Worker flooding has made the Fed’s job less painful. Can it survive? -TGN

Hotels in New York’s Adirondack Mountains are having an easier time hiring this summer, in part because immigrants are entering the country in greater numbers, providing a steady supply of seasonal help that was hard to come by in and just after the pandemic.

It makes staff less stressful for companies like Weekender, a brand that includes seven rustic hotels in and around the region. The company succeeded in attracting six cultural exchange workers this summer, compared to four last year. And similar stories are playing out across the country, offering good news for the Federal Reserve.

Fed officials are trying to wrestle inflation down by raising interest rates and slowing the economy. A large part of the task revolves around restoring the balance in the labor market 23 consecutive months notably had more jobs available than employees to fill them. Officials worry that if competition for workers remains fierce and wages continue to rise as fast as they have been, it will be difficult to completely eradicate rapid price increases. Companies that pay to lure workers will try to charge more to cover their rising labor bills.

The Fed can help cool the labor market by lowering demand, but the central bank is getting more help than expected from a growing supply of workers. In recent months, masses of workers have entered the labor market, surprising policymakers and many economists.

The development is due in part to an uptick in immigration that has come as the United States eased pandemic-related restrictions, cleared processing backlogs and introduced more lenient policies. Labor supply has also received a boost as some demographics – including women in their prime – have returned to the labor market in greater numbers than expected, pushing their employment rates to record highs.

That influx has made the Fed’s job a little less painful. Hiring has been able to chug along at a solid clip without further overheating the job market workers become available to replace those who are arrested. Unemployment has remained stable at around 3.5 percent, and some data even suggests less stress on staff. Wage growth, for example, has begun to slow, and so have workers no more pulling such long hours.

“Monetary policy is part of the story of moving demand toward supply, but any help we can get from increasing supply is good news,” said John C. Williams, the president of the Federal Reserve Bank of New York. in an interview with The Financial Times this month.

Employers have so far added about 280,000 workers per month through 2023. Job growth has slowed gradually, but that’s nearly triple the rate of 100,000 that Jerome H. Powell, the Fed Chairman, suggested that he expected it to be necessary provide employment to a steadily growing population.

The growing supply of workers has enabled the Fed to accept hiring faster than expected without even more aggressively slowing down the economy. Fed officials, who raised interest rates above 5 percent from near zero in March 2022, have been pushing them up more slowly in recent months. Policymakers are expected to raise rates by a quarter point at their meeting this week, to a range of 5.25 to 5.5 percent. Many investors gamble the decision, announced Wednesday, could be the Fed’s last move for now.

What the Fed does in the rest of 2023 depends on economic data. So does inflation, which slowed significantly from its peak moderate further in June 2022? Will job growth and wage growth continue to decline? If the economy maintains plenty of momentum, officials might feel the need to take another step this year. When it cools down, they can get comfortable with the stopping speed increasing. In both cases, policymakers indicate that rates will probably have to remain high for some time to come.

When it comes to the labor market part of that puzzle, key officials have indicated that they believe the next phase of rebalancing could be the more difficult one. Policymakers have welcomed a new supply of labor in recent months, but some doubt the trend can continue. Mr Williams suggested that immigration could remain strong, but that participation – the share of those who work or seek – could struggle to climb much higher.

“I don’t think there’s a lot of room for that to continue to be a big driver of rebalancing supply and demand,” said Mr. Williams in his July interview. He explained that the Fed will have to continue to use policies to slow labor demand to lower inflation.

Some economists and unions think officials like Mr Williams are overly gloomy about the prospects for a continued improvement in the labor supply: the number of immigrants is still rising, and flexible remote working arrangements could mean that people who were unable to work in the past can.

“That ability for the labor supply side to continue to improve, I think the Fed probably underestimated it,” said Skanda Amarnath, executive director of Employ America, a research and advocacy group focused on the labor market. “I think they’re probably underestimating it even now.”

Labor shortages began to emerge in late 2020, after major layoffs and immigration restrictions shrunk the size of the labor pool. The civilian workforce – including people working or looking for work – fell by eight million people in early 2020.

But the supply of workers has since recovered by about 10.6 million people. That recovery is partly due to an increase in the foreign-born labor force, which accounts for about one in three potential workers who have been employed since the pandemic lowbased on data from the employment agency.

Legal immigration is gaining momentum now that backlog processing has been eliminated and Biden administration policies allow it more refugees to the country, said Julia Gelatt, associate director of the U.S. Immigration Policy Program at the Migration Policy Institute. Undocumented immigration is also notable, increased by political unrest abroad and the appeal of a relatively strong and stable US economy.

“We are seeing a significant increase in immigration,” Ms Gelatt said. “Certainly a rebound to the pre-Trump, prepandemic normal.”

The recovery of documented immigration is evident in the visa data. About 1.7 million workers will enter the country this year if current trends continue, about 950,000 more than at the low point during the pandemic, Courtney Shupert, an economist with MacroPolicy Perspectives, found in an analysis.

Immigration may be even stronger than before the pandemic, when former President Donald J. Trump’s policies reduced the number of foreigners entering the United States. The number of potential workers entering the country on a visa in May alone was about 50,000 more than was normal from 2017 to 2019, she found.

Immigration is not the only potential source of new labor supply. Employment rates have increased across the board, with the share of People with Disabilities And women between the ages of 25 and 54 those works are reaching new highs, possibly supported by a shift to more remote working and more flexible hours that took place during the pandemic.

“It has given us a supply of workers that we didn’t have before because workplaces are more flexible,” said Diane Swonk, chief economist at KPMG.

The end result has been useful to companies such as the Weekender hotels in the Adirondacks. The company’s six cultural exchange visa associates are spread across three of its seven properties, said Keir Weimer, the company’s founder, and make up a small but significant portion of its 85-person workforce.

The company also has an easier time competing for employees in general after a few years of adjustment. Mr Weimer estimated wages had risen by 10 to 15 percent over the past 15 months, but said wage growth had begun to cool.

“We’re now starting to get more clarity on career path progression and having wages tied to performance and promotion, rather than just the market,” he said. “There is certainly less wage pressure than a year ago.”

Of course, new labor supply can also boost demand: As more people work, they earn and spend money, said Jason Furman, an economist at Harvard who counters any drag from inflation. That does not mean that improving the labor supply is not useful.

“It’s a way to grow jobs faster without inflationary pressures,” he said.

But even as employers and economists embrace a slowly normalizing labor market, the supply of workers faces a major headwind: an aging population. America is aging as baby boomers, a large generation, enter retirement and older people are much less likely to work.

That’s why some officials at the Fed doubt that a rising labor supply can do much of the heavy lifting when it comes to rebalancing the labor market — a skepticism some economists share.

“I think we will still have a lack of supply,” said Yelena Shulyatyeva, senior economist at BNP Paribas.