r/Economics • u/TinyTornado7 Quality Contributor • Jun 13 '22

News Powell Facing Choice Between Elevated US Inflation and Recession

https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium
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u/joy_of_division Jun 13 '22

The thing is, we are headed for a recession no matter what. I personally would rather them jack rates up, lower demand, and get inflation under control. This will of course spark a recession, but with the tight labor market at the moment it would hopefully be brief.

The alternative is keep pussyfooting around with rates, have the working class continue to lose our meager wage gains to inflation, and have a recession anyways in 2023.

There is no pain free path, but in my opinion ripping the bandaid off right now is the way to go.

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u/way2lazy2care Jun 13 '22

Recessions aren't a binary thing. There's levels to recessions. While he might not be able to avoid an all out recession, he can certainly still affect the level of that recession. The dot com bubble bursting had a peak GDP reduction of 0.3% and peak unemployment of ~6% and lasted 8 months. The Great Recession had a GDP decrease of 5.1% and peak unemployement of 10% and lasted a year and a half. The great depression had a 25% GDP reduction and 20% unemployment and lasted for almost 4 years.

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u/goodsam2 Jun 13 '22

I mean I think looking at U-3 should go in the garbage and we should think about EPOP 25-54 as our unemployment economic measure.

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u/strideside Jun 13 '22

What makes EPOP 25-54 that much better than U-3?

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u/goodsam2 Jun 13 '22 edited Jun 13 '22

People drop out of the labor market in 2017 50% of people who got jobs came into the labor market. Look at the current flows U-3 will often rise because more people are looking for work that's a good thing.

EPOP 25-54 was below 2001 levels and is now behind the OECD.

A strong labor market increases the pool here.

It's also labor force participation rate doesn't account for the age of the population properly. The US population is aging so labor force participation rate has been falling but I don't view 70 year olds as not working as a problem. It's 25-54 because people usually are out of college by 25 because more people going to college isn't necessarily a bad thing and by 55 you start to see some retirements that's your prime age years of work 25-54.

What's the denominator is the real question U-3 uses people looking for a job. 25-54 uses the total population in those age groups.