ignoring court decisions.

The Republican budget marching through the reconciliation process

The House budget resolution calls for cutting spending programs like Medicaid to help pay for a tax cut primarily for the rich, which would transfer income away from the bottom half of U.S. families and toward the very top. This is a terrible outcome by itself, one that would increase economic misery and inequality.

But the budget resolution if passed would also noticeably drag on overall demand growth in the economy. When disposable incomes fall for families living paycheck to paycheck, their spending falls in lockstep. Conversely, when rich families get a tax cut, they tend to save most of it. This decline in demand alone would force the Federal Reserve to cut interest rates to keep unemployment from rising. In turn, this would give the Fed much less ammunition to push back on any other recessionary force that arises in coming months.

This reconciliation process is also creating great uncertainty. It seems fairly sure that Republicans will extend the so-called Tax Cuts and Jobs Act (TCJA)—it is a universal Republican priority to keep taxes low for the rich. But it is still unclear whether this will be financed through cuts to spending like Medicaid (which would destroy demand) or just adding to the deficit (which would expand demand). Added on top of these layers of uncertainty are the possibility of a government shutdown and fights over the debt ceiling in the coming months.

Mass deportations

Should the Trump administration’s stated desires for mass deportations come to pass, this would constitute a profound shock to both demand and supply in the macroeconomy. In sectors where immigrants are a much larger share of workers than consumers—like food production, construction, and child care—prices will rise sharply as labor supply craters. In sectors where immigrants are more likely to be consumers than workers—retail, professional services, and durable manufacturing—demand will dry up.

Research has shown clearly that as immigrant workers are forced out of economies by enforcement measures, these economies suffer sharp employment declines of both immigrant and U.S.-born workers.

The final scope of the mass deportation efforts is also highly uncertain in macroeconomic terms (in human terms, we know this will cause great suffering). The administration might decide they are fine with highly performative acts of cruelty but not directly target millions of families. Or they might actually try to deport the millions they claimed they would target during the presidential campaign. Forecasting overall labor demand and supply given this uncertainty is extremely hard.

Unstrategic and chaotic tariff policy

Tariffs can be a useful policy tool. But the Trump administration’s approach to trade policy has been completely bizarre, with the strategic goal they claim to be targeting changing by the day (or even hour). And instead of using tariffs surgically to meet discrete goals, the Trump administration tariffs have been sweeping and across the board—often falling on goods (like many agricultural products) that the U.S. has no ability at all to produce domestically.

The initial rollout of widespread and high tariffs with no strategic goal was bad enough—these would have caused lots of pain to consumers while doing little to help workers in industries (like manufacturing) who have been genuinely damaged by past decades’ trade policy. But the administration has threatened—and even imposed—such tariffs only to yank them away again and again.

Radical uncertainty for its own sake

Each of these policy measures would be bad for the economy and typical families on their own. The fact that each comes with huge uncertainties creates even further damage.

This approach of pursuing destructive policy measures in the most chaotic and unpredictable way possible is tailor-made to freeze business investment in plants and equipment. What business will want to make plans about the future when key questions of demand, supply, the potential workforce, and the costs of inputs are entirely up in the air?

Swings in business investment are the most volatile parts of gross domestic product (GDP) in normal times, often leading the economy into recession. A policy approach that has led to the highest levels of economic uncertainty in history—higher than even the first months of the COVID-19 pandemic—is not a pro-investment agenda.

It is again worth noting the incredibly favorable investment environment that was handed off to the Trump administration. Business investment during the Biden administration grew faster than from 2017–2019, and significantly faster than it had averaged between 1979 and 2019. Further, the share of profits in corporate sector income hit historic highs in the pandemic recovery, offering huge incentives for businesses to keep investing in plants and equipment.

A policy agenda that manages to swamp this favorable investment momentum and send it into reverse would be a disaster, yet that seems to be where the radical uncertainty created by the Trump administration is taking the U.S. economy.

Uncertainty handcuffs the Federal Reserve

Finally, this uncertainty greatly complicates the Fed’s job. Inflation is currently running ahead of the Fed’s desired target, yet they have admirably tested the waters of lower interest rates because they have forecasted continued progress on lowering inflation even with slightly lower interest rates. But their forecasts are now far more uncertain. Multiple policy whipsaws that undermine both demand and supply growth will leave them very unsure about when and how much they should move interest rates to counter these policy shocks. Given that Fed policy is the first line of defense against recessions, policy uncertainty that makes it harder for them to recognize when the balance of demand and supply is getting out of line will see them acting less quickly than needed to recessionary shocks.

The U.S. will unambiguously be poorer at the end of Trump’s term

Absent a radical reversal of the current policy agenda, the U.S. will be a poorer country at the end of Trump’s term than it should have been. The only open question is how rapidly this de-growth will happen, whether more quickly through a sharp recession or more slowly as the supply destruction outpaces demand destruction.

My personal view is that avoiding a recession over the next year will require huge luck. The luck will either take the form of the administration quickly backtracking on many of its worst ideas, or in the fact that supply destruction will happen quickly enough that the demand destruction will not lead to spiking unemployment. But this second scenario is still very bad for U.S. economic growth, and either scenario will cause economic pain that was easily avoidable.

This labor market strength was also 100% a policy choice. Unlike previous business cycles, policymakers passed fiscal relief and recovery measures at the scale of the shock, and it proved that low unemployment could be restored very quickly after recessions so long as this policy lever was pulled with enough force.

Public appreciation of this accomplishment has been blunted by the outbreak of inflation in 2021 and 2022. While inflation has been steadily reined in since early 2023, the public’s perception of the economy remains soured by it. In a strict economic sense, the public mood seems odd: If real wages are higher and more equal now than at equivalent points in previous recoveries, why isn’t the public mood much better?

One reason put forward as to why the public dislikes inflation even if real wages and incomes are rising is pretty persuasive: workers see wage growth as something they individually achieved while inflation was a policy mistake inflicted on them. This outlook is understandable, but it’s totally wrong.

Policy choices influence wage growth every bit as much as inflation—and sometimes more. When wage growth is slow, policymakers deserve blame—not workers. When wage growth is strong, however, it is because policy has done something right, not because workers spontaneously decided to become more productive or harder-working.

It is deeply damaging to U.S. policy debates that this is not more broadly appreciated.

For decades when wage growth for the vast majority of workers was anemic, these workers were often told it was because they weren’t skilled enough to keep pace with the demands of technological changes and globalization. This was false. It was intentional policy decisions that suppressed wage growth in those decades, policy choices meant to redistribute income upwards toward capital-owners and corporate managers.

In the past four years, workers have seen fast wage growth not because they are working more productively or harder—U.S. workers have always been the most productive in the world and have always worked hard. What changed was that policymakers decided to target a rapid return to sustained low unemployment, keeping unemployment below 4.5% for the longest stretch of time since the Vietnam War. In 2021, these tight labor markets were also accompanied by unprecedently large and expansive unemployment insurance benefits and cash transfers to households. These public supports gave workers more breathing room than ever before to be choosy about which jobs they took. These policy choices are why wages grew so fast so early in the pandemic recovery.

In fact, over the pandemic recovery, the policy fingerprints on fast wage growth are far clearer than those on too-high inflation. Inflation after 2019 was driven by two global shocks—the pandemic and the Russian invasion of Ukraine. Inflation accelerated everywhere in the advanced world, and the precise amount by country was wholly unrelated to policy choices they made.

The most common critique of policymakers is that the Federal Reserve should have engineered softer labor markets and tolerated higher unemployment to break inflation’s momentum. This thinking is wrong. There is a long and extremely well-developed literature nearly unanimously showing that higher unemployment has larger and more reliable effects in reducing wage growth than it does in reducing inflation.

Policymakers who chose not to target significantly higher unemployment rates to tamp down inflation made the correct judgement that inflation was mostly driven by shocks that would fade even with labor markets remaining strong. That is, they chose to not sacrifice wage growth (and the jobs of millions of workers) to pull down inflation.

In short, the inflation of recent years was—sadly—inevitable. The fast wage growth over the past four years was made possible entirely by proactive policy decisions. Getting this straight is crucial for getting better policy going forward. And it should make the public much more appreciative about the macroeconomic choices made since 2020.

The answer—underappreciated by far too many—is very well!

In a nutshell, the Biden-Harris administration pushed a frontloaded and significant fiscal stimulus as the first major priority of their administration. The Federal Reserve accommodated this stimulus early on, and then began raising interest rates (more sharply than I would have) to try to rein in inflation. But they wisely never followed the advice of many to “keep raising rates until something breaks.”

In short, a return to full employment was prioritized in the Biden-Harris fiscal approach, and the value of low unemployment was clearly appreciated by the Fed. The results of this approach have been a clear success. There is no other plausible set of decisions about fiscal policy and interest rates over the past four years that would have led to lower inflation yet still would have seen real (inflation-adjusted) wages as high as today or as many people employed. That means there is no real argument against the assessment that macroeconomic policy has been a success.

What about inflation? Well, if real incomes today are higher than they would have been under any different policy decisions, why should inflation independently matter when grading policy outcomes? Say that two policy paths offered different pairs of inflation and nominal wage growth. Path one offers nominal wage growth of 6% and inflation of 5%, while path two offers nominal wage growth of 3% and inflation of 3%. Which path is better? Obviously, it’s path one which leads to higher inflation-adjusted wages. You can quibble that path one was unsustainable and that it should have been impossible to rein in such high rates of inflation without eventually inflicting damage to the economy, but the disinflation of the past two years clearly shows this is untrue (and it was known to be untrue throughout this episode).

Maybe some are worried that the patterns of wage growth and inflation look good on average over the past four years but are skewed toward the top and are leaving the most vulnerable workers behind? For one of the few times over the past 40 years, we can confidently say that’s not true—wage growth has been much faster for the lowest-wage workers over the pandemic recovery (see Figure A below). Further, this fast wage growth led to many measures of debt burdens falling for households—unexpected inflation has the silver lining of making debt cheaper to pay back.

Figure A

Because I have not been living under a rock for the past four years, I realize this is not how many people see this time, and I realize that many seem extremely unhappy about the independent effects of inflation. This popular discontent about inflation is genuine information that economists should try to process and wrestle with. But the fact that inflation-adjusted wages are higher now than four years ago is also genuine information that the general public should wrestle with (and is far more relevant for actual living standards). Yet far too few economic observers seem to be pointing it out on a consistent basis.

When people complain about the inflation of the past four years, they likely think it should have been possible to hold other key economic outcomes constant—like nominal wage growth or unemployment—while having lower inflation. But all of these economic variables affect each other. You’re not allowed to order lower inflation alone off of some a la carte menu of policy outcomes. If that was possible of course policymakers would have done this.

Those claiming that this period of inflation represents some obvious policy mistake need to specify what they would have done differently and how this would have led to lower inflation but not to lower real wage growth or higher unemployment. This is awfully hard to do credibly. The general criticism is that the fiscal relief and recovery measures were too aggressive, and the Federal Reserve waited too long to start raising interest rates. In the jargon, the criticism is that aggregate demand—spending by households, businesses and governments—should have been reined in much more sharply.

Often excess aggregate demand can be a key source of inflation, but it was much more complicated than this during the pandemic recovery for a number of reasons.

First, much of the inflation came from easily identifiable shocks having nothing to do with aggregate demand management. The pandemic led to huge changes in the composition (not the level) of demand—people quit gyms and bought Pelotons, swapping out service consumption for goods consumption in a massive wave. The pandemic also led to cascading supply-chain snarls—ports closed and labor supply was affected by COVID-19 and knock-on effects like child care challenges spurred by remote schooling. The Russian invasion of Ukraine was a conflict between two of the largest producers of energy and food in the world, leading to large price spikes in both. The durability of increased work-from-home led to a reshuffling of housing as millions began valuing greater space more than shorter commute times.

Second, the pandemic’s effects on the supply side of the economy were intense but much more volatile and temporary than other supply shocks. Normally, the supply side of the economy is moving slowly on a predictable path, and policymakers—who only have influence over aggregate demand—have a clean target to aim for when they try to match this demand to supply. But the pandemic didn’t slow supply-side growth in a predictable way—instead it jumped up and down almost month-to-month depending on the virus’s current effects both home and abroad. In short, this time aggregate demand managers did not have a clean supply-side target to shoot for, making their job exponentially harder than usual.

If policymakers had tried to match the unusual short-run changes in the economy’s supply side with short-run changes to demand, lags in policymaking and its effects would have made growth more volatile and slower. If they had decided to avoid any demand overshoot over supply in any given month or quarter, this would have locked a temporary supply shock into a much longer-lasting depression of incomes and employment.

Policymakers instead essentially decided to chart a path that assumed the economy’s supply side was fundamentally going to return to what it had been pre-pandemic and stick to it through the rocky path of inflation (while also undertaking proactive measures to aid supply-side healing). This was wise, and if there was a flaw in that approach it was that this assumption turned out to be slightly pessimistic—measures like prime-age labor force participation are actually higher today than pre-pandemic, meaning today’s supply side is stronger than we thought it would be in 2024 before the pandemic struck.

The paragraphs above provide the intuition of why inflation was mostly inevitable and there was no painless fix for it. The most persuasive evidence as to why U.S. policymakers took the best policy path through the economic turbulence is the simple fact that the pandemic and the Russian invasion of Ukraine were global shocks that led to a sharp acceleration of inflation in every advanced country in the world (see Figure B below).

Figure B

It is theoretically possible that every country in the world made the same policy blunder as the United States, but this global acceleration of inflation happened in countries that undertook large fiscal relief and recovery efforts like the U.S. and also in countries that did not. It happened in countries that saw a rapid return to pre-pandemic unemployment rates like the U.S. and in countries that did not see such a rapid return. Country-specific inflation is almost totally unrelated to how aggressively they pushed unemployment back down to (or even below) pre-pandemic levels (see Figure C below). If anything, higher inflation is associated with less progress in reducing unemployment.

Figure C

The honest version of criticisms of the U.S. policy path argues straightforwardly that we simply should not have tried to push unemployment as low and as quickly as we did in 2021 and 2022.

But tolerating high unemployment would have been a very high-cost policy, with small and uncertain benefits in terms of inflation control. It is worth remembering that unemployment rates in 2019 were almost the same as the lowest levels of 2022, yet inflation was very low and not rising in 2019. What could have changed from 2020–2022 to generate much higher inflation? The question answers itself.

The most obvious cost of a strategy of tolerating more unemployment to keep inflation in check would have been the millions of workers who didn’t find jobs in 2021 and 2022. But this strategy also would have had another hugely underappreciated cost, even for workers that remain employed: Higher unemployment pulls down wage growth faster than it pulls down inflation. Taking a macroeconomic path aimed at keeping inflation low by tolerating higher rates of unemployment would therefore have left real wages lower today, and millions more workers would have been jobless along the way. This trade-off would not have been worth it.

Less-honest, hand-wavy criticisms of macroeconomic policymaking argue that the U.S. had a wide and easily attainable path to lower inflation with unemployment and real wage growth unchanged if only fiscal and monetary policy was less expansionary and kept aggregate demand in check. These invariably make extremely loose references to “vertical portions of the aggregate supply curve” (for a fuller argument against this kind of reasoning, see this). But there is no episode in the history of the post-World War II era when policymakers were able to identify and adjust aggregate demand smoothly to change just inflation but no other variable (i.e., they have never been able to find and then toggle aggregate demand along some “vertical portion of the aggregate supply curve”). Again, the a la carte option of “less inflation but the same amount of everything else” has never been a clear option in the U.S. macroeconomic history—those claiming it was easily available in the past four years have a very high burden of proof that they haven’t even tried to meet.

When analysts use existing macroeconomic models and plug in changes to the levers actually available to policymakers (like higher or lower interest rates), none of these models show a plausible path wherein inflation is kept much lower while unemployment and real wage growth matches what we’ve seen in the past four years.

Some have argued that real wage growth over the past four years has been worse than what you would get from simply extrapolating the pre-pandemic trend. Of course it’s been worse than that—we had a genuinely terrible series of economic shocks in that time. Comparing real wage growth over the first four years after a business cycle peak to the last 2-4 years of growth before the peak is either dishonest or trivial. Essentially, it’s an argument that we would all be richer and happier today had the pandemic and the Russian invasion of Ukraine never happened. Obviously. A better comparison would be to analyze growth over the first four years after previous business cycle peaks. On this measure, the macroeconomic path of the last four years looks astoundingly good (see Figure D below).

Figure D

The economic shocks of 2020–2022 offered only bad options to policymakers looking to chart a course through the subsequent years. The economic path following the pandemic has been hard on working families in many ways, but it was the best bad option macroeconomy policymakers had over this time, by far. They deserve more credit for taking it.

Background on interest rates compared with 2019

The effective federal funds rate today sits between 5.25-5.5%. In 2019, right before the pandemic hit, it sat between 1.5-1.75% (after a recent cut). Estimates of the “neutral” federal funds rate—the rate that is neither providing stimulus and inflationary pressure to the economy nor is it providing contraction and deflationary pressure—is roughly 2.5-3.5%. The neutral rate is often presented in real (inflation-adjusted) terms, with the inflation assumption being that the Fed is hitting its 2% target. That means a 1% real neutral rate should be read generally as a 3% nominal effective federal funds rate.

Figure A below shows one estimate of the neutral federal funds rate as well as the actual rate in recent years. By all estimates, today’s effective federal funds rate is far from neutral—it is clearly in contractionary territory. And by almost all estimates, the 2019 effective federal funds rate was far from neutral—clearly in stimulative territory.

Figure A

Today’s interest rates are too contractionary given the economic data

An important debate is warranted about whether the Fed, starting in 2022, needed to raise rates as fast and as high as they did to check rising inflation. But regardless of where one stands in that debate, it is becoming more and more clear that rates today need to be lowered quickly if the Fed wants to better balance the macroeconomic risks of inflation and unemployment. Given the relationship between key economic variables in 2019 and the effective federal funds rate in that year and these same relationships in 2022, the upshot is clear that today’s rate is inappropriately contractionary.

The key evidence is in Table 1 below, highlighting a number of indicators demonstrating why the Fed should quickly begin moving rates much closer to neutral.

Table 1

The Fed’s 2% inflation target is officially based on the price index for personal consumption expenditures (PCE). Most observers think the Fed pays the most attention to the “core” of this index—prices excluding food and energy, which tend to be volatile and not reliably driven by the state of macroeconomic balance. Row 1 in Table 1 shows that the 2.6% current pace of inflation in the core PCE price index is slightly above the Fed’s long-run 2% target. Importantly, however, it has been cut in half since its peak levels in 2022, when inflation averaged 5.2%. Row 2 shows that the pace of this deceleration has been considerable even over the most recent 12 months. At its current pace, inflation will fall to the Fed’s inflation target by the end of 2024 and would quickly fall beneath the target thereafter.

Rows 3 and 4 show a similar dynamic at play for nominal wage growth. In 2022, nominal wages were growing at rates too fast to be consistent with the Fed’s 2% inflation target. But their current pace of growth (3.7%) is completely consistent with this inflation target, and the pace of deceleration (−0.7%) has been considerable over the past 12 months. At the current pace of deceleration, nominal wage growth will soon be too slow.

Slowing wage and price growth have been accompanied by softening in quantity-side measures of the labor market. Rows 5–7 show that the unemployment rate has risen since 2022, while measures of quits and openings in the labor market have declined to levels essentially the same as in 2019, when the federal funds rate was at expansionary levels and had recently been cut.

Rows 8–12 show measures of supply-side improvement since 2022. The high inflation of late 2021 and 2022 was predominantly driven by sharp supply disruptions in the early pandemic recovery. Row 8 shows the labor force participation rate—the share of the population over the age of 15 who either has a job or is actively looking for work—compared with long-run projections of where it would be expected to be during periods of full employment. Demographics are steadily pulling labor force participation down every year (as more Baby Boomers age out of active labor market participation), but we can compare how close the labor force participation rate is with estimates by the Congressional Budget Office (CBO) of what it should be given these demographic trends at full employment. In 2022, the labor force participation rate was 0.4% below these projections, but it was 0.5% above by the latest quarter of data. This is a large swing—totaling about 1.8 million potential workers—in the U.S. economy in just the past two years.

Row 9 shows this improvement is mostly driven by prime-age adults—those between the ages of 25 and 54. This prime-age labor force participation rate has risen by 1.4 percentage points over its 2022 average.

Row 10 shows the pace of productivity growth, with productivity defined as the output of goods and services produced in an average hour of work in the economy. In 2022, productivity was declining sharply at a 1.9% rate. But currently it is rising quickly at a 2.7% rate—a historically large swing in productivity. All else equal, productivity growth translates one-for-one into lower prices in the economy, so this swing in productivity from negative to positive is highly disinflationary.

Row 11 shows the Global Supply Chain Pressure Index (GSCPI) compiled by the Federal Reserve Bank of New York. The GSCPI aggregates a number of measures of supply-chain pressures like the price of shipping and wait times at ports. During 2021 and 2022, this index (with data going back to 1998) hit historic highs. Today’s reading is essentially normal, indicating that the supply disruptions that drove so much of the 2021–2022 inflation spike are behind us.

Finally, row 12 shows average profit margins in the nonfinancial corporate (NFC) sector. A historically large spike in these profit margins could account for significant parts of the early inflationary shock in the post-pandemic recovery. While profit margins have only retreated slowly from these historic highs, they have retreated. This means that profit margins are no longer adding to inflationary pressures and are at least putting some very mild downward pressure on inflation currently.

It’s past time for rate cuts—and they should not be small

The takeaway of all these indicators is clear. The economy’s supply side has expanded enormously since the peak inflationary year of 2022. The pandemic shocks that led to historic pressures on supply chains are past. The labor market has softened a bit in recent quarters and has been delivering rapid disinflation in both wages and prices consistently since the inflation peak of 2022. All these influences mean that we may severely undershoot the Fed’s inflation target before too long unless Fed policy quickly becomes far less contractionary.

Given the space between today’s contractionary stance and a neutral stance, and given how rapidly disinflation is occurring, the Fed should look to get to a fully neutral stance by summer 2025. It can take a solid step toward this by cutting interest rates by 50 basis points at this week’s meeting.

• The labor market is extraordinarily strong when judged by any historical benchmark. 

• The Federal Reserve is behind the curve in cutting interest rates and should start cutting them at the Federal Open Market Committee (FOMC) meeting next week, aiming for something like a federal funds rate that is at least two percentage points lower by mid-2025. 

These might strike some as being in tension—normally we want the Fed to cut interest rates to stimulate a weak economy. Why then, if the labor market is quite strong, do we need them to cut?  

Simply put, the interest rates the Fed controls are now at levels that are highly contractionary—they are rates you would want if your goal was to substantially slow the pace of aggregate demand growth (say because you were trying to quickly reduce inflation). There’s a whole debate to be had about whether or not the Fed should have raised rates this high and this fast in an effort to combat the post-pandemic inflation, but regardless of where you landed in that debate, it seems far clearer that today’s economy does not need a rapid reduction in aggregate demand.  

The labor market is strong, but it is not inflationary. To summarize its strength, we would note that the prime-age employment-to-population ratio (the share of adults ages 25–54 who are employed) remained in August at its highest level since 2001. But this strength comes even as inflation has been rapidly decelerating since mid-2022. The price index for personal consumption expenditures excluding food and energy prices (the measure of “core” prices that should be the Fed’s target) saw its growth rate fall by more than 1.5 percentage points just in the past year. It is now just about a half-point above the Fed’s long-run target, and it is falling fast.  

Crucially, this rapid disinflation has happened even as the labor market remains strong. Hence, there is no reason why the Fed should be looking to generate a weaker labor market, but recent months have seen signs of a slight softening at the labor markets on the margin. Continued contractionary monetary policy will exacerbate this labor market weakening, even as the last two years have shown that such weakening is clearly not needed to get the last bit of excess inflation wrung out of the system.  

Nominal wage growth is below 4%—a pace fully consistent with the Fed’s long-run 2% inflation target. 

Further, many labor market indicators look about the same as they did pre-pandemic, and interest rates in this period were substantially lower than today, and the Fed even cut rates in 2019. 

The figure below displays a series of economic indicators—including the federal funds rate—in the most recent period compared with 2019. Most metrics we are experiencing today are in line with the strong 2019 labor market. Over the year, the unemployment rate has averaged just below 4%, while the hires rate has come down considerably and is just below 2019 levels. Nominal wage growth hasn’t fallen to pre-pandemic growth rates, but that’s an affirmatively good thing—it means workers are receiving real (inflation-adjusted) wage gains while still having nominal wage growth that can allow a full normalization to pre-pandemic inflation rates. Further, while inflation was higher in the past year than it was in 2019, it has decelerated far faster than in 2019, when this inflation deceleration contributed to a Fed decision to cut interest rates.  

In short, we have a strong labor market that is also not inflationary, meaning we don’t need expansionary or contractionary policy. This means interest rates should be much closer to neutral levels than they are today.  

Where exactly is the “neutral” rate for the Fed (in the jargon people call this R*, or R-star)? Nobody really knows. But everybody knows it’s nowhere near the 5.3% effective federal funds rate the Fed is maintaining today. 3-3.5% would be a lot closer to neutral, so getting closer to this range—and pretty soon—should be the Fed’s goal until something significant changes in the economy. 

Lower rates will not just keep today’s excellent labor market from undesirably softening. It will also help long-run investments in housing and clean energy become more viable and lift off faster in coming years, which are both hugely important goals.

Figure

• A spike in profit margins contributed significantly to inflation in the early part of the pandemic recovery, and likely contributed to even more persistent inflationary pressure by helping spur a countervailing rise in nominal wage growth. For example, rising profits explained well over 40% of the rise in the price level between the end of 2019 and mid-2022, compared with profits normally accounting for about 11-12% of prices.
• The profit spike was overwhelmingly due to pandemic distortions (shifting demand rapidly across sectors) and supply chain snarls (exacerbated by the Russian invasion of Ukraine) that granted many producers temporary monopoly power in key sectors.
  • Contrary to many influential economic writers and commentators, it is simply wrong to label the correlation between high profit margins and high inflation as simple evidence of an overheated economy. The overwhelming post-World War II evidence is that profit shares fall, not rise, as economies heat up.
• Corporate power absolutely conditioned how the post-pandemic inflation happened.
  • Corporate concentration likely did not increase during the post-pandemic recovery, and concentration over the previous decade was unlikely to by itself explain much of the post-pandemic inflation.
  • But the economic and policy context of the post-pandemic recovery saw corporate power dramatically change how it was deployed to maintain and expand profits—instead of suppressing wages, they raised prices. If this episode increases public support for measures that constrain excess corporate power, that would be good even if it has little relevance for inflation in the future.

Corporate profits largely explain the initial rise in inflation

Figure A below shows the share of price increases in the nonfinancial corporate sector that could be accounted for by rising profits, as well as the long-run share of profits in corporate output (a useful benchmark). In each case, the calculation starts from the last quarter of 2019 and moves to the quarter identified in the bar of the chart. This contribution has dropped steadily since 2021 but remains quite high relative to historic norms. Even as of the second quarter in 2024, corporate profits could explain roughly a third of the growth in the price level since the end of 2019, still much higher than the long-run average of just 11.5%.

Figure A

Figure B below highlights how front-loaded the profit spike was in the recovery. It shows a rough measure of profit margins—profits in the nonfinancial corporate sector (NFC) divided by the sum of labor and non-labor costs. This “markup” of profits over other costs rose to historically high levels early in the pandemic recovery. It stopped rising relatively quickly, but still has not retreated all that much from these historic highs. This means that since its peak in mid-2021, profit margins cannot explain much of the subsequent price inflation, but they failed to be a source of disinflationary pressure. If profit margins fall to pre-pandemic norms and this disinflationary pressure does eventually begin, it will be good news for the future path of inflation.

Figure B

Corporate profits spiked because of historically large but temporary supply chain disruptions—not an overheated economy

The coincidence of high profit margins and inflation early in the recovery led to many theories about what linked them. The most convincing theories centered on the role of pandemic-era supply disruptions granting some sellers temporary monopoly power that allowed them to raise prices without the normal fear that this would lead to customers flocking to competing firms. This profit shock to prices led to countervailing increased nominal wage demands from workers as they tried to insulate themselves from real income losses.

Further, once the higher profit margins were set, many firms seemingly used the episode to tacitly collude with competitors and keep margins high even as supply disruptions abated and there should have been more price competition between firms. Because collusion and oligopolistic behavior are hard to sustain in normal times, it seemed natural to expect these high profit margins would move back to pre-pandemic norms before too long. But this hasn’t happened yet, which has been a real surprise from this episode.

Many influential economic writers and some economists cast contempt at analyses highlighting the coincidence of high profit margins and fast inflation early in the recovery. While it was possible to overstate the causal chain running from profits to inflation, these writers often made an even worse mistake—proclaiming confidently that high profits are always and everywhere a natural occurrence when the economy heats up (i.e., when measures of aggregate demand catch up to and surpass measures of the economy’s potential output). This just isn’t true. In every single business cycle since World War II, in fact, the opposite pattern has held—as the recovery from recessions sees the economy “heat up” (sees lower rates of unemployment) the profit share falls, not rises. 

Figure C below shows the one-year change in profit shares and a measure of the economy’s “heat”. Specifically, we calculate the difference between the unemployment rate and estimates of the long-run natural rate of unemployment. This difference is sometimes referred to as the “unemployment gap” and it measures how close actual unemployment is to an estimate of the lowest unemployment rate the economy can sustain without seeing inflation accelerate.

The economy is running hot when this unemployment gap is low (or negative), while the economy is cooling when the gap is high. Using data since 1948, the figure shows a clear and extremely strong positive relationship, with the profit share rising as the economy cools and falling as it heats up. This is exactly the opposite relationship that would hold if the confident proclamations that high profits are simply a sign of a hot economy were true.

Figure C

Besides rebutting claims that high profits are a clear sign that inflation is coming from an overheated economy, this relationship in Figure C should have informed discussions of monetary policy more than it did. It was often claimed in 2022 and early 2023 that the labor market was unambiguously overheated in unprecedented ways. Some measures of the labor market were historically strong—like the record high number of vacancies during this time. But other measures—like real wage growth and the profit share of income—were actually showing values much more consistent with slack labor markets. This should have at least shaken confidence that the labor market needed immediate cooling to normalize inflation, and raised questions about whether very standard macroeconomic reasoning should be applied seamlessly to such a strange period of economic history.

In the end, the macroeconomic lessons to be learned from recent years’ inflation mostly boil down to avoiding mammoth supply disruptions and sectoral shocks. The traditional macroeconomic diagnoses of inflation—monetary and fiscal policies that are too stimulative—explain very little about post-pandemic inflation.

The inflation of 2021-2023 had huge distributional consequences—which means it was indeed about corporate power

Excess corporate power is the backdrop of nearly all economic trends in recent decades. However, for most of the post-1979 period until the pandemic, this corporate power was mostly leveraged to suppress wage growth for workers rather than raising prices charged to customers.

The circumstances of the post-pandemic recovery changed the easiest path to profitability for companies—unit labor costs rose quite fast in historic terms, but profit growth ran faster, and the combination of fast-rising unit labor costs and thickening profit margins led to rapid price inflation. The end result was largely the same as in past recoveries from steep recessions—there was a rapid increase in the share of total income claimed by profits rather than going to workers’ pay.

It should be noted again that not every inflationary episode is associated with this kind of sharp distributional change. As inflation gained momentum steadily through the late 1960s and then spiked sharply in 1973 and 1979, there was no large redistribution toward profits. In the early 1980s, high unemployment led to this redistribution toward profits, but inflation did not. In short, there is something different this time around in the profits/prices interplay, and it deserves more analysis than it has generally gotten.

If this later round of redistribution toward profits helps build support for measures like more robust anti-trust enforcement that tamp down excess corporate power, then some good might result. While it is true that corporate concentration did not directly lead to the inflation of recent years and that corporate power more broadly did not necessarily increase over this period, it is also true that lack of inflation is not a sign that corporate power has been tamed. Again, the 2010s saw extremely subdued inflation even as income was redistributed away from typical workers through wage suppression.

Conclusion

Profits don’t explain everything about recent years’ inflation. But ignoring trends in profits over this time makes inflation analyses much weaker. Further, a future normalization of profit margins could be another key source of disinflationary pressure in coming years.

From EPI senior economist, Elise Gould (@eliselgould):

Read the full thread here. 

The uptick in unemployment will likely get a lot of attention today because the Sahm rule was triggered, a measure developed by @Claudia_Sahm that may signal a recession. It’s notable that the uptick in unemployment in July was mostly due to a rise in labor force participation.

— Elise Gould (@eliselgould) August 2, 2024

Employment among those 25-54 years old rose among both men and women in July. Men’s prime-age EPOP hit its highest level in this recovery. At 86.6%, it’s just 0.1 percentage points shy of it’s pre-pandemic level. Women’s prime-age EPOP continues to remain historically strong. pic.twitter.com/JiLEkBUW14

— Elise Gould (@eliselgould) August 2, 2024

Nominal wage growth continues to edge down, falling to 3.6% year over year, its lowest in two years. While more recent comparisons are more volatile, the deceleration is clear across all measures. There is no evidence of inflationary pressures coming from the labor market. pic.twitter.com/91rHpwQqnq

— Elise Gould (@eliselgould) August 2, 2024

From EPI economist, Hilary Wething (@hilweth): 

Today’s #jobsreport really shows the cost of the Fed’s inaction. Unemployment ticked up and payroll growth is sluggish. It doesn’t have to be this way.

— Hilary Wething (@hilweth) August 2, 2024