• Paul Krugman is puzzled by the US labor market following Wednesday’s jobs report. 
• The Nobel Prize-winning economist said he can’t gauge whether the labor market is tight or not. 
• Meanwhile, Krugman doubts the Fed’s next interest-rate move to cool a hot economy will matter much.

Nobel laureate Paul Krugman is confused again – but this time it’s about the US labor market. 

“JOLTS came in … confusing, with openings barely down but quits down substantially. So the labor market either isn’t cooling or it is,” the Prize-winning economist said in a Wednesday tweet. 

Data released Wednesday showed US job openings fell less than expected in January, suggesting the labor market remains tight. Vacancies fell to 10.8 million, beating estimates for 10.5 million, according to the Labor Department’s Job Openings and Labor Turnover Survey. Meanwhile, the proportion of people quitting their jobs dropped to 2.5%.

The report adds weight to Federal Reserve Chair Jerome’s Powell’s hawkish comments this week, where he signaled the central bank may go for a 50-basis point interest-rate increase at its March meeting to contain inflation that’s still way above its 2% target. 

A hot labor market tends to fuel inflation, as it puts upward pressure on wage growth. Policymakers may respond to that with higher interest rates, which encourage saving over spending, investing, and hiring – typically leading to a cooling of the economy.

Investors are now looking ahead to Friday’s employment report which will shed some more light on the current state of the US labor market. But Krugman isn’t convinced, saying it’ll be best to take the upcoming data with a “few tablespoons of salt.”

Against the backdrop of a tight labor market, Krugman said the US economy may be too hot while adding that he doubts the Fed’s next move will matter that much.

“Economy probably still running unsustainably hot. I can see the case for 50 from the Fed, but also the case for not, and honestly it probably doesn’t matter much. What matters are market expectations about future Fed policy, which will largely be driven by data,” Krugman said. 

Earlier this week, Krugman said he didn’t know what to make of US inflation, unemployment, and the health of the economy, blaming rolling price shocks and lagged data.

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Source: Vietnam Insider