In the Asian session on Wednesday (May 24), the latest price of the U.S. dollar index was 103.50, and the opening price was 103.51. While sharp increases in commodity prices have been the main driver of the surge in inflation over the past two-and-a-half years, the effects of a “very tight” job market are gaining momentum and may be more persistent.
Economist Olivier Blanchard believes the Fed needs to cool an overheating labor market to keep inflation in check, though it’s unclear how high the unemployment rate would have to rise to do that. During the meeting, Powell said: “In contrast, I do think that the weak labor market may become an increasingly important factor in inflation going forward.” As before, Powell focused on persistent inflation in the services sector, which includes health care, Education to hairdressing and hospitality. In these industries, labor costs account for a high percentage of operating costs. In addition, Powell also made it clear at the meeting that he is inclined to pause interest rate hikes next month, and said that the Fed has tightened credit significantly, so it now has the ability to observe the development of the economy. Powell has previously expressed hope that the labor market will be better balanced through fewer job vacancies rather than a sharp rise in the unemployment rate.
