Why Stocks Got Jolted – WSJ


The Federal Reserve is raising rates and it has made no bones about its expectation that tighter policy will lead to a slower job market. But with so many “for hire” signs still out there, it is hard to see that slowdown coming very soon.

The Labor Department on Tuesday in its monthly Jolts report that there were 11.2 million unfilled U.S. job openings at the end of July. That comes to two openings for each person counted as unemployed during the month, matching a record set in March. Even as some areas of the economy, such as real estate and many retail categories, have run into trouble, businesses’ need to hire remains intense.

As long as that is the case, it is difficult to imagine job growth getting much of a dent—indeed, the biggest constraint on the job market is probably still businesses’ ability to find workers at a price they are willing to pay. This suggests that rising wages will remain a threat to bottom lines while giving Fed policy makers more reason to worry that labor cost pressures could keep inflation elevated.

So Tuesday’s report was good news for workers, but not such good news for stock investors. It made another 0.75-percentage-point rate increase from the Fed when policy makers meet next month seem increasingly likely, while also strengthening the case that the Fed will keep raising rates well into next year. Stocks sold off sharply following the report’s release.

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Indeed, if job openings need to fall to bring job growth to a level Fed policy makers feel comfortable with, the central bank could have a lot of work to do. Even if, with Covid-19 worries dissipating, a substantial number of people enter the labor force in the months ahead and take unfilled jobs, there still would be a very high level of job openings. Moreover, there are a number of job categories for which employment levels seem unnaturally low and demand for workers might only intensify as the pandemic’s grip loosens. There were 6% fewer people employed at auto dealers in July than in February 2020, for example; if supply-chain troubles ease and dealers are finally able to get more cars on their lots, they will want more workers and advertise more openings.

Given enough Fed tightening, the number of job openings comes down, of course, and job growth, too. The danger is that by that point it won’t just be investors and a couple of sectors that are in trouble but pretty much everybody. The more hawkish the central bank gets, the more dangerous the economic environment could be.

Federal Reserve Chairman Jerome Powell said the central bank must continue raising rates until it is confident inflation is under control. He spoke at the Kansas City Fed’s annual symposium in Wyoming. Photo: Jim Urquhart/Reuters

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