Labor May Have Given Nearly All It Has to Inflation Fight; Goolsbee Is Hesitant About Fed Rate Cuts

Labor May Have Given Nearly All It Has to Inflation Fight; Goolsbee Is Hesitant About Fed Rate Cuts By James Christie

Good day. The U.S. labor market may not have much more to contribute to the Federal Reserve's campaign against inflation. Price pressures have cooled in part thanks to improvements on the supply side of the economy, including employers having found more workers available for hire. However, the labor force has contracted in recent months, even as employers continued adding jobs. On Friday, Federal Reserve Bank of Chicago President Austan Goolsbee during an interview with CNBC said it is too early to say when the Fed could start cutting interest rates. But he also said cuts might be expected this year "if we continue to make surprising progress on inflation."

Now on to today's news and analysis.

Top News Labor Supply Helped Tame Inflation. It Might Not Have More to Give.

Many workers came off the sidelines to join the labor force in 2022 and 2023, aiding the Federal Reserve's fight to tame inflation by easing labor shortages and putting downward pressure on wage growth.

Big additional gains may be hard to achieve . That matters because inflation remains above the Fed's 2% target despite a major retreat last year, and policymakers would like to see continued progress before relenting on their restrictive policy stance.

Goolsbee Says It Is Too Soon to Determine When Fed Will Cut Rates

Federal Reserve Bank of Chicago President Austan Goolsbee on Friday declined to say when he thinks the central bank will cut interest rates, but he said reductions could be expected this year "if we continue to make surprising progress on inflation." In an interview on CNBC, Goolsbee said: "We don't want to commit ourselves before the job is done." But "as inflation comes down, that opens the door to a reduction in restrictiveness." ( MarketWatch )

U.S. Economy Home Sales Were the Lowest in Almost 30 Years in 2023

Existing home sales, which make up most of the housing market, slid 19% in 2023 from the prior year to 4.09 million, the lowest full-year level since 1995, the National Association of Realtors said Friday. On a monthly basis, sales fell 1% in December from the prior month to a seasonally-adjusted annual rate of 3.78 million, the lowest monthly rate since August 2010 . December sales fell 6.2% from a year earlier.

Why Americans Have Lost Faith in the Value of College

For three generations, the national aspiration to "college for all" shaped America's economy and culture. That consensus is now collapsing amid massive student debt, underemployed degree-holders and political intolerance on campus.

More Workers Want to Change Jobs but Now Face Tougher Odds

Job dissatisfaction is colliding with a labor market offering shrinking opportunities for white-collar professionals. Around 85% of 1,000 U.S. professionals polled by LinkedIn say they are thinking about changing jobs this year.

The Multibillion-Dollar Clean Energy Bet Gone Wrong

U.S. power companies raced to join the offshore wind boom a few years ago. Now some are rushing out . Already, utilities have unloaded pieces of a planned New Jersey wind farm and a yet-to-be-built seabed off Massachusetts.

Key Developments Around the World China Benchmark Lending Rates Held Steady

China's benchmark lending rates were kept steady after the People's Bank of China held its key policy rates unchanged earlier this month. The one-year loan prime rate was held at 3.45% while the five-year rate was left at 4.2%.

China's Strongest Ally in Taiwan Is Weaker Than Ever

Beijing's closest political partner in Taiwan, the Kuomintang, is fighting to remain relevant in an island democracy where voters increasingly see a future that is detached from an authoritarian China.

How the U.S. Is Derailing China's Influence in Africa

China's missteps along a vital rail corridor in Africa have helped create a surprise opening for the U.S., which finds itself suddenly challenging Beijing's commercial dominance in the unlikeliest of places: Angola.

Ukraine Hits Russian Fuel Complex on Baltic in Long-Range Attack

The Security Service of Ukraine hit the Ust-Luga Complex near St. Petersburg on Sunday with drones, triggering a large-scale fire in one of the longest-range strikes yet in a growing effort to damage Russia's war economy.

EU Tackles New $22 Billion Plan to Boost Ukraine Military Aid Financial Regulation Roundup FHLBanks Help 'Derisk the System,' Official Says

The Federal Home Loan Bank System has strayed from its housing mission and a clearer distinction needs to be made between it and the Federal Reserve when lending in times of economic turmoil, a U.S. regulator said recently.

FTX Must Appoint Watchdog to Probe Reasons for Its Collapse

A federal appeals court on Friday ruled that an independent examiner must be appointed to oversee FTX's ongoing bankruptcy to sort out what went wrong at the cryptocurrency exchange before it collapsed.

ICBC Fined $32 Million by New York's Financial Regulator and Fed

Industrial & Commercial Bank of China, the world's largest bank by assets, will pay about $32 million to resolve investigations into alleged compliance problems at the bank's New York branch.

IRS Struggles to Sort Legitimate From Bogus Tax-Credit Claims

The Internal Revenue Service says it is inundated with bogus claims for the pandemic-era employee-retention tax credit, and that it has valid claims from employers needing the money. The problem: They are all in the same pile .

How Biden Canceled About $137 Billion of Student Loans

More than three million borrowers have had about $137 billion of their federal student loans flagged for cancellation, despite a Supreme Court ruling last June that blocked relief for millions more student-loan holders.

Forward Guidance Tuesday (all times ET)

10 a.m.: FCCI Flash Consumer Confidence Indicator for January; Richmond Fed Survey of Manufacturing Activity

Wednesday

4 a.m.: Eurozone Flash PMI for January

9:45 a.m.: Bank of Canada interest rate decision and monetary policy report

10:30 a.m.: Bank of Canada interest rate decision press conference

Research Tourism Bids Farewell to Pandemic Era

Tourist numbers around the world should return to levels seen before the coronavirus pandemic, putting several years of repressed travel in the rear-view mirror, the United Nations' World Tourism Organization says. In 2023, tourist arrivals reached 88% of those of 2019, the last full year before the pandemic grounded planes and closed borders. Travel between the U.S. and Europe, for example, has already largely recovered, UNWTO says. In 2024, a full rebound in Asian tourism should help lift numbers above 2019 levels. The industry nevertheless faces some challenges, notably risks from geopolitical strife in the Middle East and staff shortages around the world, UNWTO says.

-Joshua Kirby

Remote Work May Boost Productivity, Hinder Skills Development

Remote work can lead to more productive employees, but it comes with potentially diminished skill development and altered career trajectories, according to new research published on the Federal Reserve Bank of New York's Liberty Street Economics blog .

The findings were based on the activity of software engineers at a big unnamed online retailer. One group sat close together in office settings, with junior employees asking questions of more senior colleagues. The other engineers worked in a separate building with virtual meetings, similar to remote workers.

The company shared data on the software code written by the engineers and the text of the feedback on the code. Researchers also looked at employee compensation, promotions and departures for new firms.

Authors Natalia Emanuel, Emma Harrington and Amanda Pallais estimate that proximity of employees reduced software output per month by 23%. "The effects on output are present for both junior and senior engineers but are particularly pronounced for senior engineers, who provide most of the mentoring," they wrote.

The outcomes could be more pronounced for women, they wrote. Senior female engineers did more mentoring when they were seated near their colleagues, leading to a larger negative effect of proximity on output, the authors say.

A paper by the authors that was posted by the National Bureau of Economic Research also found that "sitting near co-workers leads to fewer early pay raises but increases pay raises in the long run as workers build more human capital" from feedback. "At the same time, the returns to training partially accrue outside the firm: Engineers trained near teammates are more likely to quit for higher-paying jobs elsewhere."

More research will have to be done to determine whether hybrid work could offer more productivity and solid mentoring, or the best of both worlds, they wrote.

-Bob Fernandez

Commentary The Economy Is Starting to Look Normal-Housing Isn't

If you haven't tried to buy a home lately, the U.S. economy is starting to look kind of, sort of normal, but the housing market is still a mess , and it looks as if it will be that way for a long time, Justin Lahart writes.

Rising Defaults May Give Misleading Picture on Consumer Health

Obsessing over "vintage" isn't just for wine enthusiasts or hipsters. It is also a crucial part of understanding what is happening in credit, and it may help tell a more constructive story about American spenders, Telis Demos writes.

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