Former Federal Reserve Chairman Ben Bernanke thinks inflation will diminish in 2022 and that unemployment will approach full employment over the next 12 months.
That said, Bernanke told attendees at a virtual Schwab Impact event yesterday that the U.S. economy was exhibiting the “strangest job market ever.” There are more than 10 million jobs available and yet 4.3 million Americans quit their jobs in August.
The notion that workers would scramble for jobs once special stimulus-mandated unemployment benefits expired has not happened, according to the evidence. “People are taking their time” in deciding what kind of career they want to have and where and how they want to work, Bernanke explained.
Nonetheless, Bernanke expects the U.S. economy to near full employment while inflation should move closer to where “the Fed wants it to be.” But the former Fed chairman acknowledged that what looked in January and February like a powerful recovery has not come about.
Economists failed to anticipate a lower rate of vaccine acceptance, the Delta variant and the degree of supply-chain disruptions that have hamstrung the recovery. Estimates that GDP growth in the U.S. would rise at 7% or 8% have now been scaled back to 5% to 6%, Bernanke said.
The labor participation rate has been stable at around 61% for most of the year, but Bernanke conceded one would expect it to rise with 10 million jobs available and employers dangling higher salaries and other incentives. An increased retirement rate and safety concerns about Covid explain some of the falloff in participation among older workers, but not all of it.
Mark Carney, the former governor of the Bank of England, also spoke at the virtual event, and said he expected the labor market to “shake out” in the next few quarters. But he also noted that, in the decade following the 2008 financial crisis, workers over 60 represented the fastest growing cohort in the labor force. Right now, it’s not clear this trend will continue.
Still, Carney was optimistic. “The U.S. labor force is the most flexible in the world,” he said.
Wage gains are running at a 4% clip and, if that continues, Carney argued it should bring workers back over the next three or four years. But digitization, which accelerated during the pandemic, means that lots of workers are going to “need new skills,” he added.
If workers remain on the sidelines, Bernanke said that could act as a “constraint on the economy’s speed limit.” Today’s Fed has access to all sorts of big data it didn’t have a decade ago. It can now track everything from a restaurant’s excess seat capacity to how many people are traveling through airports every day.