Powell has repeatedly cited the strong labor market as one of the reasons for allowing interest rate hikes at FOMC meetings. But how far does this strong labor market stretch?
One of the reasons why the profits of American companies have not decreased yet is high inflation. High inflation has kept their profit margin high and made the US GDP not decrease quickly. Also, the increase in wages in America continues and this causes pressure on companies and reduces the profit margin of companies. Therefore, we are witnessing a lot of layoffs from big companies. This means that companies don’t want to take risks and incur high costs by increasing wages and the number of workers.
If the Federal Reserve continues to increase the interest rate relying on the strong labor market and low unemployment rate, it will put a lot of pressure on the companies and soon the unemployment rate will increase because of this.
This could be a major recession. Recession with high inflation. Inflationary stagnation
For this reason, most experts and analyzers believe that interest rate increases cannot continue and we are almost at the end of this cycle.
By completing the hawkish monetary policies, good sentiment will be brought to the stock market, which can continue the economic growth and the dynamics of the labor market for U.S