The market narrative of a fed pivot or perhaps just a fed-standing-still still cannot and will not take into account one of the American economy's biggest inflation irritants, labor cost. Worse, it fails to acknowledge that reducing labor expense is going to be difficult with so many missing/under utilized workers. There are about 7M people receiving disability benefits under terms that limit work hours (typically 20 hours/week) About 1M were added since 2021 when federal law expanded benefits. Those people may go to the cash economy but for the most part their participation in the workforce is limited by their benefits.
It is a problem not easily solved by federal central bank policy either. Death is final and deceased workers can only be replaced at scale through immigration (and it is probably no coincidence there appears to be a warming trend on that issue). Reversing disability can only be accomplished slowly through denial of benefits. It is a process that can take years.
In the meantime, recent layoffs notwithstanding, getting costs to be less than price remains difficult, especially in the labor dependent health sector.
Emily Evans
Managing Director – Health Policy
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