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Why Has Monetary Policy Tightening Not Cooled the Labor Market Enough to Quell Inflation?

Author

Listed:
  • Karlye Dilts Stedman
  • Emily Pollard

Abstract

Despite a year of rapidly rising interest rates, labor markets remain tight, likely contributing to the persistence of inflation. We create industry-specific versions of the KC Fed’s Labor Market Conditions Indicators (LMCI) to examine labor market tightness in different sectors. We find that labor markets in the services sector—which have contributed substantially to recent labor market tightness and inflation—are less sensitive to changes in interest rates, increasing the lag for monetary policy transmission.

Suggested Citation

  • Karlye Dilts Stedman & Emily Pollard, 2023. "Why Has Monetary Policy Tightening Not Cooled the Labor Market Enough to Quell Inflation?," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, March.
    • Handle: RePEc:fip:fedkeb:95934
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    File URL: https://www.kansascityfed.org/Economic%20Bulletin/documents/9438/EconomicBulletin23DiltsStedmanPollard0331.pdf
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    References listed on IDEAS

    as
    1. Guangye Cao & Jonathan L. Willis, 2015. "Has the U.S. economy become less interest rate sensitive?," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 1-3, July.
    2. Jose Mustre-del-Rio & Emily Pollard, 2023. "The KC Fed LMCI Momentum Indicator Suggests Monetary Policy Is Beginning to Weigh on Labor Markets," Economic Bulletin, Federal Reserve Bank of Kansas City, issue February , pages 1-4, February.
    3. Brent Bundick & Andrew Lee Smith, 2023. "A Tight Labor Market Could Keep Rent Inflation Elevated," Economic Bulletin, Federal Reserve Bank of Kansas City, issue March 1st, pages 1-4, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Karlye Dilts Stedman & Emily Pollard, 2025. "Labor Market Cooling Has Been Uneven Across Industries," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, January.

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    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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