Will lower rates address weak employment growth? Not so sure, Yardeni says
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May 16, 2024 – Don’t automatically assume lower interest rates will fix the sluggish job market. That’s the cautious take from veteran economist Ed Yardeni, who suggests a deeper issue than borrowing costs is at play.
A Labor Force Puzzle
Is the Federal Reserve’s focus on interest rates missing a crucial piece of the employment puzzle?
Yardeni, president of Yardeni Research, argues that the real problem isn’t a lack of demand, but a stubbornly low labor force participation rate. Simply put, fewer peopel are actively looking for work, hindering overall employment growth, even with potential rate cuts. “The Fed can lower interest rates, but that’s not going to necessarily get people back into the labor force,” Yardeni stated on Bloomberg Radio on May 16, 2024.
The Participation Rate problem
The labor force participation rate-the percentage of the population working or actively looking for a job-remains below pre-pandemic levels. As of April 2024, it stood at 62.7%, according to data released by the Bureau of Labor Statistics. This figure is still below the 63.4% rate seen in February 2020. Yardeni believes this persistent shortfall is a key factor holding back employment gains.
What’s driving
