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May 2022 / VIDEO

A Labor Demand and Supply Imbalance Challenges the Fed

Labor demand has considerably outpaced supply, but the job market tightness can ease if more workers join the labor market

Key Insights

  • U.S. labor demand has considerably outpaced the supply of workers during the recovery from the pandemic-induced recession in 2020.
  • This labor market tightness has contributed to upward pressure on wages and made the Fed’s task of taming inflation more difficult.
  • The labor market may not be as tight as the headline unemployment rate makes it appear, as more workers can join the job market.

U.S. labor demand has considerably outpaced the supply of workers during the recovery from the pandemic-induced recession in 2020. This has contributed to upward pressure on wages and made the Fed’s task of taming inflation more difficult. The Fed hopes that the labor market tightness can ease somewhat if more workers join the labor market.

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